Apple: Lower hanging fruit, but mind the worms

The tech blogs are atwitter (and a-Twitter) about today's announcement of Apple's new iPhone 3GS. Its built-in driving directions, voice activation, and video camera will be turning the Apple Store near you into a geek parking lot late next week. From a budget standpoint, though, the big news isn't about new features. It's about new prices.

Starting next week, the lowest-priced iPhone (an 8GB 3G model, which is the current iPhone without those embellishments) will be just $99 with a contract, which isn't much more than the basic cheapie units your cell phone company gives for free with new contracts. Computer prices were knocked down, too. MacBook and MacBook Air laptops will also be cheaper, by as much as $700.

The news isn't all sunshine and unicorns. Although Apple is selling the new iPhones for $199 or $299, and the press is already praising those prices as if they're the Treaty of Versailles, they only apply if you don't have an iPhone already.

That price is bait for new customers. I've had one for six months, and Apple says I can't have those low prices. I have to pay $399 to get a new iPhone with the same memory capacity I have now, plus an $18 "upgrade fee," which is ludicrous considering how much I'd be paying to get a new unit. The cheapest model for me would be $299, and the most expensive, which would double my memory, is a scalding $500.

Although the "I'm a Mac" campaign has been sticking it to Windows for years now, the recent spate of anti-Mac ads, those documentary-style "Laptop Hunter" commercials in which young people are promised free computers if they can find what they want for under $1,000, have to hurt. They target Apple's Achilles Heel: its high prices. ("I'm just not cool enough to be a Mac person," sighs a redhead in one such ad.) Today, Apple all but admitted it feels the sting.

Apple takes a holier-than-thou attitude toward the press and rumors about new products. The company remains tight-lipped about anything that doesn't suit its forward goals. And although it has no compunction about airing some withering attacks about Microsoft and PC's, namely that they're too hard to understand and they break a lot, Apple almost never acknowledges attacks made against it. Well, not usually. Selling an iPhone for $99, though, comes pretty close.

The price cuts are also tactical. Just as it did with the iPod and with earlier version of the iPhone, Apple is bringing prices down as popularity ramps up -- it's a perfect formula for future market saturation. The hottest products will still be available at premium prices as long as they're hot. But as they age slightly, they'll be sold for less, as the iPhone 3G now is.

But don't buy yet. The story's not over. The Palm Pre was just pre-released, two weeks ahead of the new iPhone's debut. The release of new products is just the opening salvo in a summer smartphone war. No matter which one's victorious, or if it's a draw, consumers are bound to be the ultimate victor as prices limbo low enough to welcome all new potential customers to the fray.

I'm still ticked off, though. I might have upgraded my iPhone before, but at these prices, there's no way.

Update: The techie blogs have pieced together that if you've been an iPhone user for 18 months or less, AT&T won't let you have the new model unless you pay another $200 above the fake low prices being touted in the press. An online petition for fairer pricing is well underway.

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