How Low Can iPhones Go? Wal-Mart Says $99. Maybe. (Actually, I Kind of Doubt It.)

By  |  Thursday, December 4, 2008 at 7:56 am

walmartiphoneBoy Genius Report, which has a pretty good record for reporting stuff about phones before anybody else, has posted about the possibility of a $99 4GB iPhone to be sold exclusively by Wal-Mart. It does look like Wal-Mart will become the fourth iPhone seller (after Apple itself, AT&T, and Best Buy). But Boy Genius goes to pains to say that the $99 bit is a rumor from a source of unproven reliability. And as I think about it, it seems unlikely.

For one thing, I’m not sure how well the math works: At the moment, an 8GB iPhone is $199 and a 16GB one is $299. That’s a $100 premium for an extra 8GB of memory, so it’s not clear that reducing the memory by 4GB would save Apple and Wal-Mart enough to slash the price of an entry-level iPhone by $100. And a $99 iPhone would be big news and a big hit–I have trouble believing that Apple would allow Wal-Mart to rack up all those sales and deny its own stores, AT&T ones, and Best Buy to get in on the action.

Then there’s the fact that a $99 4GB iPhone would represent a major cutback in the phone’s capability to hit a low price point. That’s certainly a Wal-Marty thing to do, but it sounds out of character for Apple, which stopped selling the 4GB iPhone (which originally sold for $499) as soon as it could.

I’m not saying it won’t happen. I’m just saying I can think of more reasons why it won’t happen than ones why it might. I do think, however, that there will be some sort of sub-$100 iPhone eventually–maybe one that’s a lot like current models, once component prices have come down and Apple has released a true next-generation iPhone or two. But not now. Probably.

 
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5 Comments For This Post

  1. Paul Says:
    December 4th, 2008 at 8:18 am

    Remember a $199 or $299 phone still costs $599 and $699 respectively and AT&T has to subsidize Apple for the difference.

    So if Walmart does sell a $99 phone, who will subsidize it, Walmart or AT&T?

    Apple is not going to sell the phone for anything less than $499, I suspect.

    Paul

  2. Dale Larson Says:
    December 4th, 2008 at 9:04 am

    If you’d posted this a month or two ago, I’d have suggested that the biggest reason not to do a $99 Walmart-exclusive iPhone would be either 1) damage to the iPhone brand (since it will no longer be perceived as premium) or 2) component availability/manufacturing capacity to meet demand across the line.

    Today, when Nokia is predicting a slightly contracting mobile market in 2009, this makes a lot more sense. Apple probably has capacity to more more phones than it thinks it now will at full price.

    I can easily imagine the case that WalMart will more more additional $99 iPhones with an exclusive than would be lost in profits from stocking it in Apple and AT&T stores.

    The reduced price has nothing to do with the actual cost of the reduced memory and everything to do with positioning, marketshare and with subsidies and/or loss-leadership.

    Could AT&T offer a more budget conscious plan for the WalMart phone? Would we call the combination the Redneck iPhone? How would American culture be changed?

  3. KenC Says:
    December 4th, 2008 at 6:46 pm

    Actually, WalMart will probably sell it for $88, as they have a thing for 8s over 9s. I’m sure they’re supercomputer in Benton Arkansas told them that their shoppers prefer it that way.

    If you add the $88 to the $360 subsidy from AT&T that’s still $448 per phone. The gross cost for the iPhone was $315, presumably that might drop to $300 if it’s only got 4 gigs of ram, so about $148 in gross income, which is interestingly still 33.8% gross margin, right in line with Apple’s typical gross margins.

    Didn’t you propose a month or so ago that Apple should drop prices by $100, and do the same math?

  4. KenC Says:
    December 4th, 2008 at 6:46 pm

    Sorry, I was thinking of Henry Blodgett.

  5. Pete Says:
    February 14th, 2009 at 7:23 pm

    $100 is optima, i think

4 Trackbacks For This Post

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