By now you are all aware of Apple’s surprising announcement about the price cut operated for the craved iPhone and of Steve Jobs’ “mea culpa” letter.

How much has it been since the iPhone was launched? June 29 seems like yesterday, but that didn’t stop Apple from operating a price cut which in other cases would arrive only if the product was a dud. 

I remember that only three or four days ago the rumor mill was churning at maximum speed all available information about what Apple’s “special press event” is all about, but never has anyone, and I say never, thought it was about a $200 price cut for the iPhone or the cancellation of the 4GB model. There were indeed people who got it right: the pictures posted on the Web with the new iPod and Nano the Touch iPod were reflecting the reality. But since the iPod line hadn’t been renewed for ages it wouldn’t have been difficult for people to anticipate such move from Apple.

From an iPod point of view the Cupertino behemoth did not disappoint its fans. The fans asked for an iPhone-like iPod, the fans got what they wanted- vox populi, vox dei. More than that, they received the iPhonish interface on the Nano and on the “Classic”, along with roomier hard drives for their media files. Congratulations, Steve Jobs!

But Apple’s fans also received the astounding news of a price cut for the UniquePhone. That did disappoint a lot of people, especially those who had already paid $599 or $499 for the 8GB model, 4GB respectively. Those guys, who had camped for days in front of Apple and AT&T stores across the nation before June 29 and who had also propelled the Cupertino-crafted smart phone at the top of the food chain, felt like they were stabbed in the back. (Curiously, this would be the first price cut against which customers protest…) 

Of course, Steve Jobs is right in his apology letter that technology evolves rapidly. He is also right that the iPhone’s momentum on the market is strong enough to allow for a price cut, because that probably won’t hurt the company’s profits (considering the prolonged iPhone-hype and the device’s merits). And hey, it’s ever nicer to see him promising to existing iPhone customers $100 incentives to compensate for the radical price reduction…

But my problem is the following: why the hell would any company in the world cut the price in less than three months for a product that turned out to be so successful? What were they thinking? Did Apple begin to feel the effects of the enormous pressure put by its heavyweight-category competitors in the telecom market? Or is Apple, as mentioned earlier, so confident that the price cut won’t affect the company’s revenues and tries to send a subtle message to its rivals (“hey, we’ve changed the PC world, the online music business is ours and we’re gonna kick your asses in the phone industry too”)?

While I was trying to find an answer that would not be absurd enough to ensure my firing from the company, I stumbled in my gedanken experiments upon a striking similarity between Apple’s iPhone and Sony’s PlayStation 3.

As all of you tech-savvy readers out there already know, both the iPhone and the PS3 are state-of-the-art devices that pack top-notch technologies under their casings. The PS3 is the king in terms of dimensions and computing prowess among all next-gen consoles, while the iPhone leads through its superior design, keyboardless interface, multiple facilities and overall originality. In their respective domains, they are among the most expensive offerings (this is definitely the case for PS3 and was for the iPhone), but they’re both worth the money and consumer satisfaction is at high levels, despite minor flaws (lack of games for PS3, lack of 3G for the iPhone). All in all, they’re “technological monsters” that dominate competition in one way or another.

And this is no “you compare Apples with oranges” analysis. That “striking similarity” mentioned earlier also refers to the price cut both the PS3 and the iPhone received soon after (in iPhone’s case that was actually very soon) their inception on the market.

Basically, you have two absolutely great products, in which companies invested a lot of time and money so expectations concerning their profitability are high. Sony’s Kaz Hirai once said that a console’s life span stretches for about 10 years, during which successive price cuts are operated at two-three years intervals, due to the advancement of technology and the competition’s moves.

