Could a $99 iPhone rule the world?

Could a $99 iPhone rule the world?

Summary: Just when you thought things couldn't get interesting enough, someone goes and says something crazy.Apple has the room to cut the price of the iPhone to where it could take command of the smartphone market, analyst Charlie Wolf of Needham Research wrote today in a research note by way of Electronista.

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Just when you thought things couldn't get interesting enough, someone goes and says something crazy.

Apple has the room to cut the price of the iPhone to where it could take command of the smartphone market, analyst Charlie Wolf of Needham Research wrote today in a research note by way of Electronista.

Apple iPhone

According to Wolf, the average, unsubsidized price of an iPhone 3G in the summer was $666 and would therefore give Apple a nearly 50 percent gross margin on each unit (as well as a heavy subsidy from AT&T of $450). That's a lot of wiggle room -- so much, in fact, that the big Apple could drop the price of an 8GB iPhone to -- take a deep breath now -- $99 while still managing a comfortable 42.3 percent margin.

Hosanna, hosanna in the highest! the angels sung.

Electronista also notes that the company's dramatic growth in non-GAAP revenue could also give Apple a significant amount of breathing space to play with the iPhone's price by cushioning more substantial price cuts

But the bottom line is this: A price drop to such degree is a potentially devastating swipe at competitors in the market. Wolf writes that lopping off $100 of the iPhone 3G's advertised price could "double or triple" projected sales and quickly overtake most other smartphones on the market, leaving only successful "niche" smartphone manufacturers like Research in Motion, which produces the BlackBerry.

Google Earth capability doesn't hurt, either.

When an in-demand phone's price drops, its spot on the sales charts usually rises, especially in the U.S., where subsidies are often not as steep as those in Europe. Case in point: Despite a strong launch, the iPhone 3G was outsold by Motorola RAZRs in the summer thanks to free or near-free pricing with many carriers. Even RIM is in on the action: BlackBerries have also taken two out of the top five positions in NPD phone sales figures for the summer as the Curve and Pearl began selling for $100 or less on certain contracts, Electronista notes.

So that brings me to a simple question: Could a $99 iPhone rule the world? (Or, for Android fans, could a $148.88 T-Mobile G1 rule the world?)

Tell us why in TalkBack.

Topics: Enterprise Software, Apple, Hardware, iPhone, Mobility, Networking, Smartphones, Wi-Fi

Andrew Nusca

About Andrew Nusca

Andrew Nusca is a former writer-editor for ZDNet and contributor to CNET. During his tenure, he was the editor of SmartPlanet, ZDNet's sister site about innovation.

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Talkback

37 comments
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  • What about TCO?

    If it still costs a ton when the charges on other services, plans or what-nots put together then it doesn't change the picture much.
    LBiege
    • Good point.

      Great point. Which opens up another global question -- as smartphones come to replace the standard cell phone (and data packages become less of a luxury), will that lead to price wars and, eventually, a lower average price for a (now "standard") data plan?
      andrew.nusca
      • Service Charges

        Why should we expect the price of data plans to come down significantly when the price of "normal" plans hasn't done so in the years since cell phones came out? They're still charging a relative arm and leg for just plain old voice plans. I mean, I could understand it when the infrastructure was brand new and needed massive expansion, but we're still paying like we were at the beginning. I don't see the phone companies giving us any real breaks on their "cash cow" data plans any time soon.
        _TheGoldy_
        • Not exactly true

          Remember that each rollout of 3G and then the next level requires new equipment (not new sites, but a lot of other equipment). So the infrastructure is not necessarily paid for.

          But I do hope that wimax or something else brings some competition to the cell market.
          stano360
        • Prices are less

          8 years ago, you'd pay 35 -40 bucks and get maybe 100-200 minutes. Nights/weekends probably set you back another 5 bucks as would on network calls.

          Today you can get a voice plan with 500 minutes, n/w and free on network calls for about the same price.

