Is Apple killing itself using iPhone 3G?

During WWDC 2008 Keynote on June 9th, Steve Jobs announced new iPhone 3G handset. All the specs were already known by some rumours, so no surprise for me. But unveiling a US\$199 3G device with built in GPS capability, not to mention it is a complete head-to-head positioning to iPod Nano, makes me wonder: Why do we need to buy iPod Nano anymore?

iPod Nano comes in 16GB and 32GB, offering to play music and movie only in a small dimension of LCD. The main feature of the hardware is its scroll-wheel. 8GB model price for iPod Nano is also US\$199. Now let's compare it to iPhone 3G. It has multi-touch LCD display, GSM Mobile Device, includes all iPod capabilities, plus Safari Browser, 2 MP Camera, GPS, and can host lots of custom applications, all in US\$199 in US market. What will you choose?

Yes, Apple is killing itself by selling iPhone 3G in a price that competes with iPod Nano, even cheaper than iPod Touch. The only reason one will buy an iPod Touch is because his country is not listed in iPhone worldwide selling. Even I live in Indonesia will wait for iPhone 3G availability instead of buying iPod Nano now. Someone out there surely will sell unlocked iPhone 3G to Indonesia, same as previous iPhone 1.0.

Manufacturing cost of an iPhone 3G is definitely higher than its selling price. This mobile phone is highly subsidize by GSM operators who make exclusive deal with Apple. Actual price of this device might be above US\$300 for initial built. But using mass-product manufacturing, with only 2 models of device (8GB and 16GB), low price is imaginable. Let's assume that Apple orders a factory in Taiwan or China to manufacture 8 million pcs of iPhone 3G, with same LCD and mainboard specs, Apple will have great bargaining power for this to its counterparts.