Interesting take from the Macalope this week with regards to the ongoing confusion and resentment surrounding current iPhone 3G owners and the price they’ll likely have to pay when upgrading to the iPhone 3G S on AT&T. See, the Macalope believes both sides of the debate have it wrong:

[AT&T fronting part of the hardware costs to Apple] isn’t a “subsidy” by the traditional definition. It’s a loan. AT&T is loaning you the money to buy an iPhone and you’re signing a contract to pay it off over the next 18 months. If you decide you want out of your loan, you have to pay a buyout. [...] See, AT&T gets its money one way or the other. Nobody’s “subsidizing” anything.

Even if it is more of a “loan” than a “subsidy”, though, does that make understanding the pricing model easier?

Also worth reading, In typical fashion, the Macalope thoroughly gores PCMag over their WWDC take-away — using ponies, and their reaction to today’s Safari 4 download numbers.

This is a story by the iPhone Blog. This feed is sponsored by The iPhone Blog Store.

AT&T Offering “Loans” not “Subsidies”?

No such thing as a free lunch. You don’t get something for nothing. Yesterday we linked to Gizmodo’s response to iPhone 3G owners “whining” about not getting a second bite at the cheap subsidy pricing for the iPhone 3G S.

Bottom line, you got your discount last year in exchange for a 2 year contract. That contract isn’t done in full yet, so you don’t get a discount in full yet.

But that got me thinking. I asked this on Twitter and am getting mixed reaction, so I’ll ask it here:

What if AT&T offered you full, subsidized pricing anyway ($199/$299) in exchange for another 2 year contract? No, not 2 more years starting now — that still costs them a year — but an additional 2 years after the current contract expires, for 3 years total from iPhone 3G S release.

Here’s the math: 2 year current contract – 1 year completed = 1 year + 2 years new contract = 3 years total.

Sound crazy? Rogers in Canada has all iPhone 3G owners on 3 year contracts already. 3 years are normal in some parts of the world.

However, the idea clearly doesn’t scale, does it? If AT&T offers an iPhone 3G S+ with iPhone 4.0 next year, the same math and model would mean you’d have to sign for a 4 year contract to get subsidy pricing (original 2 years – 1 year + 2 years – 1 year + 2 years = 4 years total).

Sure, it looks nice and linear — matching OS version numbers even — but not it’s not realistic long-term. Who’s going to offer or sign a 6 year contract for iPhone X running 6.0?

Still, for just this year, would you fully re-up it to get the iPhone 3G S at full discount pricing?

This is a story by the iPhone Blog. This feed is sponsored by The iPhone Blog Store.

Would You Sign a 3-Year AT&T Contract to Get iPhone 3G S at $199/$299 Subsidy Pricing?

AT&T and other carriers subsidize the upfront cost of the iPhone and other smartphones and make up the difference via guaranteed long term contracts/commitments. That’s their business model, but it means they can’t and won’t give repeated subsidies until you’ve finished the associated contract terms. With many iPhone 3G owners — still under contract — eyeing the iPhone 3G S, and the non-subsidized price it brings with it, a fair amount of anger has been plasma-cannoned in AT&T’s monstrous direction.

Gizmodo’s Jesus Diaz, however, gives a nasty spoonful of reality medicine to those of us who bought heavily subsidized iPhones last year, and are upset we can’t get the same subsidy again this year:

The fact is that the $199/$299 price tag for the iPhone is the result of AT&T’s—or any other carrier, since the situation is the same all around the world—subsidy. Without subsidy—and tying you to a new two year contract—the iPhone is not different from something like the Nokia N97, which is $700 unlocked. Or the contract-free, unsubsidized iPhone 3G itself: The iPhone 3G costs $770 and $877 unlocked for the 8 and 16GB versions.

He goes on to kick the telcos heartily in their nether-regions as well, pointing out their exorbitant monthly charges, but takes issue with the sense of “entitlement” in modern consumer culture.

If you don’t like it? His advice is to not buy the new iPhone 3G S and wait until next year when you can get a subsidy.

(I’m locked into a 3 year contract which currently has an early termination fee of ~$500, so I feel that pain…)

And in the mean time?

do the rest of the world a favor and stop whining about what you are entitled to. We don’t live in your pretty me me me ME world.

NB: Delayed MMS deployment and lack of anything approaching information on tethering, however — totally AT&T hate worthy…

[Via Daring Fireball]

This is a story by the iPhone Blog. This feed is sponsored by The iPhone Blog Store.

Gizmodo to AT&T Upgrade “Whiners”: You Got Your Subsidy Last Year

The original iPhone 8GB launched with a hefty $599 price tag, though it dropped to $399 a short time later. Though contract details were never disclosed, some pundits and analysts have estimated that AT&T paid Apple up to $15 per month, per customer, in revenue sharing. Over the life of a 24 month contract that would be an additional $360 for a grand total of $959 (later $759) per iPhone!

As both Casey and I have discussed before, the new iPhone 3G 8GB dropped at a super-reduced price of $199, and while again no contract details have been released, it’s universally believed to be carrier subsidized up front.

