A $99 iPhone isn't worth it

I'll take the $199 iPhone, please.

(Credit: CNET Networks)

RBC Capital Markets analyst Mike Abramsky wrote in a recent report that he believes Apple will debut a $99 iPhone and an iPhone 3G with updated performance for $199 and $299 sometime in June or July.

I'm sure some are getting excited at the very thought of a $99 iPhone, but I think we should all wake up and realize that for that $100 savings (assuming the new iPhone 3G will be offered at $199 and $299, like Abramsky says), we're getting a sub-par phone.

And although there will be a difference in data plan pricing, once again, it's not that great. Abramsky believes the low-end iPhone model will have a $15-per-month data plan, compared with the iPhone 3G's expected data plan price of $30 per month.

Assuming that's true, we would save just $19 to $23 per month by owning the low-end model if we amortize the initial cost savings and the data plan costs over two years and one year, respectively. Would that really make someone want the cheaper iPhone? Not me.

Remember when the first iPhone was released? There were two versions available: the 4GB model and the 8GB model. After just two months on store shelves, Steve Jobs told those on-hand at one of his Stevenotes that the company was dropping the price of the 8GB model $200 and discontinuing the 4GB version due to intense consumer demand for the high-end model. The 4GB iPhone simply wasn't appealing to enough consumers.

What makes anyone think that this would be any different? The price savings is the same--$100--and in this case, the feature differences are even greater, making the $99 iPhone an even less attractive device.

According to Abramsky, the $99 iPhone would support EDGE and Wi-Fi, feature no GPS, have less than a 2-megapixel built-in camera with no video, and offer 8GB of flash memory.

Compare that to Abramsky's prediction for the iPhone 3G, which would sport 3G connectivity with Wi-Fi, GPS support, a 2-megapixel (or better) camera with video, and 16GB or 32GB of memory. I think it's clear that for an additional $100 at checkout and an extra $15 per month, the iPhone 3G is the only logical choice.

I realize we're in an economic recession and offering products at a discount can be a smart move in today's environment, but when we look at the $99 iPhone with some long-term perspective, I'm not convinced it's a deal.

Sure, if I bought it, I'd be able to save $100 immediately and $15 each month on data, but when that cost is amortized over a year or two, the savings is just $19 to $23 per month. That's two trips to Starbucks. Should I really buy such an underwhelming device that I would use everyday just so I can get two extra cups of coffee each month? I don't think so.

In the end, I guess it's incumbent upon us all to consider value before we buy any gadget. Is the iPhone worth $99? You bet. But is the iPhone 3G with twice the memory, video recording capability, a faster network, and GPS worth an additional $100 and $15 per month?

Absolutely.

Check out Don's Digital Home podcast, Twitter feed, and FriendFeed.

[nickh2]

It's never worth paying money for a product that does not even exist.

[techfan_08]

so true!

[Stormspace]

I'd buy a 99.00 iPhone if I could do it with purchasing a data plan. I'm only interested in the apps and the wifi on it anyway, and of course the phone part too.

[wigmo]

*sigh* Would you read back to yourself what you wrote Don? 8GB. 2MP camera. No GPS. Edge data transfer speeds. Sound familiar? It should, it's the iPhone 2G! A quick search on ebay shows 8GB 2G phones selling for over $300 with most in the mid $200 range. Even the 4GB version is selling in the mid 100's. That tells me there are people still interested in that model, and if they had the chance to snag a new iPhone with the same specs for under $100 they probably would make the switch, especially if they don't get gouged nearly as badly on the service contract.

Dude people are paying those prices to jailbreak them since the earlier models are so easy to do that and they can be used on GSM networks ie tmobile.

[wigmo]

Dude, they wouldn't spend the time trying to buy a jai broken phone that was as useless as the author of this blog is suggesting.

[lewisetaylor]

The reason people are paying a premium for those older iPhones is so they can escape the required monthly data plans. Those specs don't mean anything to the guy who just wants an iPhone but doesn't want to get hosed once a month for the privilege. That guy won't pay $99 for a new AT&T phone with service contract. He will pay $175 for a used 2G phone with no strings attached.

[gefitz]

Spoken like someone that Apple is ALREADY catering to. The point of Apple's release here is that they are missing a very large segment of the market: those who think that $360-500/year is too much to spend for EDGE access. With Wi-Fi becoming more ubiquitous, maybe Apple sees growth potential here? Heck, I cant be alone in saying that I'm in a Wi-fi cloud probably 90% of my day, so I can certainly see where cutting the cost of EDGE service would open up some market.

Right now, won't pay for a smartphone UNLESS I can sign an agreement that DOESN'T include cellular internet.

