“Apple Inc.’s iPhone 3GS model is more than two years old and shunned by gadget snobs, and yet it’s turning into one of the company’s bigger weapons against devices running Google Inc.’s Android software this holiday season,” Peter Burrows reports for Bloomberg.
“When Apple rolled out its new iPhone 4S on Oct. 4, it slashed the price of the 3GS model to zero — if it’s purchased with a contract,” Burrows reports. “The decision thrust the company into the free- phone market for the first time and will help the 3GS account for as much as 20 percent of iPhone sales this quarter, said Shaw Wu, an analyst with Sterne Agee in San Francisco.”
“The move pits Apple’s iPhone against bargain Android phones, without much damage to the company’s profit. That’s because Apple gets cost savings from using older, cheaper parts. And though the device lacks some of the whiz-bang features of the 4S, such as the voice-activated assistant Siri, it’s still better than rivals of the same price, said Roger Entner, founder of market research firm Recon Analytics LLC,” Burrows reports. “‘Apple can shovel them out by the millions,’ he said. ‘What free phone or even $50 phone is going to be more appealing to consumers than an iPhone 3GS?'”
Read more in the full article here.
MacDailyNews Take: It’s amazing to us that the purchase price matters at all to individual buyers when the vast majority of a smartphone’s cost is the cost of the two-year service plan.
If you’re buying a single iPhone, divide iPhone 4’s $99 upfront price tag over the 24 months of the contract and it comes to $4.13 per month. Divide iPhone 4S’s $199 upfront price tag over the 24 months of the contract and it comes to $8.29 per month. So, 20% of individual iPhone buyers are choosing an antiquated iPhone 3GS over an iPhone 4 or iPhone 4S (with Siri, no less) in order to save four or eight bucks a month, respectively? Seriously? 20% of iPhone buyers can’t all be parents buying multiple iPhones for the family in one shot, can they?
Individual iPhone buyers, if $4-8 per month matters that much to you, you either can’t afford a smartphone or you’re a sticker-price-obsessed-TCO-ignoring Windows suffering fool.
[Updated Take at 10:50am ET as per Springer’s comment below to reflect that we’re talking about individual iPhone purchases only.]
My employer foots the phone-bill.
The phone itself is on me, though.
Bought the iPhone 3GS after it came out.
Thinking about updating….
I like your logic and would be nice if the phone companies allowed you to pay for the phone over two years, rather than pay for it upfront. That may be the barrier for some.
For me, it’s not the price of the phone or the choice of the Android, it’s the $3,000 for the 2-year contract. I’ll stick with my Touch.
I think it shows that the iPhone 3GS was a VERY good design when it first came out. More than two years later, it’s still powerful enough to run the latest iOS release. Compare that to ANY two-year-old Android phone.
BINGO. Point very well taken.
en
Not even two-year-old Android phone. Nexus S already can not run Android 4.0. The phone was released 10 months ago.
@ MDN Take…
As a follow-up comment (that I would have added to my original post had I thought of it earlier), your points make sense when comparing the “total cost” value of iPhone 3GS to iPhone 4 or iPhone 4S. However, I don’t really think that is the key point here.
Customers are NOT comparing iPhone 3GS to the other iPhone choices, and then picking iPhone 3GS. They are comparing the FREE iPhone to other FREE mobile phone choices. And based on THAT consideration, they are choosing iPhone 3GS in large numbers.
MDN Curb your elitism. There are lots of people who live week to week on looooow salaries that scrimp and save to get by. Don’t deprive them of the best phone on the market because they use their limited income differently than you use the money you rake in from Flash based ads on your “purist” site. There are times when you go way overboard with elitism! Maybe that 4-8 dollars allows them a Starbucks treat once every 6-12 months. Take a look at your core values and report back.
Rob…You nailed it man. MDN may be rolling in the dough but not a lot of others are.
Like MDN said so succinctly, if $4-8 per month matters that much to you, you can’t afford a smartphone.
