Sep

6

iPhone Economics Based on the iPhone Lifestyle

September 6, 2007 |

Apple (AAPL) announced yesterday that they are lowering the price of their iPhone (which only runs on the ATT Wireless (T) network), adding WiFi to their iPods, and allowing people to download iTunes at Starbucks (SBUX) locations. While it shows a bit of weakness on the Apple side, it also shows that they may be readying themselves to address a broader market (those who don’t drop $600 at once on their phone, but would be willing to pay something below the physiological $500 barrier).

There you go. Three companies that are trying to grab between $2000 and $3000* of every person they serve per year (amazing, considering those folks may be earning only $40,000 to $80,000/year, some of them students!). They are trying to convert as many people into the happy back lit person portrayed in the iPod adds, with a Starbucks paper cup on their hands.

Financially, I like industry alliances, they strengthen the position of their components. It makes them customer-sticky: customers don’t abandon the brand because it would mean changing everything else they use. The only problem: I do not own these stocks in the long therm: too bad, since both T and AAPL have done well recently. However, I have been trading T for the last two days with some success. I have traded SBUX in the past. And I have benefited from their competitors: Research In Motion (RIMM) – an excellent stock that has been on of my day-trading workhorses this week.

I think these three companies: ATT, Starbucks, and Apple got the idea right. They may have to tweak the execution plan a bit here and there, but they will succeed. I will keep watching them and I may want to gain a long term position in them if I can grab them at a good price.

The bad news and the questions:

  • People will be able to buy iPhone-like devices (no phone capability), which may leave some users out of ATT.
  • Can ATT upgrade their network to be of the same or better quality than the Verizon Wireless network? In the end, people need good, reliable bandwidth to sustain all of those cool features advertised by Apple.
  • We do not know how fast Starbucks will be able to grow.
  • We do not know how much people will be able to pay for these mobile devices. $400 is already a large amount for a hand held device. Could the masses sustain this price?

* Ammount calculated on ATT ($100/mo), Starbucks ($50/mo), iTunes ($50/month) equals 2400/year, plus up to $600 in equipment costs (iPods, iPhones, iMacs, iTV, etc).


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