What’s Next with the iPhone with Apple & AT&T?

Yesterday Apple announced a major update across the iPhone line, as well as big price-cuts to the iPhone. It’s interesting to consider what this means for the future of the iPhone.

Briefly, for context, the Shuffle gets more colors, the Nano gets a bigger screen and video playback, the hard disk iPod’s get even more capacity, and the iPod touch is a lot like the iPhone without the phone for $100 less. These updates are relatively uncontroversial, other than, perhaps, the fact that there isn’t a hard disk based iPod with a large touch screen for all the video you can cram on it.

What is controversial is that Apple also cut the price on the iPhones by $200, which makes the 8gb model a $399 item, and drops the 4gb to $299 while supplies last. This is, of course, great news for anyone who wants an iPhone. It is rather upsetting though to some of those who already have an iPhone to have the price on their shiny new toy drop so much so soon. There has been a lot of huffy complaining in online forums. Meanwhile, people who bought their iPhone recently are able to get credits under Apple’s 14 day price protection. Some early adopters also report success getting full or partial credits for the price difference, though many others have not.

I think it is unfortunate that Apple didn’t better anticipate the upset this move caused wasn’t better prepared to assuage unhappy early adopters. Offering a $200 credit towards Apple merchandise up front would have been a brilliant move that would have a positive ripple effect across all of Apple’s product lines. The true Apple faithful would be excited to have $200 to spend on more Apple stuff. PC users would have strong inducement to further explore their newfound taste for Apple products by picking up a new iPod for their spouse or significant other, or perhaps a new Mac for themselves. In the end, the hit on Apple’s revenues would be minimal, especially since they are taking revenue from the iPhone over 8 quarters.

Apple also announced that they’d be selling iPhone ringtones through the iTunes store. They will run $0.99 on top of the $0.99 to buy the track in the first place and you’ll be able to select which portion of the track you want for your ringtone. It is, of course, outrageous that we are expected to pay extra for a track that we’ve already purchased to use it as a ringtone, but it is even more outrageous to pay $2 for a ringtone and not get the whole track.

Now though, lets step back and look at the whole landscape and what the implications might be.

By dropping the iPhone $200 and phasing out the 4GB model, Apple has clearly made room for at least one more product in the iPhone product line.

  • A 16GB iPhone at $499 is the most obvious candidate, especially since the 16GB iPod Touch is available for $399, the same price as the 8GB iPhone.
  • A less likely possibility is that they will debut an iPhone capable of 3G speeds at the top of the line. The iPhone is yet to be launched in Europe and most people there would expect something like the iPhone to support 3G, rather than just the pokey speeds of EDGE. In addition, AT&Ts 3G coverage continues to improve (slowly) and a new generation of 3G chips should bring down power consumption and increase battery life. A 3G iPhone would also get a lot of early adopters to upgrade, especially if they had $200 in Apple store credit, or, perhaps if they could use their contract subsidy from AT&T for a new iPhone…
  • AT&T could start offering the iPhone at a subsidized price. Current iPhone customers already have a credit worth, effectively, $250 on their account for a free or heavily subsidized phone for signing a 2 year contract. With the new pricing, AT&T could offer the iPhone to new customers for $150, or less, which is the same price as their version of the latest Motorola RAZR. They’ve picked up a lot of new customers thanks to the iPhone, and they’d be smart to keep that momentum going by taking full advantage of the iPhone price cuts. This would also drive a lot of existing iPhone customers to upgrade if an iPhone upgrade comes out soon.
  • Apps for sale for the iPod touch and iPhone. The announced featureset of the iPod touch leaves it with only 7 icons in the top part of the main screen. This creates an empty and snaggletoothed look that is very unapple-like. It makes me strongly suspect that either Apple will have at least one more application at launch, or that they will soon be selling games and other apps for the iPod Touch and the iPhone. I’m sure some iPod Touch users would like the iPhone’s e-mail client and/or an IM client even if they could only use them over WiFi.
  • Bluetooth DUN support in the iPod Touch. This one is a long shot, but letting the iPod Touch pair with someone’s existing cell phone for internet access over the phone’s data connection would be a very cool feature, it would also provide a bit of an end run around exclusivity agreements with AT&T regarding the iPhone. There are totally unsubstantiated rumors that the Touch already has a Bluetooth chip. At the very least, Bluetooth would be cool for wireless headphones and simplified car stereo connections
  • Apps with Rendezvous support. I’m really surprised this hasn’t happened yet, but at this point, there is really no network-effect with having an iPhone, or an iPod touch. There aren’t any cool things I can do if my friends also have an iPhone or an iPod touch. Microsoft was stupid to overemphasize “The Social” as part of the Zune launch, but I think it will soon be time for Apple to offer, at the very least, some networked games.

I expect pretty much everything, except the 3G iPhone and the Bluetooth networking, would happen in plenty of time for the Christmas buying season. I’d guess they’ll be metered out over the next two months or so to keep the iPhone and Apple in the news. I wouldn’t be surprised if we saw some sort of integration with the AppleTV soon either.

I’m worried though, that if Apple moves to start selling apps for the iPhone, that they will start deliberately making life difficult for the authors of 3rd party apps being developed now without official support from Apple.

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