[SteveW928]

@ gefitz - I'm with you there. I'm around wifi quite a bit too, and when I'm not, I don't really need it. As long as I can receive and place calls, I'm fine with no internet at those times. I also won't buy a smartphone unless I can keep the monthly bill low enough. I don't even so much care about the $99 price of the phone, but that monthly contract is the killer. And, unlike Don, I hardly go to Starbucks because I can't afford it.

[tcr071]

If you worked in any corporate office or higher institution that used non-standard wireless networks you would see the problem with this. The majority of the time I am connected to wi-fi that isn't my house the connection is 802.1x and without 3g I would be sitting there with awful edge speeds or no connection at all.

If Apple recognized more standards and allowed users to connect to different types of networks this is plausible but in typical Apple fashion they only let you connect to what THEY think you need, not what you actually need.

[SteveW928]

@ tcr071 - So most other portable wifi devices let you connect to non-standard wifi networks? Sounds like you're in a pretty minority situation there. I think the rest of us would love a Touch with a basic cell phone in it. So... $99 and cheaper plan is at least moving in the right direction.

[cynomys]

I think that the fact that it's a $99 is less a deal than Apple/AT&T putting out another EDGE iPhone. I've had several people ask me about where they could get an original iphone only because for $20/month you get unlimited data with 200 text messages where the new iPhone data plan costs $30 and comes with NO text messages. If you consider that you could find yourself paying $35 what cost you $20 on the original phone, that means an extra $360 over two years for 3G and a GPS receiver. I think it's enough to be worth saying no to.

Do you get your coffee at the airport Starbucks or something? I can get quite a bit of coffee for $20.

[zmonster]

Don, I don't think you understand how CHEAP some people are, and saving 'just' $19/month WILL cause a TON of these CHEAP people to buy the $99 iPhone. TRUST ME on this. My friend Scott drives 20 miles to Costco to save $1 FREAKING dollar on an extra large container of peanut butter. The idiot wastes $2 in gas to save the dollar on the peanut butter. Unfortunately, MOST of the population is stupid like this. Apple will make a killing on these $99 iPhones.

[aztec92154]

Penny wise, pound stupid... its an epidemic.

[BK216]

Exactly. Its not the specs that will sell the phone but the price

And even then, it wont be that its a cheaper iphone, it'll be that its a "$99" iphone

"The first iPhone under $100"...i can hear the commercials now

[freemarket--2008]

It's not really that stupid to save $460 dollars (over two years) if you plan to use Wi-Fi mostly anyways. I think the author is clueless.

[fcz1]

I don't think it is so much a function of the author being clueless as it is the author having his monthly cell phone bill payed for by his employer. I'm sure someone that reviews gadgets for a living doesn't pay for all of his plan out of pocket. If that were the case with me you'd better believe I'd be happy with a more expensive iPhone with a ridiculously expensive monthly bill.

[Spartan_458]

Yeah, really. $19 bucks a month can be spent much better on things. I would gladly take a $99 iPhone with a $15 a month data plan if I actually wanted one.

[Kev_Orng]

I eliminate monthly fees wherever I can. It's not cheap, it's a good personal finance strategy. You're never going to retire rich if you're not willing to find ways to cut that extra $19 a month.

Oh, and Apple won't make a killing on these phones because they aren't going to make them. When one or two analysts decide what product THEY think Apple should make, the safe money is that Apple is going to go in a completely opposite direction. But gambling isn't a sound personal finance strategy.

[macewan_]

Your friend is stupid not for the reasons listed but for the peanut butter.

[nicholas_shah]

Don,

You are not getting it. The $99 iphone is not for the US market. It is for the China and India markets. Yes, it is possible that it may also be released in the US, but that's not the main market for that particular feature set.

[Waam]

Would you buy a stripped down BMW for 19,000, over a Focus for the same comparable cost? Heck yeah.

[aztec92154]

The answer is NO. You are 100% wrong. No one wants a $15,000 economy class Mercedes-Benz, no one wants a luxury class $50,000 Kia.

[amy1146]

the answer is YES. aztec, You fail to realize how much people care about brand names. The fact that you think a $50,000 Kia is laughable is evidence of that fact. People will buy a $15,000 mercedes, so they can have a mercedes.

[pcnightowl]

People like the Mercedes brand name because all the cars are luxurious, have performance and are a social statement. If they were to come out with a $15,000 to $20,000 Mercedes or BMW, it wouldn't have luxury and performance. If Kia came with $50,000 car, it would be luxurious and have performance. Just look at the new Huyndai Genesis. It is very similar to a Lexus, but it has a Huyndai brand name. Brand name does play a part in social statements, but the price is what makes you cool.

As far as the iPhone goes, I would rather pay a high price upfront and not have to pay any monthly data plan.

