The consumer cost of the iPhone
4 Comments
Everyone is all abuzz, as they always are, about Apple's latest product news, in this case the $199 3G iPhone. As expected, the focus is on the price: $199 for an iPhone! What a deal!
Yet it's not that great a deal. The entry price has been lowered but not the true cost. Of course, Apple and AT&T know this; it's the foundation of the cellular industry, and AT&T Wireless is happy to exploit it here.
Full disclosure: I am a wildly satisfied iPhone owner. I'm not buying the new one, though, in part due to the economics. Here's why.
The current (now previous) iPhone cost $399 for the device and $20 per month for a required AT&T Wireless data plan. Over the life of a two-year (24-month) contract, the total cost of ownership amounts to
399 + (24 x 20) = $879
This number excludes taxes, regulatory fees and marginal inflationary adjustments, but it's an accurate gauge of what Apple and AT&T get from the consumer across two years.
For the new phone, the price drops to $199, but the monthly data fee has risen to $30. Sounds small, but over the course of two years, guess what?
199 + (24 x 30) = $919
By the end of two years, total cost of ownership for the new phone is actually higher for the half-price iPhone. Apple managed to get monstrous press coverage of its $199 price point with little mention of the data charge, which substantially affects the equation.
Now, I'm obviously simplifying a conversation with many other variables. (For example, over two years, "real cost" including inflation and float may benefit the monthly plan; people who renew contracts in less than two years have altered ownership costs; etc.) But my point is simply put: list price and true cost are not the same, and the 3G iPhone is no cheaper than its predecessor.
Yet it's not that great a deal. The entry price has been lowered but not the true cost. Of course, Apple and AT&T know this; it's the foundation of the cellular industry, and AT&T Wireless is happy to exploit it here.
Full disclosure: I am a wildly satisfied iPhone owner. I'm not buying the new one, though, in part due to the economics. Here's why.
The current (now previous) iPhone cost $399 for the device and $20 per month for a required AT&T Wireless data plan. Over the life of a two-year (24-month) contract, the total cost of ownership amounts to
399 + (24 x 20) = $879
This number excludes taxes, regulatory fees and marginal inflationary adjustments, but it's an accurate gauge of what Apple and AT&T get from the consumer across two years.
For the new phone, the price drops to $199, but the monthly data fee has risen to $30. Sounds small, but over the course of two years, guess what?
199 + (24 x 30) = $919
By the end of two years, total cost of ownership for the new phone is actually higher for the half-price iPhone. Apple managed to get monstrous press coverage of its $199 price point with little mention of the data charge, which substantially affects the equation.
Now, I'm obviously simplifying a conversation with many other variables. (For example, over two years, "real cost" including inflation and float may benefit the monthly plan; people who renew contracts in less than two years have altered ownership costs; etc.) But my point is simply put: list price and true cost are not the same, and the 3G iPhone is no cheaper than its predecessor.
Labels: apple, business, cell phone, iphone, marketing
You know you're buying one. Just admit it.
And again, my point is not that the $40 additional isn't worth it; it's that the "$199 cheep!" iPhone will ultimately cost its buyers more than the seemingly costlier $399 one.
They actually went over this math on MacBreak Weekly - the suggestion is to take the difference on the up front price, and invest it in Apple stock. They project you should be able to make more than $40 on it in 2 years, leaving you in the black.