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January 11, 2007

The Price of an iPhone is Just Right

by Dan

There have been many mixed reactions to the price of Apple’s new iPhone. Apple will sell the iPhone for $499 or $599, depending on configuration which seems expensive. And those prices require a 2-year contract with Cingular. Apparently, this is more than many people were expecting. It’s more than I was hoping for. But it makes sense when you add up the numbers.

A full size iPod will cost $250 or $350. Many of the nicer smart phones are in the $100 to $400 range, including a 2-year contract. Adding those up gives a $350 to $750 range for an iPod and a smart phone. For people who own both, $499 or $599 for Apple’s new iPhone is just about right. Notice that those prices are in the middle of the range. Apple’s product have been priced very competitively for years, and the iPhone is no exception. I predict the iPhone will sell really well.

First, it’s about the same price as the two devices it’s replacing. Second, the phone aspect is so much nicer to use than anything else on the market. Third, you get “internet communicator” functionality built-in for no extra charge. And lastly, the most important reason, is that it’s only one device instead of two.

So, what about people who own one of the cheaper iPods, like the nano or the shuffle? I think we may see a small price drop, around $50, for the iPhone just before Christmas this year. The iPhone isn’t actually shipping until June and you can’t expect too much of a price drop five months after release. It would depend on whether Apple is able to keep up with demand.

However, there is still room in the product line for a cheaper phone and I think an “iPhone nano” is already in the works for MacWorld 2008. This will be a smaller phone, roughly the size of a current iPod nano, that includes the full length touch-screen and all the phone functionality, but will lose most of the “communicator” options, the video playback, and the widescreen rotation. Prices will range between $349 and $399.

On a side note, I think it makes sense for Apple to continue selling and improving the existing line of iPods for the foreseeable future. I suspect there will be many people who won’t be in a position to buy a new iPod and phone at the same time. Some won’t like how the phone works or can’t get Cingular coverage where they live. Others just won’t like having everything in one device. Then there is the whole international market, which doesn’t even have an option to use the iPhone yet. Apple is working on that one apparently, but it will be a long time before an iPhone can be used world-wide. An iPod will work everywhere, even if the iTunes Store isn’t available yet.

2007-06-07 UPDATE: Now that more details are out about the iPhone, I still think that it’s very price competitive, especially when you compare total cost of ownership over the life of the contract.

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