Squealing Swine: The Sad Position of early iPhone Adopters

by Chris Seibold Sep 07, 2007

If you’ve got a passing interest in Apple products and live within a few hundred miles of an internet connection you’ve heard the news: Apple dropped the price of the iPhone by a cool $200. This caused no small amount of grousing from the Apple faithful and the web was filled to brimming with the amassed squealing of the most pampered and well funded cell phone users known to man.

Apparently the shrill cries, or warbling emails as they case may be, were too much for Steve Jobs to withstand. After personally reading every e-mail sent to him about this topic Steve has decreed that Apple will be issuing a $100 credit to the early adopters of the iPhone. This seems to have mollified all but the most vocal and determined critics so Appleland has reverted to its usual form of one big hippy tech love in. Yay!

Forgive the following tangent: Steve read every single e-mail about the iPhone price drop? Personally? One would think that ten e-mails could be chosen at random and represent the general feeling pretty completely. In fact, it would be a safe wager that the following mail represented the consensus:

From: .(JavaScript must be enabled to view this email address)
Subject: Pricing change
Date: September 6, 2007 6:47:07 PM EDT


Dear Steve Jobs,

I have been a loyal Mac user since 1984. Usually I love everything Apple but this time I think you’ve made a mistake. Cutting the price of the iPhone by $200 less than 70 days after the introduction shows great disregard for your core customers. I further feel with the utmost certainty (but without the necessary backing data) that such a move harms Apple’s reputation so severely among the loyal customers that the move may have a long term deleterious impact.

The effect will, as you have already surmised, be largely confined to the so called “early adopters.” But these are particularly important customers. Not only do early adopters have the cash to buy new products they are the ones who stay on the cutting edge, the consumers who motivate later buyers. If moves are not taken to rectify the situation I fear that the repercussions will be felt on Apple’s bottom line for several years.

Please rethink this move.

Sincere Thanks,
Chris Seibold

That polite e-mail notification is likely representative of the majority of e-mails but the tone is all wrong. The bulk of the e-mails probably read more like this:

From: .(JavaScript must be enabled to view this email address)
Subject: You B@st@rd!!!!
Date: September 6, 2007 6:47:07 PM EDT

Billionaire MotherFu#$%^,

I buy your s#!% all the $#%*(%@ time! And then you give a price drop to people who waited? You SUCK DONKEY BALLS.

Why don’t I just give you my ATM card and the number and you just come and steal my money whenever you want. Please use some of my money to build a pole for me to hold on to the next time you rape me.

IF YOU DON’T FIX THIS RIGHT AWAY I AM NEVER BUYING ANOTHER PRODUCT FROM APPLE AGAIN. HOW DO YOU LIKE THAT RICH BOY? HOW DOES THAT TASTE? MMMMMMMM, NOT SO MUCH “PROFITY GOODNESS” NOW HUH?

I’VE GOT GOOGLE MAPS, I KNOW WHERE YOU LIVE.

GET BENT,
Chris

Which says the same stuff as the first mail but conveys the message in a different fashion. For the record I have used my e-mail address in the examples but that is not the mail I sent. The e-mail I sent for the sake of transparency:

From: .(JavaScript must be enabled to view this email address)
Subject: iPhone Pricing
Date: September 6, 2007 6:47:07 PM EDT


Dear SJ,

V!@GR@ at low prices!!!
Click here

Your #1 online pharmacy! Check out our fake watches and porn!

That tangent was completely uncalled for, head to your local Apple Matters store for a free gift card worth exactly $25 in AppleBucks redeemable at all AM affiliates. Back to the topic at hand, the first thing we need to understand is Apple’s pricing. Apple, and in fact the great majority of businesses, don’t price products based on the cost of producing said product.

This is plainly apparent when looking at the cost of MacBooks. The black MacBook commands a $150 premium over the equivalent white MacBook for no other reason than people prefer, and will pay more money for, a black colored MacBook. For some that is a reason to be outraged, the black MacBook and white MacBook perform exactly the same, why would Apple charge a premium for nothing more than an added dash of carbon black in the plastic manufacturing process? These people clearly don’t understand how businesses price products.

The easy thing to think that business prices follow some simplistic formula. If it costs Apple a $1000 to build a computer they should reasonably charge $1500 for said machine. A moment’s reflection is all it takes to convince one that the notion of a cost plus profit pricing scheme is not only simplistic it also isn’t good business.

