Apple may be doing what the rest of the electronics industry has so far been unable to do: kill off the iPod.
Apple's charismatic CEO Steve Jobs has announced he will sell the iPhone worldwide for $US199 — a move that he said would make the iPhone more affordable and therefore more able to compete for all mobile users' business rather than just the high-end.
But Apple's premium pricing of the first-generation iPhone was no mistake. Apple knew that if its most powerful iPod — the iPhone — was cheaper than other iPods, consumers would be confused and ultimately iPods would appear to be devalued.
After Steve Jobs was unceremoniously dumped from Apple in the 90s by John Scully, the CEO he appointed, Apple's product lines were a mess — a plethora of similar-looking models of Mac, with high prices and unclear focus. But when Jobs was brought back to save the company from financial collapse, he ditched most of those products and developed a finely honed product line, with just one product for each group of customers.
This thinking has carried through to the iPod line — until now. Before, for people who really wanted to spend the smallest amount of money possible on a music player, there was the screenless Shuffle — with the cool-factor of being the world's smallest music player, built into an anodised aluminium clip. For people that mainly wanted pocketable music-on-the-go, there was the Nano. If you had tens of gigabytes of music, the hard-drive based iPod Classic with capacity of up to 160GB fitted the bill. And for the ultimate in touch-screen interface, melded with up to 32GB of solid state storage, the Touch was the premium model.
Now, the iPhone will be "cheaper" than most of them, despite having the best features. An 8GB iPhone will, in fact, end up costing about the same amount as an iPod Nano -- a strategy that's clearly designed to attack other smartphone companies, but may, along the way, kill off sales of the iPod.
For Apple, this gamble may be worth it. It has sold tens of millions of iPods and — although it would never admit as much — iPod sales are likely to be slowing from their initial frenzied pace.
Meanwhile, the addressable market for mobile phone users is vast, and, in many parts of the world, the first regular internet access many people will ever have may be through their mobile phone. The iPhone, with its desktop-grade web browser and mobile broadband connectivity, is better positioned to cash in on this opportunity than handsets from any other manufacturer.
Apple is currently targeting Blackberry, which holds a 42% market share of smartphones in the US, but as it pushes the initial price for the iPhone lower and lower, it will start targeting Nokia, which, in many parts of the world has over 50% share of all mobile phone sales.
Of course, the iPhone is not really cheaper than an iPod. It is, in fact, the most expensive iPod ever made, with a real cost price of somewhere between $500 and $900, depending on the model, according to telco analysts.
To get the sub-$250 price (the final Australian price has not yet been announced), you'll have to sign up to a two year mobile phone contract with a telco, with a portion of your monthly fee paying off the balance of the cost of the device. What Steve Jobs is banking on is that consumers are already used to signing up for a contract every couple of years to renew their handsets — and the iPhone will be a great reason for many people to recontract. Taking a new contract doesn’t necessarily mean spending more for a plan, though the iPhone plans are expected to be more expensive due to the HSDPA download allowances bundled in to cover internet access on the iPhone.
The other market Apple is targeting with a cheaper iPhone is Windows users. Its new MobileMe service, which syncs calendars, contacts, tasks, photos and more over the air, without the user having to plug the iPhone into a computer, works with Microsoft Outlook and Windows. Apple hopes that people are so impressed with how well MobileMe and the iPhone works that they will consider a Mac for their next computer purchase — a strategy that must be worrying Microsoft, with its latest release of Windows — Vista — roundly declared a stilllborn failure by reviewers and users.
And, in Australia — a market that is crazy about satellite navigation — the new iPhone 3G's inbuilt GPS receiver is expected to be warmly received by consumers as well. This is a significant benefit over the iPod Touch, which does not have GPS, and is unlikely to get it, as such a capability relies on having mobile-network data access all the time — not just at WiFi hotspots — in order to download up-to-date maps. "Being a HSDPA device with GPS, coupled with Apple's renowned design, the iPhone 3G will see strong initial demand and by the end of 2012 IDC expects Apple to have shipped in excess of 1.31M iPhones to Australia," says Mark Novosel, telecomunications market analyst for IDC.
Naturally, no-one's game to suggest that the iPod will die-off altogether any time soon. There will always be a market for small iPod devices for jogging, leave-in-the-car iPods for car entertainment and so on. But it's likely that the iPhone may become the replacement for many people's iPod and mobile phone — bad news for other handset makers. After all, as Steve Jobs said at the recent Apple Worldwide Developer Conference in San Francisco, the iPhone is, after all, "Apple's best iPod ever".