What Would a Free iPhone Do for Sales?

How much difference will dropping the price of an iPhone from $199 to $99 make in Apple’s sales?

If you are being rational, it shouldn’t make that much of a difference, given that the $30 per month data plan costs $720 over two years. In other words the $100 price cut only reflects an 11 percent reduction in the total cost.

But since when were people rational? A year ago, Apple dropped the upfront cost of an iPhone from $399 to $199, but AT&T increased the monthly data plan’s cost by $10 a month (leading to a net increase in cost of $40 over two years.) The result: sales in the United States doubled, according to an analysis by Gene Munster, the analyst at Piper Jaffray. (There’s more to the increase of sales of course. The second generation iPhone was much faster and the App Store has been creating lots of new reasons for people to buy an iPhone.)

Mr. Munster continues to believe that this year’s price cut will help drive iPhone sales even higher. Indeed, he predicts that Apple will sell more of last year’s 3G phones at $99 than it will this year’s 3GS models, which are faster and have video recording capability, at $199 and $299. (I know you, Bits readers are early adopters and would likely spend the extra $100 if you were in an iPhone-buying mood, but not everyone takes gadgets as seriously as you do.)

“Ninety nine dollars is a magic price point,” he said. That’s on the low side for top-tier smart phones. AT&T is currently selling a refurbished Blackberry Curve at that price, and Verizon has the aging Palm Centro at $49.

Apple is also throwing a sharp elbow at Palm, Google and anyone else that might be tempted to compete with Apple by undercutting the iPhone’s price.

[via NY Times]

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