Apple has dropped to a new low for me. I have never had much interaction with them in the past. I recently purchased an iTouch because it is not yet possible to buy an iPhone without a 2-year contract from AT&T. So I purchased the iTouch to get an idea of how Geogad will look thought the iPhone/iTouch interface. The sales person mentioned something about a software update, but I was not worried. After all, I had just purchased a new iTouch and the iPhone App store had been in business for several weeks. Any required software should be included on the iTouch. If not, it should be easy to upgrade. I upgrade my iPods all the time with iTunes.

Turns out that to upgrade the ancient 1.1.15 version of the iTouch software to version 2.0.2 (the numbers indicating a huge change in software), I would have to pay an additional $10. I have never bought a new piece of computer hardware and then got charged extra for a required software upgrade.

I spoke to Scott, the manager at the local Apple Store. To him and Apple, the software upgrade is not required to use the iTouch. It is required to use the iPhone Apps store, but they do not view that as an important part of the device’s operation. But it is vital to me.

Scott said that he was not willing to upgrade the software for free, but he was willing to let me bring the device back and waive the $30 restocking fee. So he can’t waive the $10 software, but he can waive the $30 fee. I have a bad feeling that when I bring the device back to the Apple Store that there will be some reason that he will not let me return the device at all. Combine it with the cost and time associated with driving back to the store multiple times, I think that he really made this offer because he thinks that  he will never have to waive the $30 restocking fee.

Apple’s nickle and diming me with this little and annoying fees make me think that there will be many problems with their devices for Geogad. The devices have been designed and sold in such a way that the device does not work the way that the customer expects without additional payments. For example, the iPhone does not seem to have the capability to record video even though it has a camera. Even the lowest end phones can shot short video clips. I understand why Apple did not include this basic functionality, but it is very tiring to deal with these expensive devices that are so purposely limited.

For those of you not lucky enough to get an invitation to iPhoneDevCamp, all I can say is that you really need to sign up way early next time to be sure that you can get in. But you also need to watch the main iPhoneDevCamp site. It seems many did not show, and anyone and everyone was welcome.

iPhoneDevCamp2 was really a great event here in San Francisco. We were connected to the satellite camps via video link, and they looked like they were having fun too. In the case of the SF meeting, we had free food and beer. Nothing makes code come together more than good food and really great beer.

The best part of the event for me was being literally surrounded by iPhone dev experts. It is great to be able to get an answer for a question just by asking the person next to you vs. my usual method of researching on the web for hours.

The end result was not quite what I wanted, but I did make much headway. For example, I and another camp attendee (who shall remain nameless to protect him from any AT&T or Apple wrath) did a small experiment to see if I could figure out a way around buying an iPhone without the 2-year long AT&T contract.

A little background on the experiment. My phone is currently on the AT&T network. In fact, my SIM’s card is actually an old Cingular card, but it works fine in my phone. I had already tried to buy just the iPhone without the contract at the Apple store in Palo Alto because the Internet said that I could buy the iPhone without a contract for $500. The clerk informed me that the Internet was wrong (can you believe it?). The future plans call for letting people buy the iPhone without a contract, but it is not happening yet. No one really knows when (or if) it will.

So after spending much of the day browsing 3G iPhones on eBay, my fellow camp attendee decided to test if I would really be able to use my SIM card in an activated 3G iPhone. We converted a bit of marketing swag (a metal button that you can pin to your shirt) into an unofficial iPhone SIM extraction tool. Replacing his SIM card with mine, we found that the iPhone insisted on being activated by the iTunes store before it did anything. This was really disappointing since the iPhone will, at least, surf using WiFi without any SIM card whatsoever.

The result of the experiment is that I will have to get the iPhone with contract or buy a iTouch and wait for the iPhone to be made available without the contact.

Yesterday I attended the informal iPhone Developers Chat in Mountain View. The subject got around to the new iPhone price which is down from $500 to $200. Supposedly, AT&T is subsidizing the iPhone the same way that they do for other phones. Meanwhile AT&T and Apple have ended their original revenue share agreement.

The real question is how much is this subsidy. Whatever it is, AT&T has already counteracted it by raising the data rate to $30/month. Over the mandatory 2-year contract, the subsidy has been completely paid off. But to the cost of the iPhone, iSuppli put together a theoretical Bill of Materials (BOM) on the initial gen of the iPhone. It is a good starting point, but it must be high for today’s iPhone. For example, the iTouch, which differs from the iPhone in not having any phone, GSM or EDGE capability or, more important to this discussion, a subsidized price from AT&T is currently selling at the Apple store for $299. If the numbers on the iSuppli BOM are close to correct, then the iTouch should be about $30 cheaper to make than the iPhone. Assuming a margin of 50% for the iTouch, which is what iSuppli assumed with the initial iPhone, then the iTouch would cost about $150 to make. My guess is that his value is probably a little high, but assuming it is in the ballpark, then the iPhone costs about $180. Not a great price, but still a 10% margin even without any subsidy from AT&T.

If anyone out there has a better idea on the actual prices, let me know.