Imagine you manufacture oven windows. Due to a radical breakthrough you can produce an oven window for $1. Your competitors charge $50 for an oven window.  The industry (imagine) requires a million oven windows a year. Where will you price your new oven window?  The naive answer is that you’ll charge $1.50 per window. Congrats, you’ve just screwed yourself out of $45,000,000 or so. You would, in fact, charge just slightly less than $50. By pricing your oven slightly below the competition ($47.50) you’ll sell a million windows and rake in $47.5 million. Price your window at $1.50 and you’ll sell a million windows and bring in $1.5 million. The simplistic illustration is an example of profit maximization, businesses don’t try to charge enough to “get by” they charge as much as the consumers are willing to pay. Apple is no different, the company charges what research indicates consumers are willing to pay. You can get angry about the amount they charge but Apple isn’t in the game to make you feel good.

Now that we’ve established that Apple charges whatever the company thinks people will pay it is time to address the screeching whiners. In this case, the screeching whiners are also known as early adopters. Let us set up the scenario: Steve Jobs reveals the iPhone to a hungry crowd at MacWorld ‘07. The price justification is twisted logic at its best: it isn’t only a phone, it is an iPod and an internet device. If you purchased these things separately it would cost you an ungodly amount of cash but, thanks to Apple, it would cost a mere $599 plus a meager two year contract with AT&T. The only thing missing form the spiel was a bunch of hooting, a price cut and a set of free steak knives.

So the faithful buy into the pitch (they always do) and they buy into it for 6 months. That is right, they have six months to analyze whether or not the iPhone is a good value. And since they were standing in line to get one of the things they obviously decided it was a good deal. A deal they were willing to trade $600 of their hard earned money for. Well, that is until someone else got it cheaper.

And this is the troubling thing. The kind of people who buy the iPhone have cash, in fact they are flush with the green stuff. Face it, if your biggest worry in the world is that you look silly because you overpaid for an iPhone you don’t have many problems. It is a lot like going to a restaurant and throwing a fit because your steak is two degrees away from the ideal temperature. It is hard to imagine that any person who bought the iPhone got the cash by cutting back on essentials, can you imagine a scenario where a soon to be iPhone owner might say something like “I’m taking public transportation because I’m saving for an iPhone!” The reason that mental picture is so difficult to comprehend is because it is so wildly fanciful. On the other hand if you try to envision an iPhone buyer opting for a 1963 bottle of port instead of a 1945 bottleto save a few hundred bucks because of the iPhone, well that is a mental image that is not troublesome to generate.

So when Apple quells the crowd with a $100 gift card to the early adopters of the iPhone, people who waited, salivated and planned for the thing for six months you have to wonder if Apple is providing excellent service or simply paying off a bunch of vapid, style obsessed, shallow, overly moneyed individuals who like to yell very loudly.

And yes, I’ll be first in line for an Apple gift card.

Comments

  • Early iPhone adopter X goes hopping mad because the iPhone price is lowered by $200 just two months after introduction.  Then early adopter X starts purring like a kitten after he gets a $100 credit.

    It isn’t about money, isn’t it.  It’s about their getting their feelings hurt because Papa Steve wasn’t think about them when he dropped the price.  What a bunch of babies.

    tundraboy had this to say on Sep 07, 2007 Posts: 132
  • Apple’s $100 rebate is ludicrous. Rather, that people would be early adopters then cry they overpaid is ludicrous.

    I’d like to know what OS these complainers are using: Mac or Windows? Windows people are cheap and would not have forked over $600 for an iPhone, let alone any Apple product, out of shear principle. That just leaves Maccies, who in my opinion, cling to idealistic thinking (digital altruism?) with Apple products. “I didn’t go to Starbucks at school for a whole year to buy an iPhone and now Apple changed the price and ripped me off. No fair!”

    This just in: if you can’t afford it, don’t buy it. It’s an economic principle called “capitalism.”

    When the Dodge Viper, new VW Beetle, and new Mini were released they sold for more than sticker due to “dealer premiums.” Early adopters as it were. They didn’t get a refund.

    Apple caved and gave refunds because when the first class-action suit hits the judge will see that Apple “did the right thing” by offering the $100. Suit thrown out and Apple shareholders save money. Don’t forget, every business is in it to make a profit just as Chris described. Apple is no different just they do it with style.

    Eric Brodeur had this to say on Sep 07, 2007 Posts: 23
  • I guess it’s good business for Apple to give the $100 gift card since it will inevitably create more Apple Store customers from the early adopters…


    ... but I kind of wish Apple hadn’t caved to all the whiners.

    vb_baysider had this to say on Sep 07, 2007 Posts: 243
  • They whine because they finally saw the cold harsh reality, apple is in business to make money and gain customers, not to make friends and make it’s “children” happy, they don’t care what we feel as long as we buy their products.

