Why is iPhone storage suddenly cheaper?

Apple has been bolstering iPhone profits with overpriced flash storage for years. So why change that with the iPhone 6? Apple's thinking has changed.

Apple has been happy to charge outrageous prices for flash storage on the iPhone 5s: over $6/GB for the 32GB 5S; and over $4/GB for 64GB before the iPhone 6 announcement. That's at least a 10x markup over the 40¢/GB - or less - Apple pays for raw flash.

But the iPhone 6 changes that equation. That first 48GB is $100 and the next 64GB is another $100. Now the first 48GB is $2/GB and the next 64 is only $1.56/GB. Or a low, low $1.78/GB for entire 112GB upgrade.

What a deal! Unless, of course, you consider that high performance consumer SSDs are about 50¢/GB. 

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They're still making out like bandits, considering they could charge $60 extra for the 128GB model and do well. 128GB is the same capacity as a low-end MacBook Air. 

The interesting part

It's been reported that internal Apple training says that iWork - Page, Keynote and Numbers - is a standard install on the larger iPhones. We'll know soon enough if that's correct, but the fact that product management was looking at this - that document came from somewhere - speaks volumes.

Putting my product manager's hat on here's what it means.

  • Product management isn't expecting that lower-cost storage alone will drive adoption since they've trained hundreds of millions to make due with 16GB. A bigger nudge is needed - or wanted.
  • Apple needs the higher margins on larger capacities to reach the overall iPhone margin goal.
  • Apple customers have been rejecting the absurd storage prices by focusing on 16GB phones. 
  • That last point has knock-on effects: lower media consumption; reduced business use; fewer apps purchased.

The Storage Bits take

Apple's view of the iPhone is changing due to the popularity of big screens on Android phones. They are seeing that the larger phones can actually be PC replacements for most people as they once thought the iPad could be.

Apple has never been comfortable with the boring but profitable storage business. But now in the Cook era, there's a dawning awareness that storage is more than a bit bucket, but the repository of everything that makes a device personal.

And the more of your life that's in a device the more personal it becomes.With the addition of the new iOS 8 security improvements  this signals less of a push for iDrive - as some have speculated - than a push to make Apple devices central to more user's online life.

Abundant local storage is key to realizing that goal.

Reaming customers for wanting to use their phones for more of everything is counterproductive. Let's hope that Apple's change of heart for iPhone storage spreads to the iPad and Mac as well. We'll see in the next round of announcements.

Comments welcome, of course. How would another 100GB of on-baord storage change how you use mobile devices?