The iPhone - Android cost difference is getting large

A colleague of mine bought a $200 unlocked Android phone made by Acer. He's pairing it with an AT&T paygo plan using an automated purchase option that effectively costs him about $200-300 a year total for some voice and a modest amount of 3G data. Of course in many locations he's using WiFi.

So his total two year smartphone cost is on the order of $700.

A minimal iPhone plan, assuming purchase of the 4G without jailbreaking, would be perhaps $1,800 with all the fees and taxes of non-paygo plans.

That's an $1,100 gap.

The iPhone 4 (much less the 4S) is much better than his Acer phone - and iOS is mostly better than Android [1]. I'll count that as a $300 offset against that $1,100 gap.

That leaves an $800 value gap and an $1,100 gross gap. This is not sustainable. Apple's brand isn't worth a value gap that large.

I'm awfully glad Android is out there. As Android captures more of the geek market, and as the cost of Android data falls, there will be enormous pressure on the cost of iPhone plans.

[1] However Calendar/Contact/document functionality with iOS 5/iCloud is much worse than Android/Google Apps.

Update: Lots of great comments on this post. I hope I get to do a f/u post, but in the meantime ...

• Apple missed analyst expectations today... "Net income in the fiscal fourth quarter was $6.62 billion, or $7.05 per share ... Analysts ... were expecting $7.28 per share... iPhone sales were up 21 percent from last year at 17.1 million ... Analysts, however, were hoping for 20 million". There are lots of good reasons for this expectations gap, but it is consistent with price pressure.
• I'm only writing about the US. The US Apple Store doesn't yet sell an unlocked iPhone 4S, but it sells an unlocked iPhone 4 for $650. Unfortunately, it's not clear that US users can use it with a PayGo data plan, or even that AT&T officially allows it to be used as a voice-only phone. So using an unlocked iPhone might increase the price gap (unless you can live with T-mobile's limited service area.)
• It's easy to forget that in the US the purchase price of a phone is a fraction of the cost. The real basis is the costs of ownership over two years. That's why I don't compare unlocked phone purchase costs but compare phone and service. There are a lot of odd and disturbing rules about how and where iPhones can be used.
• I think the Acer phone is probably more like an bizarro 3GS than a 4, so I'm overstating the value gap by comparing it to a 4.

Apple can obviously close the price gap significantly, but that will impact their margins and, eventually, their share price. The good news for families like mine (five iPhone devices) is that our costs are likely to fall. (It's good for us if Apple's stock price falls!)