The average selling price of an iPad app is just under $5, and that number grows to $5.80 for those found in the top 100 paid apps list. On the iPhone, the average app sells for just above $4, and when you look at the top 100, that number drops to only $2.14. That makes successful iPad apps 171 times more expensive than their iPhone equivalents.

The iPad has only about 13 percent of the total 300,000 apps available in the App Store, with 37,887 titles as of this writing. And only 7 percent of titles are universal, meaning they work on both devices. So while the volume business isn’t quite there yet, and it’s early yet to make any definitive pronouncements, it does seem like iPad owners are willing to spend more on apps than those carrying iPhones.

I know I feel more comfortable spending $9.99 or more on apps for my iPad. The difference in screen size accounts for some of this, which is tied to an increase in usability on the Apple tablet. Also, since the iPad exists somewhere between a smartphone and a computer, I feel comfortable paying prices for software somewhere between what I expect to pay on either platform.

Given that users seem willing to pay more for the iPad, and given that investment in the development process seems to be about the same for apps for both it and the iPhone, I think we’ll see a lot more interest in the platform. We’ve already seen that devs and publishers are keen on providing iPad offerings, and if the device really does sell as much as many are saying it will next year (subscription required), I think iPad-specific apps could see way more growth than anticipated in 2011.

If you’re an iPad owner, are you willing to pay more for apps for your tablet than you would for the iPhone or iPod touch? And if you’re a developer, is iPad development an attractive option because buyers are willing to pay more?

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There’s a pretty big difference for those buying with Euros, however, as the price of the base 2.4GHz Intel Core 2 Duo processor-powered Mac mini is now only 709 € ($993.80 USD), down from 809 €. The 2.66GHz Snow Leopard Server mini also got a price cut of 150 €, down to 999 € from 1149 €. In the UK, Apple instituted a £50 price reduction across the board, making the two Mac mini models £599 ($959.77 USD) and £879 respectively.

New pricing could be a reflection of the weak U.S. dollar, but if that were the only reason, Canada would definitely have been included, since its currency is doing quite well. More likely, the changes reflect a refining of the backend processes related to international retail that allowed Apple to keep its margins while offering consumers a break, or awareness on Apple’s part that it was pricing itself out of European and other markets, as stagnant growth worldwide for Mac market share would seem to suggest.

Whatever the reason, it does make the Mac mini a far more attractive option to international customers. The mini has always been the cheapest way to get into OS X, and now it’s cheaper still. I only hope that Apple sees overwhelming positive response to the drops in price, since maybe then we’ll see the same strategy applied to other offerings, too.

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Two Sub-$1000 Notebooks

The entry-level 11.6-inch MacBook Air, without upgrades, costs $999. That’s Apple’s second laptop under $1000, including the $999 MacBook. Offering two models that cost less than a grand provides more options for buyers looking for affordability. You no longer have only one choice from Apple if you’re looking for a sub-$1000 notebook.

The MacBook has a better processor and better battery life than the MacBook Air, but it has the same amount of RAM, same graphics card, and uses a traditional HDD instead of flash memory. Aside from a little more speed, and battery life that may or may not actually be better (Apple has new testing methods, announced last week) there isn’t much to recommend the MacBook over the air.

Apple’s entry-level consumer notebook is due for a refresh. In the past, it’s gotten an update in October alongside the rest of the Mac line, but this time around, Steve Jobs clearly wanted the focus to be firmly on the new Air. This Apple ultraportable will own the holiday shopping season.

But a new Apple MacBook is due soon, by spring 2011 at the absolute latest. And when it does arrive, it’ll be Apple’s ticket to a much broader Mac user base.

Apple Learns to Make More for Less

It may seem like Steve Jobs is being sarcastic whenever he issues one of his “We don’t know how to make a good [product x] for [price y]. When we do, we’ll let you know” decrees, but he’s actually revealing exactly how Apple pursued product development. Apple tries to hit lower price points for its products, it just doesn’t cut corners to get there, as do some of its primary competitors.

Apple has little to gain by pitting its two sub-$1000 laptops against each other. Instead, we can see a new, lower price point for the next iteration of the MacBook. Prices on Macs have been steadily dropping, as we’ve seen with the latest MacBook and MacBook Air. At this point, considering the price of components, how far Apple’s gone in terms of refining its manufacturing processes, and how much better of a negotiating position it holds with suppliers, there are few barriers to a $799 MacBook. And a sub-$800 Apple notebook will a huge hit with consumers (not to mention enterprise users) who’ve been priced out of a purchase till now.

Product Cannibalization?

