The iPhone is a subscription
The NYT’s Bits Blog spells out how the pricing for the iPhone basically turns it into a subscription, at least for people who want to upgrade their phone regularly. With the new prices and GS model announced Monday, there are now three tiers, as described by Bits:
- The $199-every-two-years plan. That gives you the base model of the most current phone hardware every two years. You have to suffer a year of jealousy when others have the newest phone and you don’t. There is a similar $299-every-two-years plan for the higher capacity phone.
- The $399-every-year plan (with an introductory rate of $199 the first year only). For four times the effective annual cost, you get the base model as soon as it comes out. Premium users may gravitate to the $499-a-year plan ($299 to start out) to be sure of having the very best model.
- The new $99-every-two-years plan, if you want to have last year’s model and keep it for two years. As I wrote Monday, this may go down to a $0-every-two-years plan next year.
Given that the average consumer gets a new cellphone every 18 months, this isn’t really different from what’s been going on for years, it’s just that the price-point is far higher. But it’s not out of line for other smartphones, and if anything Apple has been pushing prices down in the category — for launch prices at least. BlackBerry and Palm both had to launch the Storm and Pre, respectively, at the $200 pricepoint, or they wouldn’t stand a chance against the iPhone.
The difference is that in the past launch prices quickly dropped, sometimes to free, whereas Apple keeps them consistent throughout the life of a product generation. So while it puts pressure on competitors for their launch prices, it also opens the door for them to drop their prices over time, perhaps significantly undercutting the iPhone.
And for the record, I sympathize with a commenter on the Bits Blog post that it’s unfortunate that so many see resource-intensive products like cellphones as disposable on such a frequent basis. Granted, they get beat up a lot being handheld and portable, but upgrading is by far the most common reason. I have to plead guilty as charged here too, though I generally hang on to a phone for more like 3 years (my Sony Ericsson has a cracked screen, but otherwise I still use it).]
Adam Richardson is the director of product strategy at Frog Design, where he guides strategy engagements for Frog's international roster of clients, envisioning and creating new products, consumer electronics, and digital experiences. Adam combines a background in industrial design, interaction design, and sociology, and he spends most of his time on convergent designs that combine hardware, software, service, brand, and retail. He writes and speaks extensively on design, business, culture, and technology, and he runs his own Richardsona blog. Adam is a member of the CNET Blog Network and is not an employee of CNET. 
Interesting post and yeah, phones pretty much have been a subscription business when you consider the frequency of upgrades. I worked for at&t wireless a number of years and it was always interesting to see consumers react to pricing for the latest greatest gadgets with the already subsidized pricing structures with term commitments. This is an issue that the carriers still need to work on to make it easier for the consumer to understand.
For me, I wish there was a lease option where I could grab a new device every year and have electronic maintenance/upgrades every quarter. I personally would be willing to pay a bit more per month but I doubt the carriers would go for this since it burdeons them with more capital outlay for handsets. Yet, I haven't done the math - it could work, it may even net the carrier more with finance and service fees?
I know a few of my geek friends would go for this as well. A HAAS model of sorts (Hardware or Handset-As-A-Service).
Cheers,
Jason