The falling price of the iPhone

The NYT's Bits blog has a post up by Matt Richtel that has some interesting info on the numbers behind iPhone sales. Richtel has analysts saying that the iPhone is selling so well that, based on volume alone, Apple can sell the iPhone at a loss, and come out on top. They can even cover all those rebates Jobs is giving out to people who bought the iPhone early.

Not really surprising, of course (especially not about the rebates– Apple wouldn't have done it if they couldn't afford it). But it is a reminder that Apple is no longer playing the computer game. They're playing the cell phone game now, where you sell the hardware cheaply (relatively cheaply, anyway), and make it all up in the subscription. Richtel's analyst says AT&T is likely paying Apple $360 an iPhone in subscription payments over the two year contract.

And that means that the iPhone's price definitely isn't done dropping yet. Considering the iPhone's manufacturing costs have been estimated at less than $300 (and that's earlier this year– they have likely dropped since), it's very feasible that Apple may eventually do what most cell phone manufacturers eventually do: give away their cell phones for free with a service plan. It definitely won't happen by Christmas (although another price drop may come even before then– every day of experience Apple has making iPhones makes them cheaper to produce). But eventually, either Apple or even AT&T will be able to eat the cost of the phone entirely, just to hook users into a two year contract. Within a year, we may see a free iPhone.