But wait, what about the iPad? The most expensive iPad is $829. Won’t a cheaper MacBook mean fewer iPad sales? The answer is probably not. The sales data in Apple’s latest financials reveals that consumers look at the tablet as a supplemental device, rather than a notebook replacement. If people aren’t getting the iPad instead of a new Mac notebook, then logically, they wouldn’t buy notebook instead of an iPad, either. Especially if iPad prices fall, as some predict.

I don’t know whether Apple really will put in flash storage and take out optical drives in all of its next MacBooks. Maybe a few years from now, yes, but there are probably still a significant number of users out there who aren’t as willing to leave the past behind as prospective Air buyers are. No, the defining feature of Apple’s next MacBook will be its price tag.

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The reality is different. Apple wouldn’t make any money if it just charged slightly higher than the manufacturing costs. Apple has to pay for both hardware and software development, plus the costs of launching a completely new product. It also has to pay its employees, both at the Apple retail stores and at Cupertino itself. With these extra costs in mind, the price of the iPad doesn’t seem as high (many Apple analysts were actually predicting that the iPad would cost $1,000 or more). Apple’s margins are actually far less than other commodities like CDs, which cost about $1 to manufacture, yet are sold for around $10 at retail.

Apple gets these margins for each version of the iPad:

As you can see, the margins stay about the same as the hardware costs go up. Apple’s margins for new products have historically been around these numbers as well, so if you are being gouged (and you’re really not), at least you should be used to it by now.

A new report by AppAdvice.com’s Alexander Vaughn suggests that reports of higher pricing may have been greatly exaggerated. Vaughn was lucky enough to be privy to a “not-so-NDA-complying preview” of the iBookstore in action, and he notes that a significant portion of the New York Times’ bestseller list are actually offered at $9.99.

The pricing is actually in keeping with comments made by Steve Jobs at the iPad’s unveiling, despite all the subsequent reports that pricing would likely favor the Amazon platform, at least until publishers raised prices there, too. Jobs said iPad e-books would be similarly priced to ones available on Amazon’s Kindle platform, in an interview with Walt Mossberg that was caught on camera by All Things D’s Kara Swisher.

Vaughn’s information seems reliable, especially since he includes a photo seemingly taken with his iPhone’s camera of the iBookstore running on pre-release iPad hardware. The screenshot clearly shows a number of titles with $9.99 price tags attached. Vaughn states further that of the 32 books in the New York Times’ bestseller list, 27 are priced at $9.99, including the top 10. A few books on the list did appear to be selling at the higher $12.99 price point.

 There’s always the chance that this could just be Apple using dummy prices in an early iBookstore mock-up, and that real pricing will be more in line with what we’ve been hearing, but if so, it seems odd that it would even bother peppering in some more expensive books. I’d say it’s more likely that these are the types of prices we’ll see on launch day, which is very bad news indeed for Amazon, but great news for the ebook-buying public.

It could be good news for Amazon, too, though, depending on how iBooks sell. If publishers that refuse to go down to the $9.99 price point are spurned by customers, they’ll probably eventually be forced to step in line with the others in order to compete. Lower prices across the board are a good thing for Amazon, because strengthens that company’s position when it comes to negotiating with publishers. On the other hand, if the iPad becomes overwhelmingly popular, Amazon runs the risk of becoming completely irrelevant in the e-book market it helped to pioneer.

The report, which, you’ll remember, appeared in the WSJ itself, cited “a person familiar with the matter” as the source of the information that the Journal would be charging $17.99 per month for iPad subscribers when the device launches next month. No, that’s not a typo where I accidentally switched “per month” for “per year.”

I realize that the Wall Street Journal is among those choice few who’ve been given a pre-production piece of iPad hardware upon which to develop its app, but I doubt very much that anything it can put together, no matter how spectacular, will make me want to pay $18 a month for the privilege of using it. People switched to online news sources because they were cheaper, not significantly more expensive than traditional paper outlets.

While the WSJ seems to have gone well off its rocker regarding iPad pricing, other companies are offering more sane and reasonable deals. Esquire, for instance, which is the magazine the furthest along in the Hearst family with regards to iPad development, plans to offer its iPad issues for only $2.99 an issue. That’s $2 off the standard newsstand price, which is cheaper, as one might expect.

Men’s Health, on the other hand, is going the route of equally priced digital and print editions, and will be charging $4.99 per issue, and other offerings like Time and People are said to be priced close to the newsstand editions. Advertisers are reportedly flocking to the magazine publishers in droves in order to be part of the first wave of iPad editions, owing partly to the marquee value of the highly anticipated launch, and partly to the innovation in interactive ads possible thanks to the new medium.

