The new 3G iPhone has been launched at the Apple’s WWDC (see the Mahalo 60-sec roundup above). It was met with a mixed reception. Some have swooned at the additions (A-GPS, 3G HDSPA, the awesome games showcased), while others are simmering at the obvious omissions (video capture, a better camera, copy & paste, MMS). But the one feature that has met with collected rapture is the device’s new price-point: $199 for the 8GB model and $299 for the 16GB version. The iPhone is now very competitively priced.
It’s true. The device, which once positioned itself as the Porsche of cell-phones, is now available (less contract) for less than the price of a iPod Nano (with the same memory).
So, what changed at Apple? The iPhone was initially positioned as a premium device. In the UK, with the obligatory 18mth plan, the entry-level phone would cost a nugget shy of £900 over the duration of the contract. It was not a phone for everyone.
So why the dramatic price cut?
A year ago, at the initial launch, Apple CEO Steve Jobs predicted sales of 10 million iPhones before the end of 2008. I understand that current sales – prior to the big 3G launch – stand at 6 milion with the phone effectively being off the market for the past month. Jobs isn’t used to being wrong. In fact, since retaking the reigns at Cupertino, Jobs has played a blinder. Success after success has turned Apple stock from junk into a recession-bucking phenomenon.
The iPhone price slashes are the result of a rare “over-play” by Apple. They were never going to garner 1% of the market with an über-premium device. The Register made this clear back in June ’07. It’s worth noting that El Reg are hardly famed for their pro-Apple positions – or particularly for their omnipotence, but I think they were right to question Jobs’ estimate at the original price-point. Information Week also reported analyst scepticism way-back in March ’07.
Apple are actually renowned for understating targets. Every year Apple Inc. lowers expectations with modest profit forecasts, only to knock everyone for six when it publishes its stellar results. If he missed a target, would analysts begin to suggest that Jobs may be losing his Midas-touch?
An iPhone price-cut is nothing compared to losing stockholder confidence or the potential damage to Steve Jobs’ halo. This is not to sell the iPhone short – it’s a brilliant device. Apple entered an entirely new market, and threaten – as many predicted – to revolutionise it. A few minutes reading Engaget and looking at new phones from Apple’s competition, is enough to show how Apple’s invention and commitment to the user experience, has energised the market. Indeed both RIM (makers of BlackBerry) and Palm credit the iPhone with increasing public interest in smartphone technology, and to their subsequent increase in revenues. The iPhone is and was a terrific device, just overpriced at launch.
Apple will exceed their 10m goal by the end of the year. But only because they adopted aggressive pricing that couldn’t possibly have been foreseen when they launched the device. Apple will have learned valuable lessons, but to have made such a profitable entry to such an established market is testament to Apple’s impeccable strategic prowess.