The iPhone started at $499 (over $700 today) and required a two year service contract with AT&T. That was a lot of money then too. You’re right that it’s the iterations that bring costs down and expand markets.

People doubting Apple sound a lot like Balmer and the head of Palm:

“We’ve learned and struggled for a few years here figuring out how to make a decent phone. PC guys are not going to just figure this out. They’re not going to just walk in.” —Palm CEO Ed Colligan, November 16, 2006