iPhone 3G: Something Old, Something New

June 11, 2009— -- Those who thought Apple would introduce a new, less expensive iPhone at its Worldwide Developer Conference this week were partially right.

There will soon be a cheaper iPhone that costs only $99. While the phone itself is the same entry-level model that ignited sales last summer, though, it will have new software.

Among the software's improvements are support for cut, copy and paste; voice recording; and sending photos from phone to phone using a system called Multimedia Messaging Service.

The new software even adds a feature that lets you transmit stereo music wirelessly using Bluetooth.

The iPhone still can't run more than one program at a time, but Apple will enable a notification system that can tell you, for example, if someone has sent you an instant message.

Apple is not the first company to launch a $99 smartphone. Just last year, Palm had success selling the Centro for that price. But the Centro had old software that was on the verge of being phased out.

iPhone 3G Supports Thousands of Apps

The iPhone 3G, on the other hand, holds its own against just about any other device in the marketplace, and its new software supports thousands of applications, including one of the best Web browsers and some of the best-looking videogames on a mobile phone.

And so, barring any radical responses by competitors, the $99 price point will clearly further boost Apple's fortunes in the smartphone race.

According to NPD's Mobile Phone Track, the iPhone 3G was the best-selling handset in the United States during the third and fourth quarters of 2008, but was knocked from its perch in the first quarter of 2009.

This happened because Verizon Wireless ran a promotion in which customers who bought a BlackBerry got another BlackBerry for free.

The deal pushed the BlackBerry Curve, offered by all four major U.S. wireless companies, over the top. The Curve was also less expensive than the iPhone and its main competitors,the T-Mobile G1 and BlackBerry Storm.

Indeed, the $99 iPhone 3G will also compete with a new, more expensive iPhone from Apple itself, the iPhone 3G S (for speed), starting at the old price of $199.

More Expensive iPhone Model Will Appeal to Advanced Users

For the extra money, you get a device that Apple claims is twice as fast at many tasks, holds twice as much music, movies and other digital data as the $99 model, and has a better camera that can automatically focus and record standard-definition video.

That model will continue to appeal to advanced users who want the best capabilities Apple can offer.

The lower-priced iPhone 3G, though, will surely lure more AT&T customers to make the jump to a smartphone and probably prove irresistible for some customers of other wireless companies. But the nature of wireless data coverage, quality, and pricing continue to be a factor when choosing a cell phone, even as AT&T upgrades its network to faster data speeds.

Then there are those who prefer options that Apple doesn't offer on the iPhone, such as a removable battery or physical keyboard, like the kind on the new Palm Pre.

Finally, there are many who still can't justify the real expense of any smartphone, with monthly data plan fees that can reach $150 per month for unlimited usage.

For those who see the potential, though, in one of the best, if now not the fastest, smartphones, the iPhone 3G has grown to become a more popular device at half the price.

Ross Rubin (@rossrubin on Twitter) is director of industry analysis at The NPD Group (@npdgroup on Twitter). He blogs at The NPD Group Blog as well as his own blog, Out of the Box.