Thursday, January 28, 2010

iPad take 3: $130 for iVOIP?

My first iPad impression was surprise that Apple had allowed a keyboard. That makes the iPad a potential alternative to the $1500 Macbook Air. Then I saw it as a high-end netbook competitor.


That's impressive enough, but one thing has nagged at me. How could the inclusion of a $7 3G chip boost the cost of the iPad by $130? Yeah, I know Apple likes fat margins, but that's extreme even by their standards. It's not like it's subtle, and it's not like the AT&T wireless service is free. It's still $30/month, same as for the iPhone. [See Update, below]

There's one explanation that makes sense. The money is going to AT&T -- in addition to the $30 a month for data services.

How could AT&T possibly extract that much money? What hold could they have over Apple?

Well, one might imagine various contractual obligations, but Apple's lawyers are famously vicious. Apple is getting something for this money. Possibly, a lot.


What if Apple is giving AT&T the lion's share of that $130, but in return AT&T has agreed that Apple can provide SMS, VOIP and iChat (optional webcam attachment) services over the iPad's 3G connection?

In other words, iVOIP.

Take that Google Voice.

Might explain why Apple was willing to go to war over Google Voice on the iPhone.

This is going to be an interesting year in tech.

PS. Oh, yeah. And balanced DRM for eBooks is going to turn publishing upside down too.

Update 1/31/2010: See Andrew W's comment. Basically, I'm wrong about the $130 going to AT&T, it's probably going to Apple and it reflects development costs for the 3G integration. To quote Andrew:
... I don't think AT&T is getting a taste of the $629. I've never heard of that happening before, and Apple has way too much leverage against AT&T. I suspect the iPad price plans were part of some larger negotiation. (e.g., I wouldn't be surprised to start hearing rumors that AT&T's exclusive contract is extended.)

Also, don't forget that Apple gets a cut of your monthly iPhone bill. Apple/AT&T negotiations probably focused on that more than anything. My guess is that Apple reduced their cut in order to get a monthly price that they thought consumers would tolerate for a new and unproven device/market...

2 comments:

Andrew W said...

John, I work on Motorola's Android phones. $7/chip is just the tiny tip of the iceberg.

Getting a cell radio integrated into a consumer product (even a derivative product with an "off the shelf" radio processor) involves a massive effort across a number of teams: hardware design, software design, system validation, carrier validation, legal/contracts, etc. Work is spread across companies (manufacturer, carrier, and radio chip vendor), so planning must be heavily coordinated. And's not just implementation: You have to validate the phone will be safe on the network, meet the carrier requirements, and meet FCC regulations. And, because US networks aren't as homogeneous as you may expect, you have to actually hire teams to drive your phone around the country to run tests & generate logs. (Repeat & rinse much of this for each new carrier.)

Notwithstanding that, product pricing is complex. It's hard/impossible to do the "cost plus" kind of analysis on just one model in a product line. The $500 model is likely Apple's "loss leader", and they sacrifice per-unit margin in order to attract folks who wouldn't otherwise buy the iPad. It's likely that the $629+ models better reflect the margin that Apple demands for their product to be a success.

I don't think AT&T is getting a taste of the $629. I've never heard of that happening before, and Apple has way too much leverage against AT&T. I suspect the iPad price plans were part of some larger negotiation. (e.g., I wouldn't be surprised to start hearing rumors that AT&T's exclusive contract is extended.)

Also, don't forget that Apple gets a cut of your monthly iPhone bill. Apple/AT&T negotiations probably focused on that more than anything. My guess is that Apple reduced their cut in order to get a monthly price that they thought consumers would tolerate for a new and unproven device/market.

I need to clear the cobwebs on my blog. I don't like my comments going into your moderated "black hole". ;-)

John Gordon said...

Thanks for the correction Andrew. I'll fix up my post to reference your comment.

Let me know when your blog is running and I'll add it to my subscriptions.

I have to moderate comments -- the spam intensity is amazing these days. It's ten fold worse than a year ago, and the spambots/humans blow through captchas now. Google is supposed to be rolling out a new comment spam screening service; if that works I hope I can dispense with moderation.