Remember When a New iPhone Cost $199? (Premium)

10 years ago, a brand new iPhone cost $199. Today, an iPhone XS Max starts at $1099. What happened?

There are theories. But the fact remains that the original iPhone, released in 2007, got off to a slow start, in part because of its incredibly high price (for the day) of $500, or $600 for a usable model. Microsoft's Steve Ballmer infamously mocked the iPhone for its high pricing, and despite ongoing misunderstandings about his comments, he was right.

And we know he was right because Apple quickly dropped the price by an incredible $200 just two months after the iPhone went on sale. Think about that.

I hope by now that this history is well understood. But one thing I had forgotten as well is that Apple wasn't done cutting the price of the iPhone. In 2008, when it announced the second iPhone, called the iPhone 3G, Apple cut prices yet again. And this time, the iPhone 3G started at just $199. Fully $300 less than its predecessor at launch.

"The iPhone started off at $599 for an 8 GB iPhone," Apple's then-CEO Steve Jobs explained during his WWDC 2008 keynote. "It now sells for $399, for an 8 GB iPhone. And we want to make it even more affordable."

The thing is, Apple had to make it more affordable. The iPhone just wasn't selling very well, contrary to all the history rewriting that has occurred since. And while lowering the price was only one factor---bringing it more carriers in the US, and to more countries helped a lot too---doing so was the central factor in helping iPhone become the phenomenon it is today.

"I'm really happy to tell you [that] the iPhone 3G is going to sell for $199," Jobs said to cheers. "At just $199, we think that the iPhone 3G is going to be affordable for almost anyone."

Now, I'm no fan of a room full of professional reporters and less professional bloggers breaking out into applause when Apple says anything during what is essentially a press conference. But this pricing structure warranted that applause. What a wonderful, consumer-friendly price point.

(* See the update below about contract vs. no contract pricing.--Paul)

What's also interesting about this 2008 event is that Apple's upgrade pricing structure hasn't really changed over the years: It cost an additional $100 to upgrade from 8 GB to 16 GB in 2008. And today, most of Apple's iPhone storage upgrades still cost $100 extra too.

Likewise, Apple offered an additional incentive for the most expensive 16 GB model: It would also be affordable in white. That never actually happened---Apple later came through on this promise a year later with the iPhone 3GS---but the firm still uses the same psychology today with its upgraded iPhone models. Pay more, get more.

So. How does Apple even justify today's sky-high iPhone prices? As this product has become ever more successful, Apple has simply jacked up the prices. I'm not an economist or even particularly good at managing my own money, but it seems like achieving the scale that Appl...

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