iPhone 3G: It's Not About TCO, It's About ROI

Top 5 Reasons I\'m Upgrading to iPhone 3G

I should have put this into my post yesterday about the Top 5 Reasons I'm SO Upgrading to the iPhone 3G, but it didn't completely sink in until just now that this was really an issue for some people. It was that off my radar -- but I guess it shouldn't have been, given this is the blogsphere.

DaringFireball did the math and figured that, even if the iPhone 3G costs some $200 less upfront than it's 2G ancestor, due to AT&T charging $10 more per month for 3G data, and potentially $5 more for SMS, that works out to $240 or $360 more over the course of the mandatory 2 year (24 month) contract, and ends up making the overall TCO (Total Cost of Ownership/Operation) some $40 to $160 more for the iPhone 3G than the previous generation model.

But here's the thing. TCO is only one buzz acronym. Another is ROI -- Return on Investment. No cell phone at all is cheaper than the iPhone, but what functionality do you give up by not having a mobile device? Dial-up (analogous to 2.5/2.75G EDGE service) is cheaper than broadband (analogous to 3G HSPDA service), but what amount of productivity (not to mention patience!) do you lose to the slower speed? Cell/Wi-Fi "triangulation" is included in the old iPhone, and thus cheaper than the A-GPS in the iPhone 3G, but what features -- including new App Store apps -- will you lose out on by not having precise location services?

There will always be cheaper. You can probably pick up a great deal on a 486 running Windows 3.1 if you look hard enough. But cheaper is not always better. If it was, that Internet University that keeps spamming everyone would look better on a CV than Harvard, Starbucks would have gone broke long ago, and a Yaris would smoke the Reventon on a straight away!

In the end, you typically get what you pay for, and new usually costs more than old (until newer comes along and continues the cycle). AT&T (and other carriers) are no doubt subsidizing the heck out of the iPhone 3G, and are making that money back via the service plans. That's their business. Our business is deciding whether the handset that comes with that service is worth what they're asking for it.

$40 over 2 years for an iPhone 3G? For that investment you get a 3G speed and A-GPS location services (not to mention a flush headphone jack!) return.

TCO be d@mned, that's a pretty compelling ROI.

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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

iPhone 3G: It's Not About TCO, It's About ROI


No way, Rene... lol. The improvements between 2G and 3G simply aren't compelling enough. So many people are already saying "I'll wait and see", that 4Q 2008 or 1Q 2009 will no doubt bring about a better model. Just like the 4GB 2G was discontinued after two months and the introduction of a 16GB 2G in 1Q 2008.
If you don't HAVE an iPhone on the other hand... well, then you should be all over the 3G, because it really is a bitchin' device.

Our business is deciding whether the handset that comes with that service is worth what they’re asking for it.

I would not recommend the 3G iPhone with it's current pricing structure. It's overpriced.

Yes, the near enslaved Chinese laborers who barely sustain what are jokingly called lives so that 1st world countries can complain about bargain-basement toys being overprices would certainly agree...
Also, a Ferrari should cost a nickel!

You forget the price of freedom in your equation. How much value does one lose when buying the 3G phone, locking into a 2-year contract, and a year from now, Apple comes out with a new version of the iPhone with much better hardware. You won't be eligible for an upgrade, and will have to pay a premium price for it to get it. The best ROI is to hold onto the original iPhone and wait for a more compelling reason to upgrade. Also, there's no reason to believe that location-aware apps will require the GPS to work. All they need is to access the location returned to the iPhone, regardless of how that's obtained. On the other hand, if one doesn't have an iPhone already, I think getting the 3G iPhone wouldn't be unwise.

