I agree that a $99 iphone could kneecap the industry but it seems that it is also bringing AT&T service to it's knees.

A Cingular (now AT&T) customer for about a decade now I'd say I probably dropped a call or had poor quality once a month up until about mid-2008.  Quality seems to deteriorate constantly to the point that now I can not make back-to-back calls during work hours without at least one of them being dropped or playing the "can you hear me now" game.

This is classic Apple strategy - it is deja vu regarding the iPod strategy. Drive the market with the best new product at same price point, whilst also widening the market with a cheaper version of the existing product.

I watch quite often Steve Jobs' Macworld intro of the iPhone from January 2007. This product intro will, I believe, go down as an all time great. He says it all, with the right retoric:

'5 years ahead of any other smartphone'.
'The best software needs the best hardware'.
'Skating to where the puck will be, not where it is now'...

And that is still the case now - Apple is driving this market, Apple has a road map for mobile computing, and the WinMo's and Nokias of this world still do not know what has hit them!

"This could be very clever on Apple’s part. Rather than inventing a new, lower cost phone they merely drop the price on the old model for which all of their costs have already been amortized and they know this phone is reliable and they know the warranty costs and manufacturing costs to the penny.  If they engineered a new, low cost phone they’d have to pay for the engineering and then there’d bee some uncertainty about bugs or defects. This is very smart."

Quite true - For $99, the consumer receives an non-compromised, premium iPhone, with a system upgrade which virtually elevates its capabilities to those of the newest GS model. (sans video, select focus, compass, and full system voice control, for now)  The newer price point will make this choice a no-brainer for the smart-phone crowd, as well as for those sitting on the fence about upgrading from a generic cell to a smart phone - I know droves of people who are of this demographic - very smart indeed!

It is not that everyone wants the iPhone. It is that the iPhone sells well enough that it can influence prices.

If iPhones sold for $500 and someone paid $200 for some other phone that caught their eye odds are they'd feel good about the decision. But compare the exact same deal to a $99 iPhone and now they don't feel so clever.

This doesn't have to affect everyone, just a large segment of the buying public to put pressure on other smart phone suppliers.

This could be very clever on Apple's part. Rather than inventing a new, lower cost phone they merely drop the price on the old model for which all of their costs have already been amortized and they know this phone is reliable and they know the warranty costs and manufacturing costs to the penny.  If they engineered a new, low cost phone they'd have to pay for the engineering and then there'd bee some uncertainty about bugs or defects. This is very smart.

Have you seen what else AT&T is selling for $99 on a 2-year contract? A Nokia E71x, a Samsung Jack, and a *refurbed* Blackberry Curve, and Motorola Q, What would you choose if you were willing to spend $99 on a phone?

And remember that the $99 iPhone with the new v3.0 OS is NOT the current iPhone. V3 is a huge expansion in performance and goes a loooong way to correcting the things about my iTouch (& the iPhone) that make my teeth itch.

The iPhone won't kneecap the phone industry, just the smartphone industry.  That's good enough because that's where the profit margins are.  I would think that the new smartphone user (the average non-techie) would pick any iPhone over any OTHER touch-screen handset for ease of use and availability of tens of thousands of apps.

Agreed that data plans are too expensive for people that barely need a handset.  I'm more concerned about AT&T running out of bandwidth than almost anything else.  I just know people are going to be snatching up those 8GB iPhones like crazy just to say they got one.  They'll know in about six months whether they can actually afford to be iPhone owners.

I wonder when the exclusivity deal finishes between Apple and AT&T, if Apple will be able to convince other Telecoms to subsidise the iPhone enough so they can keep the $99 pricepoint??

I mean Verizons "all you can eat" plans surely wouldn't be able to cover the cost of the phone and data consumption at their current price-points??

Apple is doing to the SmartPhone market like they did to the MP3 market. Soon 80% of SmartPhones will be an Apple device.

But as KMC said, not everyone wants of needs a pocket computer - some will be content with just a phone.

The real cost is the data plan. $30 / month is still a big barrier for most people. 

But if you are willing to pay that and you want a smart phone, if its a your decision, meaning your work does not require a blackberry or for you to use a carrier other than ATT, then yeah, you'd be silly to get anything but the iPhone.  It's way better than anything else out there and it's your iPod too….

Whether you like ATT or not.  Or like the iPhone or not doesn't matter.  The iPhone has a strong mind share position in the market.  If you're in the market to get a mobile device the iPhone will be on the short list.  It may not be what you buy but it will effect the evaluation process.  All other things being equal would you choose a $99 or some thing that cost substantially more.  Manufacturers will have to take this in to consideration and cut their margin or limit their market. 

Blackberry is strong now but how long can they maintain that position?  The larger consumer market will allow Apple to continually move the price down and the applications business wants will come from vendors wanting to capitalize on the greater market.  Apple is eating the ground under the vendors.  Before they know it they'll be niche players wondering where their market went. 

Remember Apple came late to the MP3 market.  Started out as the high end solution.  Reviews complained that Apple was too costly.  Just before a viable moderate priced competitor came out Apple releases a low end to under cut the moderate price.  Poof goes the market.

@ KMC

re: "...Honestly it’s just another device with rather generic features and consisting of limitations…"

I can agree that the iPhone isn't for everyone but you gotta be on crack to suggest that it is "just another device"  Go ahead though, you guys at Verizon keep sticking your heads in the sand and telling yourself that.

kmc is right.  Not everyone needs an iPhone.  Not everyone wants AT&T.

Most people can get by with a Jitterbug if all that is needed is a phone.

Blackberry will still hold Corporate I.T. that invested in BES.  And Lotus Notes.

Anything else will be niche.

Hi Steve B., new username? Out trolling?
Have a nice day!

kmc:

The market disagrees with you.

I disagree with Entner's analysis. The iPhone does not suit every wireless consumer's needs, and not every wireless consumer is with AT&T or wants to be with AT&T. Not every wireless consumer likes the iPhone. Honestly it's just another device with rather generic features and consisting of limitations. Many consumers will still find greater value in other devices still. Let's not get this whole Jesus phone thing blown out proportion.