How Can Apple Build A $99 iPhone?


iPhone 4S

Several reports have appeared over the past few days suggesting that Apple is preparing a new version of the iPhone that is cheaper than the current line-up. The new ‘budget iPhone’ will apparently have different exterior materials and will incorporate cheaper internal components with a view to cutting costs. Some reports have pegged the suggested retail cost of the device between $99 to $149 which is a substantial decrease from the $649 of the iPhone 5, $549 of the iPhone 4S or $450 for the 8GB iPhone 4.

That is an interesting price comparison, but it’s difficult to see how Apple could shave so much off the price of an iPhone in order to get into the iPod nano price range. But here are some interesting figures for you to consider. At time of launch, iSuppli gave the following prices for some of the components of the iPhone 4; processor & memory (~$24), flash storage ($27), baseband chip (~$12), display & touchscreen (~$40) and enclosure (~$10). With other miscellaneous materials, the bill of materials cost of a single 16GB iPhone 4 was approximately $187. Obviously the price of these components will have decreased in the interim period since the iPhone 4 was released, but components like flash storage remain quite expensive.

If Apple were aiming for a $99 iPhone, there is no doubt that they could achieve it (limited storage, recycled cheaper materials, lower quality display etc). But, a key approach to this new iPhone will likely be following the example set by Amazon, by selling the device at cost price to consumers in developing countries, and then making substantially more from aftermarket app sales.  The at-cost model is the one set by the Kindle, and has been very successful for Amazon.

Just recently Apple released some interesting figures on the iOS App Store, notably that developers have been paid over seven billion dollars. This means that, at the very least, the App Store has generated over $23 billion in sales. So, with Apple looking to get a device, potentially sold at cost, into the hands of millions and millions more app buyers, the company could be looking to shift the emphasis of the iPhone revenue stream from hardware towards software.

So maybe a cheaper iPhone isn’t going to be such a challenge. More like an opportunity.

Emphasized…

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