Will the new iPhone 3G[S] have problems selling? And if it does, who is to blame?

Like most Apple enthusiasts, I sat down  at 6:00pm GMT on Monday the 8th of June frantically searching for some kind of audio or video stream of Apple’s WWDC Keynote, and in being fortunate enough to find one, both me and my dad were excited at the announcement of not just the new 3.0 software, due to be released Wednesday June 17th, but most notably the release of the third iPhone, the iPhone 3G[S] which comes out just two days later.

The two of us began chatting about what time we would go into town to buy it, as we were assuming that O2 would do the same as they did last year, and simply restart current iPhone owners contracts, whilst offering them the phone at the same price as new customers. Part of the reason we believed this was because we have been very impressed with the way that O2 have acted with their iPhone exclusivity. O2 have been offering contracts that are not only competitive with their contracts on other phones, but they have also been giving us iPhone owners unlimited data and WiFi (from The Cloud and BT Openzone) at no extra charge. This is in direct contrast to what I have been reading about AT&T in American who have apparently tried to squeeze as much money out of their customers as possible. O2 even have a customer support line specifically for their iPhone customers, so whilst it is obvious they see and treat the iPhone and their owners as different to their customers with other phones, they have always been fair with them.

So imagine my surprise when I checked the prices of the new 32GB iPhone 3G[S] on the O2 website, to see that it was £275 for the two cheapest 18 month tariffs, which is more expensive than the original iPhone which wasn’t even subsidised by the contract. And whilst I understand that the new one has more features and 4 times the storage, surely it should not be that expensive when it is going to be $299 in the US. To make matters worse, my original assumption that iPhone 3G owners wouldn’t have to pay extra was wrong, as we either have to wait till the end of our contracts to upgrade, or pay off the rest of our contract, making the phone around £500.

Now many would be asking why I would assume this, considering if I owned a Nokia N96, I wouldn’t be able to just upgrade to the forthcoming N97 without having to pay off the rest of my contract. Well as far as I am concerned, and as far as O2 have been concerned, the iPhone is different, after all, they wouldn’t be charging £275 up front for the new N97. The contract free price of the 32GB iPhone 3G[S] even amounts to £540, which is essentially the price of a laptop, and I understand the upfront price as the usual ‘Apple Tax’ that one pays for the Apple product, but what O2 are essentially doing is bad business for Apple.

Looking at the success of the iPhone 3G, O2′s sales have amounted to around 1.5 million units. Now many would look at that number and think that in the last 12 months, most of the people that wanted an iPhone would have been in that 1.5 million, so therefore what O2 are doing is alienating the majority of the iPhone’s market, as one has to question who would be willing to pay £500 for what is essentially 4 or 5 new features. The new 3G[S] comes with double the memory and a faster processor, as well as a better camera which will also capture video, a digital compass, and voice controls which are great things to have in the phone, but are most definitely not worth the price that they are expecting people to pay.

The situation for most will be that if they do upgrade, they will do so in January, meaning that with O2′s 18 month contract, they will not be eligible to upgrade again until July 2011. Given the way that Apple have worked for the last three years, it looks as though they will be releasing a new iPhone every June/July, meaning that they will probably release one in June 2010. This is a problem, as those that upgraded to the 3G[S] in January will have to bypass the 2010 release and upgrade in 2011, essentially nullifying Apple’s sales figures.

I think O2 and Apple will be extremely shocked by how low the initial sales of the iPhone 3G[S] will be. In my opinion this is not the fault of Apple, as they have done their job in improving the quality of the iPhone 3G enough that they can justify a new release of the product. It will be the fault of the mobile phone company who for some reason have chosen to alienate the large market that was already there waiting to upgrade and commit another year to their network, who may now be thinking twice about upgrading for fear of missing out on the next iPhone upgrade. O2 must think very carefully, as if rumours are true, they are in the final year of their exclusivity deal and if the iPhone becomes available on the other networks next year, many will remember this and think twice before committing themselves to O2 and having the same issues all over again.

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