It is not, however, $4-8 a month. It’s $99 and $159 up front, plus maybe a $20-35 activation or upgrade fee depending on carrier and promos.
Yes, you’ll probably charge it on a credit card anyway, but we all know it’s a bad deal if you can’t pay it off every month.
You could try and get it financed or put against a low-interest loan, but if you’re that strapped for cash you probably don’t qualify anyway…
Again, if things are that tight, “you either can’t afford a smartphone or you’re a sticker-price-obsessed-TCO-ignoring Windows suffering fool.”
But it’s not $4-$8/month, it’s $100-$400 today. With MDN’s take, very few would buy a car or a house. The difference is that for those items, you CAN pay them monthly. With the phones, you can’t. So, while I am glad that I can rock the 4S, I didn’t get the 64GB version, even though it’s only “$4/month” more, because the extra $100 serves me better elsewhere.
If Apple shared MDN’s if-you-don’t-have-$100-for-an-iPhone 4-today-you-shouldn’t-get-an-iPhone mentality, they wouldn’t have the 3Gs available for $0 with contract. In fact, with that mentality, I doubt they would even have a $100 iPhone 4 available. I mean, if you can’t afford a $1000 phone you shouldn’t get an iPhone. ¡Viva la 1%!
One more time: If things are that tight, “you either can’t afford a smartphone or you’re a sticker-price-obsessed-TCO-ignoring Windows suffering fool.”
I love all the Finacial geniuses on here today. Just because someone doesn’t have a couple hundred bucks to drop on a phone, doesn’t say anything about affording a plan. How about those older folks that are on fixed incomes, how about technophobes that just want to give it a go. Many a valid reason someone would prefer a free phone over one that costs them hundreds up front.
Perhaps they are dropping the land line and Internet connection to make room for the data plan.
Live within your means. You shouldn’t have a smart phone if you can’t afford it. Thats why this country’s in the crisis it’s in.
And one more time: Apple disagrees. Hence the “free” 3GS available right now at AT&T with 2-year contract.
AGREED… but the main cost of a smart phone is the tacked on mandatory data plan.
It’s not about 4-8$, it’s about minimizing everywhere, if you want to save. Ordering the short at Starbucks and fully enjoying it instead of the ridiculously large Venti (which goes cold before you finish) probably only saves you $1, but as a percentage, that’s about 25%. Originally, Starbucks only had short and tall… because that’s all the coffee people usually even need to be able to enjoy.
Same thing with going to 7-11 and getting the small slurpee instead of the supersize. It’s such an American trait to always pay a bit extra for the “huge” size… when the smaller size is probably all you really need.
Mmmm, Slurpee! Hell, I’m thinking that the next big trend will be paying just another 50 cents over the price of the “Mega Cup” or whatever, and getting friggin’ 55-gallon drum.
Hahahaha
This could be like the iPod mini. When that came out sales rocketed. The price barrier is different but there is a subset of customers who always get free phones and now has access to an iPhone.
Not my choice (got a 64GB 4GS on the first day) but looks like it is being taken up by a significant number.
20% additional sales could add 5M iPhones this quarter and $2.5B in revenue (assuming a $500 ASP).
Anyone who would attack people using a 3GS rather than a 4S (that they just can’t afford) to join in the iPhone fun is a fool who knows nothing about disposable income and market forces.
Are you saying the iPhone 3GS is shit now MDN? Because you weren’t saying that when it first came out. It’s a good job Apple know more than you or the company would still be scraping along on the bottom.
Spoken as the happy owner of a 3GS and a 4S who can’t bear to part with his older phone as I still regard it as a treasure.
For $4 a month, to not give yourself a Retina display, a 5MP camera, etc., etc., etc. is ridiculous.
For $8 a month to deny yourself Siri is also crazy.
These same people that opt for the 3GS likely blow several times that amount in Starbucks each month.
Like MDN said, if $4-8 per month matters that much to you, you can’t afford a smartphone.
