Wearables Authors: Liz McMillan, Yeshim Deniz, Elizabeth White, William Schmarzo, Pat Romanski

Related Topics: Wearables, Mobile IoT

Wearables: Article

iPhone Price Cut? Here is My Objective View on This!

I noticed that Apple is no longer going to make any more 4GB iPhones

So yesterday I was happily catching up on my RSS feeds when I noticed that there was some Apple buzz. I took a look and saw some photos of the new iPod Touch, which is basically an iPhone that can only use WiFi instead of EDGE and obviously has no phone in it. It's quite impressive-looking. Then I noticed that Apple is no longer going to make any more 4GB iPhones, they're selling off their remaining stock at discount. Then I noticed that Apple has dropped the price of the 8GB iPhones by $200.

I shrugged and kept skimming through my RSS feeds and then went back and noticed that a tremendous crapstorm had started brewing about the price drop in the iPhone. There are two clear and distinct camps. One camp is complaining that they bought the iPhone before the price drop and they're stomping mad and want some kind of discount, refund, or other compensation (store credit is one option I've seen bandied about). The other camp accepts the price drop as a force of nature and is calling the other camp whiners. In fact, this has turned into somewhat of a war between the two camps. What you don't see much of are objective people sitting in the middle. That's where I come in.

I bought an iPhone. I didn't wait in line overnight so I could be among the first to get one. I think I got mine 3 weeks after launch, but I'm not sure (might've been 2 weeks...). Yes, I knew getting into it that I was buying a generation 1 product, but I also knew that Apple was software updating these things, so I had very little to worry about on that front. Everyone also accepts the "rule of 1 year", which means basically that your iPod/iPhone/iMac/iThingamajig is going to be obsoleted by new hardware from Apple in roughly one year. It's a given.

So I was pretty shocked when I saw that Apple was dropping the price on the iPhones and making a product line change only about 2 months after the product launch. When approached about the subject, Steve Jobs had this to say:

"If they bought it a month ago, well, that's what happens in technology,"

Yes, technology does work this way. Everyone knows it. A year after you buy any new consumer electronics gizmo, there will either be a better one available for the same price, or your model will be cheaper than you bought it for, or both. Here's what doesn't happen in technology: a manufacturer drops the price of a fairly expensive piece of connected consumer electronics by 33% 2 months after that piece of electronics comes out. Its unprecedented, but not for the reasons you think.

Let's take a look at this purely from a logistics and financial standpoint - let's not talk about how raging pissed off people are that they "lost" $200 on this deal. Assume every single component required to make the iPhone suddenly became 33% less expensive to the wholesale market, Apple would have to re-inject its supply chain with the new components. It would then potentially have to do re-tooling in manufacturing plants and, while these plants are in China and operate quite cheaply, they don't operate that quickly. In other words, while Steve Jobs may be claiming that the price drop is due to technology, it has absolutely, positively, nothing to do with technology.

If the technology had suddenly become cheaper, we would see the after-effects of such a price drop in technology somewhere around the December time frame, maybe November if the drop happened while the first roll of iPhones was coming off the lines. We would not be seeing the price drop now.

What this shows is that when the iPhone was released, it was released with a price tag that was at least $200 higher than the margin at which Apple could remain profitable on the device, because you know full well that the current price is still going to make Apple money on each sale. So what? you might be thinking. I was originally thinking that as well - it is the job of a company to make money, and if Apple can charge $200 more than a profitable margin on a device and people will still buy it - then more power to them.

Here's where it gets bad for Apple. This particular price drop at this particular time is a marketing blunder. If people see that Apple can drop prices on a brand spanking new hardware product by 33% 2 months after it was released without it being technology/hardware-influenced (despite what Steve claims) then people are going to come to a single conclusion that will be bad for Apple:

 Apple's hardware pricing is completely arbitrary

Whether you believe that the reason Apple's hardware costs more than other competetive devices is due to their obsession with quality and industrial design, the general public (general public does not include fans or zealots) at this point is going to think two things right now that are bad for Apple:

  1.  From now on, I will not buy any hardware from Apple until several months after it is released, or possibly even second generation.
  2. If Apple can drop their prices by 33% without it being caused by a reduction in their cost, then why am I paying a premium for their hardware to begin with? If the iPhone was priced 33% higher than it could have been, how much is their markup on the iMacs or the Macbook Pros?

In short, some of the shiny gleam on the Apple name picked up a little dust with this marketing maneuver. Sure, Apple will recover, and certainly people will forget about this price drop and its not going to do long-term damage to the company.

However, it has probably created a lot of skeptics who might otherwise have remained fervent supporters. It might have turned a few zealots into downgraded fanatics, and returned a couple fanatics to normalcy.

