More thoughts on iPhone 2.0

Date June 9, 2008

First of all, I was also wrong about subsidies. The way Apple got the pricing so low on the new iPhones is by joining the rest of the mobile phone-making world and allowing cell phone service providers to tie phone subsidies to new contracts. To get AT&T to do this, Apple had to give up on a lucrative business model—with the old iPhone, it sold it at full price and also took in a percentage of AT&T’s monthly bill. AT&T is trading its monthly outlay for an initial expense, after which it will be taking in full monthly bills (which will be $10 more per month, incidentally). Interestingly, Apple hasn’t said anything about what it will cost to buy an iPhone without a 2 year contract, or even if it will be possible. With the old iPhone, AT&T let customers simply extend their current contracts when they bought one, but that was before they started subsidizing the hardware.

I was surprised by this change, because Apple seemed to be doing pretty well with its earlier procedure, but it makes sense in a couple of ways

  1. Many, many more people will be willing to pony up $200 for an iPhone than have already bought one (and, of course, almost everybody who already bought an iPhone will be buying the new one)

  2. This allows Apple to sell iPhones through more than one carrier. That doesn’t matter in the US, where Apple already has an exclusivity deal with AT&T running for another 5 years, but in much of the rest of the world (where the new 3G chipset will work) Apple can start making money off everybody. Which it will.

Clearly, Apple has decided to go after market share in a big way (the introduction of Exchange server compatibility is probably an even bigger indication of this)—and it seems safe to say that it’s going to succeed. At this price, and with these features, how many people are going to get an iPhone this July? And how many more will get one as their contracts expire over the next year? And how many more will get tired of waiting for their contracts to expire and just pay the cancellation fee so they can hurry up and get their iPhones? Answer: a whole lot of people.

But there’s another change in how the iPhone will be sold in the US, which is more clearly a bad thing: iPhones can only be purchased and activated in AT&T stores. In other words, no more buying online and activating at home.

This is kind of strange. Why couldn’t Apple at least set it up so that you could buy online but had to sign a contract first (we have the technology for digital signatures)? One of the coolest things about the first iPhone was the fact that you could buy it direct from Apple, and activate it right from your computer—you never had to talk to one of AT&T’s incompetent/commission-driven sales reps. I get that now that AT&T is paying for part of the phone (somewhere between $200 and $300 per phone, I hear) it wants to make sure it’s not subsidizing hardware that will get unlocked and used on another network. But it shouldn’t be too difficult to perform a credit check and sign someone up for service using their Magical Internet Machine. Maybe Apple is working out the kinks on this and will have it set up by July 11 (when they’re releasing the new iPhone), but it sounds more likely that if you want a 3G iPhone anytime soon you’re gonna have to deal with huge lines and everything else that comes with the Retail Experience.

Category Posted in Tech