iPhone As Platform = Cha-Ching!

by: Mathew Ingram posted on: June 12, 2008 | about stocks: AAPL    
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My friend and fellow mesh 2008 organizer Mark Evans has a post about the iPhone and how it is just one part of a “razor and blades” market model — i.e., the carriers subsidize the phone as a lure, in order to sign you up for long-term contracts at usurious rates. Of course, in the typical razor and blades business, the same company benefits from both the giveaway and the ongoing revenue. In this case, however, Apple benefits from the giveaway — since it means that more people buy iPhones — but the carrier benefits from the ongoing revenue (Apple used to get a piece of that, but it has changed its model, which is part of the reason why its stock took a hit following the announcement at WWDC).

As I was reading Mark’s post, I was thinking about all of the talk following Steve Jobs’ keynote, about how the iPhone has become a platform now, meaning it is becoming more and more like a PC and less like just a communications device. This is clearly the future: a handheld that has a great browser, GPS with location-enabled services, integration with MobileMe cloud-computing type features, etc. Sounds cool, right? Except that (for Canadians in particular) users have to pay through the nose for every one of those bandwidth-gobbling services. For your average bandwidth-shaping and usage-cap throttling ISP, it’s a wet dream: charge per usage of everything, not just a flat fee.

What if when you used your computer, you not only had to pay for the bandwidth itself, but had to pay your provider every time you used Google Maps, or every time you sent a text message or a Twitter post or uploaded a photo? For a lot of people using regular cellphone plans (or the fake “unlimited” plans that redefine the word “unlimited”) that is an unfortunate reality. I love the idea of the iPhone — but I hate the feeling that if I were to use one, I would get taken to the cleaners in ways that I haven’t even thought of yet.

Update:

As Bob Warfield of Smoothspan notes, and Piper Jaffray is speculating, Apple is also potentially the beneficiary of the razor-and-blades approach, through the Application Store.

This article has 6 comments! Add yours below...

Mathew Ingram

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This article has 6 comments:

  •  
    zoltan
    kovacs
    Jun 12 03:56 AM
    Well, that's the way innovation goes. Firstmover's pay for being first, later on, competition will do it's job for reducing prices. And let me guess: it won't take very long in this market. For the razor-and-blades approach, this is all about choice, you don't want to have all those apps on your iPhone. At the other hand, it differentiates the product very nicely and makes it "different" for diverging needs.
  •  
    dvd
    Jun 12 04:23 AM
    In U.S. we're now paying $4/gal. for gas, Europe purportedly nearly $8. Same for telecom cost? Anybody know? ...b/c without tethering (using phone for laptop internet connect) I also feel "taken" at these increasing prices. BTW it's not a razor 'n blades model b/c the razor costs hundreds of dollars... plus $36 at&t activation fee. Great technology, but data service pricing likely to keep me away for my modest needs.
  •  
    wallawallabi
    ngbang
    Jun 12 05:50 AM
    Don't worry, Rogers' deal with Apple with usher in extremely reasonable data plans in Canada...
  •  
    slackadelic
    Jun 12 09:29 AM
    I never had a data plan previous to the iphone. And that is because the phones all sucked & the rates were laughable. Not that ATT has a GREAT rate, but I never go over, and never have any extra charges (well besides when I called 911 because a street fire hydrant was gushing... yes, $1.99 for that call). Anyway - of course I wish I was paying less, but it isn't that unreasonable for working professionals...
  •  
    jmmx
    Jun 12 09:51 AM
    Why is it that people scream USURY at Apple, but not at RIMM? They charge high rate also. In fact, ATT's iPhone rate used to be cheaper than typical RIMM rate.

    And what should happen if anyone complains about the REAL USURY of the finance companies - usury that crushes people financially and drives many into bankruptcy? Oh that is just fine - if they don't like the terms then they just should not take out that payday loan to fix the car so they can get to work, or pay the heating bill or take the baby to the doctor.

    Wanna talk usury? Let's GO!

  •  
    mollytjm
    Jun 12 10:44 AM
    if you're Canadian, maybe you can make up for the difference in smartphone contracts with what you save in medicine:) but really, i thought AT & T was giving APPL $200 of the 'rebate'...so APPL is getting either $399 or, for the more gig phone, $499. And, those people on 2 year contracts before this still have a part of their payment sent to APPL for the remainder of their contracts. by the time that's over, APPL with have a much larger sale of iphones. This should translate as a higher stock price.
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