Apples Cash Cow

by Manshu on July 23, 2009

in Opinion

I bought an iPhone from eBay about three weeks ago and have been totally hooked to it. It is the most awesome thing I have had for a while, and I can’t say how happy I am to own it. I have now used a Samsung, Nokia, Blackberry and an Apple phone, and I truly never expected anything to outdo Nokia, but I must say – iPhone is smartest smart phone ever.

The battery life is good, apps are terrific, camera is good, blue tooth works quite smoothly, iPod doesn’t drain out any power, and you can use the Internet effortlessly.

When I decided that I wanted to buy a smart phone, my first choice was a Nokia. I used to have a very simple Nokia phone and when I upgraded to an expensive Blackberry I really missed my old Nokia. Nothing can ever beat Nokia’s battery life and their phones are generally quite sturdy.

But, it was quite clear to me that a Nokia smart phone costs a lot more than an iPhone and this WSJ story explains why it is so cheap.

The reason you are able to buy iPhones for just $100 is that AT&T is willing to subsidize the remaining cost. They hope to sell you the phone cheap and then recover their money by a high monthly plan. In fact the article quotes a Deutsche bank study which estimates iPhone subsidies to be the highest of any smart phone and value them at $400 per phone!

Blackberry also gets a subsidy from phone companies and that is estimated at $200. Then there are the basic phone operators who also get a subsidy of about $100.

This is a really clever strategy that is win – win for the smart phone manufacturer and the wireless provider. The smart phone manufacturer can sell their phone at a high price to the wireless company without the customer ever feeling the pinch. The wireless company can then charge a monthly plan and recover their money.

I think this is a win strategy for customers also because a lot of them won’t be able to pay $500 for a phone, but don’t mind paying $100 for the phone and then $80 every month for the plan, which may just be 15 or 20 dollars higher than their existing plan. If they don’t want to get into a contract then they always have the option of getting one from eBay like I did, and I think even Best Buy is selling unlocked iPhones now.

The subsidy strategy sure works for Apple (even Blackberry), and it shows in their profits. The two companies only account for 3% of the world’s cell phones sold last year, but the 35% of operating margins!

The question is: would you rather pay a big amount upfront and have the freedom of choosing your plans or pay a small amount upfront and then pay a slightly higher monthly plan and locked into a particular network?

{ 3 comments… read them below or add one }

jason July 23, 2009 at 6:39 am

How come you did not like your BlackBerry?
BlackBerry devices are way better, and easier to use, than iPhones…

Reply

Manshu July 23, 2009 at 4:34 pm

@Jason

I thought the battery life on my Blackberry was not as good as Nokia and the tracball stopped working after about a year’s time. Not that it didn’t work at all, but it stopped going to the right. That was something I hated.

The other thing was that my Nokia used to change the time acc to the time zones but the Blackberry didn’t do it. I noticed that this doesn’t happen on the iPhone also.

Reply

J July 26, 2009 at 10:49 am

> ” I think this is a win strategy for customers also because a lot of them won’t be able to pay $500 for a phone, but don’t mind paying $100 for the phone and then $80 every month for the plan”

This is hilarious. Did you read this after you wrote it?

People paying almost $1000 EVERY YEAR to own a phone will balk at a $400 ONE-TIME cost to get the phone they truly want?

How much more monthly is your iphone plan over your Nokia plan? If you own that iPhone for two years, how much more will you have paid over your previous Nokia plan?

Monthly costs for the iPhone are outrageous, and I am rather shocked that a financial-oriented blogger would own one.

Reply

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