The iPhone 3G: Why You Should Wait Until September

There are a number of pricing issues, as well as some interesting competitors, that might give you pause.
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Apple is an expert at social engineering. They, and specifically Steve Jobs, can build product feeding frenzies unlike any company I’ve ever covered.

I can still recall the first iPod which sold in surprising numbers that first Christmas and had the highest return rate of any product I’ve ever seen because most who got it for Christmas couldn’t actually use it (because it initially ran only on Apple hardware). I can’t recall any other vendor who created so much excitement for a product that people completely missed the fact they couldn’t actually use it.

But, as consumers, our goal isn’t typically to make a company like Apple rich. Our goal is to buy intelligently, and to do that you probably should wait until September before buying the new iPhone. There are a number of reasons for this so let’s walk through them.

Choices

I believe the strategy that Apple is using is based on denying the market to a company they know is coming with a very competitive offering under the theory that if people buy the new iPhone they won’t have the money to buy a competing product because of the cancellation penalties surrounding the offering.

We know of at least three interesting products coming but there is a good chance Apple knows of one or two we haven’t heard of yet. The three that appear to provide good alternatives are the RIM Bold and Thunder, and the HTC Touch Pro. While none are likely better iPhones, each has unique differences that likely would make them better for many users than the iPhone is – and these are simply the phones we know are coming later on in the year.

Prices

With the first iPhone the initial problem was Apple was too greedy and they had to reduce prices substantially to get people interested in buying the phone.

With this latest phone they are trying an experiment that could work. They effectively raised the price of the services to create the impression of a lower priced phone while actually increasing the overall cost to you. It’s about $40 plus the cost of texting and the phone improvements are worth this if you take competition out. But they also reduced the cost of building the phone at the same time, increasing their profit significantly.

The cell phone market is incredibly competitive. Generally, costs of phones go down over time and the total price to the user goes down as well. For Apple to reverse this trend may not hold, which suggests that a price decrease may be coming at some point, likely on the services side this time but possibly coming on the phone side. Much like the early iPhone customers discovered, the incentive to keep the first buyers happy by giving them some kind of a post purchase product discount isn’t very good.

On that early release the pricing action was done by Apple alone, and thus could be done within a few weeks of the product launch. This time the problem is the cost of the service, indicating that the change will need to be negotiated between Apple and AT&T and neither entity will want to give up margin, making the negotiation protracted and very difficult to resolve.

However there is a clear drop-dead date to do this that is set by the back-to-school buying season. This suggests that, if there is a correction to be made, it will happen around the September time frame, particularly if they are responding to competitive pricing pressure.

As I’m writing this HTC announced the pricing for their initial iPhone competitor the Touch Diamond. Price is $149 with a 3-year contract with a $30 unlimited data plan monthly charge (or $15 for just unlimited email and IM). This should place it well below the iPhone price and service charges putting competitive pressure on Apple, though 3 years seems too long to me.


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Tags: services, Blackberry, iPhone, AT&T, RIM


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