In fact, the way the competition is looking (terrible), Apple could probably get away with not updating the iPad at all for another full year. They won’t wait that long, but they easily could and not lose much of anything.
But then we get back to this conundrum of the “cheaper” iPhone. That one still has me puzzled. Obviously, Apple wants to increase the rate of adoption for iPhones. Grow the market as quickly as possible. They started with changing from an unsubsidized to subsidized price in the US. Then they started selling worldwide in more and more countries, including now China. Then they started selling last year’s model at $100, and now as low as $49.
So what’s the next logical step? Most people seem to think it’s as simple as making the phone itself even cheaper. But can it really be any cheaper than $49? And would that make a large number of people change their minds about getting a smart phone?
Is $49 the barrier here?
There are three major sources of cost in owning an iPhone. All iPhone owners pay at least two of these. I’ll keep the figures in very rough approximate US dollars, for the sake of simplicity. (Forgive me, rest of the world. I know you’ll have an easier time translating into your currency than my US audience would converting from yours.)
-
The upfront cost of the device itself. $750 or so, if you want to buy it outright. $200-$300 if you are willing to sign a long-term contract (usually two-years). $49 if you sign up for that same contract and are willing to have last year’s model.
-
The contract. If you went for the cheaper upfront cost, you pay your carrier over the course of your contract via a minimum monthly charge. In most cases, this just amounts to a commitment to spend two years on that same carrier with that same phone, with some sort of minimum minute allotment and a minimum data plan. After your contract is up, you are free to move on to another phone or another carrier, but you are usually required to stay on those minimum plans if you wish to stay with that carrier.*
-
The monthly plan. This is where the majority of the cost comes into play. We’re usually talking about a minimum monthly bill of $80 or so for any smart phone. Most of us pay even more for things like tethering, unlimited texts, etc. Compared to a regular “dumb” phone, that’s a premium of up to $50 over what you could be paying for the cheapest plans out there, and probably around $30 more a month than most people pay on average. That’s a significant jump for a lot of people. And it makes that $49 one-time price for last-year’s iPhone seem like no big deal.
Marco’s suggestion is that perhaps with an unsubsidized cost of around $300, people could get out of the contract part of the bill, at least. But to most US consumers, anyway, that actually makes the phone seem MORE expensive. We have to pay for data regardless, so why not sign the contract and get the “better” iPhone that’s only $200?
A cheaper unsubsidized iPhone may tempt some users who don’t like long-term commitments, but it fails to grab the interest of the majority of non-iPhone owners. At least in the US. Worldwide, where people do get the concept of an unsubsidized phone, this could maybe help attract some of the people currently going for the ultra cheap Android phones out there. But I can’t see it making a huge impact, even there.
And I don’t see Apple gutting its profit margins just to grab a few more people.
The real problem to solve is the monthly data cost. Cash-strapped folks in a worldwide depressed economy, who are the majority of non-smart phone users left, always think in terms of their monthly bills, not their two-year commitments. The entry level monthly bill simply needs to be smaller. And I just don’t see how Apple solves that problem in the short term. Not as long as there isn’t a $10 or less data plan available.**
Unless Apple somehow started providing its own service, by buying carriers all over the world, or reselling the use of those networks through some sort of complicated system of partnerships, taking a hit on the cost and making it up on the hardware sales, I don’t see how they accomplish this. I don’t see from where the leverage would come with the carriers worldwide to offer cheaper entry into the smartphone world.
Months ago, I speculated that Apple could release an entirely different phone from the iPhone, something that would have limited data capabilities, at least when not connected to WiFi. An iPod touch, if you will, WITH a phone, but without 3G data, or very limited 3G data. I even took it a step further and suggested something even less capable. An upscaled “feature” phone that could do basic things like email, but not data-heavy tasks like video streaming. Something that didn’t even run iOS, at least not at the UI level. Something much simpler. No apps, even. Just phone calls, maybe email and SMS. Basic PDA functions, all syncing with your Mac or PC.
Maybe I was nuts to even suggest it, but I still think Apple would make more money in the short run selling the world’s best feature phone to the millions and millions of people worldwide who aren’t going to buy a smartphone this year or next anyway, than they will trying to sell a slightly cheaper upfront iPhone to the cash-strapped, unemployed masses, all the while fighting the carriers over the cost of entry-level data plans.
Get the masses hooked on the Apple experience with a really slick, touch screen, ultra-thin and light feature phone. Innovate in a space where no one is even trying to innovate anymore. Kill what’s left of Nokia’s business while they’re busy trying to make Windows Phone 7 work for them. Kill off most of the Android manufacturers who are currently making a lot more money on feature phones than Android phones. They’d never see it coming.
Yeah. Probably not going to happen, I know. But I still think it makes more sense than most of what I’ve been hearing on the rumor mill lately.
*Because most carriers in the US don’t allow you to use any smartphone without these minimum plans, and because the differences between CDMA and GSM make it impossible to jump from carrier to carrier easily, many US buyers opt for the contract as a small price to pay for a cheaper upfront bill. Worldwide, unsubsidized iPhones are more common than in the US.
**John Gruber suggested earlier this week that a $10 entry-level data plan for, say, 75 MB of data or so, would help grab more people into the smart phone realm. I think that makes a lot of sense. Get them hooked on that 75 MB, and it won’t be long before they start paying more for 200 MB. Especially as streaming video gets more popular. But I do think you’d have a hard time getting carriers to agree to that right now, ironically. Because the carriers can barely keep up with demand on their networks now. Even 50 MB more, multiplied by millions of users, would be a huge hit to the available bandwidth. So Apple would have a hard time selling this to carriers, I think, short term. At least until there’s more bandwidth available, the carriers would rather DISCOURAGE data use, which is why they’re all switching to tiered pricing plans. Another reason for Apple to avoid any new product that relies on as much data as the current iPhone.