(Brought to you by Carl’s Jr.)
What a bunch of classist snobs to determine that in your view ” who can and can’t” afford a product…. People place different values on the products they purchase… Luckily Apple knows this … And just as lucky you run a web site and not a company that sells a ” real ” product.
If you want a phone, but do not have the tech savy or interest to investigate their differences, Apple has done the perfect pricing maneuver. For those that have heard of the iPhone but do not really understand it’s real value over other smart phones Apple has removed any barrier to choosing an iPhone. Also Mom and Dad have no reason for not giving the kid an iPhone rather than a free Android phone. Family budgets are fragile these days. In addition, they now have a customer they may not have had, that will now experience for themselves all that is Apple. Usually that will translate into a customer for life.
Be carefully lest the ” occupy MDN” folks show up at your door. :=)
Yes, MDN – I have to agree with Rob. Your take on the free iPhone is a bit short-sighted.
A lot of people pick up the free iPhone for a number of reasons… For example, when you have 3 kids and they all want smartphones, a savings of $600 – $1000 upfront cost is helpful when a cellphone bill runs about $325 a month for a family of 5 on smartphones. Apple realizes that a free iPhone 3GS is an immensely powerful weapon in their war against Android and is still extremely profitable.
It’s sad to see a kid get stuck with a crappy free android phone over a $199 iPhone because their parents can’t justify the cost. Now, that’s no longer a hurdle. Great job, Apple!
Yes, we see your point on purchases of multiple iPhones.
We’ve updated our Take above.
Thanks.
Nicely put Springer and kudos to MDN to accepting this point and changing the take.
Will just add that with the free iPhone 3GS Apple have increased their product to another segment of the market WITHOUT significantly lowering their profit margin.
Smart move, well timed and clearly successful from the start.
Apple rocks!!
‘$325 a month for a family of 5 ‘
What is the world coming to?
I agree, there are plenty of people in this country for whom an extra $4 per month is a luxury.
I would also submit, however, that those people should reconsider the necessity of any phone that requires an overly expensive service plan.
just saying.
The MacDailyNews Take is spot on as usual: If $4-8 per month matters that much to you, you can’t afford a smartphone.
Tim Cook says in the keynote, Apple expects all phones to be smartphones. This free model strategy is Apple’s articulation of that insight.
I realized this when it was announced at the keynote.
It received no attention then, but I thought it was a stealthy and subtle move which eventually would get people’s attention (as Apple is apt to do).
Contrary to MDN’s take, I think it’s a big move because it gets families on tight budgets under the iPhone tent. This strategy could be expanded to developing nations as well.
I’m glad Apple is using its older to technology to increase its market share like this. As the iPhone keeps improving, eventually last years model won’t be bad at all and anyone will be able to afford one.
For families, we do understand, and we’ve updated our Take accordingly.
But still, why have a pop at people who just don’t want to spend those extra dollars a month? Maybe they don’t want Siri or some of the other bells and whistles.
I’m happy to see anyone come into the Apple tent irrespective of which piece of kit they buy. Why not just welcome them instead of taking a cheap shot?
As someone’s already said, it’s elitism and a far cry from the days when we Apple fans all just stuck together to fend off attacks from the Windows world.
The low-cost or free phones matter to families with kids. Most parents are not going to put $199 phones into the hands of irresponsible kids who regularly lose, drop or allow their devices to be stolen due to carelessness.
Part of the reason that Android gained a foothold in the first place is because a generation was introduced to cheap Google smartphones. We know that some of the “geekiest” Geeks like Android, but so do kids — because (until recently) even a cheap Android smartphone is better than no smartphone.
Now, even a two-year-old iPhone 3GS is better than a cheap Android phone because it gets a kid back into the “iPod” ecosystem. Apple made a big mistake when it didn’t introduce a low-cost, original iPhone back in 2007. It created an opening that Android vendors marched through.
