Apple iPhone Price Barrier for Some, Strategic for Apple

by , 3:30 PM EST, February 21st, 2007

Nearly a third of the potential customers of the iPhone cited concern over the high price. That result was found by ChangeWAVE Research of Rockville MD and reported by the Wall Street Journal on Wednesday. [Subscription Required.]

That has led to the question of whether Apple has the flexibility to surprise us and lower the initial price of its new iPhones when it ships in June.

Some analysts think that Apple has the margin to do just that. Others believe the gross margin might be just about where other Apple hardware products are, about 25%. Andrew Rassweiler, a senior analyst at iSuppli in El Segundo, CA analyzed the cost to manufacture and came up with about US$245 for the US$499 model and about US$281 for the top end iPhone.

If Apple won't give on the pricing, then the some analysts wonder about flexible service schemes AT&T might come up with. Previously, Apple has simply noted that the purchase of the phone requires a two year contract with AT&T, but few details of that contract have been made available. AT&T/Cingular spokesman Mark Siegel said that they are not ready to dicslose the full pricing, and that suggests that a lot of research is still going on to determine how customers feel about the prices. In addition, there could be plans for a variety of specials services which would generate a strata of price models for consumers.

Apple, as is their custom, declined to make any comment about lower priced iPhone models to come. But the consensus seems to be that Apple intends to follow the same plan they used with the iPod. "I see them staying at the high end for at least quite some time," said John Jacobs, director of notebook research at DisplaySearch in Austin TX. Basically, as each new iPod rolled out with more capability, the price remained about the same. Then after a few years, they introduced less expensive models.

If history is any indicator, there will be plenty of people who will pay what Apple is asking for the first iPhones. A little bit of pent up demand, techno-envy, and healthy gross margins for an Apple iPhone would be hard for Apple to resist even if they lose some initial customers based on price.