Walter Watts
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Steve Jobs Speaks the Truth About the iPhone Price Drop
« on: 2007-09-09 20:49:17 » |
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NYTimes editorial on Jobs decision to lower iPhone price by a third, plus two opposing reactions to it.
--Walter
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New York Times
September 7, 2007, 10:52 am
Steve Jobs Speaks the Truth About the iPhone Price Drop
By Saul Hansell
I hate to say it, but I think Steve Jobs is telling the truth about the iPhone price cut.
We are so used to cryptic and seemingly disingenuous communication out of Apple that we miss it when Mr. Jobs says crassly what most businessmen try to hide: Apple lowered the price of the iPhone because it wants to make lots more money by selling boatloads of them this Christmas.
iphone
In his own words, “we have the chance to ‘go for it’ this holiday season.”
Some commentators and investors see this move as a sign that Apple wasn’t selling enough iPhones at $499 and $599. I don’t see that.
There is enormous price sensitivity for electronics. Whatever share Apple has of the people willing to spend $600 for a phone, the market of people willing to spend $400 is far bigger, and frankly the market for people willing to spend $200 is far, far bigger than that. (Remember, the best selling iPod is the cheap Nano, not the bigger model now known as the Classic.)
Apple has always been able to demand a premium for its products, but that premium has limits. Right now, Verizon is offering a sleek white LG Chocolate music phone for $49.95. Yes, it doesn’t have the memory, features or coolness of an iPhone, but to lots of consumers, that sort of phone is a better deal on balance than a $600 iPhone.
Another thought on why the price drop doesn’t mean sales have been slow. The central rule of technology is that the unit price drops sharply with volume. If Apple sold more than it hoped, then it would achieve scale faster and would be able to drop prices sooner. Apple’s introduction of the iPod Touch, using many of the same components as the iPhone, gives it an even bigger checkbook to brandish in Taiwan to secure good supplies at good prices.
One of the minor miracles of the iPhone story so far, in fact, has been that Apple has been able to sell many hundreds of thousands of them without the sort of parts shortages that all too often plague new devices.
Imagine for a moment you are some run-of-the-mill MBA brought in to run the iPhone business this fall. What you would notice is that the phone was introduced to enormous positive publicity, backed by a brand with a lot of mindshare. You would note that the product had technology that was appreciated by customers and a generation ahead of competitors. At the same time, you would wisely respect that your rivals are huge companies with lots of experience and even more incentive to match your innovations. (The prospect of Google developing cellphone services, and maybe complete phones, would not go unnoticed.)
What’s more, you would see that the iPhone is not just a phone, it is a platform for developing applications, services and accessories. The more iPhones sold, the bigger the ecosystem around it, and the more that is developed that attracts and retains customers. Even better, each iPhone generates money directly for you by selling music, videos, ringtones and maybe Starbucks lattes. There’s more money yet from the substantial kickback AT&T provides from its voice and data revenue.
So any MBA would add all this up and say that the rational strategy would be to lower the price as quickly as component economics allows in order to maximize market share.
Or, in Steve Jobs’s unusually clear words: “Go for it.”
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Two opposing comments:
Hmmm. Sounds like the author has drunk the kool-aid. Even at 399 (such a deal…now even you can become cool by joining the Apple club) I’m not sure I want to become part of an ‘ecosystem’ that shoves useless ringtones, videos I can watch for free on TV, and impulse purchase lattes and music from Starbucks down my throat. These are wonderful innovations that improve the quality of my life? Duh…I don’t think so….
— Posted by Billy B
There’s a similar thread on Herb G.’s “marketwatch” blog, and I guess it’s like Democrats & Reps. these days — there’s almost zero “common ground.”
I happen to think the author “nailed it.” For every consumer products (electr. div.) hall-of-famer like the Walkman, there are literally dozens of respectable flash-in-the-pans. That the iPhone should by some accounts be the best-selling single phone during this summer is not so much a surprise (given the hype) as the fact that it “wins” with maybe a 2% share.
It doesn’t take a genius to realize that the first million units (assuming the device is pretty well made) will have sold more readily than the next million, especially since me-too is probably easier in this field than anywhere you can think of.
Plus, everybody and his brother second-guesses SJ’s choice of partner…. So, he’s striking while the iron is hot, so to speak…. It’s just possible that nobody WILL be able to steal his thunder before Xmas…. So why not take a shot at establishing iPod-like dominance of a much bigger and more profitable and more “focal” (as in this relates way more to computers than iPods do or did) market?!
As it happens, I share poster #1’s frustration at the frivolity of this multi-billion $ industry, but that’s essentially off-topic, in that the blogger started by taking a slightly-to-significantly minority view of what is a gutsy move on Apple’s part. “The street” (Wall) has given this move a strong thumbs-down, one probably having very little to do with the ludicrous “revolt,” but there isn’t a person with any economic savvy whatsoever that would argue with the decision if it turns this product from a niche (MACINTOSH-like) item into something even remotely as ubiquitous as the iPod.
I’m guessing it will; moreover, were bold moves like this one NOT made, Apple could very easily repeat its experience with the Newton…. and if you can’t “place” that very real and very well-designed product, you ought to stop dead in your tracks if you’re going to give SJ a Bronx cheer on his most recent move.
— Posted by Petex
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