So the question is, what’s the pricing sweet spot for iPad users when it comes to magazine content? Personally, I wouldn’t pay any of the prices I’ve mentioned, but that’s only because I’m not interested in the content. If National Geographic or Popular Science offered iPad apps priced the same as their print editions, I’d go for it, even though I don’t buy those in print now. I wouldn’t pay $17.99 a month for anything, even a magazine for which I was the sole target audience called “Darrell Monthly.”

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Luckily, according to a new report by the New York Times, Apple’s higher prices aren’t necessarily a permanent thing. Instead, sources at the publishing houses who’ve made agreements with Apple suggest that built-in discounting provisions will result in book prices dropping as low as Amazon’s fast disappearing $9.99 price point.

Under the agency model Apple uses, it will take 30 percent of each e-book sale made, while the publisher gets 70 percent of the take to distribute between itself, the author and other involved in the making of the book. The agency model along with a complicated formula related to the price of print books led publishers to suggest that price points for new fiction and non-fiction releases would fall somewhere between $12.99 and $14.99. Publishers then took that higher price point back to Amazon and essentially insisted that the online bookseller institute a similar model.

Under Amazon’s model, the Kindle maker actually lost money on every e-book, counting instead on revenue from hardware and on building market share to turn a profit. The New York Times describes how this worked:

Amazon has effectively lost money on each sale at that price because it buys and resells e-books as it purchases printed books, by paying publishers a wholesale price generally equivalent to half the list price of a print edition. That means that on a $26 hardcover book, Amazon would typically pay the publisher $13, losing just over $3 on a digital edition it sells for $9.99.

The NYT’s sources, three people involved in the discussions between the publishing houses and Apple, note that even though books will indeed be sold at a higher initial price through the iBookstore, Cupertino built provisions into the agreement that would allow them to discount the prices of hot selling e-books, including those found on the NYT’s bestseller list. Apple wants the ability to undercut or match competitors’ prices for these books, which are often offered at significant discounts in other sales venues.

A book that becomes a bestseller could then see a price drop from say $12.99 to $10.99, or even as low as $9.99, according to the sources. Even books not on the bestseller list would be eligible for this lower-than-normal pricing, since it will be tied to the going print rate for the book. The $12.99 to $14.99 number is based on a new hardcover selling price of $26, and Apple wanted the ability to offer more attractive prices for books that have a lower starting print price.

Apple has the right idea. The reason e-books are attractive to many is a combination of convenience and pricing. But the pricing advantage only exists if consumers aren’t willing to wait for paperback editions of the books they’re purchasing to come out. If they are, though, they can probably buy a physical book at around the same price or lower than its e-book counterpart.

If Apple and its publishing partners really want to make a splash in the e-book market, they have to extend their policy of ultra-competitive pricing to the paperback market, too. $9.99 is, for me, the exact price at which I will opt to buy an e-book over a paperback, even if I can find the print version for slightly cheaper, owing to the convenience factor. I suspect I’m not alone, as Amazon didn’t just pull the number out of a hat. If Apple can hit that sweet spot more often than not for books that have been around for awhile, I’ll gladly give them even more of my hard-earned cash.

This is what’s called the new “agency model” of pricing, which allows the company serving the content to take a cut. Apple’s own system calls for a 30 percent take of the revenue on all apps (and now books) sold through its online store. Amazon recently introduced a similar pricing structure for certain books and apps. It looks like major publishers are unwilling to absorb the cost of the seller’s cut, preferring instead to pass it along to consumers.

Hachette CEO David Young, however, in a letter sent out detailing the new pricing plans, claims that book publishers will not make more money using the agency model, claiming the opposite, in fact:

[W]e make less on each e-book sale under the new model; the author will continue to be fairly compensated and our e-book agents will make money on every digital sale. We’re willing to accept lower return for e-book sales as we control the value of our product–books, and content in general. We’re taking the long view on e-book pricing, and this new model helps protect the long term viability of the book marketplace.

Call me skeptical, but I can’t help but feel that these publishers are acting more out of self-interest than anything else. It may be true that they actually make less on every book sold using the agency model for electronic distribution, but it’s probably also true that the books cost much less for them to create than print versions, too. I’d be willing to bet that they end up profiting more on a per copy sold basis in the end. Hachette makes other claims in his letter about how the deal is actually beneficial to consumers, despite the upfront price hike:

There are many advantages to the agency model, for our authors, retailers, consumers, and publishers. It allows Hachette to make pricing decisions that are rational and reflect the value of our authors’ works. In the long run this will enable Hachette to continue to invest in and nurture authors’ careers–from major blockbusters to new voices. Without this investment in our authors, the diversity of books available to consumers will contract, as will the diversity of retailers, and our literary culture will suffer.

