Apple’s free iPhone 3GS a big weapon against Android phones with up to 20% of iPhone sales this quarter

“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.]

45 Comments

  1. 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.

  2. 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.

    1. @ 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.

  3. 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.

      1. 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…

    1. 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%!

      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.”

        1. 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.

    2. 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.

  4. 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).

  5. 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.

    1. 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.)

  6. 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. :=)

  7. 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!

      1. 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!!

  8. 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.

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