RSSDoing the math: 3G iPhone not really cheaper in the long run
By Scott M. Fulton, III | Published June 12, 2008, 12:34 PM
There's evidence of a lot of savvy business deals having taken place between AT&T and Apple, with both sides getting more of what they want from the new iPhone, while customers get the impression that they're getting a better deal too.
The big news from Monday was the dramatic drop in the up-front price for Apple's next-generation iPhone, made available in the US through AT&T. While that makes the barrier to entry somewhat easier for new buyers, and probably raises AT&T's gambling stakes for the new device, in the end, new two-year contract holders (the minimum allowable for the iPhone) will end up paying much the same, assuming they use 3G service.
With the help of a revolutionary tool called a calculator, independent journalist Tristan Louis -- himself the founder of Internet.com, a former vice president and technologist for the world's largest bank, and my former colleague in ventures long past -- determined that once fees and contract subscription rates were taken into account, after two years' time, subscribers will actually have paid $39 more.
It's a negligible amount, but a clear indication that the iPhone isn't really getting any cheaper, either.
"Over the two year life of the plan required by the contract, the cost would be $1680 for subscription," Louis wrote yesterday for his personal blog. "Tack on the $199 to that price and you end up with a total of $1879 over a two year period, roughly $40 more than the outlay for first generation devices. The interesting thing here is that the price is roughly the same even though the entry point is lowered by a third. This plays to the perception that the price has been drastically lowered, but the truth of the matter is that it hasn't changed much."
So why and how does there continue to be such a buzz over the 3G iPhone being somehow cheaper? Louis talked with BetaNews this morning.
"Apple has managed to create the impression that it is different (a.k.a., Steve Jobs' reality distortion field) and has a wide group of followers who think it can do no wrong and is 'a very special' type of company," he told us. "What the company has done is translate a smart emphasis on design with masterful marketing presentations that gets people to leave the analytical part of their brain at home."
In Louis' view, the new deal between AT&T and Apple appears to give both sides a little more control over their own exclusive territories. By making in-store activation mandatory, AT&T brings the iPhone's business model more in-line with those from its other manufacturers, at least reducing the likelihood that the device will ever be unlocked before it's locked. On Apple's side of the table, it gets more control over applications -- a market Louis feels AT&T couldn't care less about anyway, but at least the type of market which Apple has already shown it can develop to its enormous advantage.
"Imagine being able to build a marketplace where one would sell software produced by someone else," Louis writes. "It would look like the type of marketplace one would use to sell things like music, or maybe movies, or TV shows. Oh wait, I know, it would look like the leading marketplace for selling music. You know, the one by Amazon...uh, no, not that one. Who makes that leading marketplace? Oh yeah, Apple with the iTunes store."
Key to Apple's control over that new market, Louis believes, is its new push activation service, where customers are notified regularly of new apps' availability through the iPhone's online store, without expending too much of the phone's power. Many third-party apps on other platforms -- not just on smartphones -- have a tendency to poll their respective servers regularly for updates, sometimes every hour. That's a drain not only on power, but on resources and bandwidth as well; and as Apple's engineers demonstrated at WWDC this week, their push architecture seeks to avoid that mess.
High Scalability blogger Todd Hoff saw the immediate benefits of that architecture, writing on Monday, "Having a large number of apps constantly polling for updates sucks down battery power faster than vampires at phlebotomist convention. So Apple's logic is sound. Keep a single connection over which data is pushed and work on the phone is minimized. You also maximize battery life and maximize bandwidth usage because data can be aggregated on the server side and be sent in large chunks rather than a random distribution of small packets."
But the system has also fueled skeptics who foresee the capability of Apple to have first-hand knowledge of what it is their users prefer to run on their systems.
WebWare blogger Josh Lowensohn foresaw Apple using this opportunity to mine the data emerging from its applications store to create audience segments that could later be exploited through targeted advertising, perhaps on some future platform. "Why not find out which apps are getting the most use and offering the developers special licensing deals? Better yet, why not sell that information to third parties like advertisers to help them work with highly used apps to sell ad units or sponsorships while getting an additional cut?" Lowensohn wrote on Monday.
Tristan Louis, meanwhile, sees a scenario where Apple couldn't care less about what it makes from iPhone hardware, if anything. In a similar fashion to how HP turns its printer customers into perpetual ink consumers, he foresees the future of Apple as a software company, borrowing its already successful model for iTunes and juxtaposing it onto applications. He cited news from WWDC that stated that while record labels receive data on how their wares are selling on iTunes once per week, iPhone app developers may only get reports from the App Store once per month, at best.
"Of course, one would assume that since Apple is such a great company and so developers friendly, it will share this information in almost real time with the application developers. Except it won't," Louis writes. "The other thing this does is that it provides Apple with a central system that knows what users are doing with their iPhone. This is basically focus groups on a global scale and it's very impressive."
$39 more for the addition of GPS? And 3x faster downloads? And a significant reduction in size and weight?
Sounds like a deal to me.
Score: 0
There are a number of rather off-base arguments here.
"So why and how does there continue to be such a buzz over the 3G iPhone being somehow cheaper?"