It’s good spin, but it’s spin nonetheless. The bottom line, no matter how Hachette, Macmillan, or HarperCollins try to spin it, is that rather than introducing competition that will result in lower prices for book-buying customers, Apple’s iPad has in fact spelled the end of the $9.99 bestseller, for both Kindle and iPad users. Apple had to offer publishers an incentive to come over to its side, but the cost of that bargain is unfortunately one we as the buying public will be paying for.

At least in the short term. A longer view reveals a different picture. Apple needed to gain access to the ebook market, and so was willing to make concessions regarding price. Publishers jumped at the chance to get out from under the tyranny of what amounted to Amazon’s ability to set prices unilaterally. But is it a case of “out of the frying pay, into the fire?”

If Apple’s power play succeeds, Amazon could conceivably be forced to close up shop (though I still don’t think I’ll ever stop reading on my Kindle in favor of the iPad). If and when that happens, Apple will occupy the spot that Amazon once did, and will be able to dictate prices to publishers, much like they did and still continue to do with record labels. It’s a rare case where a monopoly could actually benefit the buying public, but only if you’re willing to pay more than paperback prices in the meantime. I’m not sure I’m willing to do that.

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Well, forget it. Ain’t gonna happen. Not if the UK’s mobile market is anything to go by.

Vodafone UK has today announced the launch date of the iPhone on their network (it’s January 14, by the way) but once you’ve picked your way through their online pricing minefield, it’s hardly anything to write home about.

According to the Financial Times, Guy Laurence of Vodafone UK said the carrier has been busy preparing their network for the iPhone for the last twelve months;

We started preparing our network over a year ago so that iPhone customers will really feel the advantage of being with Vodafone. We will offer an outstanding iPhone experience wherever our customers live, work and travel, delivering speed and reliability – something our customers have told us they really value.

Yeah. We also value more competitive deals, Mr Laurence.

I did a very brief comparison of the three cheapest contract deals (not pay-as-you-go) offered by the three biggest operators in the UK: O2, Orange and Vodafone. Here’s what I found.

The cheapest contracts are all pretty lengthy –two years, in fact. That doesn’t sound unusual for those of you in America, I know, but here in the UK mobile contracts are often no longer than twelve months. Being locked-in for two long years is a ponderous proposition for many Brits who might be graduating (tentatively) to the exciting world of modern smartphones from their old Nokia 3310′s!

In addition, none of the carriers offers a competitive price for the latest model, the iPhone 3GS. The most affordable iPhones happen to be the elderly 2008 model. The stingy 8 gigabyte 2008 model, at that. So if you opt for a two year contract you’re getting a model that, in about six months (barely one quarter into the lifetime of your new contract) is going to be two models behind the latest and greatest from Apple. I’m just sayin’, is all.

Here’s how it breaks down, assuming the recession has hit you as hard as it hit everyone else and you’re looking to buy the most affordable iPhone package with one of the major UK network operators;

O2
For £34.26 ($55.22) a month you’ll get 600 free minutes of talk time and 500 free text messages. Data is unlimited. Assuming you never use more than the free talktime/SMS, this will cost you £822 ($1,324) over the course of the contract.

Orange
£29.36 ($47.32) each and every month gets you a measly 150 minutes of talktime and 250 text messages. The lifetime cost – £704.64, or 1,131.37 of your shiny American dollars.

Vodafone
For a few pennies more than O2, you can get last year’s low-end iPhone for £35 ($56.20) each month. For your money you’ll get 600 free minutes and unlimited text messages. The lifetime cost – £840, or $1,348.70.

Please don’t forget – and I can’t stress this enough – this is an unusually-long contract for the UK, and yet it’s last year’s phone.  Add to that the fact that, of course, no one ever stays within the allotted talktime and SMS quotas – everyone has a bill that costs the monthly fee plus additional talk time and messages. Frankly, it all adds up to quite an expensive deal, given the age and limited storage capacity of the model on offer.

I should add, too, that “unlimited” doesn’t actually mean “unlimited”. It means you’re allowed to consume as much data as the network provider deems “appropriate” for normal use. This tends to hover between 500 MB and 1 GB per month, which isn’t too bad unless you use your phone for watching YouTube videos eight hours a day. (Still, I take offense at the way network operators so casually use the word “unlimited” when it means nothing of the sort.) The trouble is that, if our providers start behaving like AT&T, their idea of “acceptable data usage” is going to change, and not in our favor.

The 3GS, on the other hand, is astonishingly more expensive than the 3G with little appreciable difference between the providers in terms of handset costs and tariffs. I wonder if this is because of the already-steep up-front costs they’ve shouldered in order to offer Apple’s handsets in the first place. If that’s the case, perhaps I should be more disappointed in with Apple’s aggressive pricing policies that those of my nationwide cellular network operators. In any case, at this point in time, I see no compelling reason to move away from O2 at the end of my current contract.

