How Steve Jobs duped the world into thinking that the new iPhone is cheaper

10 06 2008

Okay so the title might be a tad dramatic but after reading on how much the new iPhone actually costs, I couldn’t hold myself back.  After hearing Jobs keynote yesterday where the audience practically treated the event like a rock concert, I was shocked by the price reduction of $200.  The new iPhone 3G will cost $199 which is significantly cheaper than the previous model.

What Apple doesn’t tell you, however, is the added costs that come right after you sign up for a contract.  For an average user, here is the extra features they will have to pay for:

  • 3G network – $30 (previously, an iPhone user paid $20 for an EDGE data plan)
  • 200 Text Messages – $5 (previously an iPhone user got it for free)
  • Mobile Me Push/Sync program – $8/month ($100 / year) – if you want to sync your mail with MSFT Exchange/Outlook – you need this program

When it’s all said and done, you’ll need to pay $43 on top of your AT&T minute plan to take full advantage of your iPhone 3G.  Well lets quickly do the math.  For the $200 you are “saving” from buying the new iPhone, you’re actually going to be paying that amount back to AT&T in about 9-10 months.   Now that AT&T requires you to lock into a 2 year contract, you’re basically going to pay $1000 for a new iPhone during your next two years when you add it to your minutes.

It’s a genius move by Apple on making the device significantly cheaper but its a model that is used by most smartphones.  There is a reason why AT&T advertises Blackberry Curves for $99 these days.  They make money on the variable cost, not just the fixed cost.

That being said, I think the average consumer will be drawn to the beautiful devices sitting in the shopping malls fully functional.  Once they go through the first sign up flow and look at their first AT&T bill after the first month, they may sing a different tune.

I think I might look at this picture in a different way now….

Just my $.02…

-SD