Why Apple Cannot And Will Not Subsidize The iPhone, Yet

Next month is huge for Apple - applications built using the iPhone Developer Program will hit market for the first time and pending release is a 3G verision of the iPhone.

Feel free to skip ahead to Part 2. I discuss real thoughts on the subject instead of sharing rumors (without any additional substance) like a handful of big players around the web.

Part 1: Rhyme With No Reason

“OMG, I heard a rumor.. Apple might subsidize that really cool iDevice thingy they have but I don’t have any real details. I think I should write about it!”

In May of 2007 Ars Technica couldn’t figure it out and one year later speculation is still speculation. Does anyone feel like they’ve wasted their time wishing a bit too much from the consumer end of the stick? I’m not shocked if people reply no and I think this shows how powerful and at the same time how unproductive consumer speculation can be. Apple loves the free marketing, so in one sense, we (consumers) are hurting our chances of a subsidy arriving sooner.

Most recently, Compete takes their stab at debunking the myth by showing data from June 2007 and the most pathetic part is their sample size of 307 consumers interested in buying an iPhone. How can you conclude anything meaningful about a product that sells units in the millions with so few opinions? Kind of pathetic for an analytics site.

Shucks, we’re still speculating the release of a 3G iPhone next month, which is pending FCC approval, not Apple development.

A basic supply and demand model says if Apple lowers the cost of the iPhone then more consumers will buy it and this sums up the aforementioned arguments, but not my own.

Part 2: Rhyme With Reason

Should Apple receive FCC approval, both AT&T and Apple will be smart enough to wait and see how well the new product performs. The last thing AT&T wants is a high influx of dissatisfied customers. Apple really enjoys their presence in the mobile industry because they understand the future of computing and will not risk denting their relationship with AT&T.

Apple needs to consider how subsidizing the iPhone would impact the iPod Touch market. It would be mighty hard for a lot of people to justify buying an iPod Touch if an iPhone cost as much as 50% less. Apple is known for challenging the pockets and purchasing decisions of consumers by offering models with twice the hard drive capacity for $100 more. How about a black MacBook with the same exact specs as a white MacBook but for $200 more? You get the picture.

If you know anything about Apple, then you know they would never assume a self-inflicted wound at the first release of applications next month. For the iPhone Developer Program to be a success, the iPod Touch market must remain unharmed by any business decisions made between Apple and AT&T over the iPhone. Apple must be prepared to lower the cost of the iPod Touch once they subsidize the iPhone and unless Apple suddenly shifts their philosophy on business, neither event will happen anytime soon.

Part 3: What Needs To Happen First

The iPhone needs bluetooth and that should have already been added. We also need to monitor the iPhone Developer Program for a while and see how consumers are shaping the demands of next generation iPhone’s and iPod Touch’s before we expect Apple to think differently about the consumer. I think the iPhone Developer Program is our best chance at making an impact, so that someday, the iPhone will be subsidized and in the hands of more people. What a beautiful day that will be.

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