The Economics of the iPhone

Jun.10.08 | About: Apple Inc. (AAPL)

I'll leave the likes of Dan Frommer to do the big-picture corporate economics of the costs and benefits of changing Apple's business model. I'm more interested in the user end: if the price of an iPhone drops by $200, but your phone bill rises by $10 a month, how much of a savings are you really making? Remember that you're tied in to a two-year contract, so over the course of those two years you end up paying an extra $240. Discount that by your own personal discount rate, and it probably ends up pretty much a wash.

And what about the Mobile Me service at $99 a year? ("Exchange for the rest of us", Apple calls it.) Aren't you basically paying a hundred bucks for exactly the same kind of automatic synchronization that Exchange users are getting for free? Actually, in this case, no. It turns out that data plans for business cost $45 a month, $15 more than the consumer plans. (Both are unlimited.) So essentially Exchange synchronization is "free" if you pay an extra $15 a month, which makes $99 a year look like something of a bargain.