Apple Unveiling Cheaper iPhone

Confirmation is coming from various sources that Apple will be unveiling a new, smaller, cheaper iPhone.

iPhone 3G, and mock-up of smaller iPhone.

The rumor had been in the works for months, but lately both Bloomberg and the Wall Street Journal got confirmation from anonymous sources who had seen the new device.

The new, smaller, cheaper iPhone will likely be fully subsidized by the cell carriers, making it more affordable for the average consumer. The current iPhone 4G is sold by Apple to the carriers for $650, who in turn sell it to customers at $200 plus a minimum 2-year phone plan.

Currently, iPhones comprise 3.6% of the cell phone market—but they hold a 26% share of the smart-phone market, which is the fastest growing segment of the cell-phone industry.

Google’s Android platform, though released after the iPhone, has leap-frogged it, in terms of market share, to 33% of the smart-phone market.

The iPhone is a key product line for Apple, representing roughly 40% of its $26 billion 2010 revenue.

The release of a smaller, cheaper iPhone mimics the tactic Apple used with its famed iPod: The original model, selling at $300, was joined by the iPod Nano, which sold for half the price. And though the Nano had less than half the memory capacity of the original iPod, it became the dominant seller of the product line, both in units and overall revenue.

The iPod Nano also overwhelmed competing MP3 players at the time of its release, including Microsoft’s ill-fated Zune. Today, iPods represent 80% of the portable digital music player market.

Let’s see if the new cheaper iPhone does the same thing for Apple in the smart-phone market.