Forget the curvy edges and 3G connection: The most important feature unveiled today for Apple’s iPhone 3G is its $199 price tag. The bet: That low-end price tag will someday make Apple (AAPL) the smartphone market leader, the way Microsoft’s Windows (MSFT) dominates the PC market. And the way Apple itself dominates the music market via iTunes and the iPod.
But by going all-out to beat Research In Motion (RIMM), Microsoft’s Windows Mobile, Google’s (GOOG) Android, Symbian, and other smartphone platforms, Apple is giving up a revenue stream that could have generated billions in the short term. Even for a company of Apple’s size, that’s a risk.
Under Apple’s old agreement with its carriers, Apple gave them exclusive iPhone rights in their countries in exchange for a monthly kickback. AT&T (T), for instance, paid Apple an estimated $12 to $18 per month. That adds up: Even at the low end, that’s $288 over a 24-month contract. Now Apple’s giving that up. In exchange, the carriers will subsidise the iPhone by $200.
What does that cost? Let’s say Apple kept the old model, and sold another 5 million iPhones by the end of 2008. That would produce $1.4 billion of very high-margin subscription sharing revenue.
Multiply that number over the years of a successful product life cycle, and you can see how much Jobs is willing to forgo here. The payoff: The chance to control a platform that could be as integral to day-to-day life as your PC — or more so. Put it that way, and the bet looks a lot more reasonable. But it’s still a gamble.
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