So, rather than a little bit of money each month for 2 years, Apple is now getting a big chunk right away. How much? The estimates are starting to come in:

[Oppenheimer equity research analyst Yair] Reiner said he also believes that AT&T is paying Apple an extra $100 for each new subscriber to AT&T signed up through Apple’s brick-and-mortar stores, for a total commission of $425. That data point alone suggests that the analyst believes AT&T is also paying Apple the $325 subsidy on phones Apple sells.

If accurate, the iPhone 3G would give Apple a total of $524 per unit if AT&T sells it, and $624 if Apple sells it themselves. Not as much as before, but since its all up front, and economies of scale means they might be producing them at a lower cost (in greater volumes), not to mention the HUGE upside of putting market share ahead of profit, it could still be worth far more to Apple than the previous deal.

Though not the business model some of us expected, it seems Apple is serious in gunning for those low sticker-shock sales.

It should be noted, however, that not everyone is jumping on the $325 number. Scott Bourne argues:

[T]he early termination fee for the iPhone is $175. If the subsidy were $325 – that would be the early termination fee.

This is a story by the iPhone Blog. This feed is sponsored by The iPhone Blog Store.

AT&T Paying Apple $325 to $425 per iPhone 3G in Subsidies?

[Updated following Phone Different Podcast #19, see below!]

Way back in February, Apple’s Chief Operating Officer, Tim Cook said:

“We’re not married to any business model.”

At the time — and it’s scary how long ago it seems already — the iPhone was only available in the US, UK, Germany, and France, with rumors of Ireland and Austria waiting in the wings. What’s more, these were all exclusive deals, with Apple doing their best to lock the iPhone down to single carriers in each territory in exchange for lucrative — and unprecedented — revenue-sharing deals that some have estimated could be netting Apple up to $15 per month, per subscriber.

So, with a potential billion dollars on the table, while they weren’t married to it, they no doubt felt more than a little lusty.

But in true Apple fashion, invoking perhaps the pirate mantra of old, and embracing the same mindset that has them run iTunes as a near-loss leader, price-cut the iPhone a scant few months in, and offer cheap family upgrade options on their OS and iApps, it looks like Tim Cook was serious.

Read on to find out just how serious he was…

Late April brought rumblings of carrier “discounts” in Europe. Apple claimed carriers could charge what they wanted. Pundits on various sides pointed to clearing stock in the face impending 3G, or desperation to nudge thus-far-disappointing sales.

Then the floodgates opened. Literally. What had been a scant 5 countries with official first generation iPhone deals, became a torrent of announcements, week after week, of dozens upon dozens more. Canada. Australasia. Africa. Latin America. The Middle East. Scandinavia and the Baltics. And more. Double, triple, quadruple, the numbers became near-exponential.

The strange part? Multiple carriers began announcing iPhone deals in the same countries or territories. Vodafone and Telecom Italia both claimed Italy in early May.

Carrier exclusivity was gone.

No doubt at Apple’s behest, press releases were short to the point of single sentences at times, all with the promise of more details to follow, but Orange did let slip that there would now be non-exclusive deals (where no carrier had the sole rights to the iPhone and any GSM provider could theoretically support it), and co-exclusivity (where two or more carriers had sole rights and only they could officially support it).

Orange didn’t stop there either. Rumor has it they are now calling up existing iPhone customers and offering them €50 upgrade paths to the next generation iPhone 3G. Talk about a subsidy!

So why, with so much money at stake — and let’s face it, cachet — are Tim Cook’s words suddenly ringing so loudly?

Steve Jobs has said that one of Apple’s greatest failings during his absence was that other leadership chose to grab for money rather than grow market share. And Steve Jobs is known to think about products and positioning years into the future.

Our own Dieter Bohn has teased some of his thoughts on this, and promises to follow up on the next Phone Different Podcast. Don’t miss it.

UPDATE: Dieter, having brainstormed with another one of our writers, Chad Garrett, is offering the following: Given the massive amount of carriers now announced for the iPhone 3G, managing activation via iTunes may get a lot tricker… unless Apple offers the iPhone unlocked, and iTunes simply provides a way to connect to one of the established carriers in exchange for a subsidy, or — dream of all dreams — lets you keep running unlocked if you’re willing to forgo said subsidy. How’s that for a new business model?

For my part, I’ll mention this again:

Apple is alone among modern technology companies in enjoying near spherical integration. They make the iPhone hardware. They develop its software. They provide .Mac services. They market pro-level content creation tools. They own the high-end computer market that runs those — and the developer — tools. They sell content via the #1 music retailer in the US, iTunes. They have a toe in the accessory business with a headset, docks, cables, etc. They license 3rd party accessories. They get revenue sharing on subscriptions from current carriers. They are about to launch an App Store, getting a cut of commercial sales in exchange for putting product in front of every single iPhone user on the planet. They have an international online store, and their growing chain of retail Apple Stores make more per square foot than Tiffany’s.

So, unlike many others who have to survive on platform licenses, hardware margins, service contracts, or any other single or small number of profit streams, Apple can choose to take hits in multiple streams (like revenue sharing) and still earn money hand over fist in many, many others.

In short, Apple isn’t married to any specific business model because they can afford not to be. And come WWDC in June, and the long expected iPhone 3G announcement with it, Apple’s plans may just result in a windfall for consumers as well…

This is a story by the iPhone Blog. This feed is sponsored by The iPhone Blog Store.

Apple’s New iPhone Business Models