Yup – I was 100% wrong on this one.

No denying it.

What apple did is called market skimming and is commonly used in imperfect markets when one producer has pricing power, which thanks to high tech apple had/have. Angry “rich boys” that made a fool of themselves by standing in a sheep line to pay what 600 or was it 700 for a phone 6months back can cry but they were too happy target not to shoot at. They paid (with inflated $ anyway) what they could effort. Lets focus now older and lover end products (8gb’s) to common pple, $299 sounds definitely reasonably to me. 200 down is too much, but another 100 slide for 8gb is in the cards. imho

I understand what you’re saying – they know that the person buying it will have to subscribe to them, and they don’t get that from AppleTV…but as the current method of activation stands, that’s not entirely true. Per the current agreement with At&t, you take your iPhone home with you, or it shows up in the mail, and you activate it through iTunes – unless that changes there is no guarantee that an individual is actually going to sign up after purchasing.

Regardless, I still do not believe that Apple is going to allow At&t to devalue the price of the new phone.

I know they didn’t lower the Apple TV to the point where they were losing money. The difference with the Apple TV and the iPhone is that they know for sure how much recurring revenue will be coming in if someone activates an iPhone for a two year contract.

Apple didn’t lower the AppleTV to a point where they were losing money on it. Its a different situation with the iPhone.

@arajara

Apple isn’t the one that is supposedly doing this. At&t is.

Simple solution to this one is to have the subsidy come in the form of a mail-in rebate that requires two year contract activation.

>Q. Does Apple or At&t need to do this?

Do they NEED to do this? No, probably not. Does it make good business sense? Yes, definitely. Given that both Apple and AT&T get a cut of the monthly service fee, knocking $200 bucks off in the form of a rebate with activation means more money for both of them. I’m sure they’ve done the market research and figured out that if they can sell X iPhones at $499 they can sell X^X iPhones at $299. It’s the same reason they dropped the price of the Apple TV by 70 bucks when they came out with the 2.0 software. They figured if they can sell more devices at a lower price point they’d in turn get more recurring revenue from movie rentals and iTunes purchases. In the case of the iPhone it makes even more sense because they can actually predict the exact amount of revenue from a service contract based on any given number of users.