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The desire for an iPhone 3GS

Despite all the vociferating of some journalists who have vested interests and/or preconceived ideas, the new iPhone 3GS is clearly an object to be desired by many people, just like the iPod (Touch) was and still is. Making it so is one of the key skills of Apple. However, existing iPhone users have realised that upgrading from the earlier 3G model is not so easy on their wallet as they believed. A considerable amount of irritation and a strong feeling of injustice have ensued. Let’s investigate how and why.

The price

At the recent WWDC the new iPhone 3GS was slated as costing 299$ for the 32 giga model. No other price was mentioned. Now that price reflects how much certain users will pay with a particular telephone company under certain limited circumstances in one country. The full price of the machine can be more than double. The reason for the difference is well known: telephone companies are prepared to subsidise the price of such a desirable phone to ‘buy’ new customers. They are much less likely to do so to bribe existing customers to remain. In the customer hierarchy of Telcos, new users come first, then high consummation users come second and finally all the rest. One of the perverse effects of such a system is that people who are already customers of a Telco feel disregarded when the object of their desire is sold at reduced rates to new customers but not to them despite their having been a faithful customer for a (great) number of years. Note that Telcos have other ways of forcing customers to remain faithful to them, like offering cheaper or free local calls to people using the same company. This implies that members of cost-conscious groups (families, friends,…) tend to use the same company and as a result are locked into that company on a long-term basis. This is the way it is in Switzerland. So Telcos have less need for incentives like an upgraded phone to keep existing customers captive.
One of the results of offering substantial rebates on new phones is that there can be no tangible relationship on the part of the user to the effective cost of the machine. We are quite prepared to pay the full price for our Mac or our iPod, but think it abnormal to pay the full price for the iPhone.

A limited and limiting system

The system of offering rebates on a new machine is a model that only makes sense when the machine is bound with a long-term service contract. You don’t expect your cable company to offer a price reduction on your computer even if you use it to connect to the Internet, although you might find yourself being offered a rebate by a Telco if your computer is a netbook with telephone capabilities. The difficulty we are facing here is the yearly upgrade to a machine that is capable of creating a very strong desire to possess it. The current Telco model is not made to handle such a situation. While it is in Apple’s interests to have Telco’s subsidise the iPhone to offer a more affordable price, it is not in their interest to accumulate ill-will because people can’t respond to the desire that Apple creates. As change accelerates and newness and innovation are a source of major commercial advantage, cycles of renewal shorten (however debatable such a situation may be from an ecological point of view). This shortening does not sit well with the lengthening of service contracts which work against change and innovation, at least for those already locked into a contract.

Partial solutions

I have thought through several possible ‘solutions’ but none of them alone offers a satisfactory answer. These include: putting emphasis on (cheaper) software upgrades rather than (more costly) hardware modifications; Apple directly selling Telco services (with the risk of monopoly concerns that it would create); developing a points system in terms of use that transparently contributes to granting a rebate on the next phone (similar to existing systems, but more transparent for users); a leasing system in which a fixed rental gives the right to receive a new phone when ever it becomes available; the encouragement of competition on the part of Telcos based on performance and the quality of their offer and services rather than a ‘present’ in the form of a rebate on the phone (those who get the rebate probably wouldn’t agree); …

However, a very good start to a solution would be for Telcos to sell the iPhone 3GS at wholesale price (and not some punitive retail price) or slightly cheaper as a base price. After all, they have a vested interest in having customers procure such a phone as web statistics show it clearly encourages people to use Telco services that they probably wouldn’t have used before.

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Created: June 10th, 2009 - Last up-dated: June 11th, 2009