Synchronoss Gets the Last iLaugh

Raise your hand if you think the folks at Synchronoss Technologies (Nasdaq: SNCR  ) are snickering at the release of the 3G iPhone, which was roundly described as a disaster.

Synchronoss, you may recall, was the company that allowed iPhone purchasers to activate their smartphones through Apple's (Nasdaq: AAPL  ) iTunes software. Customers could thus purchase the phone in-store or online, then activate it at home. Yet as Dave Mock recently wrote, what Steve Jobs giveth, he can taketh away.

Apple and AT&T (NYSE: T  ) decided to keep the activation of the phones mostly in-house, cutting Synchronoss out of the loop. The latter company could lose as much as one-quarter of its revenue as a result; Synchronoss is already reliant on AT&T for about 72% of its total revenue.

In part, Apple may have cut Synchronoss loose because of its inability to prevent some users from hacking their iPhones to work on other networks besides AT&T. Synchronoss blamed such "jailbreaks" for the significant drop in revenue it experienced last quarter, since the company only gets paid for iPhones it activates, not the total number of iPhones sold. With demand for unlocked iPhones surging, Synchronoss was obviously on the outs with Jobs.

Instead, Apple and AT&T opted to require users to buy and activate the phones in-store, ensuring that every iPhone buyer left with a service plan with AT&T. Considering that AT&T subsidizes the iPhone to keep its price low, unlocked phones were a serious drain on revenue that AT&T wanted to disconnect.

Trouble is, the activation process was anything but smooth, both here and in the U.K. Software compatibility problems prevented many users from getting their iPhones up and running. In yet another slip for Apple's killer strategy, iTunes was also apparently overwhelmed by the phone's worldwide launch in 21 countries, making it equally aggravating for owners of older iPhones who needed to upgrade to the new software.

Considering the ease with which people were able to activate their iPhones from the comfort of their home last year, Synchronoss can only feel smug at the snafus, delays, and ill will wrought by Apple and AT&T's decision to kick the company to the curb. Of course, the feeling of satisfaction will be fleeting. Even though Synchronoss has inked a deal with Time Warner Cable (NYSE: TWX  ) to handle its "triple play" offerings -- a step in the right direction for diversifying its customer base -- the loss of the iPhone deal still hurts.

While many iPhone users spent hours in line, only to go away empty-handed, it's doubtful they'll switch to a Nokia (NYSE: NOK  ) smartphone or a Research In Motion (Nasdaq: RIMM  ) BlackBerry as a result. Unlike Apple's relationship with its suppliers (just ask PortalPlayer), its customers remain decidedly loyal.

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Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.


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