See through the thin layers of iPhone 3G price

With only two piece of paper money, a couple of $100, you can bring home one of the most refined & sexiest mobile phone in the world right now: iPhone 3G. Well, actually not right now; but it’ll be on July 11th. Isn’t that idea tantalizing you? Especially for you, owners of the first gen iPhone?

It is, for me or you; and most of the tech & financial analysts out there. Heck, I even bet it must be also surprises and tormenting for AT&T board members to learn that Steve Jobs wanted the new iPhone to be sold in such low price. Think about it, going down as steep as at $599 from the first release of 8GB iPhone a year ago; and now down to only $199!

For end users and consumers, that is a terrific news. But how can Apple offer the iPhone 3G with such price? It shouldn’t be a big mystery anymore, since Steve Jobs has announced what we can know of this new iPhone at last WWDC ’08. So allow me to widened your perspective, and see through the thin layers of those two pieces of $100 paper money you’ve already prepared for buying the iPhone 3G. ;-D

Yardena Anar from PC World made an intriguing arguments, that open up to new questions need to be answered: How could a phone with more memory, more radios (3G/GPS technology), and better battery life go for, essentially, a third of what the original cost a year ago? Sure, tech prices go down, but usually vendors hold the line on prices when they add new performance-improving features.

Tina Teng of iSuppli agreed that the 3G and GPS radios in the new models probably did add cost, but pointed out that other components (most notably memory) are indeed going down in price.

Gartner vice president Ken Dulaney said even the 3G radio technology probably didn't add as much cost as it might have a year ago, since most companies that make chips for cell phones are transitioning to the faster technology anyway. Increased supply means lower prices.

And Apple has also made some cost-cutting design changes, using plastic instead of metal on the new iPhone's case. Will that significantly degrade the quality? Teng wouldn't say that. "For users, what matters [are] the durability and the functionality... I'm sure they did a lot of stress tests to make sure the materials they are using now are still going to be durable."

Where according to Jason Snell from Macworld, who managed to asked Bob Brochers; Apple's senior director of worldwide iPhone product marketing, told him: “That plastic back should also improve the range and signal strength of the iPhone, for Wi-Fi, cellular, and even GPS purposes, which is good news for anyone who has had signal issues with their current iPhone.”

But Dulaney said there may be more to the price cut than manufacturing math. "There are probably subsidization issues going on here," he said. In fact, AT&T in a news release issued today hinted that it would be taking a hit on revenues from device sales in hopes of increased profits down the line from data services to what's anticipated to be a huge customer base.

And this is where things will become turn into bitter taste for us, end users and consumers. For every sweet offers, there will always a catch behind it. Even though AT&T is pressing on the iPhone 3G sales margins and earnings, the new agreement with Apple will affect on the subscription plans. Owen Thomas from Valleywag, has cracked down that the iPhone 3G’s true cost is actually $1,237! How’s that possible? Here’s his thorough explanation:

”In a GigaOm interview, AT&T wireless chief Ralph de la Vega reveals that the 200 text messages previously included will cost iPhone users an extra $5/mo. ($20/mo. for unlimited messages, which seem practically obligatory.) And then there's Apple's MobileMe subscription, without which the iPhone's new synching features won't work, at $99 a year, or just over $8 a month. Add it up, and iPhone users will be paying about $43 a month, or $1,038 over the two-year course of the AT&T contract they signed up for — all to get an iPhone at $199.”

Still feeling that urge inside your chest to purchase the iPhone 3G now? I’ve got to give credit to AT&T who can think of ways to still able crank up its profits, especially from on of its flagship handset of all time. Everybody has to make sacrifices to get the new iPhone, and so did Apple who made it. Where Apple previously received a slice of monthly subscription revenues collected by carrier partners such as AT&T Inc, an unusual arrangement that analysts said kept handset prices high and dampened consumer interest.

Toni Sacconaghi, an analyst with Sanford Bernstein, estimated Apple's profit would be between $250 and $450 per phone, compared to about $500 for the previous model after adding in two years of monthly service payments. As with any product moved from the high end to mass market, Apple hopes to make up the difference with volume.

Scott Hillis from Reuters came up with a good insight: “But the iPhone 3G's cheaper price, faster Web-browsing and addition of an online store to buy new programs such as games and mapping services from other developers should create pent-up demand that will drive up sales when the new phones arrive on July 11. For example, Pacific Crest analyst Andy Hargreaves said he raised his forecast for iPhone shipments in the second half of 2008 to 8 million units from 7.2 million units, and 2009 sales to 15.5 million from 14 million.”

Hillis’ conclusion is that Apple’s strategy for the new upcoming iPhone 3G will be: Earn less, sell more. Shiv Bakhshi, director of mobility research for IDC, says Apple will recoup any decline on its own margins for device sales "(a), through volume, and (b), through services I think iTunes will offer."
This business model would not have been possible a year ago, he notes. "When the iPhone was launched, it was with one operator in one country. Now it's launching in 22 countries as a 3G phone, going to 70 countries by the end of the year."

Mike McGuire, a research VP at Gartner reminded us of Apple’s newest tip of the spear: App Store. "It's not just a hardware sale anymore--it's an ecosystem," McGuire added. "They're not just making money on the hardware."

And as for my own thought; I would really like to see how low this iPhone 3G price tag will ends up. We’ve seen how Apple continues to cut-off the first gen of iPhone, making our eyes brows frown with amazement.

Or like Lance Ulanoff have asked too in his article at PC Mag: "A vast number of iPhone users will soon face a very tough decision: Do they want to part with a lot of money right now when they know it's unlikely they'll recoup a dime for their first iPhone?"

Sources are from:

• Apple's $199 iPhone: How Can It Be So Cheap? (PC World)
• iPhone 3G's true cost is $1,237 (Valleywag)
• Apple's iPhone Strategy: Earn Less, Sell More (PC Mag)
• Hands on with iPhone 3G (Macworld)
• Will the iPhone 2.0 Be Good News? (PC Mag)

[blogged with my Treo 750v]