Is the $199 iPhone Still Too Expensive?

iPhone Business Model

With the launch of the iPhone 3G, Apple dropped the price point to a carrier-subsidized $199 for the 8GB model. Naturally, that led the usual suspects to complain it wasn't cheaper. It should be $99. It should be free. They should pay us $199 to take it!

Somewhat -- if only slightly -- more seriously, however, that's pretty much what Apple Insider says Morgan Stanley analyst Katy Huberty's studies are showing, with fully 46% turning their nose up at the current price point. She claims that sales of the iPhone 3G were half as strong in September and October when compared to July and September, and suggests:

To spike sales, Huberty suggests that Apple should take a cue from recent rumors and halve the price to $100, which she believes could at least double iPhone sales numbers. Apple's prized profit margins likely wouldn't be an issue, she claims, as the company only needs to reduce the cost of manufacturing and selling an iPhone by 17 percent to achieve the intended effect.

In addition to the launch buzz, pent up demand due to lack of iPhone 2G supplies prior to 3G launch, Kaufman analyst Shaw Wu points out that gift cards for the iPhone may cloud holiday numbers, with revenue from those sales not being counted until the iPhones are actually picked up and activated later.

Of course, everyone loves free stuff. However, few people would want to work for free or give away what they make without recompense, but who ever said the intertubes (and analysts) have to be self-consistent? So the question remains, is the $199 iPhone still too expensive? If so, what price should it be?

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Rene Ritchie

EiC of iMore, EP of Mobile Nations, Apple analyst, co-host of Debug, Iterate, Vector, Review, and MacBreak Weekly podcasts. Cook, grappler, photon wrangler. Follow him on Twitter and Google+.

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Reader comments

Is the $199 iPhone Still Too Expensive?


Considering that the 8GB iPhone is free on a 45 pound/month (68 USD) contract on O2 in the UK , I would expect the same with AT&T.
With AT&T in comparison I have to pay $200 for the phone plus a minimum of $75 per month for the same (or almost same) deal.
I don't mind paying $200 for the iPhone, but I do mind paying $200 + 35 for internet which is mandatory. I would either pay $200 and NOT pay for mobile internet, OR I would get a free iPhone and gladly pay the $35/month for mobile internet. Not both.
The fact that the phone is SIM locked adds insult to injury because in addition to paying a mandatory $30 month (and paying $200 for the unit), I can't even unlock it for when I travel.

yeah they should offer it for lower starting price.... if your like me you also paying 20 more dollars a month for unlimited texts... but i was able to get a discount on my phone plan because im a student at rutgers university... you guys should look into that att has a lot of discount for business owners and especially for students

I paid $200 for my iPhone, and I pay $75 a month to AT&T. I couldn't be more satisfied with both. Savin' up for the iTablet now!

No, it's not too expensive. But the $30 monthly data charge is, effectively adding $720 to the cost (for 2 years).
Why the continued fascination on whether the cost is $99 or $199, when you really should be saying, $819 or $919?
Paying $819 or $919 more to get an iPhone over a Razr is what it comes down to. The total is just too much for many people.

a $99 iphone almost borders on predatory pricing.
are there actually people out there who would spend 99 dollars on the phone, but not $199, who would also be able to carry the monthly charges?
i actually wouldn't mind seeing the device given away for free with the plan though, because it puts the focus more on the monthly plan and would make people consider their monthly budget a bit more.

i think a 99 dollar iphone would create alot more impulse buys . most people will be like wow i phone for 99 dollars .. it deff seeems like a great deal at first. until you get into all the monthly charges. i do love my iphone though and think its worth it

I think $199 is fine for the phone. I didn't complain at all. If you want a top of the line device then you should be be willing to pay top of the line dollar for it. Now At&t monthly charges is another thing. There iphone data plan charge of $30 is horrible, but.....we all knew that when signing up and we wanted the phone bad enough to accept it.