Was I expecting too much in terms of competitive pricing? Are these prices fair, given the investments which must be made by operators to offer the iPhone ‘experience’? Or is this a shining example of unfettered network operator greed? Share your thoughts in the comments.

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There are no doubt reasons Apple doesn’t talk about price. I’ll mention a few of them later on in this post. The thing is, especially at the low end of its product line, Apple stands to gain a lot by trumpeting its price tags to the masses.

Why People Are Switching

In the past three months, I’ve seen three friends buy their first Mac computer. None of them purchased the 13-inch MacBook Pro that Apple has been so lauded for online and by the tech journalism community. Instead, all three bought either a Mac mini or a white plastic MacBook, and all three did so because these machines represent the lowest cost of entry into Apple’s Mac lineup.

That’s great news for Apple. Its low-end computers are doing their job, and bringing people in who otherwise might not have looked at a Mac. The problem is that none of those three people would’ve considered a Mac if I hadn’t recommended them. The reason? They all perceived Macs as too expensive.

I know this evidence is anecdotal at best, and doesn’t mean this is the case for the general computer-buying population, but everyday I meet people who just weren’t aware that there existed such a thing as a Mac that costs less than $1,500 or $1,600. Some used to use them for work in the eighties, when it would cost you $1,800 to get one for home use, but speak with fond longing about the user experience they remember.

When I tell these people that they can get back into Mac for as little as $600, they are completely flabbergasted. As in, never even conceived such a thing was possible, totally unaware. To me, that means that Apple isn’t doing its job right on the marketing side of things. Of course, word of mouth is probably part of the company’s marketing plan, but why depend on individual evangelists like me to spread pricing info when televised media is so much more efficient?

The Great Unmentionable

Apple has some very good reasons not to talk about price. For one, they can’t beat PC manufacturers in that area. There will always be a cheaper PC with better specs on paper out there. But talking to PC users, that isn’t as big of an issue as I thought it was. People who remember Macs from times past don’t care that you could get a better spec’d PC for the same price or better as the Mac mini. They care that Macs are so affordable as compared to their precursors from 20 years ago.

Another reason Apple might not want to talk about price is that it would be inconsistent with its branding to date. Apple’s computer products are targeted at a demographic that doesn’t list price as its top priority. The average Apple consumer is financially comfortable, and willing to pay for a quality product that sets them apart. “Think Different” really means “Buy Different.”

Getting Past Taboos

The fact is, Apple’s changed its pricing policy to target new growth and new demographics, and it should change its marketing strategy to be more in line with those new sales goals. A Mac mini commercial, done with all the usual Apple visual appeal, with a simple “Starting at $599″ at the end would do wonders for raising consumer awareness regarding pricing without diluting the strong brand Cupertino’s worked so hard to establish.

You can talk about features and reliability till you’re blue in the face, but if you want price-conscious consumers to listen, you’ve also got to talk about cost. If Apple really wants to convert new pricing structure into an exponential increase in sales, it would do well to make sure people know about it.

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For a limited time, Microsoft is offering students the opportunity to grab one Windows 7 upgrade to either the Home Premium or Professional versions of the upcoming operating system for only $29.99, the same price that the single-user version of Snow Leopard retails for.

That’s $90 cheaper than the Home Premium upgrade costs at regular retail prices, and $170 off the price of the Professional version. There is a catch, though. You need to have a valid student email address from a U.S. educational institution (college or university) in order to qualify.

AppleInsider claims that there are similar deals in place in the UK, Australia, Canada, France, Germany, Korea and Mexico, though I could only find a “Coming Soon” notice when I tried to change the country using a drop down menu at the top of the order page. Entering a valid Canadian university email address also got me nowhere.

Microsoft is very much aware that Apple’s student market share is one of the company’s most consistent strengths, despite recent incursions by low-cost netbook machines into that demographic. This deep discounting, and the accompanying 741.com micro-site on which it can be found show that Redmond is willing to go to great lengths to try to recapture some of the youth market.

If you’re planning on taking advantage of this deal using yours or a relative’s student email address to install Windows 7 on your Boot Camp partition, remember that the deal only applies to upgrades, not full versions, so you’ll already need either Vista or XP installed for it to work.

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There are elements of truth in Cook’s critique, but it’s nowhere near as cut-and-dried as he implies. Some netbooks are hopelessly mediocre, but the category also includes very nice machines with “chiclet”-type keyboards (inspired by the MacBook), respectably sized 11″ and 12″ displays, decent hardware quality, and better I/O connectivity than some Apple notebooks. Linux builds (especially Ubuntu) are getting better all the time, to say nothing of the forthcoming netbook version of Windows 7.