    Nemin had this to say on Sep 07, 2007 Posts: 35
  • Guess what? The $100 rebate was planned along side the price cut. Do you think Steve and Apple as a company just decides to rebate early adopters $100 because of a some cranky emails. If you do then you even more naive than those people that stood in line for hours to get an iPhone when the following morning I walked into the Apple Soho store and picked one up in 2 minutes.
    The rebate will get people back into or back online looking for something to buy, chances are they will spend more than that amount and Apple makes another sale. This is how business make money, they are not your best friends, they are a big corporation and if you owned Apple stock you should be happy with the way it is being run these days.

    kerryb had this to say on Sep 07, 2007 Posts: 1
  • I liked what Scoble said. He’d rather Apple kept the money and spent it on giving the iPhone its missing features, such as opening it up to third party developers; Flash; video capture etc

    Chris Howard had this to say on Sep 07, 2007 Posts: 1209
  • kerryb—to think Steve Jobs had the rebate planned, especially given his dismissive statement to USA Today—“That’s what happens in technology”—is willful self-delusion. Steve Jobs absolutely did not expect the level of outrage that the sudden price cut caused.

    SterlingNorth had this to say on Sep 07, 2007 Posts: 121
  • Apple is no different, the company charges what research indicates consumers are willing to pay. You can get angry about the amount they charge but Apple isn’t in the game to make you feel good.

    Amen. What I’ve been preaching along. Great analysis, Chris.

    And yes to KerryB and Sterling, you got that right, Stevomeister had this iPhone price drop and the follow-on $100 credit vouchers all laid out and carefully planned well before the special event. It is sheer genius of the man and this confirms his hold of reality with his most loyal faithful - and the biggest whiners - the early adopters.

    Robomac had this to say on Sep 08, 2007 Posts: 846
  • I absolutely do not believe that this was planned from the start.
    See here for usefully objective view.

    Benji had this to say on Sep 08, 2007 Posts: 927
  • I absolutely do not believe that this was planned from the start. -Ben

    Let’s disseminate, shall we?

    Since the announcement of the price cut, Apple’s market cap has taken an $11 billion hit. -Anonymous Steve Bed Buddy or ASBB

    OK, that may be true for the shorters out there but do you really believe the share price will not exceed what it once was before the price cut? Disclaimer: I do own a handful of AAPL shares since 2000-01 (their direst years on record?). Since then mine and lots of other investors’ AAPL holdings have been endowed many times over. Thank you, Steve for your sheer genius as a corporate manager and a protector of investors’ wealth.

    The new iPod lineup (including the iTouch) and the iPhone price cut will attract even more fence-sitters out there with Crackberries and Treos (including myself - a Palm PDA/phone hybrid user).

    That potential alone will catapult the share price to unheard-of earnings-to-price ratio from increased exponential revenue curve from the iPhone, iTouch and the rest of the iPod going forward. And let’s not forget their glow-effect on Mac sales. These lineups are now in maximum synergy driving each others sales momentum. Want proof - just look around.

    On the other hand…maybe it really was all planned in advance and it won’t cost them that much anyway - ASBB

    Is he in a state of denial-objectivity swirl? One paragraph he says “I just can’t buy the idea that Steve and company deliberately delayed the announcement” into “On the other hand…maybe it really was all planned in advance” then towards “I’m so confused. I wish I knew Steve well enough”.

    How can you not know someone you claim to have ”...been in meetings with [...], been chewed out by [] (more than once), [] had lunch with [], and [...] been in his house.”

    So, in the end, Mr. ASBB does not know Steve at all much like everyone else. Conclusion: Mr. ASBB is off-the-mark using these rationale as debunking Steve’s sheer genius with the whole thing.

    Sorry, Ben.

    Robomac had this to say on Sep 08, 2007 Posts: 846
  • If you read and don’t misrepresent the article he comes quite strongly down on the no-way side.

    Put it this way: there is no evidence this was planned. There is some evidence it wasn’t planned.

    Benji had this to say on Sep 08, 2007 Posts: 927
  • The most interest bit to me was this:
    During my time at Apple, I was involved in several situations where it was necessary for Apple to attempt to balance the expectations of existing customers, potential future revenue, and costs. In all cases, the decisions were weighted heavily towards what was ‘right’, with what was cheapest or easiest given far less weight.

    Benji had this to say on Sep 08, 2007 Posts: 927
  • I definitely believe the rebate was pre-planned. Even more so after reading Benji’s link to Mike Evangelist - who himself is still undecided.

    I also reckon, Apple would have got a lot more bad press for making the offer up front as the cynics would have been out on force claiming it to be “a half-hearted gesture to buy off the early adopters and why couldn’t Apple have given more?”

    I could imagine a conversation like:

    Advisors: “Steve, the early adopters will go thru the roof on this price cut.”

    Steve: “Possibly. So how do you suggest we handle it?”

    Advisors: “We could give them a rebate up front, we are already planning to give those who bought in the last two weeks $200. So maybe $100.”