[Seaspray0]

The snobs wouldn't permit it, Waam. How else could they define themselves unless they bought expensive junk not affordable to the masses? They'd lose their bragging rights and they would no longer be able to distinguish themselves from the hicks and rednecks. It would make them... ordinary.

[tcr071]

No, I wouldn't. BMW makes awful automobiles. After trying twice I won't ever buy a BMW again. I would rather have a Ford Focus than any BMW to be perfectly honest. Now if we were talking about Lexus, who actually knows how to make luxury vehicles, then I could see your point. BMW is the most over-hyped "luxury" car brand I have ever seen. Their cars aren't even very imaginative!

[timmy_tim]

Lexus makes incredible cars, very reliable. Used to own a BMW 325i. The car fell apart when the warranty ended.

[Mark_Anderson]

Nope because the base level 318 is awful compared to a Focus or Astra of the same price.

The 320's better but then you pay for that.

[blindboy22]

Lexus builds their cars like home appliances, devoid of any feeling or emotion.

[NDJ1981]

Don, you are one overpaid blogger if you balk at the savings you could get from a $99 iPhone and a $15/month savings in data rates. Assuming you're unlike the rest of America who is suffering through this recession, that savings buys a lot for most families. Also, cut back on those $20 Starbuck's trips - are you asking for a dusting of gold leaf on your coffee instead of cinnamon!? Geez!

[john55440]

Apple should go even lower, and make a DumbPhone-FeaturePhone that doesn't require *any* data contract. That's the kind of phone that most people buy, and there is a ton of money to be made in that market area.

[coulterboyz]

Ya, that's exactly what Apple should do, destroy any quality this $99 dollar phone might have left so that they can be a part of what "most people buy". Most phones aren't touch screens, so I guess you are saying that Apple should do away with that. Most phones either don't access the Internet or don't do it well; let's get rid of that. No other phone has Ipod software on it; let's get rid of that. No other phone has the App Store; let's get rid of that. Most phones are flip, so let's get rid of the one screen look. Yeah, that's EXACTLY what I want in my iPhone.

How long will it take people to realize Apple NEVER does what everyone says it has to do to survive and thrive, and yet here it is today. Everyone said the Mighty Mouse would need two buttons. I'm looking at mine, and guess what? Still technically only one button. Everyone is saying that they need cheaper prices on their computers to survive the recession. Apple won't, and they will still be here when Americans go back to throwing $10 a cup on their trips to Starbucks (seriously? That's just ridiculous, Don). And Apple will not make a "DumbPhone" that doesn't require a data contract, and absolutely no one will care. Accept you.

[tcr071]

That is quite a bold prediction for Apple doing well in the recession when the recession is just starting and will begin to snowball in the next 6 months and last for many many years. Apple's bread and better is college students. Do you understand what has happened to the banking infrastructure? They aren't lending. Kids are going to community college in DROVES because they can't get a tuition loan. How do you think those kids buy the macbooks and the macbook pros? Student loans.

Very naive to think Apple won't be hit and hit HARD by the recession. There isn't a single company that won't be hit by the recession save toilet paper companies and whoever makes ramen noodles.

And FYI the Mighty Mouse is an awful mouse. It does need two buttons. The only reason anyone owns that mouse is because it either came packaged with the machine or people care more about having everything glossy white and looking well then they do about functionality. I own a Mac Mini and I threw the Mighty Mouse in the trash. It is a POS mouse.

[bosunscall]

Sorry coulterboyz, but i think you took john55440 the wrong way. Apple should allow for people to buy an iPhone without the data plan, and no it is not a stupid suggestion. the iPod Touch is FLYING off the shelves. Many would be iPhone buyers get the Touch because they want the touch screen, wifi, ipod software, app store, shiny awesomeness of apple products, etc. but cant afford the monthly data contracts and don't necessarily want internet over crappy cell networks or GPS. The iPod Touchs are even more expensive(up front) than the iPhone and people buy them INSTEAD of iPhone. Imagine if you could get the Touch, but with just a basic cell phone plan. They would sell like hotcakes. Even if the upfront cost was higher. People already do it with the Touch.

[blindboy22]

I agree with bosunscall, the original reason I went to buy a 1G iPhone from eBay was the fact that I wouldn't be locked into a contract with AT&T that required me to pay $30 per month in addition to calls and texts. The only time I am ever out of range of Wi-Fi is when I'm behind the wheel, and I wouldn't be browsing the internet then anyway.

[onosson]

Nice that you have money to burn, Don - not everyone is so fortunate.

[DamnPigs]

$23 only gets you two trips to Stabucks? You obviously have no clue what value is.

[DrewN]

Seriously, that's some expensive coffee. Try Wawa next time.