In a commentary last April, Computerworld’s Scot Finnie questioned whether any computer maker, even 900-pound gorilla Apple, can afford to ignore the netbook trend. Confirmation seems to be growing that it can’t.

Earlier this week, Sunnyvale, Calif.-based Retrevo, a consumer electronics search engine/portal, released a new “Gadgetology” study indicating that 34 percent of students buying laptops are planning to purchase small, lightweight netbooks. Another 49 percent will buy full-sized PC notebooks, but the majority of student laptop shoppers will not consider buying a Mac.

With the rumored Apple iTablet looking more and more like it won’t materialize until the first quarter of 2010, at the earliest, Apple has already missed out on the 2009 back-to-school buying surge, and probably the holiday sales season, too, at least as far as the low-cost market is concerned. Of course, it continues to do very well in the premium, $1,000-and-up laptop category, having just recorded the best non-holiday quarter in its history, selling 2.6 million Macs — most of them laptops.

“While Apple has done well historically in the education market, 2009 marks the dawn of the netbook,” commented Retrevo CEO Vipin Jain. “Students told us they wanted longer battery life, smaller size, and a lighter laptop. Fifty-eight percent of them plan on spending less than $750. All but 18 percent have a budget under $1,000. Netbooks are affordable — some costing only $170. In contrast, Apple laptops start at $949. At a time when many people are experiencing economic hardship, having a new Apple laptop isn’t a necessity.”

Personally, I think the iTablet will have a shot at competing with the netbooks and cheap PC laptops only if it:

a) Includes support for using a real keyboard and mouse (e.g., via Bluetooth or USB) in addition to its built-in touchscreen.

b) Runs the full-featured version of OS X 10.6 Snow Leopard and not just the stripped-down iPhone OS, and by extension, serious productivity applications.

c) Sells for significantly less than $800. A price of $679 being speculatively floated this week sounds promising.

What do you think? Has Apple missed the boat on this year’s back-to-school laptop-buying surge?

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Available today, the iPhone 3G can be purchased on the cheap for just $99. The new iPhone 3G S is available for pre-order via the online Apple Store in four varieties: 16GB in black or white for $199 and 32GB in black or white for $299. Apple has promised that if you pre-order today, it will be shipped directly to you and you will receive it on June 19.

This is the first iPhone model to be available via the online Apple Store web site for pre-order. If you choose to pre-order your iPhone, you can select your rate plan options via Apple’s web site, or log in and see your existing rate plan if you are a current iPhone user. Existing iPhone customers should expect an $18 activation fee and $18 upgrade fee. Then, users can choose to have their iPhone available for pickup at a local Apple Store or shipped directly to their door.

Though I purchased my iPhone 3G on launch day last year, according to AT&T’s records, I will have to wait until early December before I can qualify to upgrade to this iPhone at the advertised rate of $299 for the 32GB. This is different from last year, when Apple and AT&T allowed original iPhone owners to upgrade immediately without requiring owners to pay the higher price. Even though AT&T calls this an “early upgrade,” if you fall within this category, expect the 16GB iPhone to cost $399 and the 32GB iPhone to cost $499.

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How quickly we forget the way things used to be. It was only in early April when Apple introduced variable pricing in the iTunes store, and already we’ve learned to accept that nearly every “popular” song costs $1.29.

If you’re not familiar with the subject, here’s the issue in a single sentence: The Big Four record labels put the screws on Apple and forced them to hike up their prices. (The Big Four, by the way, is industry parlance for Warner Music Group, EMI, Sony Music Entertainment and Universal Music Group.)

Now, it depends on your level of cynicism as to how you interpret the details, but those who feel generous suggest that variable pricing is necessary in order to cover the cost of making iTunes music available to customers DRM-free. Critics feeling less generous argue that Apple bowed to pressure and now customers are getting screwed.

How so? Well, before April, every track on iTunes cost the same amount: 99 cents. In retail, that’s a sweet spot. Customers don’t think of it as particularly expensive, and it means old products that have depreciated in value can be sold at a higher price.

99 cents, it seems, suited everyone but the record labels, which — let’s face it — are dying. They’ve always been horribly short-sighted and slow at reacting to the digital age. First they tried to block digital downloads. Then they insisted on locking up digital media in what ultimately became poorly thought-out and unfairly implemented DRM protocols. (Remember Sony’s rootkit fiasco?) Finally, they grudgingly joined forces with online distributors but it took them years to make all their popular music available for download, and they were never happy with the one-price-for-all model favored by the likes of Apple, Amazon and Wal-mart.

