How Will $99 iPhone Impact Phone, Music Businesses?

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 $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 -- it's just my luck that 3G speed remains hit and miss, six months after the iPhone 3G's release.

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, the iPhone 3G was 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. A Shuffle costs just $20 less and lacks all of the fancy accoutrements of an iPhone. 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 Sony Ericsson W350 and other music phones from AT&T and T-Mobile (like the Nokia 5310, the Nokia 7510, and Nokia 5610) 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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