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Summary:

Now that recent rumors of a $99 iPhone seem to have been settled — Wal-Mart will sell the 8GB model for $197 — we can get back to the broader discussion of just what an eventual $99 iPhone could mean to Apple. I believe the answer […]

Now that recent rumors of a $99 iPhone seem to have been settled — Wal-Mart will sell the 8GB model for $197 — we can get back to the broader discussion of just what an eventual $99 iPhone could mean to Apple.

I believe the answer to the question depends on just what a $99 iPhone is. Prior to the latest rumors, it was usually discussed as some sort of “iPhone nano.” Maybe a flip phone, and generally acknowledged to be much more limited than the current iPhone. I’m sure these rumors will creep up again soon. 

An iPhone nano

I think an iPhone nano is a bad idea:

  • Would it have touch? Surely there is some point at which the smaller screen this device demands would render the iPhone interface useless. 
  • Even if it has touch, it’d be limited. The buttons may be similar for taking and answering calls, but most of the iPhone interface just wouldn’t work well.
  • Will a smaller phone like this have the thermal envelope necessary for a processor required to run Mobile OS X adequately? If not, then it either has no touch, or something very different than the current iPhone, and this difference is my biggest problem with it. 
  • There’s not a lot of profit in these things. The analysts are all about market share, blithely ignoring the market share lessons Apple has taught them the last 20+ years. Apple doesn’t need huge market share figures to have an extremely successful, profitable, and growing business. Apple refused to build the low-ball $700 laptop everyone wanted, and now people expect them to do the same with phones? 

A phone of this type might have better than average build quality, and maybe some touch or unique features, but it would really be little more than Apple’s Razr. 

The biggest problem with an iPhone nano is that, while the iPhone is a platform, the iPhone nano is not. That is primarily why Apple shouldn’t go there. All the marketing and buzz about the App Store, the full internet, etc., fade into the background when Apple has to start footnoting everything to exclude the baby of the family. 

I think the confusion in different iPhone hardware models would hinder the app market. Many apps would not run on the nano. In my opinion, Apple should be very careful about fragmenting the “iPhone” name in terms of varying models with different app and feature capabilities. They should keep the platform in tact. 

Finally, I do believe Apple could do something “cool” with a smaller phone while keeping what’s great about the current iPhone. There is plenty of room for innovation there and I suspect Apple will provide it. But such a device would not be the low-cost phone analysts are screaming for right now.

Which brings us to the “other” $99 iPhone discussed in the latest rumors…

An existing iPhone 3G

The Wal-Mart rumors circle around not a new iPhone, but rather another model of the existing iPhone 3G. The original rumor was of a 4GB iPhone at the lower price, but my point isn’t about how much storage it has, but rather that a low-cost phone based on the existing design would be a good thing no matter how Apple pulls it off.

I’ve seen some comments that pan the idea; but I disagree with the arguments I’ve seen against it: 

  • It cheapens the iPhone brand. How? Did the price reduction on the 8GB model over a year ago “cheapen” the brand? Does the 8GB model now “cheapen” the 16GB? Not at all, it opened it up to a wider audience, just as a $99 price will do.
  • No one wants a “cheap” phone; remember the iPhone launch? Yes I do. When you’re spending $500 for a device it’s not a stretch to spend $100 more for additional memory. It was 20 percent more money for 100 percent more storage. The landscape has changed since then. The iPhone is already much more affordable (at least, it’s perceived that way), and to get in at $99 is a good thing. 
  • Selling at [insert retailer here] ruins the Apple buying experience. As far as I’m concerned, unless you’re online or at an Apple Store there is no Apple buying experience (until you get it home). All the major chains that have ever sold Apple products couldn’t care less about them. They push the house brand more than anything else. I’m not sure how any retailer you choose could be any worse. This isn’t praise for other retailers so much as my opinion of your average electronics outlet may be lower than most. 

Meanwhile, I make these arguments for the device:

  • With the $99 price point Apple reaches a different audience.
  • Instead of abandoning the iPhone platform, it enhances it. This is big.
  • These things still require $70+/month data plans. This new audience is one with money to spend, and likely to buy apps, accessories, etc., which is more than anyone should expect of an iPhone nano’s audience. 