          Sure plan prices aren't less, but what you get has gone up....and that trend will continue.

          It's also worth noting that POTs has gone up quite a bit. 10 years ago, a single line with touch tone cost around 15 bucks. as of 4 years ago (the last time I had a land line) it was $30.00.

          It's pretty easy to justify a cell phone when you consider you get mobility, caller id, call waiting, 3-way calling, and LD for about the same price.

          Of course people who spend tons of time on the phone during the day have to pay much more, so for them, Cell phones are still pricey.
          notsofast
  • $99 iPhone

    [i]According to Wolf, the average, unsubsidized price of an iPhone 3G in the summer was $666 and would therefore give Apple a nearly 50 percent gross margin on each unit (as well as a heavy subsidy from AT&T of $450). That?s a lot of wiggle room ? so much, in fact, that the big Apple could drop the price of an 8GB iPhone to ? take a deep breath now ? $99 while still managing a comfortable 42.3 percent margin.

    Hosanna, hosanna in the highest! the angels sung.[/i]

    Am I the only one who found the unsubsidized price of an iPhone 3G being $666, and the quote "Hosanna, hosanna in the highest! the angels sung" in the same post, odd?

    In any case, I doubt Apple would be willing to give up their currently huge margin... but ya never know.
    Badgered
    • Few Understand Google is NOT competing with Apple! :D

      Apple is one company ONE Phone iPhone, with an OS on
      Hardware they don't own and music players. But their
      real money is from selling music and movie content
      now!

      Now get a load of this: Google does not make ANY
      hardware. Where they make their REAL money is with
      their Search Engine Technology and selling
      Advertisement Content! The More Devices the
      competition has on the web the better and it means
      they never lose!

      Because Apple iPhone and even their Computers must use
      a Search Engine like any other OS or Device w/Web
      access. All the Google Ads on the Web are seen by
      Apple product user as well as everyone else!

      The Creme-ala-Creme and what gives Google the Power to
      call Checkmate on every move of even their largest
      competitors, is that it's Everywhere You and They Are!
      ....Including this simply delicious little fact:
      Google CEO, Dr. Eric Schmidt is also on the Board of
      Directors of Apple Inc!

      He also sits on the Princeton University Board of
      Trustees, besides wearing at least a dozen other hats!
      :D

      He has worked for many of the very same companies that
      have been bit by Microsoft's "Embrace, Extend,
      Extinguish" Monopoly and their predatory business
      practices (including Sun, Novell, etc).

      If anything, it's Apple and Google (both on Khronos
      Group) that along with this Groups entire membership
      (with Open Source OpenGL), that totally dominates the
      World with the most widely distributed set of API's
      EVER!

      With OpenGL ES on Embedded Devices (and it's many
      cousins), they are ganging up to take down the Bloated
      Cow, Steve Balmer's Microsoft! ;) ...Steve threatens
      to kill Google!!! lol ...and Eric just does it(no idle
      threats needed)!!! :D

      *** Khronos Group Members includes IBM (been bitten),
      Intel (MS bit 'em too), Sony (bit by the rabid dog
      plenty), Nvidia (bit hard by M$), AMD/ATI, Nokia, STI.
      But Google (has bitten back) and numerous others are
      ready to BITE M$ back as well!
      i2fun@...
  • RE: Could a $99 iPhone rule the world?

    you would still have to put up with AT&T. a lot of folks get discounted plans from their employer and are essentially married to their employer's carrier. If it was available on more than one networks. then. this claim would have some merit.
    surfasb
  • Maybe. But maybe not...

    Part of Apple's business and sales model is the idea of perceived value. People like the cool new expensive gadget. This sounds like a great short term financial victory, but opens Apple up to a consumer base wanting more products in this price range in the future.

    "New iPhone in 2009 costs me $499? No thanks, I'll buy the (insert competitive model here) for now and wait for the price to drop to $99 in 6 months."

