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I know the number #1 issue with the iPhone
Written by Allen Stern - June 4, 2007
The number one issue with the iPhone is the cost. How do I know this? Because CenterNetworks currently ranks #1 for "iphone cost" and I am seeing hundreds of visitors an hour from Google (and a few from the other engines).
This all stems from my post in January where I go over the accounting for a year of usage on the iPhone. I calculated the cost at $1,936. And since then, no one has been able to prove that AT&T (formerly Cingular) will offer special data plans for the iPhone. Without these plans, customers will be absolutely shocked when they receive their first billing statements. I am quite certain we will see a flood of posts on Consumerist after mid-August regarding iPhone bills.
This device is outside the average American's budget. And it's not a business device. So will they sell the 10 million by end of 2008? Yep. Same as the Air Jordan III. So who will buy this device? Techies who have extra spendable income, celebs (they will probably get theirs free), high profile tech stars, and creative agencies that want to "show off" to their clients. But RIM need not worry, this is not heading into the Fortune 500 for a long time (if ever). Remember RIM has huge discounts for corporate clients. Also remember that unlike the iPod which is completely controlled by Apple, the iPhone is basically controlled by AT&T. If the service is not there, the iPhone will take the rap.
Will the $599 price drop quick? Yep. My bet is that by the holiday shopping period, it will be down to $299.
Now, don't get me wrong. The iPhone is slick looking and seems to ultra functional, very cool and hip. Is it the future of how we will use the Internet? Very possibly! Would I love to have one? Yep. And I am already an AT&T customer so no switching cost. But I just cannot currently justify the extra expense for the data plan and for spending $600. And I am pretty comfortable in saying the average American won't either.
According to Allen Stern at CenterNetworks, early adopters of the Apple iPhone will pay US$1936 during the first year. That includes the sales price of the phone, plus AT&T’s calling plan.
This does not include the data plan pricing, which ha...
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You won't see me paying for that thing. I want it but ain't paying for it.
I disagree, and have disagreed with this argument from the beginning. There are $150 pairs of sneakers, $200 pairs of jeans, $5,000 audiophile speaker cables, 30" LCD monitors, 72" TVs, etc. All markets have high-ends, the point where you buy the product because you want it and have the money to do so, not because you need it. There are thousands of successful products that target the high-end of their respective market, when the iPhone launches it will be one of them.
I currently have a Blackberry 8700 on Cingular with unlimited nights and weekends, and an unlimited personal (non-enterprise) data plan, for $77/mo including taxes which is about $40/mo under your assumed monthly cost. I'm not a corporate user and I have a smartphone, and so do dozens of my friends, why? Because I like having email with me all the time, I like browsing the web and finding information on the go, and I like the form-factor of the Blackberry 8700. I'm buying the iPhone when it comes out for a number of reasons:
* It replaces carrying my Blackberry and iPod together, the convenience factor is important to me.
* It represents the pinnacle of mobile UI design, and as a designer that's alluring to me.
* I want to support Apple so they can continue pushing the design envelope like no other technology company on the planet.
* It can play videos on a large screen on-the-go, and that'd make air travel a lot more tolerable.
The same reasons behind the iPod's success will be the same reasons behind the iPhone's success -- beautiful design, fills a niche, cool-factor. The niche is that smartphone user interface design sucks, and people have been ready for a truly usable mobile interface for a long time. The cool-factor is the reason you see iPod earbuds on all college students and subway riders instead of another manufacturer's earbuds. Once the iPhone comes out, why would anyone continue to lust over any other ugly and thick smartphone? Just like now with the iPod, when anyone looks down at their current smartphone, they'll be disappointed and will want the iPhone instead. Nobody asks their parents for a Creative Zen Nomad for the holidays.
The cost-per-year analysis does not matter to consumers. Lunch per weekday for me is $5 * 4 weeks per month * 52 weeks per year which is $4,000. My fiancee and I go out to dinner at least twice per week at $40 each which is another $4,000 a year. Anything sounds big and scary when you multiply it out by an absurd amount.
Perhaps it is a generational thing as I'm 24 years old, but every one of my friends online and offline wants an iPhone and about 80% of them will actually purchase one. People pay for good design, and people will pay for the iPhone.
umm...5*4*52 is $1040, not $4000...anyway, I agree with you conclusions despite the funky math.
First let me say Hi Mike and thanks for stopping over. Sure wish Cn had made it into 9r last time :)
So let me break down your arguments, one at a time.
Allen: Yep
Allen: Yep, exactly what I said in the post. Designers will buy them.
Allen: Cute
Allen: Yea, it can play videos on the airplane with no charger for what 30 minutes? :P
Allen: Wrong. The iPod is not the market leader because it fills a niche. You are 10 yrs younger than I so you may not remember the walkman but when Sony came out with it, the subways had those headphones on everyone. The iPod is an "easy" purchase. $200 and you load up your music and you are done. Forever if you so choose. The iPhone might be wireless but it has strings attached. Two years of strings. Let's see how easy it is to upgrade next year when the iPhone2 comes out. Everyone has an iPod today because not having one makes you look not-cool. Won't be the same with the iBrick. Also remember, this is not a business device.
Allen: Course it is. When I was 24 and in the Web 1.0 boom, we bought items daily. If you are smart you would save that money for when the wells dry up. Cuz your sign, "Will email on my iPhone for food" might not work so well.
Allen: Yea, it can play videos on the airplane with no charger for what 30 minutes? :P
Power adapters on airplanes would rock :)
The iPod is an "easy" purchase. $200 and you load up your music and you are done.
