New iPhone - New Business Model

Steve Jobs announced the widely anticipated new iPhone at the WWDC today. I have seen a lot of comments on features and price, but nothing interesting on the new business model. Here is my take.

In the old business model, Apple and ATT sold the iPhone at full price and in a highly unusual arrangement, ATT shared its ongoing revenue with Apple. Now Apple and ATT sell the iPhone at a discount. ATT presumable pays Apple for each phone they sell, however there is no ongoing revenue sharing. We will have to see exactly how this plays out when the iPhone goes on sale. It may well be that you have to sign up with ATT to unlock the phone when you register it.

Apple still has a couple of revenue streams which are unusual concessions from a mobile-phone companies, especially in the USA. First, Apple gets to sell all the media and games on the phone through its iTunes store. Songs are still $1, movies and TV shows range from $2 to $5, games and applications range from free to $10. This is a useful revenue stream even although it has a margin of only 20% to 30%.

More interesting is the MobileMe storage and syncing service that costs $100 a year. Verizon charges me $10 to move my phone list from an old phone to a new phone when I have to buy a new one. Nobody there or at any other phone company thought of charging $100 for making this service continuously available. At the same time it is a great idea, that many have picked up as a good reason to get the iPhone.

The only problem with MobileMe is the ridiculously small storage capacity of 20 GB. The phone has 8GB or 16GB. What is the point of having a backing store that is about the same size as my phone? Particularly as storage is not that expensive these days. Google Apps offers 25GB for $50 per year, Apple ought to offer something equivalent.

Apart from that, the new business model keeps Apple ahead of the game which is exactly where it needs to be.