What Price Controversy?

The blog blather was rich and foamy last week as Apple introduced a new generation of iPod models on Sept. 5, 2007, with attractive enclosures and easier-to-use controls, and then hacked the price of the 8GB iPhone from $599 to $399. Those of us who paid $599 for the first two months after its introduction were paying attention, and the reaction ranged from outrage to blissful acceptance. The net result was more press coverage for Apple than any company could ever achieve by simply releasing new products.

So Steve Jobs wrote an open letter to all iPhone customers, offering a $100 rebate for those who bought one at $599. As Jobs explains, “This is life in the technology lane. If you always wait for the next price cut or to buy the new improved model, you’ll never buy any technology product because there is always something better and less expensive on the horizon.”

I couldn’t agree more. I have a shed filled with “antique” computers and peripherals to prove it. I spent a fortune on technology over the last 30 years, and so what? You wouldn’t be reading this if you weren’t willing to shell out the big bucks for the best toys.

And yet, one wonders how much Jobs is getting away with. $100 million in extra profit from the 500,000 or so iPhones sold at the higher price, according to Robert X. Cringely. “It wasn’t an accident. It wasn’t a thoughtless mistake. It was a calculated and tightly scripted exercise in marketing and ego gratification.” Steve Jobs waited until the end of this speech on Sept. 5, where controversy gets its biggest bang, to announce the price cut. As Cringely explains it, Jobs knew it would be disruptive and controversial, but wanted to do it anyway to stimulate demand. Jobs was ready to address the outrage with the $100 rebate, essentially splitting the difference with Apple’s early adopter customers and pocketing half of this extra profit ($50M).

If so, then Apple is doing right by its stockholders to “go for it” (in the words of Steve Jobs), and Jobs is shedding an old, obsolete perception of him as not being profit-motivated. I take this as good news — that Apple is ready to fully engage the consumer electronics industry. There is great price sensitivity in electronics. The price cut enabled Apple to hit its stated goal of 1 million iPhones sold a few weeks earlier than expected (there was a considerable surge after the price cut). Apple has more clout to get better pricing from parts suppliers, driving down the cost. The company has been more successful than others in meeting demand at a time when parts shortages plague other manufacturers.

Lost in the noise about the price cut was the lack of any real reason to buy an iPod touch — yet. While it’s true that Wi-Fi and Safari turn the iPod into an innovative personal internet device as well as media player, and with appropriate Web 2.0 applications and Web services, the device can act as your travel computer, all this is true of the iPhone also… and the iPhone phones home. The iPod touch model is the foundation for future iPods, but its first generation will certainly not cannibalize sales of the iPhone. And that’s probably a good thing, as consumer electronics companies need to put forward a substantial product line with plenty of innovation.

We expect a pioneering consumer electronics company to continually introduce innovative and useful products. Compare Apple to Sony, the former heavyweight champion in consumer electronics and the inventor of portable music players. While Apple rolls out the best lineup of consumer products that the company has ever produced in time for the holiday season, Sony is toying with the Rolly, a completely unnecessary palm-size, egg-shaped digital music player that rolls, swivels, flaps its ends and flashes colorful lights in time to music (according to John Batteiger in the S.F. Examiner’s Tech Chronicles). Sony, good luck with that.

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