Why is the iPhone so expensive?

To be clear, it doesn’t seem expensive when you buy one subsidized by a network contract, but the actual price is much higher, and, if you compare it to its unsubsidized cousins like the iPad or iPod Touch, or to non-Apple devices with roughly equivalent hardware and manufacturing costs, seems unjustifiably high.

This chart from asymco shows what I’m talking about: Apple gets about $200 per iPod Touch and $600 per iPad, on average (which price is paid directly by the real customer), and also about $600 per iPhone, on average (which price is paid by the network operator, and then subsidized before customers ever see it).

If you compare the iPhone to iPod Touch and iPad, in terms of things like the hardware included, what it costs to build, how and where you use it, and what you use it for, the iPhone is much more similar to the iPod Touch, yet the selling price is much higher — about what the iPad sells for. And actually, the cost to you the actual user is much higher for an iPhone than an iPad, because (in the US) the iPhone is only available locked to a network and with a really expensive service contract (at least another $1600 over the life of the contract). (Also, in countries beyond the US where the iPhone is available unlocked and contract-free, such as Canada and France, the price is much higher than we’re considering here, and even higher than local iPad prices.)

This matters to me because I’d love to have an iOS device that is truly portable and has ubiquitous network connectivity. Of Apple’s current devices, only the iPhone meets those criteria:

• iPod Touch lacks the ubiquitous network (and other useful features like GPS and a good camera)
• iPad is too big to be pocket-portable (but offers ubiquitous network at fair price, starting at $15/month)
• iPhone is the right size and has nice GPS/camera/screen hardware and ubiquitous network but requires $70/month minimum over 2 years minimum; theoretically I could get an unlocked one from France and avoid the contract but then it’s a ridiculous $900 up front and I still need to find someone to sell me a data-only plan which doesn’t really exist in the US, though maybe AT&T can be tricked into it using an activated SIM from a 3G-capable iPad?

If the iPod Touch is profitable at $200 (including most of the right hardware) and the iPad is profitable at $500 (unlocked, with contractless data available, and a way-too-big screen that surely drives hardware prices up), surely Apple could sell the iPhone for $400 for an unlocked device and carriers could offer data-only plans for the same price as they do for iPad. And I’d totally buy one. But no.

(And if you’re thinking I should just buy an iPhone and suck up the contract and monthly fees by using it as my only phone, that’s possible and that’s what most people do but it’s beside the point. I already have a phone, and am under contract on a network which doesn’t currently offer iPhones, and I think it’s silly that we have to choose networks based on which phones are available, or phones based on what’s available on a given network, instead of just making everything work together and allowing people real choice. Calling that silly isn’t going to change the situation, but anyway, I’m not buying a new $70/month phone now, but I would consider buying a new $15/month pocketable tablet. The point I want to draw attention to here is that compared to the iPhone, the iPod Touch is severely crippled or the iPad is priced really low or both.)