iPhones Are Really F*cking Expensive

By Phil Downing

Before you go and blow all that hard-earned cash on car and mortgage payments maybe you should use that money as collateral on a new loan for your cell phone.

The Apple iPhone, which combines the technologies of an MP3 player, cell phone and the Internet, was released to the public June 29, 2007 for the whopping price of $599. The device that is widely considered a revolutionary invention, was developed in a deal that was unique and revolutionary in its own right.  Apple approached AT&T with a proposition: Apple creates an advanced smartphone that creates synergy between mp3 players, the Internet and cellular telephony while AT&T pays for the development of the device in return for 5 years of exclusive selling rights. This deal deviated from the classic relationship of cell phone developers and service providers by turning the structure of the industry on its head.  Historically, service providers had controlled what phones and features a developer would create by threatening to withhold access to service. Now, service providers cannot control the market and instead are seeking joint ventures with cell phone developers.

After following through on its deal with Apple, AT&T reportedly invested over $150 million in the development of the first generation iPhone.

Although the iPhone was produced by Apple and AT&T, the phone is manufactured by Foxconn, a contracted manufacturer based in Taiwan. Foxconn also manufactures the iPod and iPad for Apple.

The original generation iPhone cost $599 on its release date. However, to the dismay of many tech-head early purchasers, the price dropped by $200 within two months of the phone’s release to target a bigger audience.

The third generation (3G) iPhone models are sold through AT&T from prices ranging between $199 and $99. At first glance the iPhones prices do not seem extremely high for such an advanced phone because AT&T subsidizes most of its cost, paying Apple around $300 per iPhone. The price reductions for the iPhone 3G and new customers momentarily allowed Apple to become the third largest cell phone company in the world by revenue when it surpassed Research In Motion’s Blackberry in 2009.

However, what many customers fail to see is that the earlier stipulated prices are only available if you ink a new two-year service contract with AT&T and pay an additional $30 per month for data charges (an extra $720 over the two-year contract).

The increased service plans have bolstered major increases in AT&T’s profits.  According to Nielsen ratings 98% of iPhone users have data plans. Nielsen also says that 88% percent of iPhone users operate the Internet on their phones (4x as likely as other phone users), which AT&T collects fees for.

The iPhone can be seen as a high-end commodity, as 40 percent of iPhone users have an annual income of over US$100,000. Apple targets a global consumer base for the iPhone by selling it in over 80 countries. Aside from geography, the iPhone has a widespread audience across all ages.

Despite hefty price tags, there have been 33 million iPhones sold worldwide, 6.4 million of which were bought in the United States. The iPhone 3G and 3GS versions are the highest selling models of the phone worldwide, outselling the first generation iPhone in its first quarter of availability.

Despite a recession people are willing to fork over a lot of money for the new must-have commodity. The iPhone is mainly owned by high income consumers. Even though the price of the iPhone has gone down that is only because AT&T is paying for part of your purchase in order to rope you into paying them even more money over the next two years. No matter how low the initial cost is, the iPhone is still a really expensive cell phone.

June 29, 2007

revolutionary invention

smartphone

deal

Foxconn

the price dropped by $200 within two months

Apple to become the third largest cell phone company in the world by revenue when it surpassed Research In Motion’s Blackberry

increases in AT&T’s profits

Nielsen ratings

80 countries

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