Chris is absolutely spot on with this comment. I never even considered buying a smartphone until the iPhone. I never spent more than 100 USD on a phone.
I did not have a flat subscription plan with data (and now I pay considerably LESS than before... so guess what? The iPhone for me costs LESS than the initial price, not more, due to the considerable savings each month).
And one more thing that Chris has not said: it's a beautiful object. I bought it, and accepted its price, in part because it's beautiful.
I still remember the first time I saw a (1st gen) iPod nano: I was not a Mac user then, and I thought that it was too small, too sleek to be real. And that all those other, ugly MP3 players out there were just not in the same league; that there were two different classes of music players: the iPod (nano), and all other MP3 players. Never underestimate the power of looks!
Just my personal experience.
Robbie
What the Technophiles Don't Get about the iPhone