Rumors of a $99 8GB iPhone 3G S Alight on Droid's Big Launch Day

Are Apple and AT&T planning to launch a $99 8GB iPhone 3G S in time for the holidays? This rumor was offered by a popular source. True or not, what does it say about the Motorola Droid - and the growing crop of Apple look-alikes?

On the day Verizon Wireless launched the Motorola Droid, its best shot at an iPhone killer, rumors emerged of plans between Apple and AT&T to launch a $99 iPhone 3G S in time for the holidays.
The source of the rumors was the Boy Genius Report, which said it heard the news, which was "definitely not confirmed," from two sources.
"I could potentially see a scenario in which AT&T does reduce the pricing on the iPhone 3G S to $99 as a response to the Droid and other handset offerings from Verizon and others," said Ken Hyers, an analyst with Technology Business Research, in response to the rumor.
The Droid, which showed to be priced identically to the iPhone, may be the most direct about wanting to entice away potential Apple customers, but Sprint and T-Mobile have additionally launched new touch-screen-based smartphones this holiday season and have hopes of attracting customers to sign two-year contracts with them-instead of with AT&T. Among these devices are the Motorola Cliq, the Samsung Behold II, the T-Mobile Tap and myTouch 3G Fender Limited Edition, all from T-Mobile, as well as the Samsung Moment from Sprint. In addition to the Droid, Verizon has armed itself with the HTC Droid Eris and the BlackBerry Storm 2.
"Another driver for price reductions would be anticipation of an end to AT&T's exclusive iPhone relationship, likely in 2010," said Hyers.
"Since the [fourth-quarter] holiday shopping season is traditionally the busiest quarter for adding new subscribers, AT&T might see this as their last chance to get a substantial number of new iPhone customers and lock them into two-year contracts, and so would push it aggressively." he said. "If they do drop the price of the iPhone to $99, that would certainly lend credence to the idea that the exclusive relationship would be ending soon."
Apple currently offers its 8GB iPhone 3G for $99, and so offering a $99 8GB iPhone 3G S would allow it to stop manufacturing the earlier version-in addition to mucking up what was surely Verizon's very intentionally aligned pricing plan: its 16GB, $199 Droid vs. Apple's 16GB, $199 iPhone 3G S.
"I can't comment on rumors-and I should remind you that the bulk of Apple rumors are usually wrong," said Avi Greengart, an analyst with Current Analysis.
However, he added, "With that said, no one buying a $99 iPhone 3G is going to turn down a faster $99 iPhone 3G S, but the existing [Apple] lineup at $99/$199/$299 is already competitive."
Whether or not the Apple rumor proves true, with it comes the idea that, iPhone killer or not, the Droid, and similar offerings, may finally be innovative and compelling enough to truly give consumers pause before signing a contract this holiday season.
"By the way," TBR's Hyers told eWEEK in an e-mail, "I've been using the Droid for a while now-it's a really sweet device and I think that it and the Android platform is a formidable threat to the iPhone and other smartphone [operating systems]."
Not good news for Cupertino-even through the grapevine.

EDITOR'S NOTE: Avi Greengart is an analyst with Current Analysis, not Strategy Analytics.