So to put my giant rambling to an end, here's my thinking: No, I am not demanding my money back for my no-longer-manufactured 4B iPhone. I love my iPhone, it's the best freaking device I have ever owned hands down. Nothing Apple does will change that. Yes, Apple will sell a flaming truckload of iPhones and iPod Touches this coming holiday season - it could be the biggest iPod season EVER for the holidays. Am I ever going to buy an Apple product again without first waiting 2-3 months after its release? hell no. Is some of the mystique about Apple's "quality-based" higher price point gone? Yes. Is my next computer going to be a PC because of this marketing blunder? Hell no. :)

links: digg this  del.icio.us  technorati  reddit

More Stories By Kevin Hoffman

Kevin Hoffman, editor-in-chief of SYS-CON's iPhone Developer's Journal, has been programming since he was 10 and has written everything from DOS shareware to n-tier, enterprise web applications in VB, C++, Delphi, and C. Hoffman is coauthor of Professional .NET Framework (Wrox Press) and co-author with Robert Foster of Microsoft SharePoint 2007 Development Unleashed. He authors The .NET Addict's Blog at .NET Developer's Journal.

Comments (9)

Share your thoughts on this story.

Add your comment
You must be signed in to add a comment. Sign-in | Register

In accordance with our Comment Policy, we encourage comments that are on topic, relevant and to-the-point. We will remove comments that include profanity, personal attacks, racial slurs, threats of violence, or other inappropriate material that violates our Terms and Conditions, and will block users who make repeated violations. We ask all readers to expect diversity of opinion and to treat one another with dignity and respect.

IoT & Smart Cities Stories
Dion Hinchcliffe is an internationally recognized digital expert, bestselling book author, frequent keynote speaker, analyst, futurist, and transformation expert based in Washington, DC. He is currently Chief Strategy Officer at the industry-leading digital strategy and online community solutions firm, 7Summits.
Digital Transformation is much more than a buzzword. The radical shift to digital mechanisms for almost every process is evident across all industries and verticals. This is often especially true in financial services, where the legacy environment is many times unable to keep up with the rapidly shifting demands of the consumer. The constant pressure to provide complete, omnichannel delivery of customer-facing solutions to meet both regulatory and customer demands is putting enormous pressure on...
IoT is rapidly becoming mainstream as more and more investments are made into the platforms and technology. As this movement continues to expand and gain momentum it creates a massive wall of noise that can be difficult to sift through. Unfortunately, this inevitably makes IoT less approachable for people to get started with and can hamper efforts to integrate this key technology into your own portfolio. There are so many connected products already in place today with many hundreds more on the h...
The standardization of container runtimes and images has sparked the creation of an almost overwhelming number of new open source projects that build on and otherwise work with these specifications. Of course, there's Kubernetes, which orchestrates and manages collections of containers. It was one of the first and best-known examples of projects that make containers truly useful for production use. However, more recently, the container ecosystem has truly exploded. A service mesh like Istio addr...
Digital Transformation: Preparing Cloud & IoT Security for the Age of Artificial Intelligence. As automation and artificial intelligence (AI) power solution development and delivery, many businesses need to build backend cloud capabilities. Well-poised organizations, marketing smart devices with AI and BlockChain capabilities prepare to refine compliance and regulatory capabilities in 2018. Volumes of health, financial, technical and privacy data, along with tightening compliance requirements by...
Charles Araujo is an industry analyst, internationally recognized authority on the Digital Enterprise and author of The Quantum Age of IT: Why Everything You Know About IT is About to Change. As Principal Analyst with Intellyx, he writes, speaks and advises organizations on how to navigate through this time of disruption. He is also the founder of The Institute for Digital Transformation and a sought after keynote speaker. He has been a regular contributor to both InformationWeek and CIO Insight...
Andrew Keys is Co-Founder of ConsenSys Enterprise. He comes to ConsenSys Enterprise with capital markets, technology and entrepreneurial experience. Previously, he worked for UBS investment bank in equities analysis. Later, he was responsible for the creation and distribution of life settlement products to hedge funds and investment banks. After, he co-founded a revenue cycle management company where he learned about Bitcoin and eventually Ethereal. Andrew's role at ConsenSys Enterprise is a mul...
To Really Work for Enterprises, MultiCloud Adoption Requires Far Better and Inclusive Cloud Monitoring and Cost Management … But How? Overwhelmingly, even as enterprises have adopted cloud computing and are expanding to multi-cloud computing, IT leaders remain concerned about how to monitor, manage and control costs across hybrid and multi-cloud deployments. It’s clear that traditional IT monitoring and management approaches, designed after all for on-premises data centers, are falling short in ...
In his general session at 19th Cloud Expo, Manish Dixit, VP of Product and Engineering at Dice, discussed how Dice leverages data insights and tools to help both tech professionals and recruiters better understand how skills relate to each other and which skills are in high demand using interactive visualizations and salary indicator tools to maximize earning potential. Manish Dixit is VP of Product and Engineering at Dice. As the leader of the Product, Engineering and Data Sciences team at D...
Dynatrace is an application performance management software company with products for the information technology departments and digital business owners of medium and large businesses. Building the Future of Monitoring with Artificial Intelligence. Today we can collect lots and lots of performance data. We build beautiful dashboards and even have fancy query languages to access and transform the data. Still performance data is a secret language only a couple of people understand. The more busine...