I think my analysis was slanted towards when the Apple iPod first came out and it was still pricey. You couldn't get an iPod for less than $400 until the third generation was out, but before then when the pricepoint was still high it was extremely popular. I think the same will happen with the iPhone -- popular (but not Razr popular) the first year -- then the price will drop and it will become many times more popular. Coming back to the Razr analogy, when it first came out it was outrageously expensive as well and people did buy it, and then as it became a lusted-after item the masses caught on because by then the price had dropped significantly.
Allen: Course it is. When I was 24 and in the Web 1.0 boom, we bought items daily.
I think that many analysts are out of touch with the younger generation, people younger than me, in college, graduating high school, etc. With fewer expenses they can afford to use a few paychecks to purchase an iPhone, similar to how high school kids can afford $1500 wheels for their car, $400 Coach purses, Prada sunglasses, etc., because they don't have a mortgage to pay for yet. Also, the pursuasive power of the younger kids (without their own money source) yet will be powerful -- the iPod at Christmas time is a force that few retail products can match, and the iPhone at Christmas this year I imagine will be just as intense.
I don't know if Apple will hit its unit goals by the end of 2008 without a price drop sometime in the future. A $500 phone is still a $500 phone, or is it? Once it's launched, I think Apple could do a better job marketing it as a replacement device for additional gadgets, which could potentially justify the price for gadgetphiles on the edge of a purchase.
On a different note, I hope that Apple takes the iPhone, makes it twice as wide (with a screen to match) and then dubs it the iTablet and wipes the Palm Foleo off the map. What a seriously lame product announcement that was.
Ok, let's try this again with your comments!
Allen: The Razr was never that expensive because of the subsidization by the carriers. Sure buying it off the rack would have been a bit much, but that rarely h appens. If iPhone sold for $599 unlocked, it would certainly do much better. Remember today carriers lock you for 2 yrs and switching costs are very high.
Allen: I agree and remember this time very well. Unlike today's kids, I worked at a supermarket 60 hrs a week but brought home good money and was able to buy everything I wanted. I don't know how the cellular companies handle kids though.
Allen: A price drop after the "rich boys and girls" buy them will happen.
Allen: When I worked at the Wiz, we sold this... it was called the Newton :)
Side note: nice to see that this story was buried on Digg. As usual if Webtech, MrBabyMan or Muhammad don't submit it, and if you at any point provide non-complimentary copy about Apple, you get buried.
I definitely agree with you in the fact that there is going to be a major issue with the iPhone, but I don't think its the cost. For those who want the convenience of the iPod and phone put together, there's already a phone on the market for that which is appropriately priced for its niche market I think. This is designed for the high end user that needs to be mobile, and although apple is boasting a full version of OS X on these phones, I don't recall Apple making any stellar business applications lately. The high end users today that carry around blackberrys and black jacks do so because of the productivity applications they offer in terms of receiving email faxes, meeting scheduling, heck even full on accounting and expenses tracking. Although the iPhone has a revolutionary user interface, it does no good without apps that provide productivity which can justify the cost. If it is one thing I learned about people, it doesn't matter how much something costs, as long as the cost can be justified. And as of yet, I don't see any return on investment in the form of increased productivity, which is the primary form of ROI sought after in this market the iPhone is trying to reach. Maybe perhaps that is why Jobs pulled all his developers off the new OSX to work on the iPhone? Or perhaps he is leaving it up to the realm of free thinking hippie coders that follow the Mac cult to develop this stuff so he can profit? Who knows?
Hi Allen,
in Germany we have just launched a new service called MoobiCent that offers an UMTS Flatrate respectively HSDPA Flatrate for less that 40 €. That would make mobile Internet affordable. Don´t you have a similar offer in the US?
Best regards,
Tim
I think they will keep the price high to try and keep demand low. I am waiting until they role out in the uk because no one pays for phones here in the uk if they are on a contract.
I think apple are going to get a lot of grief over the battery life. I need a phone that can do at least 8 hours of talk and surfing in a day. I guess it can be charged via the laptop but still my current phone does all that.
Lots of comments.
I think on of their top issues will be that bizarre keyboard-that's-not-a-keyboard.
Here are a few thoughts:
-iPods sold just fine in the $500 neighborhood
-TONS of people spend nearly 3x that on their Comcast bill.
-TONS of people drive a car that is more expensive than they need (for an excess well beyond $80/month).
I'm with you, A. But I think you are WAY overestimating people's financial acumen.
yaar ltw iPhone!
Yeah, I was also a bit concerned about the standard of the service that AT&T could offer. However, the price of iPhone will not even be a problem, since N95 is nearly $400 and selling pretty well at the moment.
http://www.mp4-converter.net/iphone-converter/
You are so wrong! How can you claim that the Iphone will be cheaper by the holiday season? Has the price on Ipods, macbooks, or imacs ever changed? No! When Apple updates their products, the prices stay the same, and you can get the older models for less.
You price calculation is also not correct. Try and go to Verizon and get a phone with similar functions. That requires a two-year contract which in the end will be more expensive than having the iphone for a year. An interesting article on Appleinsider.com addressed this argument.
Please check your facts before start making these baseless claims.
I actually came up with a higher total cost for the iPhone to be more than your calculation -- $2232.12 real out-of-pocket iphone cost while the wholesale iPhone cost is $280.
In fact, I predicted that if they really sell 10 Million units as projected and 30-40 Million units of the iphone Nano $299, it really will be cause for our next recession.
And there's 2 dozen other iPhone drawbacks for you to ponder if you're still salivating over the iPhone.