How Will $99 iPhone Impact Phone, Music Businesses?

Our US correspondent muses on a world with cheap iPhones

The Apple iPhone has been a game changer since day one. So it's to be expected that the phone would transform the competitive landscape if it were to hit US$99. And I'm not just talking about the handset landscape.

Consumers would clearly win out in a $99 iPhone scenario. Even if the phone had reduced functionality (really, when did you last use all of the features in your phone?), it would ultimately get the powerful general capabilities and broad features of the iPhone out to mainstream audiences. So long as you get the basics -- the full, app-enabled iPhone operating system, the multitouch screen, the music player -- many users may not miss the GPS, or a better camera. For that matter, many would probably be willing to sacrifice 3G connectivity.

Presumably, enthusiasts will benefit from a $99 iPhone, too. Why? Because Apple will be forced to give the second-generation iPhone 3G a beefier set of new features, to make it appealing vis-à-vis the low-end offering. Let's face it: Beyond iPhone 3G's faster 3G radio, GPS, and a few cosmetic and light design changes, it wasn't a dramatic change from its predecessor.

So, who gets squeezed in a $99 iPhone 3G world? Well, Apple, for one: the company's iPhone profit margins will likely take a hit -- a hit that may, or may not, be made up for in sheer volume. More critically, at 99 bucks, suddenly iPhone is an attractive alternative to a dedicated MP3 player. Of course, there's the pesky issue of the service contract, but if priced right, service providers should find interested consumers interested in a middle ground between the class act of iPhone 3G and the lower cost model.

Why? Because most people use a cell phone, no matter what. When the cost delta narrows between a low-end iPhone and competing cell phones, more people are bound to consider it as a viable alternative. That means that music-centric cell phones will also get the squeeze: Phones like the Sony Ericsson W380i and other music phones will have to struggle to find an audience. They'll be going up against the Apple iPod juggernaut.

I wouldn't want to be one of those phone companies when Apple drops the price on the iPhone.

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Melissa Perenson

PC World (US online)
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