So committed to variable pricing were they that back in 2007, Universal Music Group refused to renew its long-term agreement with Apple, opting instead for an “at will” agreement that provided greater flexibility and influence in the label’s dealings with other distributors. This was basically a pay-as-you-go agreement that allowed them to change their mind and bail at any time. Not good news for Apple, nor any other online music retailer treated similarly.

Now that the few remaining record labels are faced with their lowest profits in decades, they’ve finally agreed to take digital distribution seriously by removing DRM — but at the same time insisting distributors set very specific, varied prices. The labels loosely describe their prices as “geared to the popularity of individual artists.”

Former EMI executive Ted Cohen said of variable pricing, “This will be a PR nightmare. It is for the music industry what the AIG bonuses are for the insurance industry.” Nine Inch Nails’ outspoken Trent Reznor, meanwhile, said, “Wouldn’t it make sense to try to price it cheaper instead of squeezing the handful of people who are still willing to pay for music?”

So what? So some of the music costs about 20 cents more than before, but most of iTunes’ 10 million songs are still only a dollar. Why the outcry?

The Myth of Supple and Demand

Well, much of the furor is focused around the misconception that the prices are set by the record labels according to the economics of “supply and demand.”

In a report by Dawn C. Chmielewski in the LA Times, Russ Crupnick, a senior analyst for NPD Group says the variable pricing is the mark of a mature market that saw digital music sales top $1 billion in 2008. “If you’re not drawing new people and your spending isn’t growing, it’s a natural part of the product life cycle.”

While Chmielewski suggests the change in pricing reflects the natural condition of supply and demand in the market, critics have argued the iTunes store has an unlimited supply of music. As long as the Big Four keep renewing their contracts with Apple, any perceived lack of supply is entirely artificial and completely fabricated by those labels. So if the supply and demand reason is a misdirection, what’s really going on?

Valuable Junk

Another, far more duplicitous idea is floating around the Internet. It suggests that the Big Four strategically price tracks not, as you might expect, according to artist popularity (thereby maximizing revenue on the most-downloaded tracks at any given time) but instead use variable pricing as a means for influencing customers’ perception of value.

This means that a label can promote whomever they wish, irrespective of whether or not that artist is currently trending well in the charts. A contractually inexpensive artist could be promoted at the full $1.29, creating a perception of quality and value in the minds of customers. Conversely, an older, contractually expensive rocker who’s pushing for a bigger share of royalties or music publishing rights can be stopped in their tracks (no pun intended) with the death threat of “economy” pricing in online stores. Certainly the notion many customers have of 69-cent music is that it’s pretty rubbish. Particularly if the latest tracks from some unknown newcomer are appearing at full whack.

If this is true, variable pricing appears to be less about raw profit and more about maintaining control and influence over content producers in the music industry.

A Little from Column A, a Little from Column B

So which is more likely? Bare-faced price-fixing to squeeze every remaining penny out of customers? Or political wrangling in order to maintain control over artists? I suspect it’s a combination of both that makes variable pricing so appealing to the record labels.

What’s so sad is that the Big Four still don’t appear to have figured out that their customers aren’t the same people who, once upon a time, parted with hard cash to pick up a vinyl record. Customers know there’s a compelling alternative to unbalanced pricing — it’s called zero-cost pricing, or, more commonly, piracy. It’s immoral, unethical, illegal…and fast and easy. Random (and often ridiculous) prosecutions from the RIAA haven’t dissuaded a great many people from getting their music by less-than-legal means. As long as the labels insist on finding ways to manipulate and disrespect their artists and customers, illegal music downloads will continue to thrive.

We can only hope that the success of super-distributors like Apple will endow them with the financial and political might to force the labels to rethink their strategies. Steve Jobs’ open letter to the record labels certainly helped push them into DRM-free distribution far sooner than they might otherwise have managed under their own steam.

Variable pricing is still reasonably new, but already common at the iTunes Store, Amazon MP3, Lala, Rhapsody and Wal-mart (to name a few). It will take something significant to change it now — be that a mass slowdown in customer spending, coordinated pressure from online distributors or just the collapse of the few remaining major record labels. I suspect all of these things will happen, sooner or later.

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Negative Lookout For Netbook-less Apple

This week, ChangeWave’s Jim Woods and Paul Carton report that, according to their April survey of 3,231 consumers, they’ve picked up a jump in planned laptop spending going forward, led by escalating netbook demand. That’s not good news for netbook-less Apple. Nearly a quarter of respondents to the latest survey (23 percent) who plan to buy a laptop in the next three months say it’ll be a netbook, five points higher than in ChangeWave’s February sample.

