Someone told me, via email, that SMS is actually an extra $5 per month. So, over the life of the plan, we need to add an extra $120, which brings the service price to $1900 and the total 2-years cost of ownership for of a 3G iPhone to $2099 or $220 more than the first generation iPhone.

What makes me think that Apple will turn on its developers is the consistency with which they have done so in the past: it was the case with the iTunes SDK, it was also the case with the Quicktime 3 SDK, and if you can remember far enough, Apple once momentarily allowed external companies to manufacture macs, only to shutter the door on them when it didn’t please it. So one can be naturally cautious when dealing with Apple.

The second part of your argument is that Microsoft does this regularly. It’s possible (though, in my experience, Microsoft has generally been more developer (developer! developer! developer!) friendly than Apple) but even if it were developer unfriendly, that would not make it right for Apple to follow suit: two wrongs do not make a right.

On your item about apps being free: I’m sure that will be the case initially but some people will want to charge, I’m sure. And this serves as a warning to those people. Producing software for free is a good thing but not a way to earn a living
As far as the iTunes music store not doing more than breaking even, I’d beg to differ. According to Apple’s latest quarterly report, it’s adding hundreds of millions of dollars in profit to the bottom line. I don’t know about you but, to me, 9 figures profits are hardly breaking even.

Last but not least, you mention that Apple is a hardware company and not a software company. I think that dichotomy is wrong: Apple is in both business and they support each other (actually, it’s in 3 businesses: software, hardware, service, each reinforcing the other two). Of course, I could be wrong, and the page of “Apple Software” in the Apple store must be a figment of my imagination. The next time I go to the Apple store, I’ll ask them to give me a free copy of Final Cut Studio 2 because they’re in the hardware business and therefore the software must be free.

One other thing. Most apps coming out of Apple’s App Store will be free. Where is the profit in that? The iTunes Music Store doesn’t do much more than break even. It’s only there to make the iPod easier to sell. The App Store is all about selling iPhones not making money selling software. Apple Inc. is a hardware company, not a software company. The software, once again, is there to sell the hardware.

At $200, that would be a 50% subsidy and, if you assume that the price is pretty consistent, then the following assumption would be that the cost stays pretty close to where it was most recently.

So assuming a device that would retail (without subsidy) for $399 to $599 (the previous price range for the first generation iphone) and knowing that it will sell for $299 and $399, it looks like subsidies would cover somewhere in the $100 to $200 price difference. This is also based on the fact that AT&T will probably calculate the subsidy based on some form of volume discount.

Those are the assumptions I’m making when trying to figure the value of the subsidy.