Despite all the iPod news coming out of Apple yesterday, the story that seems to have gained the most attention is the fact that Apple just slashed a third off the price of the iPhone. That’s a “not insignificant” $200. Needless to say those who bought an iPhone recently, which is pretty much everyone who owns one as the product is only a couple of months old, are just a bit upset. Some of the reaction is a little harsh though with financially (and emotionally)wounded bloggers and commentators decrying this as a “deliberate attempt by Apple to piss off it’s customers.” Of course it is ridiculous to think that Apple would deliberately go out of it’s way and lower the price of the iPhone just to upset its loyal user base. Other sentiments seem to focus on the drop being the result of poor sales of the handset. This is equally absurd, especially as Steve Jobs came right out and said how many they expected to sell by the end of the month, the magic $1 million.
So just what is behind such a dramatic price drop in such a new product? I suspect the answer is quite simple. Apple had no idea how the iPhone was going to do when it went on sale. While it turned out to be a great success, as they were entering a brand new market for the company the product could have equally turned into a great big turkey. Because of this they had to build some lee way into the products price so that they could recoup the R&D cost of the device if it failed to set the market alight. It did, however, set the market alight. Significantly. So now they know that they can sell it in volume and they can reduce the price accordingly. The fact that they were able to reach such volume so fast is a testament both to the loyal Apple fans who rushed out to buy the phone and the unprecedented levels of hype surrounding the launch. It is ironic that those same early adopters who’s purchases pushed the sales to these levels are the ones hurt the most by all this. Unfortunately that is the nature of the electronics business.
The upside of this, at least for Apple, is that they are going to sell so many of these things over the holiday period that soon the glass screened miniature monolith will be as frequent a sight as the ubiquitous white earbuds. Another thing to consider too, is that if existing customers are upset, how worried must the competition be? The one thing they had in their favor was that the iPhone was so expensive. Now that hurdle is significantly reduced. If I were the CEO of a competing smart phone manufacturer, and If I wasn’t already, I would start to be seriously worried, especially if something like this is your best solution. If nearly a million people were willing to pay $600 for a phone a hell of a lot more will part with $399 for it, especially coming up to Christmas, and especially with the new iTunes WiFi Store (which addresses the other major criticism of the device.)
Kudos has to go out to all those analysts that predicted a massive price drop in the short term and were promptly ridiculed by mac websites all across the internet. You were right, we were wrong. It looks like iSuppli’s initial estimates might not have been too far off either.
Now, all they have to do is release it to the rest of the world and enjoy the satisfaction of yet another market dominated.
UPDATE: Jobs posts an open letter apologizing to customers who feel let down by the decision and offer them a $100 store credit.
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