Apple iPhone Controversy

By Richard Menta 9/7/07

The $200 price drop of the 8GB Apple iPhone to $399 placed it $100 less than the price of the 4GB iPhone, which was discontinued. Naturally, those who paid the original price just days before were quite miffed, particularly at Steve Jobs seemingly dismissive comments regarding those who adopted early. The good news for them is that their howls were heard loud and clear in Cupertino and Apple realized that it had to take action to preserve the high image of Apple's most important asset, its brand.

"We apologize for disappointing some of you," wrote Jobs as he announced a $100 refund to the early adopters, "and we are doing our best to live up to your high expectations of Apple."

Apple iPhone

While those pre-price cut iPhone shoppers can breathe a bit easier now Wall Street was likewise unhappy with the cut - not so much over the angry customers, but over the loss of a very padded profit margin. The Street was puzzled by such a big price drop on the iPhone and hammered Apple with a 5% drop. The confusion is understandable, considering just the day before research from iSuppli showed that in its first full month of availability the iPhone tied for the number one phone on the market with the LG Chocolate.

Overall, the iPhone carried 1.8% of the market, almost double the 1% Apple announced as a goal for the iPhone. Of course, that didn't stop pundits from making even higher predictions nor prevent their disappointment when sales surpassed Apple's goals, but fell short of their own inflated expectations. These pundits feel that the price cuts are a reaction to underwhelming sales. If topping the crowded mobile phone market right out of the gate is underwhelming then I hate to see these pundits definition of failure

We suspect the real reason for the price cut is that Apple smells opportunity. There is also a suspicion that Apple gets a bonus from AT&T for every iPhone customer that switches from a competing phone service to get the iPhone. If iSuppli is correct with its research and one out of four iPhone buyers indeed switched to the AT&T then Apple stands to benefit greatly from higher volume sales. At $399 the iPhone will soar past competitors and not only become the dominant mobile phone on the market, but the hottest gift for Christmas.

Wall Street will realize that long before January.

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