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 [email protected]@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,

[email protected]@ 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

  • However, Mr Seibold, I think Mr Jobs is the sort who thinks ahead, and so would have contingency plans. In this case, a rebate. And I think any good CEO would plan contingencies.

    As I said, I reckon it was a lose-lose situation publicity wise. When ever he announced the rebate it was going to get a lot of cynical press.

    Therefore it was better to maximize the benefit to Apple’s customer relationships image. And I thought the timing was just right: let it go a couple of days to gauge the reaction, then hit it on the head before it goes AWOL.

    The difference between the iPhone and all the other examples given of price drops is this baby had sold to near a million customers in 2 months. That’s a lot more unhappy customers than any other of the mentioned products - esp, as you say, the 3 Apple TV customers. smile

    Chris Howard had this to say on Sep 09, 2007 Posts: 1209
  • Mr. Seibold, Ben, and others are entitled to your witty opinions any day.

    However, we have come to know and respect Steve for his grand visions many months after the fact. We can only look back and say, “Wow, Steve must have really expected the iPod to dominate the world” back in 2001, or “Steve must’ve realized that the Mac sales will explode” in a few years, and, of course, “Steve must’ve planned that iPhone price drop & follow-on credit vouchers to generate priceless buzz, avalanche of new customers, and loyalty from those whiny first adopters”.

    This whole event and eventual appeasement (the rare open letter gives it all) was carefully weighted then analyzed by-the-minute I’m sure. Steve and his crew are not that stupid nor are they blind to the appearance of a $200 “bitch-slap” as Hadley has horrendously crafted earlier.

    And so, life in the Apple universe has never been so much fun. Enjoy. wink

    Robomac had this to say on Sep 09, 2007 Posts: 846
  • 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?”

    This only goes to show how difficult it is for journalists to separate sources from the slavering anti-mac press/stock manipulators.

    cf. Rob Enderle’s recent comments.

    Benji had this to say on Sep 09, 2007 Posts: 927
  • At the end of the day, it boils down to “Who cares?”

    I.E.—Even if it *was* the manipulations of Jobs, or a reaction, Apple had no fiduciary responsibility to give early adopters ANYTHING.

    So they gave those adpoters a $100 mulligan for being fools by needing to be first in line. Well, good on them, I suppose.

    But honestly… who cares?

    vb_baysider had this to say on Sep 09, 2007 Posts: 243
  • First—Robotech Infidel, how on earth did you read my comments to mean that I believe Jobs had this pre-planned? Those words, I repeat, were:
    “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.”

    In fact, Steve Jobs’ quote to USA Today in an article that was published before the the store credit was announced is the strongest piece of evidence against the credit being pre-planned. It shows that Steve didn’t see anything in the reduction of the iPhone’s price being unusual. Prices drop in high technology. Complaining about that is akin to complaining about the sun rising each day. That quote is evidence of him not seeing the magnitude of the furor from that announcement. He didn’t even try very hard to defend the price drop. He didn’t think he needed to.

    Again, “that’s what happens in technology” is the “let them eat cake” line in this story. If he really had a rebate planned, do you really think he would have said that? Do you even think he would have given such an interview? It’s not like it would have been unusual for him to answer “no comment” to press inquiry. Isn’t he the king of the surprise reveal? Of managing the press? Why would he allow himself to look as though he is insensitive to the anger that a lot of the iPhone purchasers felt, if he was going to give them some salve hours later. In the context of that interview, Steve’s Open Letter reads much more like damage control!

    SterlingNorth had this to say on Sep 10, 2007 Posts: 121
  • My above comment serves as much as a response to Chris Howard and his hypothetical as to what happened at the Apple meeting. Steve Jobs didn’t look as though he was being magnanimous, and understanding to the feelings of the early adopters who felt betrayed. (It doesn’t matter if that feeling is justified.) Also, it did not do anything to change the story from “Apple screwed up, badly”. The story in the media is still “Steve Jobs lost control” of the story.

    Note: I’m haven’t even gotten into the rather dangerous precedent Apple is now setting with the iPhone price drop.  Up until now, Apple is renown in the industry as being incredibly resistant to pricing pressures. Apple rarely ever lowers prices on its products during its life. They haven’t done so during or after the Intel transistion. (They have in fact increased prices on some lines after upgrading them.) Most every amateur Mac and iPod buying guide website uses as an operating assumption that the likelihood of a model update is a function of the length of time since its release and/or last price change. I think absolutely no Apple watcher would have predicted this price drop to occur so suddenly. That such a price drop is so out of character for Apple is the very reason the first explanation people latched on to was iPhone sales being weak.

    Robotech, you’re getting close into self-parody territory with Steve Jobs deifying. You don’t want to sound like this guy. Otherwise, people might start to ask you to consult the oracles to explain how failures like the PowerPC architecture, the Cube, and even perhaps the AppleTV fit into the grand unified theory of Steve dominance.

