January 10, 2007

iPhone: Apple's Most Profitable Product Ever?

Steve Jobs' brilliant innovation and a clever pricing strategy might herald a new era of profitability for Apple.

Apple's recently introduced banner hinting at bigger things

Apple's iPhone, even though high-priced at $499 (4GB) and $599 (8GB) considering the company's recent moderately priced offerings, appears poised to become the most profitable product in its history. The phone comes with a two-year Cingular contract which means Cingular will pay Apple a fixed sum for each device sold - a rebate that is traditionally passed on to consumers except in this case.

Since it's an Apple product which ensures big sales (estimated 10M by end of 2008) and the promise of luring users from other carriers, it's very likely that Apple is charging a hefty sum from Cingular for the privilege of being its "exclusive multi-year" partner. During the keynote presentation Cingular CEO remarked that they signed up without even looking at the prototype.

Apart from this, both Google and Yahoo have products that are being offered with the phone which point to yet another revenue opportunity for Apple. Yahoo is offering free IMAP email apart from other services. Google is offering search and Google Maps. It is somewhat odd that products from both the companies are included since they have largely similar offerings. Initially, I figured that this could be because each have a large subscriber base which Apple didn't want to exclude. But another reason could well be that signing up with both companies doubles Apple's revenue earning opportunity.

Add all this to the premium price and Jobs brilliant strategy becomes clear. Offer a device that is unparalleled in its offerings and more importantly its user experience that solves a long-standing problem, and then charge a world for it.

No one - not consumers and no carrier - would pay this premium if it were a Nokia, Samsung or a Motorola phone. People are ready to accept this only because this is an absolutely remarkable phone in its looks, its experience, its functionality and the brand behind it.

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