Apple Inc.'s decision to slash the cost of the iPhone to a mere $400, triggering outrage from customers who had paid a full $600 for the company's latest object of technolust, illustrates how fluid the rules of mobile media are. Even Steve Jobs is making it up as he goes.

It's not as though iPhones weren't moving. In July, after being in stores for a month, iPhones topped sales of all "smart phones" by Research in Motion Inc., Palm Inc. and other established gearmakers, research firm iSuppli Corp. reports. The phone matched sales of LG Electronics Inc.'s music-playing Chocolate handset, which is the top seller among feature-laden phones that lack computing capabilities. ISupply expects Apple to ship 4.5 million iPhones in 2007.

Apple's pricing shift may reflect weakening demand for the device in recent weeks or a desire to boost sales before the holidays. Regardless, the iPhone has drawn frenzied public attention to a niche where venture-backed startups, Internet companies and established media houses have been working busily. Walt Disney Co.'s venture capital arm, Microsoft Corp., Time Warner Inc.'s AOL LLC and Nielsen Co. have all invested in or purchased mobile media companies. Digital Chocolate Inc., for instance, is buying studios in Bangalore and Barcelona that produce content geared for wireless phones. Carl Icahn invested $50 million into wireless content technology firm Motricity Inc. earlier this year.

The range of investments and buyouts reflect the growing sophistication of wireless devices and networks and the emphasis that mobile carriers are placing on music, Internet, video, gaming, data and other services. As revenues from traditional voice services plateau, increasing their take from other sources will become increasingly important to wireless carriers.

As the bankruptcy of Amp'd Mobile Inc. shows, however, the economics of wireless content services are poorly charted. Amp'd collected venture capital money from Viacom Inc.'s MTV Networks, Vivendi SA's Universal Music Group and other established companies but faltered when many of the young, hip customers who used its services failed to pay their bills.

Because Apple and AT&T Inc. introduced the iPhone toward the end of the second quarter, it's hard to gauge the device's profitability. It's clear that the iPhone has raised the standards that mobile phone companies will have to meet. The focus on form and function presents opportunities for all companies who hope to bring greater interactivity, navigability and capability to mobile phones.

The Deal's Convergence 2.0 Conference will explore these challenges and opportunities in its wireless media panel on Sept. 17. —Chris Nolter

See Steve Jobs' post on the Apple blog
See report from iSupply
See June 15 special report on convergence from Tech Confidential
See August 2006 story on Amp'd Mobile from TheDeal.com
See more on the The Deal's Convergence 2.0 conference

Tags: cellphones, telecom, wireless