The good news is that Apple’s premium-priced lineup has helped make it the most profitable company in the personal computer business. The bad news is that the company’s position in notebooks appears to be unsustainable if it wants to maintain or grow its market share and stay a significant player.

Apple Becoming The Bentley Of Personal Computers?

In a recent commentary, BusinessWeek’s Stephen Wildstrom observed that while Apple has long seemed to aspire to be the BMW of the computer business, these days it’s in danger of becoming the Bentley. He has a point.

For instance, while Apple’s Q1 2009 financial results last month recorded the company’s best non-holiday quarter ever, with over $8 billion in total sales and profits of over $1.2 billion, or 14.8 cents of profit for every dollar taken in during the period, MacBook sales actually dropped a whopping 22.1 percent in the quarter. One European study even reported that netbooks accounted for 30 percent of all notebooks sold in Europe during Q3 2008.

Apple Sweeps Consumer Reports Notebook Ratings

On the other hand, the June issue of Consumer Reports gives Apple’s MacBook family of notebooks top ranking in the 13-inch, 14-inch to 16-inch, and 17-inch categories, even though many of their competitors cost less. The 17-inch MacBook Pro got the highest rating of any notebook reviewed by Consumer Reports, scoring 80 points out of 100, and rated “Excellent” or “Very Good” in all tested categories, so Apple has to be doing something right.

So people like the notebooks Apple is currently making, but cost seems to be the primary factor motivating consumers going forward. There is pull in both directions.

Apple Delivers Value

Personally, I’m not feeling at all ripped-off for paying a premium price (by PC standards) for my new unibody MacBook, which is a delight to use. I could have had a Windows laptop with a larger screen and more features for hundreds less than I paid for the MacBook, but I would have got what I paid for: a generic PC. The MacBook isn’t perfect. I remain convinced that dropping FireWire was a serious mistake, and there aren’t enough USB ports, but aside from those points, I have no serious complaints.

The 2.0 GHz Core 2 Duo MacBook with Nvidia GeForce 9400M integrated graphics has ample power for my needs, has so far been reliable (admittedly early days yet), looks and feels great, with a standard of workmanship reminiscent of a fine Swiss watch.

Unfortunately, it’s evidently becoming more difficult to convince cash-strapped and recession-weary consumers who’ve never experienced the joys of Mac ownership that the added value for the extra money really is worth it, which is the nexus of Apple’s laptop pricing dilemma.

Moving Downmarket?

I’ve been an advocate of Apple moving downmarket in order to protect and hopefully grow market share, but I also agree with BusinessWeek’s Wildstrom that Apple is probably right to shun the extremely low-profit bottom end of the laptop category. However, there’s a good case to be made for Apple wading in to the burgeoning sub-$1,000 “thinbook” category that blurs the distinction between netbooks and notebooks — machines I call “crossovers.”

Wildstrom suggests that one netbook/crossover strategy Apple could employ would be a MacBook based on Intel’s soon-to-be released Consumer Ultra-low Voltage (CULV) processors, paired with Nvidia’s 9400M graphics as used in the current MacBooks, to create a 12-inch notebook priced at perhaps $800. I wholeheartedly agree, and can almost see 12-inch PowerBook aficionados dancing in the streets and lining up to buy just such a machine.

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We warned you that this day was coming (OK we were actually off by one day, but that only means you had more time to buy that coveted All-American Rejects track), and now it’s here: Apple has finally made good on their promise to introduce variable track pricing in the iTunes store. Songs now range from 69 cents to $1.29, with most still occupying the 99-cent mid-point that, up until today, was the only price tag available.

The pricing change just feels weird, but that’s probably because I’m so used to the old ways. For instance, I clicked on a Lady Gaga album (not because I was keen on buying it, honest) and saw that of the 14 tracks available for individual purchase, seven cost 99 cents and seven cost $1.29. I’m not really familiar enough with Lady Gaga’s career to say, but I suspect the higher-priced songs are singles or popular club songs. If you buy the whole album, you still pay only $9.99. Conversely, Flo Rida’s latest CD is $11.99, and every track costs $1.29 individually.

While examples of $1.29 songs are plentiful and hard to miss, I failed to locate even a single 69-cent song, despite checking Weird Al Yankovich’s back catalog and looking through a number of albums priced under $6.99. I was sort of hoping Apple would conveniently place a big, blinking button somewhere in the iTunes’ store that would lead me to the cheap tracks, but I guess they’re being coy about it. Or maybe it’ll become more of a limited-use promotional tool than a price point for general catalog items.

Only time will tell if the record labels have shot themselves in the foot with this new pricing scheme. One thing’s for certain: Flo Rida wants more of your cash.

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