TightWind is written by Kyle Baxter. Stay Hungry. Stay Foolish.

Daring Fireball: Twice as Fast, Half the Price

The physical phone is not the story. A year from now, the iPhone 3G will be replaced by another new model. The platform is the story. Platforms have staying power, and, once entrenched, are very hard to displace.

Gruber’s right. I wrote in my first thoughts:

A $199 iPhone, while still too expensive for most phone users, puts it within reach of much more consumers. Perhaps most interestingly, though, and most tellingly, the iPhone now sells for $100 less than the iPod Touch, which reverses their order. Apple is aiming for dominance.

Apple knows they have an opportunity to dominate a growing market — Internet-enabled mobile devices — and they are trying to do it right this time.

The entire package is great. The iPhone is a wonderful device, the SDK is quite good even in its infancy, and the app store as distribution is huge. I love that Apple is going for broke in making iPhone the mobile platform — but I am saddened by the compromises being made to get there.

A large part of the reason the iPhone was so exciting when Apple announced it was because they were forcing AT&T to change. The iPhone had no AT&T branding on the device itself; Apple pushed AT&T to innovate by creating visual voicemail; Apple sold the iPhone at a premium price with no subsidy, which reduced the telecom’s relative power and shifted more of it to the manufacture; and most emblematically, the iPhone was activated at home, through iTunes.

To secure iPhone as the dominant mobile platform, Apple is dropping prices. To do so, however, Apple has had to give in to what I would assume are AT&T’s demands: their revenue-sharing model is discarded, and instead, AT&T is subsidizing the iPhone to reduce the initial cost;1 iPhone is now subject the AT&T’s regular plan structure, which includes $30/month for data; and iPhones must be activated in-store.

This makes the entire concept of the iPhone a little less exciting to me. I loved it because with the iPhone, Apple was shifting focus away from the telecoms and back toward the device-makers. They were loosening the telecoms’ stranglehold on the mobile market by reducing their relative importance.

Now, to establish the iPhone as a platform, they are reinforcing their control. I am not saying it will not be worth it — the iPhone is a much better platform than any other company has even dreamed. But I am disappointed in the compromises it takes to get there.

1. “In the near term, AT&T anticipates that the new agreement will likely result in some pressure on margins and earnings, reflecting the costs of subsidized device pricing, which, in turn, is expected to drive increased subscriber volumes.” AT&T statement [↩]