Apple and AT&T Get Buried by iPhone Pre-Orders -- How Predictable [Update]

When Apple (AAPL) and AT&T (T) sell new versions of iPhones in the U.S., massive system failures seem to be business as usual. With all the resources and technical expertise available to these partners, why do things go wrong? Because getting them right isn't economically important to either of them.

As the iPhone 4 went on sale yesterday in the U.S., pre-orders not only overwhelmed AT&T's systems, but a security glitch put some people into the accounts of other customers. Eventually, AT&T sent a message to employees that it was temporarily suspending iPhone pre-orders.

No big surprise. Apple and AT&T have had a history of order problems for new iPhone models. They've experienced enormous activation problems multiple times, with customers having to wait to use their phones after paying for the units. The problem in these three cases wasn't AT&T, but Apple's own activation servers.

What was different this time was AT&T's inability to process the pre-orders, which should make you wonder whether this is the beginning of a long and painful experience. If taking pre-orders was so difficult, what will the activations be like?

It's been easy to write problems off to "unprecedented demand." However, that's nonsense. The first time you can call it unexpected. Starting with the second occurrence, that excuse goes out the window. Given the publicity the iPhone 4 received, expecting a huge order upswing should have been easy. Instead, AT&T's inability to manage orders raises the question of whether the company is ready for increased network demands.

Doubtless the companies have put some attention on the issue, but, realistically, they don't care. The product has demonstrated astounding legs in public demand previously and clearly will again. If members of a captive audience are disappointed in the process of getting their new handsets, who cares? Where else will they go?

Ah, but that's now an issue. Consumers increasingly do have options. Google (GOOG) Android handsets could well outsell iPhones next quarter. RIM has a new operating system version and new products, including a possible tablet, on the way. Microsoft (MSFT) could conceivably sell 30 million copies of Windows Phone 7 within a year of its introduction.

The entire smartphone industry is on a wave of rapid consumer adoption. Buyers have proven that they aren't as wedded to one brand name or product as many would think. In such a market, smooth operations are a differentiating feature -- and it's one that Apple and AT&T don't have.

[Update: Here's Apple's statement on the problems:

Yesterday Apple and its carrier partners took pre-orders for more than 600,000 of Apple's new iPhone 4. It was the largest number of pre-orders Apple has ever taken in a single day and was far higher than we anticipated, resulting in many order and approval system malfunctions. Many customers were turned away or abandoned the process in frustration. We apologize to everyone who encountered difficulties, and hope that they will try again or visit an Apple or carrier store once the iPhone 4 is in stock.

Related:

• 30M Windows Phone 7 Handsets by 2011? Yup -- It's Math, not Magic
• Apple Races Ahead with iPhone 4, but AT&T Drags Like an Anchor
• Google, Apple, and RIM: Win, Place, and Show in the Smartphone Horse Race