    Steve: “Just playing the devil’s advocate, but why give a rebate up front it we don’t need to?”

    Advisors: “It’s the right thing to do. It keeps them on-side.”

    Steve: “What if they don’t react badly?”

    Advisors: “They will, Steve.”

    Steve: “What if they don’t? You’re asking me to toss $100,000,000 on a maybe. What will the shareholders think of that? And the stock market?”

    Advisors: “We could give $100 vouchers instead.”

    Steve: “That’s a good idea, but we’ll get better publicity if we hold off. It looks much better for to be seen as a company that listens to its customers. If we offer a rebate up front, we’ll actually cop just as much bad press as not. We’ll be seen as making a cynical half-hearted attempt to buy off our early adopters. I agree we’ll get a backlash, but nothing p*sses me off more than when you do the right thing and then get bagged for it. We are caught between a rock and hard place and we’ll get slammed in the media no matter what we do. Either way this is going to cost us, but overall, we’ll get better press by being seen as listening to our customers than trying to buy them off. And it will make a better and more long lasting impression with customers.”

    Advisors: “So, waiting and responding will be least damaging?”

    Steve: “That’s right.”

    Chris Howard had this to say on Sep 08, 2007 Posts: 1209
  • ...And it will make a better and more long lasting impression with customers.

    Exactly. Impressively presented Chris. You are definitely one of the deep thinkers around here.

    Put it this way: there is no evidence this was planned… -Ben

    Only the golden halls of Cupertino can give you that evidence. Those who stray too far gets their throat…err, jobs slashed by The Steve. Do you think they’ll leak?

    All these product pre-announcement activities have been well documented. Let the channel empty out remaining inventory then <BAM!> roll-out the latest goodies with or without the usual “...Oh, one more thing” climax.

    In those O.O.M.T. moments, Steve-the-Maestro have practiced day and night and even in his sleep to best present a great/good/OK/not-so-good/really bad bit of news to the Faithful enthralled in awe by then. Do you think Steve’s keynote mastery is achieved without practice? Think of Steve as a great media athlete that practice and watches his own killer moves and makes small improvement in successive strokes.

    Anyway, lots of prior price drops have been more dramatic than this. In the Mac hardware front, the 20” iMac went from $1799 in the previous revision to $1199 in the latest. That’s a $600 price drop!

    In the software front, WebObjects went from $50,000 to $999 to FREE!!! Aperture went from $499 to $299! iWork from $129 to $79! And on, and on. Where were the big whiners then? Is this iPhone price drop so different? Did it change their perception of their beloved device? Only their gashed egos, that’s all. Grow up!

    So, Apple does this price-drop thing quite often but not so predictable as in the timing. Whether only 2, 6, 12, or even 18 months interval is NOT our business. Our decisions to indulge ourselves in being the FIRST is your own personal decision.

    Do not blame Apple for your uncontrolled coolness delusions and whine like a 5-year old losing her yummy lollipop.

    -Robo

    Robomac had this to say on Sep 08, 2007 Posts: 846
  • It is always easy to imagine crafty plans and inticate plots after something has happened, fiction writers make a living off that kind of stuff. But I am forced to wonder if Steve really planned ahead then why the wait to get my money back.
    Plus, as Robo points out, price drops happen all the time. People were pretty angry when the AppleTV was upgraded but since three people bought the thing…

    In any event I’d wager that Steve didn’t plan the rebate ahead of time. It really isn’t hard to figure out what happened:
    a) the iphone wasn’t selling as fast as Steve had hoped. Before the iPhone was released Steve has mentioned he was hoping for a sellout on the first night. The sellout took three days.

    b) Contrary to popular belief Apple is price sensitive. the company knows that lower prices sell more products. In the years when the Mac market was limited to a certain number of people using a Mac cutting prices didn’t improve profits. The iPhone is a new product, cutting prices can improve profits for more than one reason.

    c) Apple is determined to make the iPhone a major part of the business. Recall the third leg speech of Steve Jobs. Obviously Steve is no carpenter, I mean a two legged chair?

    All that said let’s apply Occam’s razor to this situation. Economics tells Apple the price of the iPhone must be cut. In fact, it probably says Apple should sell the thing for fifty bucks. The company decides it will be $399Q!

    People are angry. some anger was expected but who knoew so many bloggers would have hurt feelings over iPhone pricing.

    Where other CEOs would get defensive or write a letter of apology Steve, as usual, sees an oppurtunity. Instead of the standard “I’m so sorry” crap why not get plenty of extra life out this by giving out gift cards?

    Of course it could have all been preplanned but it seems more likely (to me) that it was an oppurtunistic move by Steve Jobs et al.

    Just a guess.

    Chris Seibold had this to say on Sep 08, 2007 Posts: 354
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