Apple Releases 3G iPhone Friday: This One Has Greater Mass Appeal

Apple Inc. (AAPL) will release the long awaited second generation iPhone on Friday, and Apple faithful will be lining up to purchase the 3G phone. In fact, it’s been reported that lines at a New York City Apple store started forming last Friday, a week prior to roll-out. Apple has worked hard to iron out some of the issues that hindered the first iPhone’s sales. This is not to say that the first iPhone was not a success, because it most certainly has been. However, improving the product and the way it is sold will yield great benefits to Apple and its shareholders. A brief overview of these improvements is contained below.

The first improvement is the price point which — at least at time of roll-out — has been dropped to $199 for the 8GB version, which opens up the iPhone to a new group of consumers who were wary of shelling out $500 for the previous generation phone. Apple and AT&T (T) were strategic in pricing the iPhone and its accompanying service plan.  AT&T will bear some of the initial cost of the phone as a subsidy to Apple, but it will make up that cost by charging customers more per month to use the phone. If you total the extra monthly charges of the 3G iPhone, it is actually slightly more expensive than the original version. It is common knowledge that Americans have an affinity for credit and we believe many will be willing to pay the greater overall price because it will be collected over time rather than up front. 

Second, Apple and AT&T both were burned by the “jail broken” or unlocked iPhones, which allowed users to use the devices on networks other than AT&T’s. In the previous agreement, AT&T and Apple shared revenue from voice and data plans, so each had a stake in keeping those revenue streams. To solve this problem, Apple and AT&T refined their agreement so that AT&T pays Apple the previously mentioned subsidy upfront and then all of the revenue from plans goes to AT&T. More importantly, when consumers buy the iPhone, they will not be able to leave the store without activating the iPhone with AT&T.

A 3G iPhone will have much more international appeal as well. The phone will be available in 22 countries right away, and Apple has plans to roll it out in some 70 countries worldwide in total. The global appeal of the first iPhone was marginal because much of the rest of the world has more advanced cell networks than those in the U.S., and the first generation iPhone was considered too slow. Now that Apple is offering the phone in 3G, the demand will be greater. For example, in the United Kingdom, the wireless company O2’s website crashed when it was overloaded with activity trying to buy the iPhone as soon as it became available. During that time period, O2 claims to have sold as many as 13,000 iPhones per second at times.

Perhaps the most overlooked factor to be considered is the iPhone 2.0 software update, which will be released concurrently with the 3G iPhone’s introduction and will be also be offered as a free upgrade for existing first generation iPhone customers. One feature of this software package is the App Store which will allow game and application downloads. Pricing is still an unknown as surely some apps will be free and others will cost up to $999—income which will be shared by Apple and the developers. Another improvement is enterprise software, clearly aimed at business users, with push email, calendar, contacts, etc. Also, Apple is introducing a rebranded email service called MobileMe, which is “exchange for the rest of us.”

Apple is unlike any other company in that they can generate such a huge buzz with relatively little marketing effort. This iPhone is guaranteed to sell to diehard Apple-fans, but this iPhone also has a mass appeal that exceeds the first version. Some numbers to illustrate the point: 5-6 million 2G iPhones sold in a little over a year, Morgan Stanley estimates that 27 million 3G iPhones will be sold by the end of 2009 and Piper Jaffrey’s sales estimates are even higher.

Comments

[Mathman Pro...:]

You forget to mention that subscription is going up by $10/month. So, you'll be paying an additional $240 for a 2 year contract. Add that to the $199 & $299 iPhones,a nd you get a $439 & $539 for the phones. Considering the $500 price tag, you cited, for the original iPhone... these are More expensive. It's crafty pricing, but at least people will be getting a better phone.

2008 Jul 10 09:13 AM

[Tarun:]

Jailbroken doesn't mean unlocked. Jailbroken simply implies that you have gotten root and/or (at a bare minimum) write access to various parts of the MBR and the hard drive that were previously restricted. Unlocking refers to manipulating the software that controls the SIM (System Information Module; found on all GSM phones) so that the SIM reader will accept and read any SIM (i.e. from another network) that the user puts in the phone.

There's a huge difference as the unlocking community is for-profit and the jailbreaking community is a non-profit, open source group.

2008 Jul 10 09:54 AM

[masedog:]

funny there's no talk whatsoever, that if you are not a current ATT subscriber the $199 phone that everyone thinks is so cheap actually costs $350.

2008 Jul 10 03:30 PM

[mollytjm:]

every phone has contracts and the iphone with a contract is similar in price to other smartphones... only, it's actually a much better product for the $.

2008 Jul 11 08:45 PM