iPhone 3G: Apple Re-Invents the $99 Budget Smartphone

iPhone 3G $99

There's a "budget" smartphone category that has so far revolved around devices like the Palm Centro, BlackBerry Pearl, and a host of Windows Mobile devices like the Samsung Jack -- basically scads of devices aimed below the fat wallets of enterprise.

Typically these devices are small to the point of being cramped, with tiny keyboards or work-arounds like T9 or SureType, and are low-margin for manufacturers -- sold more to grab new users, bolster market share, and create brand awareness than to serve as mobile computers for the internet age.

Well, Apple has just shot a cannonball through the heart of that smartphone category -- the iPhone 3G at $99.

At least that was our editor-in-chief, Dieter Bohn's reaction when we spoke following the big WWDC 2009 Keynote. And I think he's right. Here's why:

Come next week on AT&T (and Rogers and other carriers that match the price point), for $99 you'll be able to get a full-on 8GB iPhone 3G running iPhone 3.0 software.

That's not an iPhone nano or mini, not a stripped down, poorly built, cramped, barely functional budget smartphone, mind you, that's the same phone that until last Monday's WWDC Keynote was arguably one of the most advanced mobile computers on the planet. It's the lower storage version of the hardware that shipped over 10 million units and has 50,000 apps ready to run. Never mind Apple branding and a super-slick user experience.

For $99.

Whether or not the price point remains, or it lasts only as long as current supplies, this has to send Palm, RIM, HTC, and others into panic mode. Palm, for example, has show quarter after quarter losses on the Centro even in the budget category, and Apple will still be making margins on the iPhone 3G.

Will this put downward pricing pressure on next generation devices like the Centro-replacement, webOS-powered Palm Eos? Will it force RIM to offer BlackBerry Tour-like features at Pearl-sized prices? And even if they do, with multiple form-factors and networks at play, can they achieve the economies of scale and maintain realistic margins at that price point? For companies like Palm, whose financials are still shaky at best, these become critical questions.

Which brings us to the elephant in the budget smartphone room:

If Apple is selling the iPhone 3G at $99, what does that do to premium devices like the Palm Pre, BlackBerry Bold, HTC Touch Pro 2, etc.?

Certainly not everyone, but just as certainly some budget-conscious people who were considering a new premium smartphone might just decide to save themselves a hundred -- or several hundred -- dollars and get an iPhone 3G at $99 instead...

Have something to say about this story? Leave a comment! Need help with something else? Ask in our forums!

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

iPhone 3G: Apple Re-Invents the $99 Budget Smartphone


This could be the smartest thing Apple has ever done. I like the price point. I wonder if it will hurt 3GS sells. I hope it does, then maybe we can get a real update to the 3g.

I agree. Now...if ATT would do some kind of entry level, capped, etc. data plan for this same segment of people who would jump on these $99 iPhones...that would just be killer!

I agree this is a great entry point, but I think the biggest issue is the data plan. $30 + $5 for the minimum 200 texts is going to scare off a lot of people. If they offered a capped data plan with some number of texts then I could see this taking off. Or if they actually sold it with texting plan only and no data plan (never gonna happen I know!) then they would sell a TON! From friends I know without iPhones the data plan is more of what scares them off than the upfront cost of the phone.
In my mind if you are going to have the same monthly data charges with either a 3G at 8GB and a 3GS at 16GB + some other improvements (voice control, digital compass, NIKE+, speed, etc) then it really ends up being a question of $4 a month for 2 years to justify the $100 difference. To me a no brainer, go with the 3GS.

Too bad its a year old and slow compared to devices like the Pre or even iphone 3GS. Oh and you still have to pay the same insanely priced AT&T plan?
C'mon...Palm could easily offer the Pre at 99.00 next year as well as keep the same prices for a Pre2. But it would be dumb.
How many people are going to pay for last year's tech when its just another 100 to get current? Especially when they're already paying close to a 100 a month for the plan?

@cardfan: Probably more than you imagine. $99 is a HUGE psychological barrier for mainstream, non-enthusiasts who might now consider this over a feature phone.

People will look at the initial outlay to spend.
The real pricing difference is in the TCO (total cost of ownership).
That could mean about $1k. That's what the competition will drive to the newbie user.
And their right, if it's just for a phone.
It's taken me 6 months of iPhone usage to find a couple of apps that locks me into the iPhone.
Now, it's almost irrelevant what new hardware is out there.
"Can't touch this".

It's $0 upfront and $59/month here in Australia, because all the carriers offer the iPhone here! There's talk of it dropping to $49/month, and maybe even $29/month lol

Data plan is still too expensive for many people who would buy a $99 phone. Then throw on $5 for only 200 texts.

it is almost predatory to sell a phone with that cost per month for 99 dollars.
if they gave them away for free and increased the per month cost to compensate, people might make a more informed decision with the monthly costs more in mind.

Apple and AT&T will suck in people with the $99 3G who are not used to pay $30 for a data plan on top of the calling plan. They look at $99, think it is a great deal and are later "surprised" when they receive the monthly phone bills. Yes, they should read the contract - unfortunately, a lot of people new to mobile data do not understand the (costly) implications until they receive their first bill.

something else to consider is the GPS cabability. Standalone GPS devices are what...200 bucks for the most basic ones?
Why would anyone purchase a GPS when you can get the whole package in an iphone?

This is going to be a huge issue for the Death Star when the $99 consumer drops their phone like it's hot when the USPS drops off their first bill...
One of my neighbors has 5 lines of service...all smartphones, including 2 iPhones, BUT NO DATA...I mentioned to him a few months ago to be prepared for ATT to do an audit, adding data to his 2 iPhones...he said he wasn't worried...lo and behold his bill came in at $500 from 180...over 2 hours on the phone with the Empire netted him a credit, but also 2 new data plans at $60 per month...He says he's looking at Tmo now...and not planning to pay any ETFs...
Not to be stereotypical, but the average $99 consumer won't spend ANY time on the phone with the Empire...bright side is people will soon be able to pick up iPhones off CL and Ebay for cheap...
We have already seen it happen with Tmo and the G1...people returned them or just stopped paying the bills when they realized the monthly cost...

By the way RIM did this a while back with the Curve for $99. They also did a buy one get one free with Verizon. So in essence Apple is not the first one to do this nor did they re-invent a budget smartphone market.