While everyone, from tech journalists to simple customers, was wondering about Apple’s sudden change of heart, Steve Jobs explained in an interview for USA Today the reasons behind his decision.
“We're in high-volume manufacturing, and we're pretty good on the costs side. We're also willing to be more aggressive. We think we have a real winner, and customers love the iPhone. The product's been extremely well accepted; we want to put the pedal to the metal. A holiday season is approaching; we'd have to wait another year for another one” he said.
When USA Todays Jefferson Graham and Edward C. Baig asked him “What do you say to customers who just bought a new iPhone for $599? Sorry?” Jobs responded: “That's technology. If they bought it this morning, they should go back to where they bought it and talk to them. If they bought it a month ago, well, that's what happens in technology.”
But it seems the iconic Apple’s CEO underestimated the magnitude of negative reactions caused by his decision.
The move marked another unexpected development in the much hyped mobile phone that went on sale some 10 weeks ago. Beside sending stocks of Apple plunging, as analysts interpreted the move as a signal that iPhone's sales had stalled, Job’s move it also angered Apple's most loyal customers, the early adopters who lined up to buy the iPhone in the early weeks only to see the price drop by the equivalent of 20 dollars per week.
Apple shares shed $2.10 in afternoon trading to $134.62, because the analysts said Apple’s profits will drop after this move.
While nobody knows for sure how much profit Apple is making
thanks to its iPhone, iSuppli, a research firm had run in July a teardown
analysis and the company found out that is very likely that the
According to iSuppli, the production of the 8 GB version of iPhone costs around $300.
This mean that after the price cut Apple will make a profit of only $100 instead $200.
Also yesterday Apple announced that during September will sell its millionth iPhone, which, let’s face, is impressive for a two-month old device.
But it seems that while the angry customers were expressing their fury all over the Web, Jobs made a decision.
In an open letter posted on Apple’s website, Jobs said: “I have received hundreds of emails from iPhone customers who are upset about Apple dropping the price of iPhone by $200 two months after it went on sale. After reading every one of these emails, I have some observations and conclusions.”
Jobs stood up for his decision and he explained that the price cut is intended to increase iPhone’s sales during the holiday season.
“First, I am sure that we are making the correct decision to lower the price of the 8GB iPhone from $599 to $399, and that now is the right time to do it. iPhone is a breakthrough product, and we have the chance to 'go for it' this holiday season. iPhone is so far ahead of the competition, and now it will be affordable by even more customers. It benefits both Apple and every iPhone user to get as many new customers as possible in the iPhone 'tent'. We strongly believe the $399 price will help us do just that this holiday season.” Jobs wrote in his letter.
As you might know, Steve Jobs is determined to sell 10 million iPhones until the end of 2008 and in order to achieve this goal iPhone has to maintain its sales at the same level.
Capitalizing on holiday season sales is an important part of every electronics maker, so from this point of view, Jobs’ decision seems to be the right one.
But let’s see what he wrote next. “Second, being in technology for 30+ years I can attest to the fact that the technology road is bumpy. There is always change and improvement, and there is always someone who bought a product before a particular cutoff date and misses the new price or the new operating system or the new whatever. 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. The good news is that if you buy products from companies that support them well, like Apple tries to do, you will receive years of useful and satisfying service from them even as newer models are introduced.” Jobs claimed.
Well, that might be true, but not very accurate. Jobs didn’t announce any improvements for iPhone during yesterday’s conference and it’s very unlikely that in just two months the main suppliers for iPhone has changed their prices.
For example, Sony waited for about seven months before
announcing the price cut for PlayStation 3, even its sales were lagging far
behind its competitors. Microsoft waited even longer before slashing the price of its gaming console.
It’s also true that Apple is facing a tough competition from traditional phone-makers like Samsung LG or Nokia, who are trying to came up with new models in order to match Apple’s offer. Still, the models announced by the other mobile phones makers, such as LG Prada, Samsung F700 or HTC Touch weren’t able to be a match for iPhone, in terms of sales or hype.
Though, despite his arguments, Jobs decided to say “I’m sorry” in his own way. Those customers who already bought an iPhone will receive a 100 dollar credit towards other Apple products.
“Third, even though we are making the right decision to lower the price of iPhone, and even though the technology road is bumpy, we need to do a better job taking care of our early iPhone customers as we aggressively go after new ones with a lower price. Our early customers trusted us, and we must live up to that trust with our actions in moments like these. Therefore, we have decided to offer every iPhone customer who purchased an iPhone from either Apple or AT&T, and who is not receiving a rebate or any other consideration, a $100 store credit towards the purchase of any product at an Apple Retail Store or the Apple Online Store. Details are still being worked out and will be posted on Apple's website next week. Stay tuned. We want to do the right thing for our valued iPhone customers. We apologize for disappointing some of you, and we are doing our best to live up to your high expectations of Apple.” ended Jobs his letter.
The Jobs’ decision seems to be the right one, but only time will really tell how the customers will fell from now on about Apple and its products.