How can iPhone be so cheap?

[MacBytes]

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Category: Apple Hardware
Link: How can iPhone be so cheap? (http://www.macbytes.com/link.php?sid=20080611162136)
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Posted on MacBytes.com (http://www.macbytes.com)
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[nick9191]

It's gone down because it costs Apple bugger all to make. They sold it at such a high price for the same reason Nike sell shoes at such a high price, expensive makes people think its better. So you have people scrimping and saving to get one, then bam, 3G iPhone £99, that item that is considered as the gold standard of mobile phones is now £99, everyone buys one.

[elppa]

It's gone down because it costs Apple bugger all to make. They sold it at such a high price for the same reason Nike sell shoes at such a high price, expensive makes people think its better. So you have people scrimping and saving to get one, then bam, 3G iPhone £99, that item that is considered as the gold standard of mobile phones is now £99, everyone buys one.

I understand this, but if it is really this simple, why doesn't every manufacturer do it?

[wizard]

nick9191 pretty much hit the bulls eye with his response, there simply isn't much there with respect to parts even if you priced them out retail or low volume. Take Apple high volume discounts into account and the price looks even higher.

Of course the important thing here is that hardware isn't all there is to the cost of any product. Development is a huge part of the equation. Plus one has to get a sense for the products success. Both iPhone and iPod Touch have been big hits by most measures, thus there is confidence that development costs can be spread across a much larger volume. Part of that volume is likely to be hardware that we haven't even seen yet but is made possible by the success of previous products.

The really good thing with respect to the Touch / iPhone duality is that that volume allows Apple to spread development costs much wider than any smart phone maker. If RIM isn't bothered by this they have their eyes shut.

Dave

[Barret Oliver]

nick9191 pretty much hit the bulls eye with his response, there simply isn't much there with respect to parts even if you priced them out retail or low volume. Take Apple high volume discounts into account and the price looks even higher.

Of course the important thing here is that hardware isn't all there is to the cost of any product. Development is a huge part of the equation. Plus one has to get a sense for the products success. Both iPhone and iPod Touch have been big hits by most measures, thus there is confidence that development costs can be spread across a much larger volume. Part of that volume is likely to be hardware that we haven't even seen yet but is made possible by the success of previous products.

The really good thing with respect to the Touch / iPhone duality is that that volume allows Apple to spread development costs much wider than any smart phone maker. If RIM isn't bothered by this they have their eyes shut.

Dave


iPhone cheaP? right-o!

http://www.foxnews.com/story/0,2933,365347,00.html

[nagromme]

It's gone down because it costs Apple bugger all to make.

Not true. The "list of parts" is NOT the full cost. HUGE additional costs also go into every phone:

* Manufacturing it FROM the parts

* Research and development (huge--both hardware and especially software, which Apple puts far more into than many companies)

* Government regulations, patents, legal teams, etc.

* Customer support (and developer and pre-sales support)

* Warranty service

* Marketing/advertising (everything from packaging to TV ads, to in-store displays)

* Management, training, offices, equipment and travel costs for all of the above, and for establishing/managing partnerships with a zillion other companies

* Shipping costs (parts to factory, factory to you), insurance, rent for Apple Stores, server space/bandwidth/adminstration for online stores, etc.


The REAL reasons the iPhone can be so cheap now are not one simple thing, but many factors:

* Components get cheaper over time (this year is not last year)

* Components and manufacturing processes get cheaper for greater quantities (iPhone sales have steadily grown)

* Designs improve over time--and that includes efficiency of manufacturing and of the selection of components (waste is reduced)

* An established product has more leverage to negotiate (the iPhone is a proven endeavor now)

* Apple IS likely accepting a lower profit to grab marketshare (which doesn't mean their profit was evil before: the iPhone its first, highest price, was CHEAPER than other, lesser smartphones with far worse specs; it was on the LOW end of the smartphone price scale)

* AT&T may be willing to do the same, possibly

Those are all factors. BUT THE ONE BIGGEST REASON WHY THE IPHONE IS CHEAPER NOW:

AT&T (and other carriers) somehow got Apple to give up the old pricing model and adopt the subsidized model used so commonly for other phones.

This is a BAD thing.

Subsidized pricing sounds cheaper at first glance, and people have long fallen for that trap. It's standard practice and people lap it up (especially in the US). But in the long run, it makes any phone MORE expensive. You pay the $200 discount yourself, every month... forever :o

The fact that the iPhone was not subsidized (and had lower monthly cost) is one of the things that made it so cheap compared to other phones.