I am willing to plop down more money for a smartphone. I've easily spent $500 (HTC Blue Angel), and $1000 (SE P800) for smartphones. I am considering the Nokia N97 @ $700. The benefit to these phones was and is that I choose the features that I wish to add (data or no data) and they are SIM free.

"as the company only needs to reduce the cost of manufacturing and selling an iPhone by 17 percent to achieve the intended effect."
...17% is a pretty big percentage to be shaving off the cost of manufacturing and selling a product. Maybe not if Apple is making an exceptional profit off of the subsidized phones, but, speaking from my own business, that would put me in a situation where I lost money per product sold...I wonder exactly how much Apple makes per subsidized iPhone sold?

Here in Belgium a black 3G 16 Gig iPhone costs a whopping 615 euros ... reading this discussion about 199$ being to expensive makes me laugh ... well no ... it makes me cry :) ...

I can't speak for what it would do for sales, but for me personally I think having a more expensive iphone but unlocked available in the US would be more usefull. I am a developer and I haven't switched to the 3g iPhone for 2 reasons:
1) with my 2G iPhone I can use a pay as you go plan which is 50$ (including internet but excluding taxes) per months, the minutes are more expensive but I don't use the whole lot of them. Moving to a 3G iphone would mean adding 20 dollars/months on a 2 year contract
2) I am a foreign national and will move back to my country in 6 months so there is no way I will buy a phone which I will then not be able to use in my country

Your getting ripped off over there! I got the iPhone free on a (AU) $52, 24 month contract. It wasn't even the cheapest deal, suited me for coverage though. Difference is we have all networks offering it here, so there's competition.

Well here in The Netherlands the 8gb was 80 euros and now it is 1 euro. Those prices are with unlimited internet and 150 minutes and sms'es at 29,95 a month. So compared to the US it's prtty cheap here and t-mobiles 3g here is great for me.

I hope this will not piss off too many people but here, in France, the 16GB costs 129euros (99euros for 8GB) and one can choose any plan from the Orange carrier!! Oh, and after 6 months (100 euros before that) Orange is obligated to unlock the phone for free on request!!!

I'm not sure the comparisons people are offering are legitimate. Sure, the phone may be free, but for most of us, it is unrealistic to pick up and move for a iPhone 3G. The better discussion is: what do competitor touch phones sell for in the USA, and what are the prices for the data and voice plans for those competitors vs. AT&T? You'll find that AT&T's plans are competitive here in the USA, and that data plans and SMS plans are a rip-off, yet one that most of us cannot live without.
I hope a $99 4GB iPhone finds it's way to the marketplace. That device would be competitive with other touch devices, and would lure MANY to the iPhone. People that see mine, but recently renewed with another vendor (past 30 days) and phone regret their choice. I hear this over and over again.
And we don't worry so much about the plan prices here in the USA, we worry about coverage and price of the phone. It's silly, but that's what we do.

People are going to find something to complain about regardless. You can't please them all. $199 is NOT too expensive at all. That's actually a fair price compared to other handsets. Take the HTC Fuze for example. The phone is $399, then 3 months later (if you're lucky) you get a $100 Visa gift card. That's still $100 more than the iPhone. If you want the Tréo Pro, since at&t isn't selling it yet, you're stuck paying $549! So I don't think $199 for an iPhone is really anything to complain about. If you want a phone for free, the carriers have quite a few of them...just don't expect any cool features unless they maybe have a refurbished out of date model phone.

if your going to buy an iphone becuase its 99 dollars in stead of 199 thats retarted because the monthy plan is still going to be atleast 70 dollars mines 90 cuase i have unlimited texts but i got a discount because im a student so its more like 80 but still ... if the extraa 100 dollars that is stoping u from getting an iphone for 199 then honestly its not the phone for you but ur gonna have to dish out a hell of alot more money then that for monthly service... i dont forget thet extra 70 they steal out of ur bockest for insurence

I don't think it is too exspensive. i mean the fact we have to pay 30 a month for internet is kind of pricey but i could care less. cause it is much better than my old shadow i had before i came to att. i also get a discount cause i work for wal mart so that is always nice.