Back when the iPhone was first launched (only a year ago!) we were at best lukewarm about it as a web worker tool. One of our objections was bang for the buck: the announced price of $499 for 4GB and $599 for 8GB just seemed steep. In September, Apple killed off the 4GB model and lowered the pricing on the 8GB phone to $399. Now, they’re back to two pricing tiers, with the addition of a 16GB iPhone for $499.
It’s not clear how many people were holding off the purchase of an iPhone for extra RAM; they’ve been selling like hotcakes, despite our earlier skepticism. But it’s possible to make some guesses about Apple’s long-term strategy from this move.
First, the pricing suggests that Apple has determined $500 to be the “squeak point” for the iPhone, the point at which people will part with their money without squealing too much. Within that price envelope, they’re apparently happy to make hardware improvements that don’t hurt their margin. RAM was an easy one to do right now: pricing on the NAND flash memory that the iPhone uses is down 75% from last summer, so a 16GB phone now probably doesn’t cost them much more to make than a 4GB phone did in July. Indeed, they may even be making more profit on the 16GB model than they did on the 4GB phone when it was introduced.
The corollary to this is that we’re less likely to see hardware changes that would either push up the price over the $500 point or compromise the iPhone’s functionality. Apple is notoriously cagy about future product plans, but those waiting for a high-resolution camera or 3G connectivity (which would come at a cost to battery life) should probably not be holding their breath.
Second, timing. Why this upgrade now? The most likely driver is the release of the iPhone SDK, already out with some developers and slated for general availability this month. Our guess is that there are some third-party applications already far advanced on the drawing board that would like to take advantage of a larger storage pool for document management, gaming, image processing, or other uses. Watch for some applications to ship “strongly recommending” the latest – and largest capacity – iPhone when they come out.