    SterlingNorth had this to say on Sep 10, 2007 Posts: 121
  • ...of course I forget explaining why this precedent is dangerous… though it should be self-evident. (But then again, I had thought that the rebate being an ad-hoc solution was self-evident as well.) Now with every new product launch there will always be the thought in the back of the mind of everybody that Apple could dramatically drop the price in as little as nine weeks. That will certainly dampen early adoption of any future product, especially those that are too expensive to be impulse purchases (think Macs)

    SterlingNorth had this to say on Sep 10, 2007 Posts: 121
  • “That’s what happens in technology” -Steve

    That’s what he said because “technology” is that - fierce competition no matter how great your product may be. You have to preempt competition and balance that with your price points.

    Do the early adopters deserve this $100 sucker pop? In my opinion - NO! They willfully lined-up for hours for a $600 phone. Yes, it is the greatest phone but not enough for me to spend my month’s discretionary income. Other things are more important than having the coolest phone on Earth.

    He didn’t even try very hard to defend the price drop. He didn’t think he needed to. -Sterling

    He didn’t and won’t because it was planned all along, Mr. Sterling. Like I said, Steve and his gang aren’t that s.t.u.p.i.d. and this vitriolic anger from well-funded first adopters was surely discussed. Corporate steering committees do discuss off-the-wall possibilities all the time not just price points, revenues, projects, etc.

    Do you even think he would have given such an interview? -Sterling

    Oh, Mr. Sterling stop this naiveness. You are making yourself more of a Mac fool than the self-proclaimed Mac expert that you once sounded like. You can’t even read between the lines and connect the Steve moments since the iPod event.

    One thing in particular that tingled my Mac senses was when Steve implied in his “Open Letter” that stated: iPhone is so far ahead of the competition, and now it will be affordable by even more customers. If this whole thing was NOT planned (as you Mr. Sterling so defend) and the iPhone is selling like hotcakes and even nose-to-nose with the feature-phone called LG Chocolate, what CEO in the universe would dare drop the price by $200 if not by virtue of a carefully crafted, weighted, and analyzed preemptive strike towards the cellphone wannabes.

    The $100 sucker pops two days later was also in offing if and when the whiny, loud, well-funded Mac babies come crying out “Uncle Steve took our suckers, whaaaa!!!”.

    Robomac had this to say on Sep 10, 2007 Posts: 846
  • Sterling, I don’t know how much pre-planning went into the rebate, but I cannot for a second believe that the idea of a backlash against the price cuts never entered Steve’s head, which, if I’m not mistaken, is what you believe.

    Chris Howard had this to say on Sep 10, 2007 Posts: 1209
  • Now with every new product launch there will always be the thought in the back of the mind of everybody that Apple could dramatically drop the price… Sterling

    Sterling, you don’t know what you’re talking about.

    First, the iPhone is a “phone” with internet communications capabilities. The iPhone is swimming in an industry dominated by oligopolies named Nokia, Samsung, Moto to name a few. This price drop thing is an everyday non-event when it comes to cell phones.

    Now that the iPhone has been established by Apple to be the trendsetter and a barometer for every cell/smartphone imitators to follow for years to come, this $399 price has just become the golden price point for all to reach. HTC, for example, will have lots of work to do to even approach that (their TyTN’ BOM cost is est. $860!). And what of Nokia with their N95 with est. $875 BOM cost?

    Sure, these iPhone competitors can be had for about the same price as the latest iPhone price of $399 but look, the iPhone is not subsidized while these wannabes are - hugely! If Apple can price the iPhone withour subsidy and is price-comparable to others with lots and lots of lost revenue take, do you think these bozos can compete in the long run?

    To understand price points in the cellular biz, you have to have worked there. I have at Qualcomm and Kyocera. The $399 price point is now the basis for all high-end “smart phones” and if the producer is unable to attain that BOM cost, the service provider has to eat up the rest - or even shared between the two.

    In the end, it’s all about pricing to the customer’s ability to pay up and this $399 iPhone price drop was as deliberately planned as your suit/tie selection for tomorrow’s gig.

    Sterling, Apple was and is not in the business to gouge their most loyal customers - the whiny first adopters - but to sell you a product that their marketing research think is the fair price for a certain product vs. customer’s reasonable price expectations. 750,000 first adopters were NOT wrong when they voted their $600 confirming as such.

    As for this being a “bad” precedent for the “other” Apple biz - namely the Mac, iPods, and the AppleTV - please refer to the 2nd pp. These are definitely computer product lines with established price-points. Those can vary up or down depending upon cost per unit build. I hope those whiny first adopters are smart enough to figure this out themselves the next time.

    As Bbx would say, “you must be schmokin’ that California grass again to believe the fanboys won’t line-up the next time”. I think he’s right <gasp>!

    -Robo

    Robomac had this to say on Sep 10, 2007 Posts: 846
  • Chris… the funny thing about this story is that we’re essentially dealing in degrees. A price cut on a telephone isn’t unusual in itself, but it was the degree of the cut—a 33% price drop after being on sale for sixty eight days. Likewise, Jobs was probably shocked by the widespread degree of the anger which was big enough to galvanize the press.