A lot of people are not technophobes. They may very happy the iPhone 3GS. They could care less about having the latest and greatest. I have a neighbor with a solid 7 figure net worth… and he drives a 25 year old beater. Is he an idiot? Nope, just doesn’t give a hoot about cars.
If I was getting a phone for my kid, I would definitely choose the 3GS… not to save the $200… just for safety. Less likely to be assaulted for their phone!
I believe we were happier as kids growing up in rural England. No TV, no money, no phone, just fishing, jumping ditches, walking to school, getting caned if we were unruly, taking our own lunch – Oh ! and learning to spell.
I guess I am confused about the comments. I am about to make my first Iphone purchase and I am having the debate myself as to which one. Certainly the IP 4 is attractive for $99 and the IP 4S for $199. I am considering whether I need Siri although I would love it, and the upgraded camera is attractive as well.
For me it has always had to do with the cost of the data plan, not the cost of the phone itself. I work at a desk all day with a phone and computer, not out on the road where i might need access to email and the web. I am in a wifi zone so I can surf and email etc. without a data charge. I am leaning towards the minimum data plan from AT&T for $15/month.
That is still increasing my cell phone bill from $39 to $55/month.
It is the additional cost of the data plan which must be justified and not the initial cost of the phone. A “road warrior” can easily justify that cost.
assess both voice and data usage. AT&T is better for data download speeds, Verizon is better for voice, and Sprint has all-you-can-eat data.
I’m a minimal voice user (5-30 mins a month, usually), but a fair data user, so AT&T is for me.
Siri is worth it, btw, and this is for a beta product with only 2 databases and 3 languages. They’ll keep expanding this feature at a break-neck pace.
With 4 phones in the family, added to all the other expenses, I multiply every $8 saving by 12 and think about what else I can do with that $100. I change ISPs, dicker with phone companies and whatever else I can to shave another few bucks of the seemingly small monthly costs.
I, very begrudgingly, picked up three Android fake iPhones because I couldn’t get real iPhones without a data plan. Going wi-fi only saves us almost $80 a month; close to a grand a year. That’s not pocket change for us.
For once, I think MDN is kind of being a-holes about this. Seriously you are ranting about people who can’t afford the $200? It’s not per month it’s an up front cost. I have several friends who live form pay check to pay check. The monthly plan is in the budget, but not the $200 or even $100. So I seriously think you should chill out on this one. Cause right now you are saying if you don’t have the cash, then stay out of the Apple club.
Really not cool IMO
D-Bog
If living check to check and unable to scrap together $100… paying for a monthly smartphone plan is, at best, unwise.
Irresponsible actions will lead to undesired consequences.
From AAPL’s perspective (or an analyst’s perspective), AAPL is able to keep those 3GS and 4 production lines running instead of having to rebuild or retool for new ones every release.
And it’s remarkable that the 3GS is still a top seller 2+ years later (before 4S came out, the top 2 selling handsets were the 4 and 3GS). Samsung, RIMM, NOK, HTC and others have to be sick at the sight of that.
Both of these points means AAPL’s margins and efficiencies improve yet further — and this is from the one manufacturer who HAS decent margins where everyone else is sucking wind.
Whatever, cost does matter to many. This is a very clever move by Apple, because all of those cheaper Android phones are cheap, cheap, cheap…and very nasty. How many of them will last even a year without parts breaking and functions not working? iPhone 3GS still runs the latest iOS (most Androids are stuck on whatever came with them), and is built like a tank.
Its mostly the older generation that doesnt find the smoothest fastest generation smartphone to be that appealing, my parents who are on a prepaid plans for $40 per line with theyre cheapo asian brand droids will probably never catch up with the iOS market. It’s the youth of this nation that all these analysts should be counting, Me being 25 and a strong iOS supporter from the beginning will upgrade every chance I get, as well as my friends because we have a heavier reliance for the features that these devices support, than someone who is still figuring out the difference between 3G and wifi. KEEP IT REAL MAC!👍