Apple's iPhone: Properly Priced

Want to hear me say it? Fine. "The iPhone is too expensive."

But I don't believe it.

On one hand, Microsoft (Nasdaq: MSFT  ) CEO Steve Ballmer was right when he told CNBC -- pardon my paraphrasing -- that consumers don't want to pay $500 for a mobile phone. On the other, the iPhone isn't your average mobile phone.

I've found legitimate arguments against Apple's (Nasdaq: AAPL  ) pricing policy for the iPhone from bloggers such as Paul Callahan. He writes that Palm's (Nasdaq: PALM  ) Treo smartphones are capable of hosting enterprise applications that would allow you to stay in tune with the corporate network anywhere you are. There's no evidence -- yet -- that the iPhone will do the same.

Fair enough. Yet I'm still unconvinced that the Mac daddy has somehow goofed on pricing. Apple, unlike any other consumer electronics brand short of Bose, has implied permission to price its wares at a premium.

Remember the iPod mini? Instead of pricing the player at $199, as analysts and all of us Fools expected, CEO Steve Jobs and his team settled on $249. What happened? We bought anyway. And when the iPod nano debuted in September of 2005 with similar pricing? We bought anyway.

Why, then, is anyone surprised that Apple is demanding a premium for the iPhone? History says it would. And history further says that we'll buy. And buy. And buy. And buy. That's why Apple yesterday reported a 77% boost in first-quarter net profit.

Besides, the iPhone introduces innovations that make the Treo and Research In Motion's (Nasdaq: RIMM  ) BlackBerry look lightweight. Take visual voice mail. Instead of requiring you to dial a number and listen to your voice messages in order, the iPhone shows you who has called and left messages. Like email, you choose what to listen to. Doesn't that feature, for which Apple is seeking a patent, deserve some premium?

Of course it does. Nevertheless, there's an excellent chance that you'll be able to buy an iPhone for less than $500. History says that, too. For example, Apple's iPod nano sells for as little as $149 today.

What's more, research from iSuppli shows that the iPhone, if built with common components, could sport close to a 50% margin. That's astounding. If true, Apple could profitably make deals to sweeten the appeal of the iPhone for carriers like Deutsche Telekom's (NYSE: DT  ) T-Mobile and Verizon (NYSE: VZ  ) . That, in turn, would go a long way towards juicing Apple's sales numbers.

Is the iPhone expensive? Yes. But is that a mistake? No way. Instead, it's a deliberate strategy that, if history serves, is likely to do precisely nothing to dampen the enthusiasm of Mac addicts, who have the June release date for the iPhone already circled on their calendars.

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Fool contributor Tim Beyers, ranked 1,343 out of more than 20,200 in Motley Fool CAPS, is a sucker for growth stocks and a regular contributor to David's Motley Fool Rule Breakers service. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. Get the skinny on all of the stocks in Tim's portfolio by checking his Fool profile. Palm is a Stock Advisor pick. Microsoft is an Inside Value recommendation. The Motley Fool's disclosure policy is a rebel on Wall Street.


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