Now it's priced like any other phone.

The iPhone still has many advantages, and I still plan to buy one when they reach 32 GB. But this is ONE big advantage the iPhone just lost. I'd much rather pay $200 more and not pay AT&T (or any carrier) for the subsidy every month.

This new (meaning OLD) pricing model is only consumer-friendly if you replace your phone frequently. (Which is not the best use of money generally--but I'm sure Apple won't mind :) )

[nick9191]

iPhone cheaP? right-o!

http://www.foxnews.com/story/0,2933,365347,00.html
Ah thats the US and AT&T though. The macworld link in the OP, and where I am from and was referring to is the United Kingdom.

We have the same contracts as before, with a new cheaper contract, a Pay as you go option, and the phone is now £99 down from £269, and free on selected tariffs.

[Genghis Khan]

yes the iPhone is subsidised now to get the '$199' price

but the main reason is simply economies of scale...the more you make, the cheaper each unit becomes
also, the new iPhone shares SOOOOO many components with the first one and the first one paid for the manufacturing set-up costs, so the new one has almost free parts

[nagromme]

We have the same contracts as before, with a new cheaper contract, a Pay as you go option, and the phone is now £99 down from £269, and free on selected tariffs.

The carrier is subsidizing it, much like AT&T now is. That free phone is being paid for you may be sure--and you may be sure it's being paid for by you :o First the carrier pays Apple so you don't have to... but in the end you will pay the carrier back... and more.

Maybe in the UK it's being subsidized out of the carrier accepting lower profits from their plans, rather than by higher plan costs as with AT&T. (Though SOME of the rate increase with AT&T may be justified by the jump to 3G... if you're in an area that HAS AT&T 3G, so that expense is not completely wasted.)

Yes, I know that other phones share these same issues. I just wish the iPhone hadn't joined them.

[SimonTheSoundMa]

£99 is still a bloody lot for a phone, they are usually free. Good job there are free options for the handset to make it slightly more competitive.

[Eraserhead]

Ah thats the US and AT&T though. The macworld link in the OP, and where I am from and was referring to is the United Kingdom.

We have the same contracts as before, with a new cheaper contract, a Pay as you go option, and the phone is now £99 down from £269, and free on selected tariffs.

I assure you the phone is still subsidised at £99, I'd guess its probably subsidised between £100 and £150.

The Pay as you Go option will be closer to the unsubsidised price, but if its not easily unlockable it'll still be subsidised a bit (up to £50).

£99 is still a bloody lot for a phone,

Its still as cheap as a 4GB Nano, so the price certainly isn't bad for such a good phone.

[nagromme]

£99 is still a bloody lot for a phone, they are usually free.

8 GB pocket computers are often not free though :)

[twoodcc]

it seems they'll make up for the price in the data plans

[matticus008]

yes the iPhone is subsidised now to get the '$199' price

but the main reason is simply economies of scale...the more you make, the cheaper each unit becomes
also, the new iPhone shares SOOOOO many components with the first one and the first one paid for the manufacturing set-up costs, so the new one has almost free parts
The main reason is the subsidy. The BOM is still >$200, nowhere near "free" parts (the most expensive components had no "manufacturing set-up" (R&D?) costs, since they were products selected from suppliers). Further, most of the components are different (battery, enclosure, radio, addition of GPS, appears to have new antenna and speaker). The display and CPU are retained.

Economies of scale have had almost no impact on the pricing of the new models--perhaps as regarding the enclosure parts, but any advantage gained would be roughly offset by the retooling costs of the redesign. Volume wasn't the reason that the prior units are $399.

[Satori]

8 GB pocket computers are often not free though :)

Not to mention iPods!

[Satori]

I just hope that the price drop won't mean they are using cheaper materials for the screen. The first gen iphone screen is amazing and part of what makes it such a great phone.

[AlmostThere]

AT&T (and other carriers) somehow got Apple to give up the old pricing model and adopt the subsidized model used so commonly for other phones.

This is a BAD thing.

Subsidized pricing sounds cheaper at first glance, and people have long fallen for that trap. It's standard practice and people lap it up (especially in the US). But in the long run, it makes any phone MORE expensive. You pay the $200 discount yourself, every month... forever :o


Although Apple are not exactly playing down the "price drop". They will do very well from widely publicising the new low price point.