Seeing as how at&t is allowing anyone that purchases an iPhone 3G to do an "early upgrade" to receive the discounted pricing of $199, one would assume that they'll do the same when the next one comes out. Remember, people that entered contracts and bought an iPhone 2G a year ago are still not out of contract but can still purchase the iPhone 3G at the upgrade price of $199.
at&t has stated that there will be a "no commitment" price for the iPhone 3G but it hasn't been determined yet.
Also keep in mind that this new internet and text pricing is nothing special for the iPhone 3G. Sure, it's more expensive than the plan you get with the iPhone 2G, but the 3G pricing is just as expensive as any other smartphone would pay. at&t has just leveled the playing field and made iPhone owners pay the same thing that everyone else is paying. Boo hoo.

Another thing about 3G smartphone pricing. A lot of people think that because you have a 'Smartphone', you must have the 'Smartphone' plan. AFAIK, the Smartphone plan gives you a static IP. I'm not sure why you need a static ip... maybe push email sometimes tries to contact the phone itself? Shrug.
In any case, I had an 8525, and used the unlimited Medianet plan, which was 20 dollars per month. I got 3G speeds, and it cost as much as the iPhone.
Supposedly, you have to use the proxy stuff with medianet, but I could always shut that off on my phone. Perhaps data went through a transparent proxy as well, without me knowing it?
I didn't even have trouble getting the plan turned on. They did it over the phone without even questioning me. The guy even gave me free text messaging for several months for no discernible reason.

TCO is a lot more than $40. It's just $40 (to $160) more than the TCO of buying a new gen 1 iPhone. For those of us with perfectly good gen 1 iPhones already, the TCO difference over the next 2 years is $199 price (minus whatever we can get for our old phone) plus $240 (to $360). But for someone who has no iPhone, it's a good deal. I'm just not convinced that it's worth upgrading yet.
You say new is almost always more expensive. That's probably true of wireless service but is not true with technology in general. With technology newer is often cheaper. Look what kind of iPod you can get today for $350 compared to what cost $600 in early 2005. Look at HDTV or memory card prices.

@Michael: sure AT&T is "letting" current iPhone customers upgrade to the new iPhone without penalty- the first iPhone was not price subsidized. In fact it's a total win for AT&T because they exchange a $20 data plan which they have to revenue share with Apple (rumored to be as much as $10/mo to Apple) for a $30 data plan that goes straight to their pockets. That in no way means that they will offer the same sweet upgrade deal next year to those who paid the subsidized $199 price for an iPhone 3G- in fact I highly doubt it. AT&T lets users take advantage of subsidy discounts once every 2 years only. If you want to upgrade to a new phone mid-contract you have to pay the unsubsidized price.

Yup... exactly as I thought.
By the way, there will not be a "no commitment" price. Everyone that buys a 3G iPhone HAS to sign a new contract extending them 2 years from that day. Read the leaked At&t memo again, and pay attention. The price for "ineligible" people is "to be determined," that much is true. The next sentence clearly states that there will not be a "no commitment" price though.

this is exactly what ATT is banking on all of us believing. this is the reason they feel they can increase the plan price.

They are not increasing the plan price for any reason other than to bring it in line with their other PDA/Smartphone plans.
From the day they rolled out their 3G network, their data plan was $30 for all PDA/smartphone devices regardless of whether that device was 3G capable or not. Why is this so hard to understand. The first iPhone got special treatment because of the scenario surrounding it. This one is different, and as such, it is not receiving the special treatment anymore.
I don't understand why everyone thinks At&t is out to get them just because At&t is charging the same thing for iPhone data that they charge for WinMo device data, or BlackBerry data...
Go look at their rate plans and see for yourself. The first gen iPhone was the ONLY PDA/smartphone to be less than $30 a month for data, and was the only one to include texts. It wasn't because it was EDGE either. The Palm Centro is an EDGE device, and it still has the $30 rate plan. No, the first iPhone data plan was $20 due to the revenue sharing agreement and the unsubsidized price of the device. Both those things are gone now, so the data price has simple been brought inline with all their other PDA/Smartphone devices.
This is not rocket science. Why does everyone think it is representative of At&t being the evil empire, or Apple trying to steal your soul?