[lil-yankee]

you guys have it all wrong. the 23 dollars for the 2 trips to startbucks are not simply refearing to the inside expenses, but everything i between. For instance; remember that Don, lives in the subborns since he can't affort to live in the city so he has to pay for a bus not having a car. once the bus leaves him in the city, he then has to take a train. Once he is in the train he has to take another bus and thats when he gets close to startbucks, then he makes a choice. He either walks or pays a cab to drop him of in style so that he makes a good mac impression. and then he buys one coffe, not a venti (20) because that will get him way far the 23 dollars but a small coffe, with vanilla to stablish he is white. thats when he spends arround 13-15 dollards a trip, twice a month because though he appears to write economy resistant, the fact is that michael jackson has been seen with girls more times then Don has been spotted in a starbucks

[Kev_Orng]

I was sort of going with the assumption that Don was engaging in some playful hyperbole there.

[TheDudeandHis360]

Not you but to the Average Consumer it will be.

[techman21]

$15/month for a data plan is all ANYONE should have to pay - the prices charged by US carriers are outrageous! Heck yeah, I'll buy a cheaper phone AND pay less each month. I'll use a wi-fi hotspot if I need a faster-than-EDGE internet connection.

[SteveW928]

Bingo! No kidding! That should be about the price for the whole cell phone bill, not just the data add-on.

[abundantsnotbob]

I agree with ^Steve^. Cell phone service prices are ridiculous. I don't think they will lower the service plans unless they start losing business. I can't afford a phone. If I ever had a phone company, I would charge as least as possible. This is probably a stupid Idea, and why people like me aren't in charge of these things. I would do this for just about any product I could. A screw just fell out of my laptop. I better put it back now.

[Chapmaniac]

Fact is, the iPhone cell phone component is not Apple's #1 priority - it's the games, apps, music and the money generated from the store. So, since the iPhone is really (just) a handheld gaming/music platform that just happens to also have cell phone capabilities, it's hard to imagine a more sub-par version of an already sub-par cell phone.

[the_vinci]

Yes but it really adds up. I make software for people and at a warehouse we use iPhones for inventory. We do not need 3G but need wifi. Cheaper iPhones make if more affordable for new consumers and for large bulk customers.

[fahrhaus]

I'm not sure why this is such a confusing issue - let's recap, shall we? The 2G phone will cost $100 less than the 3G phone and cost roughly half as much on a monthly service plan. For the price of one 3G, the consumer can get two 2Gs. Not everyone needs or wants 3G speeds (reference the post above from someone who spends "90% of their time" within range of a WiFi network). In fact, the majority of people wouldn't even notice the difference unless you told them. The 3G is for the innovators and tech-forward types who need the latest and the greatest. Apple's creating a $100 point-of-entry for a basic phone and it's going to sell millions of them.

As for people being cheap? I'm not really sure that's an accurate or fair assessment. Not all of us are fortunate enough to be able to drop $200 on a phone and $50/month for service (don't forget the voice plan). It's like saying the buyers of a BMW 3 series are "cheap" because they won't pony up twice the cash for a 7 series. Everyone has a budget, it's just the dollar value that changes...

[SteveW928]

Umm.... Don, if two trips to Starbucks is $20... first, what are you ordering?... and maybe you should realized that the majority of can't afford that on top of all the other things we have to pay for. The only 'feature' I'd really miss in such a deal is the GPS. I'd love to have an iPhone with a super-basic plan... so it basically combines the iPod Touch with my basic cell phone that I'd now have to carry around. For others on a budget, I'd guess they might agree with me. I don't need 3G or even EDGE, just a basic cell phone. I can surf the web when I get to wifi hot-spots. I'm sure Apple realizes that not everyone lives in the S.F. Bay area making 6 figures. Once again, Don shows how out of touch with reality he is.

[teh_chrizzle]

the venti whatever is like ~$5, but you tip the barista an extra $5 to pour it into two tall cups so you can top them off with bourbon.

two in the morning makes meetings fun, two more after lunch staves off the jitters and shakes until happy hour when you can drink bourbon straight up.

order it with whole milk, that way you don't have to waste valuable drinking time with food.

[James7777777]

I would say the $460 worth of savings would entice a lot of people. As people cut out starbuck's completely to save money, that $460 could go a long way.

[mycbrad]

This phone just screams $98.96 at Wal-Mart. Penny pinchers (who don't actually think it through) snag the "iPhone Cripple."

[nomadic28]

Though this phone definitely won't make me ditch my Instinct (which already has video, 3G and GPS support, and goes for the same price now) or Sprint (Simply Everything Plan is the best deal out there), I can see people getting this phone because its still an iPhone, and has the appeal of brand recognition. $99 is a decent deal for what you get. There's still countless apps and games available for this device, making it abundantly useful if only as the ultimate timekiller. Not to mention its an iPod, making it a superior media player to just about any phone that tries to double as a music/video player. Something to consider.