Searching for the Moon

Shannon Clark's rambles and conversations on food, geeks, San Francisco and occasionally economics

iPhone is priced well

Posted by shannonclark on June 18, 2007

Across the blogosphere and the major media leading up the launch of the iPhone there has been an ongoing discussion about whether or not Steve Jobs has overreached, about whether the iPhone will be as successful as they have projected. In almost all places I’m reading about people complaining about the price – and assuming that noone will buy a $500-600 phone, at least not in mass numbers – that the only way to get to the 10M phone target Apple has set for themselves will be massive discounting and/or cheaper models.

However I disagree.

I think they will indeed sell 10M and could in fact (if they can make and ship them) sell more.

One reason I believe this may be the case is that what many people are missing from the overall analysis about the iPhone and phone prices is that for many years now we have been significantly decreasing how much many of us (and our businesses) spend on communications.

Not all that long ago I shopped for various long distance calling plans, worried about how many minutes I was using on my cell phone and otherwise had highly variable land line and cell phone bills. However for a few years now, with the exception of a few spikes when I did highly unusual usage (data plans overseas, 1000’s of sms messages) my total monthly communications costs have been very stable for a long time. And if it were not for DSL I probably would not have a land line at all (I so rarely use it I don’t actually know my home number anymore).

I doubt that I am alone.

Businesses likewise have many options today for managing their telecommunications costs – VOIP systems which allow them to route much of their traffic via broadband pipes – which are usually paid for on a fixed monthly basis vs. a usage metered model, Skype and other similar tools which allow VOIP to be extended to non-internal users etc.

Yes, I have to decide if I want to spend the fixed investment on getting an iPhone (I’ll almost certainly get one relatively soon – for me it is a direct business expense since I’m building mobile web applications) but I have to also keep in mind that my total communications spending has been going down.

Plus when you factor in the default preference to wifi vs. EDGE on the iPhone (something many people who are complaining bout EDGE speeds are missing) I have to seriously consider that the iPhone may even more so than my current “smartphone” allow me to go without a laptop ever more often. For me that is by itself worth a great deal (and my back will thank me as well).

The wifi default has some other really interesting possibilities – for one, it raising the prospect of finally being able to use smartphone network features while using the phone to make a phone call – i.e. looking up something in my email while I am on the phone with someone (something today I cannot do, yet as I move most of my data to the web, something I need to do quite frequently).

The only major item missing, as best I can tell, from the iPhone which would make it nearly perfect (for me at least) would be an sd (or mini-sd) card reader built into the phone. That would allow me to utilize the wifi connection to upload photos from my camera – plus allow me options to expand the storage capabilities beyond the built-in capacities. However it would also very likely have a cost in terms of power – and from a design perspective would require additional openings.

I also have not yet read whether or not the batteries will be easy to swap – I have often purchased more than one battery for past phones to allow me to swap in a new battery as needed to keep going when I have not been able to recharge during the day.

But small quibbles about what should be a really great new device for consumers.

Getting back to price. I think that what many people are missing is that it can be a very good thing for an overall market to move a price point UP. This happens when you shift expectations – and when you are selling more than “just” something that people have almost considered a commodity. Cell phones for all of their massive variety today, have by means of the pervasive “free phones” been defined by many as a commodity, as interchangeable. Not all that different from “coffee” in the pre-Starbucks world.

The point, however, that Starbucks realized – and which so many people and detractors did not, is that people will pay more for better overall experiences. Contrast any Starbucks, anywhere in the world, with a Dunkin’ Donuts (which for years claimed to have the most popular coffee in the country so not a random comparison). See the difference? Even at Starbuck’s smallest stores there is a unity of look and message being sent by the design of the spaces – one which in their larger stores extends to a message of “here is a space to spend time in, to sit down, relax, work, converse”. In contrast most fast food/chain stores have an industrial look and feel – very little fabric or organic (woods etc) materials, instead lots of metals and plastics are more typical. Plain glasses, little art on the walls etc.

In a similar vein, think about how phones are sold today and how communications in general is marketed pre-iPhone. A few vendors who focus on the form & extra features, but a lot more who focus on the lowest common denominator – lowest price etc.

In contrast the iPhone is offering (and marketing) a richer and more expensive product. But not a product inherently designed to be super-exclusive or ultra-rare (and thus pricey mostly for the sake of being pricey) but one that is marketed as a mass, popular product – which happens to also be priced at a high (relative to current mass alternatives) price.

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