Perhaps because the purchase price of the iPhone 3G is 1/2 the purchase price for the older iPhone, and for that lower price you get a significantly better phone (3G, GPS, etc.). The monthly service fee gives much faster data performance and better voice quality for only $10/month more, which is a great deal (not only relative to the older iPhone's data plan, but is a MUCH better deal than competing unlimited data plans for other phones). So the new phone is a much better deal for customers at time of purchase, and is a better deal as an ongoing phone service, which is why people think that the iPhone 3G is a great deal.
I suppose that if you don't value battery life, phone call quality, or data speed, you're better off buying an old iPhone on eBay. I am sure that there will be tons of them available soon. Heck, if you really want to save money, you can get a "free" phone on a voice-only plan. Why waste money on data? :-)
"Having a large number of apps constantly polling for updates sucks down battery power faster than vampires at phlebotomist convention."
This is even more absurd. Applications that check for updates do so when they're run, and no more than once a day or once a week. In either case, the impact on the battery of a single data packet is essentially zero.
The reason for Apple to provide a common system for all software purchasing, delivery and update is exactly what they said it was - to have the best experience for users, by making the process easy and consistent, and for application developers, by making software sales and delivery completely painless. Their ulterior motive is that if they make the iPhone application market a fantastic success, they will sell tons of iPhones, and will make tons of money running the marketplace. This is essentially a much more open, developer-friendly version of the video-game console model, which has worked well for a few decades now.
"Key to Apple's control over that new market, Louis believes, is its new push activation service"
No, the key to Apple's control over the iPhones software market is Apple's absolute control over the platform, which allows them to lock out any other software delivery mechanism (which are, btw, prohibited by the Terms of Use of Apple's SDK, so you can't use Apple's software service to deliver a competing delivery service). The push notification of updates is simply them providing a common application feature through their platform, which is good for all involved.
Complaining about the application sales data being reported monthly is also a bit misguided. Monthly sales reporting is typical for most retail sales, and given that Apple will presumably have thousands of developers to send sales reports to, a monthly sales reporting cycle is pretty reasonable as a starting point. If a company really needs real-time sales reporting, they could put a trivial "phone home" command into their install/first run code, so they'd know of new installs in real-time. This would be a good idea, actually, as it would give them independent confirmation of Apple's sales reports.
Score: 0
"Apple has managed to create the impression that it is different (a.k.a., Steve Jobs' reality distortion field) and has a wide group of followers who think it can do no wrong and is 'a very special' type of company," he told us. "What the company has done is translate a smart emphasis on design with masterful marketing presentations that gets people to leave the analytical part of their brain at home." this says it all
Score: 0
I have a Tilt 8925 so for me its the same I pay $30 for internet anyway only thing is the 2 year contract and the initial cost of $199.
Tilt was $400
Score: 0
StarTAC 4 Life!!
Score: 0
i would have thought that the simple math of discount of the iphone over the orignal iphone minus the product of 10 dollars more for data and the number of months would have been simple enough to figure out.
basically 200 - (10 * X) = 0 ... where after X months the second gen iphone starts to cost you more.
apparently we need an essay on the subject though.
Score: 0
Hey if you don't care about the latest technology. Once the iPhone 2.0 is out expect the current owners to start selling the 1G model on eBay to subsidize the cost of the new one. I can see the price of the old ones getting fairly cheap on eBay.
Score: 0
This proves sheeple don't think.
Score: 0
a - Data plans apply to all smartphones, even without an 'i'. Does the iThing have a special rate?
b - Put that saved upfront money (credit) into some investments and get it back manyfold (opm principle)
Score: 0
the orignal iphone plan for data was basically 20 bucks. it was forced on you i recall. now it's an optional and costs 10 dollars more.
somebody correct me if i'm wrong.
Score: 0
I think you are still required to carry a data plan on the Iphone...
Score: 0
This doesn't sound so bad (in comparison). I pay quite a bundle for my Win mobile at t-mo. Then again I can hook it up to the lappy as a modem without any fuss.
In general I like the iPhone 3G but as long as they don't expose the modem it's a no go unfortunately.
Score: 0
i disagree based on "Unlimited iPhone 3G data plans for consumers will be available for $30 a month, in addition to voice plans starting at $39.99 a month" at http://www.att.com/gen/p...amp;newsarticleid=25791 and "Add a Consumer Data Plan for iPhone 3G to a qualified voice plan for $30 per month" at http://www.wireless.att....amp;WT.svl=calltoaction
those both make it sound optional.
Score: 0
...So the iPhone can no longer be activated through iTunes? Weak.
Score: 0
That's not all. If you don't activate it within 30 days, AT&T will charge you penalties. Of course, that would have to be when you finally activate it with them but they've got nerve.
They're charging for 3G service, even where it isn't available.
Score: 0
Who has time for an "iphone", i work all day go home and play ps3/x360
no time to "play" with my phone.. i only use it to make calls, oh and "calculator"
Score: 0
that's nice. some of us like to use to do price comparison while we're at the store, get directions, play our music, take our pictures, etc.
its uses our limited by our own imagination.
Score: 0
Is the GPS in this full blown GPS or just cell tower triangulations?
Score: 0
It is an actual GPS, but from what I read it will not actually call out the directions. You will haft to look at it.(That's just what I read anyway) Whether that is right or not I don't know.
Score: 0