If you haven't added Daring Fireball to your RSS reader yet, you need to. There's an excellent post (accessible in the site's archives) on the iPhone's pricing.
"There are millions of people who have already spent $399–599 on an iPod within the last few years. With the exception of storage capacity, the iPhone does everything these iPods do, and, well, a whole lot fucking more. Why wouldn’t these same people think about spending $499 or more on an iPhone?"
Whenever someone asks me how I like my iPhone, I rave about it, but I always end by saying, "But it's too expensive to be really popular." I still think I'm right; yes, this current version of the iPhone will sell millions (does that make it popular?), just like the expensive models of the iPod have sold millions. But also like the less expensive iPods, the iPhone won't sell tens of millions until there's a Nano equivalent.
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