    ————————-
    I wrote: He didn’t even try very hard to defend the price drop. He didn’t think he needed to.

    Robotech responds: He didn’t and won’t because it was planned all along, Mr. Sterling.

    But he did Robo. Read the Open Letter. In particular, read the second, third and fourth paragraphs of it. That was his full throated defense of the price drop. How you even missed that is amazing to me. I’ll respond to you more completely in the morning, (as it is very late at night here on the east coast).

    SterlingNorth had this to say on Sep 10, 2007 Posts: 121
  • Re-reading I read SJ’s letter, I see someone who expected a backlash. I see someone who had pre-empted it, and from that it’s logical he would have already toyed with ideas on how to handle a backlash.

    However, what I do sense, is he is disappointed by the ferocity and self-righteousness of the backlash. And that intensity is what he doesn’t seem to have fully anticipated.

    Chris Howard had this to say on Sep 10, 2007 Posts: 1209
  • First, the iPhone is a “phone” with internet communications capabilities. The iPhone is swimming in an industry dominated by oligopolies named Nokia, Samsung, Moto to name a few. This price drop thing is an everyday non-event when it comes to cell phones.

    How is this very different from the computer industry which is dominated by the likes of Hewlett Packard, Dell, Lenovo, Gateway, etc. and which price drops also occur so frequently that nobody bats an eye. Well, except with Apple Computers where it is taken as an article of faith that its resale value remains high and where Apple isn’t known for cutting prices, despite the strong industry pressure.

    One thing in particular that tingled my Mac senses was when Steve implied in his “Open Letter” that stated: iPhone is so far ahead of the competition, and now it will be affordable by even more customers.

    Implied means unstated—as in having to deduce from clues left. What you quote is not stuff you had to imply from his statements, but CEO-speak transcribed here uncritically.  If you want to deduce something look at the last clause from that quote you pulled. If the new price means it can be affordable by more customers, that means its old price was turning off potential customers. Enough perhaps that Apple might not be making its internal targets. Would Apple come out and say all of that. Of course not, no company would say that in a press release. And yes, these open letters are as much PR as any other statement from Apple.

    Let me ask you this: If the iPhone was selling like hotcakes at $600, beyond Apple’s wildest dreams, why would Apple cut its price by $200 and leave money on the table. They’ve proven that the phone is so great, people think it is worth $600, and that people see it is worth the price premium. What self respecting CEO would not maximize profits by keeping the price set high.

    Sterling, Apple was and is not in the business to gouge their most loyal customers - the whiny first adopters - but to sell you a product that their marketing research think is the fair price for a certain product vs. customer’s reasonable price expectations.

    So what changed after sixty nine days to invalidate their marketing research showing that $600 was the fair price for the iPhone? Could it be the customer’s reasonable price expectation? Perhaps the early adopters were not in large enough of a demographic to sustain the $600 phone from Apple. Perhaps Apple’s market research failed.

    And even fanboys can be punished too much. Battered wives have managed to leave abusive relationships. Perhaps a few fanboys will realize that Apple is a company, not a way of life. They may even realize that Steve Jobs is a mortal capable of making a mistake like the rest of us.

    SterlingNorth had this to say on Sep 10, 2007 Posts: 121
  • Chris Howard, I think the relevant thing here is to compare and contrast between his USA Today interview and the iPhone Open Letter.

    SterlingNorth had this to say on Sep 10, 2007 Posts: 121
  • They may even realize that Steve Jobs is a mortal capable of making a mistake like the rest of us.

    Heheh -see, but we believe Steve deliberately tried to get this price-cut thru knowing there’d be a backlash, and knowing he had a trick up his sleeve to appease the mob.

    That ain’t fanyboyism or deifying Steve!

    On the contrary, I’d suggest those that want to believe this was an innocent mistake by Steve are the ones who might be putting him on too high a pedestal. smile

    Regards the USA Today Q&A, we’re talking about Mr “We’re not going to do a video iPod or flash based iPod.”

    I’m sorry, I’ve grown quite cynical over the years of being an Apple consumer and take everything Steve says with a shovel of salt.

    For me, it’s not whether Steve intended to give this rebate from the outset, but whether he had pre-planned it just in case.

    And I think he would have been surprised he had to give the rebate, but again, I cynically believe he wasn’t naive and that he had it ready as a contingency.

    Remember, that $50,000,000 or so worth of rebate means Apple has to sell a sh*t load of iPhones to pay for it, especially as they’ve cuts its margin by $200.

    Even if their margin is $200 per phone , they’d still need to sell a quarter of a million more iPhones to cover that rebate.

    That’s not a decision you’d rush thru in an afternoon or so.

    My logic and cynicism both tell me this rebate would have had to have been pre-planned as a contingency - just in case.

    And my reading of Steve’s letter, backed up by his USA Today interview, tells me he was disappointed he had to.

    Chris Howard had this to say on Sep 10, 2007 Posts: 1209
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