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journal: toy
Some thoughts on the iPhone price cut
I can’t believe I am going to dive into this issue. Who wants to bet that I’ll get torched and end up regretting writing about this tomorrow? At any rate, here it goes…
Okay, quick show of hands:
How many of you saw the $200 price drop in the iPhone coming so soon? I sure as hell didn’t.
Now how many expected the loud outcry from iPhone owners? I sure as hell didn’t.
Lastly, how many of you expected Apple to give every iPhone owner who bought their phone before the price drop a $100 store credit? You can probably guess my response to this last one.
I don’t own an iPhone and I probably won’t for a while. It’s not that I can’t afford it; I was able to afford one on June 29 and I can afford one now. I simply have no way to justify one considering the fact that I rarely use my current phone. I’m lame like that. That said, I don’t really know for certain how I would react to the $200 price drop on the 8 GB iPhone, but I suspect my reaction would be the same as it was when Apple unveiled the G4 iMac a mere two weeks after I got my iMac G3. And the time that I bought my iBook G3 only to see it replaced by the iBook G4 about two months later. And the time I bought my MacBook only to see it replaced by the Core 2 Duo MacBook two months later. My reaction? I more or less shrugged and lived with it. It happens. In each case, I was happy I bought when I did.
I worked at a computer store until just recently, and my customers would often ask me, “Should I buy this computer now or wait until the next model come around?” My response was simple: buy the computer when you need it. If you buy it now, there is still value to buying it now. Sure, the price could come down next week or a new model could come along and blow the doors off the current model (just look at the iMacs; you can now get a machine for $1199 that is equivalent to the previous model that was a good $300-$400 more), but what’s important is that you find the computer worth the money you plunk down on the day you buy it. That’s what matters.
Okay, now apply this to the iPhone. Did you buy an iPhone the day it came out? Are you satisfied with it? Did you find it to be worth every penny? Are you happy you got it? The way I see it, if you bought it prior to September 5, I would guess that you found the iPhone to be worth the money when you handed your credit card over to the cashier.
Did Apple try to screw over early adopters by charging them an exorbitant amount upon launch? Did component costs come down? Are the economics of scale taking effect? Or is Apple just trying to keep pace with the very aggressive mobile phone market? I don’t work at Apple and am not an industry insider. I doubt that the majority of those who have fired off angry rants about Apple or angry rants defending Apple have any insider knowledge about why or how Apple cut the iPhone’s price, and I don’t think it’s really fair to make assumptions (though my personal inkling is that the price cut either had something to do with making the iPhone fit into the product lineup better when compared to the iPod touch, etc..., or because the mobile phone market moves at a faster pace than the other markets Apple is currently in ). The price came down. It’s not the first time this has happened. It won’t be the last time this happens. I think we all expected the price to come down at some point. I can fully understand why people would be upset, but, this sort of thing is a frequent occurrence. Let’s take a quick look at an excerpt from a New York TImes article:
Mobile phones tend to be more prone to price declines because the pace of product introductions is faster than for televisions or DVD players. Motorola, for instance, introduced the ultrathin Razr phone for $499 with a two-year service contract in early 2005. Six months later, Motorola realized it had a hit on its hands and dropped the price to $199 in an effort to aim at more mainstream buyers. By the end of 2005, the price was $99.
As I said, this isn’t unprecedented.
The same sort of occurrence just happened with the iPods, remember. Someone who bought an 80 GB iPod for $349 last week is in the same boat as iPhone owners. If they held off for just a few more days, they could have gotten an iPod classic with the same capacity except thinner and with a slicker interface for $100 less. It sucks, but it happens in the world of tech.
I guess the point I am trying to get at is this: yes, it sucks for early adopters that the price came down. Yes, iPhone early adopters have every right to be upset, especially if they bought one in the last couple weeks. But take it in stride the best you can and remember that you still have one kick-ass phone!
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thinkback
Apple gets a monthly cut of digital traffic on each iPhone from AT&T;. This subsidy was not reflected in the original price IMHO. Apple had the initial use patterns to assess how much this would average over the 2 year contract. Once this revenue stream was assessed Apple could discount the iPhone’s price with an expected profit stream over time.
It allows Apple to more aggressively price their phone in it’s European launch. It also makes it more difficult for competitors to launch new products at competitive pricing. It also covers their competitor’s subsidized pricing making their new designs look cheaper. The lower price allows room for Apple’s 3G phone to come in around the original price points.
I think Apple planned this drop; but with higher commission revenue, they decided to be very aggressive for the holiday system before competitors could launch. It’s likely the new price is very close to yielding zero profit. But with the retail price being amortized over 2 years their “use” profit is booked along with the 1/24th of the hardware price each month.









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Couldn’t agree more.
I put off buying an iPod until August of 2005.
I was still carryimg around a 64mg flash player with 12 songs on it until I purchased a 20 GB iPod photo for $299. I had been lusting after a iPod for years and a month later heres comes Apple with a 30 GB Video iPod for $299.
Later that same year in Nov, we all knew that the intel transition was suppose to take place over the course of the next year. I had put off buying a new Mac because g3 iMac had been fine but, was starting to feel long in the tooth. I purchase a new g5 iMac for $1700 and was thrilled. MacWorld 06 rolls around in Jan and dammit!!!! new intel iMacs.
I was happy to see new products but also had to shrug it off because I made a decision to spend on something, not just technology, anything. The decision is mine and I reconcile that decision before handing over the money. It is for that reason that i stayed out of the iPod game for so long. Once the decision is made, it’s made.
I would have loved for Apple to have given me a rebate or something but neither Steve Jobs or any other Apple employee came over to my house and made me go to the Apple Store and get an iPod or iMac. I decided. I decided the price was fine. I decided the product was worth it.
I’d like to feel sympathtic to those that got their feelings hurt but, I’m finding difficulties with it because the decision to purchase was theirs. Neither Steve Jobs nor any other Apple employee went over to their house and made them go down to the Apple Store and buy. They decided.