Apple Reverses Course on iPhone, Dramatically Lowers Pricing

For all its touch screen innovation, the most notable features of Apple's iPhone when it debuted a year ago were its lofty price--the typical asking price for the phone at the time was about $600, plus $75 a month for an expensive data plan--and its notable lack of high-end phone features, like 3G wireless network support and GPS. On Monday, Apple rectified both of those problems, introducing a second-generation device called iPhone 3G that will sell for less than $200 and include the features critics say it should have had all along.

Welcome to the real world, Apple. By explicitly admitting that its original iPhone strategy was a mistake, the company can establish the product as a mass market success akin to its iPods and Macs. The change can't happen fast enough: After selling 6 million devices last year and promising to sell 10 million in 2008, Apple sold just 1.7 million iPhones in the first quarter and likely sold far less in the second. Once in danger of falling dramatically short of its goal, Apple should now have no problems hitting the 10 million mark. Indeed, some analysts--though let's face it, they're overly-susceptible to Apple CEO Steve Jobs' charms--are predicting that the company will ship 18 million iPhones this year.

While the iPhone now selling at the $200 "sweet spot" is news in and of itself, Apple spent most of a World Wide Developer Conference (WWDC) keynote address yesterday talking up iPhone developer and software features. The keynote was a snooze-a-thon of the type that Microsoft CEO Bill Gates mastered decades ago and less like the Steve Jobs religious revivals we've come to expect from such events. Part of the reason, of course, was the developer focus: The first hour of yesterday's two-hour-long keynote was mind-bendingly boring, even for the developers who should be interested in this stuff: It was a virtual duplicate of information provided in January.

In addition to the iPhone announcements, Apple revealed two other product tidbits. First, the company is continuing to slow the development pace of its flagship Mac OS X operating system and will release a minor interim update code-named Snow Leopard "in a about a year." Snow Leopard will include no major new features--making it only slightly different from a traditional OS X upgrade, really--and will instead focus on fixing Leopard's performance and quality issues, supporting multi-core processors and more RAM, and other low-level improvements. Apple says that Snow Leopard will also support Microsoft's Exchange 2007 messaging servers. No details or pricing information were provided, and though Apple has historically charged customers for even minor updates to OS X, I hope this one will be free to existing customers.

Apple also announced that it is replacing its poorly-received .Mac online service with a more functional new service called MobileMe that links Macs, PCs, and iPhones. The company describes MobileMe as "Microsoft Exchange for the rest of us," which is accurate enough: The $99 a year service provides push email, calendar, contacts, and Internet bookmarks, an online photo gallery, and 20 GB of Web-based storage. While syncing data between computers and an iPhone is relatively simple today, the big benefit of MobileMe is that this synchronization will occur automatically and over-the-air, no docking required. Predictably, MobileMe provides more functionality to Mac users than it does for the majority of us with PCs.

Not discussed in yesterday's keynote was how Apple's pricing change on the iPhone will affect its existing customers. AT&T, for example, is changing its data plan rate for iPhone users to be $10 more expensive, but the company is also going to offer a lower-tier phone plan which could offset that cost for some. Wireless carriers from around the world will offer their own plans, and I'm guessing we'll see many pricing announcements before the iPhone 3G hits retail shelves on July 11.

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