Conclusion

Apple, I’m sure, has their own reasons for not going the $99 route at this time. They may not want another SKU in the iPhone lineup yet (possibly because of new devices they’re working on). It may be as simple as just waiting a bit longer and dropping the 8GB model’s price. Heck, for all I know AT&T is begging Apple not to put millions more users on their 3G network until they (AT&T) get their network fecal matter collected. 

Still, potential roadblocks aside, it seems to me if Apple wants to play the low-cost iPhone game, something that keeps the existing platform’s primary characteristics (no matter how they do it) is much more desirable than any “iPhone nano” they could produce. Leave the Razr market to Motorola, for all the good it’s doing them.

  1. The up front cost of the iPhone doesn’t matter. It is the thousands you have to pay ATT to be able to use it that hurts the pocket book.

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  2. Bad – it tarnishes the Apple brand.

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  3. if apples going to make a new IPHONE it’s not going to be a bust. if there is a smaller phone I”m sure apple has a really good idea of whats going on. they could make it slimmer and smaller with the same interface and if they want to change the interface they must know what will happen with making code for the iphone”nano” and how applications will work. if you want my opinion i think they will make a BIGGER iphone because why do ppl want an iphone? so they can use the internet while they aren’t at their laptop . i think the screen will be bigger and the interface and browser interface will be upgraded significantly and this 99 dollar deal is saying that the new iphone will be so successful we can drop the old iphones price to 99 dollars.either way apple has a good idea, they won’t mess up,

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  4. MacRat,

    Apple cut the price in half (from $400 to $200) and sold ~6 million of them. Cutting it in half again may not sell that many, but it would bring in a lot more people. Lots of people are all about the initial outlay, not the monthly payment.

    Joe,

    What you’re talking about may be true; I think Apple will do some really cool stuff, too. But I don’t think it’d start at $99, which is the price point discussed in the article. What Apple could put together and sell for $99 brand new I think would either be a somewhat conventional phone (albeit with Apple style), or a lower-priced model of the existing phone. I think the latter could be useful while the former would not.

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  5. Bring back the $20 data plan with 200 included texts, and sales will climb. $35 for the same thing on a 3G phone is too much for many folks.

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  6. I agree with Galley, I want to have an iphone but not for 450 dollars a year. Bring back the 20 dollar data plan or let me get an iphone without a data plan and you will have my money in a heart beat!

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  7. This is how it is going to go down:

    Memory chip companies are currently manufacturing 32GB chips. The reason the iPhone has not gone to 32GB yet is it would take 2 16GB chips and it doesn’t have room (the iPod Touch does though). These chips are going to be ready Q1 2009. Apple will add a new sku for the 32GB iPhone and drop the price of the other two. They can afford to take the hit on the iphone margin to later recoup it in AT&T subsidies and contract sign-ups.

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  8. Galley, Jake,

    Sorry, I don’t agree. The 3G dropped the initial price in half, and even though the monthly cost went up $15 (not $35) over the older equivalent plan, sales soared. It may be confusing — since the 3G is ultimately more expensive — but most people seem to focus more on the initial out-of-pocket than the monthly fee.

    Mike,

    I agree with you. 32GB need to come down in price and when they add that to the lineup Apple may cut the 8GB to $99. This is assuming, of course, that Apple wants that third SKU in the system, or even that they want a $99 iPhone at all right now.

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  9. The current iPhone IS the iPhone nano!

    People say that Apple should do an iPhone nano simply because they did an iPod nano (originally an iPod mini, obviously). And that the “iPhone nano” should be a stripped down / simplified version of the iPhone, as the iPod mini / nano was.

    But, this is totally incorrect! The iPod mini had exactly the same features as the full-sized iPod. As did the iPod nano. There was no feature reduction. The current iPod nano actually has more features that the current iPod classic! The iPod mini was, essentially, the original iPod (the 5GB one) repackaged to make it smaller, whilst the full-sized iPod just gained capacity through using bigger drives. Who cares about that? That was just a technical necessity. Apple now use Flash storage for up to 30GB.

    So, if Apple can make the iPhone smaller, why wouldn’t they? Also, the entire iPhone and iPod touch platform is based around that screen (viewport, in industry parlance).

    The only iPod version that had a feature reduction was / is the iPod shuffle.

    The “iPhone nano” should join FM radios and physical keyboards on the list of utterly absurd, uninformed rumours that just don’t add up.

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  10. Great quality stuff.

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