Friday, September 07, 2007

Apple announced a variety of new and kinda-new iPods dominated by the iPod Touch (iPhone minus the phone) and an iPod Nano with video (great for watching miniseries). At the very end of the presentation, Jobs announced the iPhone price cut. Why did he wait until the very end? Because he knew the news would be disruptive and might have obscured his presentation of the new products. He KNEW there was going to be controversy. So much for the “Steve is simply out of touch with the world” theory.

So why did he do it? Why did he cut the price? I have no inside information here, but it seems pretty obvious to me: Apple introduced the iPhone at $599 to milk the early adopters and somewhat limit demand then dropped the price to $399 (the REAL price) to stimulate demand now that the product is a critical success and relatively bug-free. At least 500,000 iPhones went out at the old price, which means Apple made $100 million in extra profit.

Had nobody complained, Apple would have left it at that. But Jobs expected complaints and had an answer waiting — the $100 Apple store credit. This was no knee-jerk reaction, either. It was already there just waiting if needed. Apple keeps an undeserved $50 million and customers get $50 million back. Or do they? Some customers will never use their store credit. Those who do use it will nearly all buy something that costs more than $100. And, most importantly, those who bought their iPhones at an AT&T store will have to make what might be their first of many visits to an Apple Store. That is alone worth the $50 per customer this escapade will eventually cost Apple, taking into account unused credits and Apple Store wholesale costs.

So Apple still comes out $75 million ahead, which is important to Steve Jobs.

Steve has a love-hate relationship with, well, everyone. Customers buy Apple products and they appreciate Steve’s design and market sense, but they also have opinions and NEEDS — two characteristics Jobs (and for that matter almost any CEO) would like to do without.

So Steve slapped his customers around a bit and what happened? Apple got free publicity worth tens of millions and the iPhone, which was already the top-selling smartphone in the world, will now sell two million units by the end of the year, up from an estimated one million. And Steve, having deliberately alienated his best customers, now gets a chance to woo them back. He has finally placed millions of people in the role of every key Apple employee — being alternately seduced and tormented. In this case the torment is over and the seduction will come next month when Apple ships OS X 10.5 (Leopard) — the company’s last chance to position its products for Christmas. Look for 1-2 very un-Leopard surprises at that event — surprises intended to get us all dreamy-eyed over Steve Jobs again.

Labels: Apple, iPhone