$99 iPhone 3G = game changer...iPhone 3G S = dud

The Cult of Mac's rumor maw out-talked Apple and has made the 3G S look even more like a lame incremental update than it actually is. Yes, it rocks a faster processor, faster data connection, improved camera, includes video recording and magnetometer, but the new product is disappointing. After all, prior to the keynote, Mac rumors included a new tablet, an "iPhone Nano," an iPhone on Verizon, a 64 GB iPod Touch, and of course, the return of ailing Apple CEO Steve Jobs. Expectations were high, and were left unfulfilled.

However, behind the smokescreen caused by the new device and its "battle" versus the Palm Pre, the only one year-old iPhone 3G with its new $99 price tag casts an ominous shadow over the entire handset business.

In technology pricing, 99 is the magic number, as devices that cost $99 are typically received warmly. In the recent past, devices such as Roku's Netflix set top box, the Peek email reader, and the Palm Centro all proved to be breakthroughs at that price point. With the current economic condition, a sub-$100 device has the the best chance of reaching a huge audience.

While the iPhone has taken the smartphone market by storm, consistently placing in the five top-selling handsets there, those constitute only about 25% of the total mobile phone business. Conquering the $0-$100 phone segment is the biggest task, and could potentially help convert the entire mobile handset business into the "smartphone business."

What we are looking at is a potential repeat of the iPod's sales eruption. After four years of making the popular media player, Apple eventually released an iPod in the sub-hundred dollar price range. Two years later, the company had sold its 100 millionth iPod with the $99 iPod Shuffle leading the charge.