    You're also assuming that ATT can handle this new inrush of customers. While improvements have been made, ATT isn't known for great service / customer support, regardless of what the commercials claim.
    tem.digital
    • AT&T would crumble.

      Their network with that many 3G customers? I couldn't imagine that one.
      T1Oracle
  • Apple is taking a big bite out of the phone market

    right now without dropping prices. So it's stupid business to drop
    prices right now.
    frgough
    • Not that big of a bite

      though they will hit the issue of saturation soon, in that those that want one will own one, so what will they do?

      iPhone Three? Problem is, with saturation, who will purchase the new phone? those with V one or two?

      Then they need to keep the price high as the volume does not change significantly to cover the loss in reveune from a lowed price.
      GuidingLight
      • Apple is number 2 behind RIM

        in the smartphone market. They are number two ahead of all
        other smartphones combined. They achieved this incredible
        success in 15 months. A significant portion of their growth is
        among people who never bought this type of phone before.

        The evidence is completely against you and trends toward the
        iPhone redefining what is considered a "standard" phone.

        This time next year, the iPhone will be the number one phone
        in its market. WM will be dead, Android will be a distant third
        and RIM will be wondering what the heck happened to their
        business as they continue their slide to behind Android. iPhone
        will continue to push into the more mainstream phone market
        and people like you will continue to insist it's all just a fad.
        frgough
        • Thanks for your opinion

          ...but if you think there is "one phone to rule them
          all" you are obviously a fanboy and have no real
          concept of the market.
          parabyte
        • Apple is #2 US Smartphone, Not #2 Cell Phone

          The Blackberry will continue to be the number player in the U.S. smartphone market because of the high number of corporate users that will not switch to Apple. Windows mobile pones will likely retain second position.

          In terms of total phones, the U.S. market is divided up as follows, with Apple not in the top 5:

          1. Motorola
          2. Samsung
          3. LG
          4. RIM
          5. Nokia

          Globally, Nokia leads in smartphone sales, with a market share of 47.5%. RIM is second at 17.5%, with Apple is somewhere in the neighborhood of 4%.
          NameRedacted
      • iPhone sales

        According to HDR Research- a tech analyst firm, and other papers
        ive read, the iPhone just shot past Motos Razor and is now the #1
        selling on the market. End of story

        Check facts
        THEN post
        gennx30
  • As long as it's ATT no thanks

    Blackberries are available on every carrier. I live in Houston and ATT showed just how bad it can be after Ike blew through our area. Verizon had 0 downtime, even in the hardest hit areas. Sprint had very little downtime and a couple of dead areas. ATT and TMobile service STILL hasn't gotten back to normal. I am still getting a text message 2 days after sent and very, very spotty data service. My contract is up in a month and I'll be off ATT as fast as possible. That was the plan anyway but this was the nail in the coffin.

    There's a reason why government agencies stick with Verizon or Sprint. They clearly have superior service. Yes, it's slightly more expensive, but worth every penny. I easily lost thousands after the hurricane because our office was without power for over a week and I couldn't rely on cell communications.
    LiquidLearner
    • T Mobile had no problems

      I used it all over Houston during Ike.. and I live in the area too. Two days... things where a bit erratic.. but so was Verizon.. my gf uses it.. and her text messages would not reach the web or my phone. so that had to be a Verizon issue.

      I do have a company issued ATT phone..yes.. it had issues.

      Though I do agree with you... No ATT not even if they payed for the service.
      Uralbas
    • spot on

      Unfortunately Verizon has the best phone service in most area. Unfortunately they also have the worst phones that they purposely cripple to sell you more services. If you are looking for reliable phone service, Verizon is the way to go. Just don't expect to get a phone with lots of cool features.
      Al_nyc
  • RE: Could a $99 iPhone rule the world?

    Yes it can but only if it is $99 all over the world not just U.S and Europe. $400 is enough cheap here as it would always more than $500.
    cruggeld