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Budget Powerhouse?

E

Emulsion

macrumors 6502
Original poster
Oct 27, 2007
334
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iphone-pa-1.jpg

So I have been reading all the rumors of the next generation iPhone getting all this wonderful hardware, and it's made me debate a few things.

Over all, It has been rumored that we will see 3G, capacity upgrades, another higher quality camera, and better battery life.

However it has been rumored that we'll see a price drop in the new model.

This has lead to the debate that there will be two models in the near future, one being a high end "pro" model, and the other a low end "Budget" model. What if these rumors were not about two phones, and were rather about one "Screamer" budget iPhone. I know what people would think "Are you crazy? Why would a company do this? They will be losing money on every sale!" Let me explain:

This business model is all too familiar in many companies and fields. Let's look at the gaming industry for example. Xbitlabs says, "With the PlayStation 3, you are getting the performance of a supercomputer at the price of an entry-level PC.” And also, "The analyst firm claims that its preliminary estimates the combined materials and manufacturing costs of the PlayStation 3 is $805.85 for the model equipped with a 20GB hard disk drive (HDD), and $840.35 for the 60GB HDD version. The estimates do not include additional costs for elements including the controller, cables, packaging, freight as well as profit for resellers, such as BestBuy.." But why would Sony want to lose $300 on every system sold? The answer lies in the software. "It is ordinary for game console makers to lose money on hardware, and make up for the loss via video game-title sales."


But how does this apply to the iPhone? Two words, "App Store." Just like sony, they could risk putting more power into the iPhone and lose money by making it affordable, only to turn around and make more than enough to make up for money lost, in the app store. As you may know, Apple gets 30% of all the sales sold though the App store. And that 30% of sales can more than make up for the money lost from hardware.

By lowering the cost of the product, they will sell more phones. With more phones, there will be many more people that have access to the app store, of which they can purchase software.

However, this all comes at a risk. Will the App store be as big of a hit as hoped? This is where the PS3 has failed. While the hardware was high class, it's games were poorly implemented. Is apple going to take this risk? iFund? What is to come down the road?
 
The 30% really won't give them that much profit, since they have to maintain the servers, handle accounts and credit cards, distribute and advertise the apps, evaluate them, etc. And since some apps will be free, the money to have those on the store will come out of the 30% from the pay-apps.
 
The most I could see them dropping the price would be to a minimal/no margin like the apple tv. Remember that we're not talking about games running near $70, but apps which may run $5 -$7, making the profit $2 - $3.

There's no way that people will buy anywhere near as much software as they do songs, so they need that cash from the revenue sharing and hardware sales.

Unless AT&T subsidizes...
 
I would love to use the iPhone as a PSP replacement. If they did this, they could charge a nice premium for games made by EA, Sega, etc. I would pay 20-30 for really, really good games.

I also hope they launch a iWork Mobile Edition.
 
Doesn't more power = less battery life? Unless you want an iBrick...

I don't see Apple making LOADS of money off the App Store. Yes they will profit, but like someone else said, 30% of a couple dollars isn't really that much. I don't think lowering the price of the phone and hoping to make it up through the store is the way to go, but I don't know much about this stuff so I could be totally wrong. :confused:
 
I don't know you guys that are dreaming about $2 and $3 apps... you might need to check back in with reality. I'm thinking for an app that's worth anything we'll be looking at $5 min and $20 max. 30% of $20 = $6 x 1,000,000 = 6,000,000.

That's probably stretching it sales wise but you get the point.
 
Van Wildonher said:
I don't know you guys that are dreaming about $2 and $3 apps... you might need to check back in with reality. I'm thinking for an app that's worth anything we'll be looking at $5 min and $20 max. 30% of $20 = $6 x 1,000,000 = 6,000,000.

That's probably stretching it sales wise but you get the point.
Click to expand...

You need to check in with reality.
I'd wager that at least half of the apps released will be free. That's probably an underestimation.
 
bacaramac said:
I would love to use the iPhone as a PSP replacement. If they did this, they could charge a nice premium for games made by EA, Sega, etc. I would pay 20-30 for really, really good games.

I also hope they launch a iWork Mobile Edition.
Click to expand...

If the games are of DS/PSP quality I would suspect the prices to pretty much start out at 30 bucks. I mean PSP games are $50 and DS games are (usually) $40.

Which is annoying, but that is the way things are going.
 
JBaker122586 said:
You're right, because citing prices for 12 apps for different phones on a completely different platform proves your point.

And there will be VERY few if any non-free apps that will reach 1 million people.
Click to expand...

That's why I said I'm probably streching it sales wise.... :rolleyes:

Ok, being you don't seem to like that I used Windows Mobile for comparison, how about you come up with some better ones to use.
 
I agree that any real good apps will cost at least $5. A problem I have with the iPhone/game console argument is that a game console is pretty much useless unless you buy games, so it's a guarantee that if someone buys a system, they will spend at least $300 on games (that's only 5 games). With the iPhone many people will buy great apps, but a lot of people will be more than satisfied with their phone as it is.
 
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