But both the iPhone and the PS3 had their prices cut in less than 1 year! While I can understand Sony’s desperate move to boost sales for its console in front of Nintendo’s Wii, I am simply stunned (as I’m sure are Apple’s investors too) to see the iPhone, whose success is undoubtedly bringing a lot of money to its producer, suddenly reduced from the status of the UniquePhone to that of a mainstream gadget. Jobs’ argument here that it wants to see the iPhone in the hands of as many people as possible is shaky: from the beginning the iPhone has been advertised as a revolution in the mobile phone world, but to hold that revolution in your hand you’d have to pay quite a lot. It’s an image thing: you pay a lot, but you get a Mercedes or a Lexus that can park itself. You get the luxury that makes you feel special, or above others. That was one of UniquePhone’s main objective. But if you lower the price of that Mercedes, you give the customers the impression that the car can’t park itself anymore and thus they start considering your product inferior (or in the mainstream category). In other words, the iPhone doesn’t compare itself anymore (in terms of price or even performance) with the likes of Nokia N92 or LG’s Prada or with all the other smart phones it had topped in July, but with mainstream models that simply allow you to call, write SMS or play games. All because of a “simple” price cut. And there goes your uniqueness…

This is what Sony realized and tried to avoid when they operated their pre-E3 semi-price cut: what they actually did was to include a more generous bundle in the pack, but the price remained the same ($599 for the 80GB unit and $499 for the 60GB unit). So basically you get more for the same amount of money, and the product’s market value stays the same. At least in customers’ minds, which is very important.

However, Sony decided to phase out the “inferior” 60GB model and leave only the 80GB PS3 alive, because the latter probably brings the company more money. Sony had done a similar thing with the “ancient” 20GB PS3: materials and manufacturing costs for the 20GB model ($805.85, according to iSuppli) exceeded the initial suggested retail price of $499 by a total of $306.85, while for the 60GB version, manufacturing costs (up to $840.35) exceeded the $599 price by $241.35. With Sony taking a smaller loss on the higher-end model, it's not a surprise the company began steering customers to the 60GB version- a strategy adopted today with the (probably) even more profitable 80GB version. And one other important reason is that Sony has plans to make the PS3 a media hub for you living room (after all, it has been called a “computer entertainment system”), but that would not have been possible with the petite hard drives the PS3 had at the beginning.

The same thing must have happened to Apple’s iPhone too. It’s no surprise that a portable multimedia center like the iPhone needs a lot of space for storing files, bookmarks, voice mails, music, etc., and this is why the 4GB iPhone didn’t receive the warm welcome its “bigger” brother did. Most customers simply thought there wasn’t enough space in that 4GB Flash memory module to fit their needs, so they opted for the higher end version, which brought double that amount of memory for just $100 more. A smart choice, considering that along with the price cut and the phasing out of the 4GB unit, Apple also revealed its ambitious partnership with Starbucks, which makes downloading of tracks from iTunes more attractive and a lot easier, with plans to extend the downloading service to video too. 

But while I can understand Apple’s decision to kill the 4GB iPhone (you have Sony’s example mentioned earlier in my article) I really cannot understand the decision to cut the price with no less than $200 for the 8GB phone. That is a radical price cut, no matter how you look at it. And it also sounds quite desperate. When you have a profit margin of more than 55 percent (yes, the production of the 8 GB version of iPhone costs around $265.83, while Apple sells or rather sold the phone until recently for almost $600) and when you also have customers’ trust, a press that worships you and a huge positive halo, you must NOT cut the price. Especially when you’re like only 2 months old… What amazes me even more, is AT&T’s lack of reaction, as if that doesn’t touch them or as if they’re powerless in that matter…And while Sony semi-reduced the price for its console more than 8 months afeter its inception, but from the position of a third place runner-up in its respective market, Apple did the same for the iPhone much sooner than any one had expected and did that while being on the top spot! And we’re talking about a $200 price cut!…

All in all, this is a very, very odd decision… It raises a lot of questions, mainly about Apple’s capacity to meet the goal of shipping more than 4 million iPhones by the end of 2007 and 10 million by the end of next year (and I personally think this is the main reason). It could also be a necessary step in the Cupertino company’s negotiations with its future European partners, which seem a lot more reluctant than their American counter-parts in bringing a 3G-less smart phone in an area where high speed UMTS, CDMA or HSDPA connectivity is a must for a premium-segment smart phone (meaning that Apple will bring a 3G-compatible iPhone in Europe, but at its equivalent price- 599 Euros- and in order to tone down the US criticism for that move they will offer it cheaper here). Anyway, if I were Steve Jobs I wouldn’t cut iPhone’s price with $200 in a million years, considering that I also have to pay a lot to Cisco for using that brand…