iPhone is expensive on purpose

Listen up: the iPhone is expensive! There’s a good reason why and it’s shameful to say. It keeps out the “rif-raff”. Apple has evolved into a country club for technologists and the iPhone’s price ensures that Apple’s “right kind of people” get in. It would sound bad if owning Apple’s products were a Constitutional right. They are not.

While I’m sure you’ll hear people say that the price is not fair, they might not realize just how close they are to the truth. It’s not fair because Apple wants a certain segment of the population to own one at first. Those people will drive adoption in two ways: evangelism and envy. Remember the early iPods and the cries about price? Now you can buy an iPod shuffle for $79 (or even cheaper if you’re willing to buy refurbished) and pricing like that moves it into commodity status.

Normally, a producting being a commodity is bad for value. Take as an example Kleenex brand tissues. Everyone can buy a tissue and plenty of people call a tissue a Kleenex even when it’s not the same brand. There’s little to no value in the Kleenex name or the tissue itself. Is there any value in a cellphone today? No. People are willing to compromise features to achieve affordability because there’s so many types of cellphones with many of the same core featres.

Until June 29th. That’s when the game changes and cellphones have a value again.

How do you prevent brand and value dilution for Apple’s first pop culture phenom–the iPod? You probably can’t at this point–that ship has sailed–but it’s industrial design has helped it stretch. It’s that specific reason that such extreme steps have been taken with iPhone, starting with it’s price. How expensive do you really think the iPhone is to manufacture? More than $499? I doubt it. Let’s look at the ways that Apple will get revenue from the iPhone other than it’s purchase price:

1. Google search affiliation
2. Selling content through iTunes (including currently vaporware ringtones and widgets)
3. Kickbacks from AT&T for signups and contract values

Those three alone make it obvious that the price does two things: segreates people into classes based on wealth and helps cellphone manufacturers make a real margin on phones again.