iPhone Shows That Cheaper Phones Are Still Important
from the price-is-important dept
The iPhone has received plenty of well-deserved (and plenty of not-so-well-deserved) hype and press over the past year or so, but one of the key points that Apple tried to make when it launched was that a premium phone deserved a premium price -- and people would pay for it, even without a massive subsidy from a mobile operator, as is typical of other phones. And, while there definitely was a huge crush of Apple fans who had to buy the iPhone early, the fact that Steve Jobs quickly lopped $200 off the price, just months after it was introduced, suggested that the number of people willing to pay that kind of premium wasn't as much as expected. In today's keynote, as was widely predicted, Jobs launched the new 3G iPhones with another $200 cut off the price, so the base model with 8gigs is now $199 -- down into the range of your typical subsidized smartphone.While the iPhone has done plenty to get people to rethink mobile interfaces, it seems clear that Apple may have initially misjudged how people would respond to premium-priced phones. Jobs had promised 10 million iPhones sold in the first 18 months, and has reached about 5 million in the first 12 months (nothing to sneeze at, obviously). However, to get up to that 10 million number, he had to drop the price to be competitive with other phones. It's a smart move (though, it's not clear if the $199 is subsidized or not), given the market conditions, but beyond the lessons that everyone will talk about concerning Steve Jobs' strategy in launching the iPhone, the most interesting of all may be how the initial pricing structure backfired -- but was changed so quickly.
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Filed Under: iphones, pricing, steve jobs, strategy
Companies: apple
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Did it backfire?
One thing you learn in business school is that the holy grail is to get each customer to pay the maximum that they will pay. This maximizes revenues but is very hard to do in consumer goods such as the iPhone that are sold en masse.
But Jobs has done a good job of doing just that. How many million did he sell in the first few months at $599 and how many more at $399? And now the price is reaching the market plateau that will possibly get the extra 5 million people to buy. So he might have moved 10 million already at $199, but he would have lost all that extra premium on the first 5 million (somewhere between 1 and 2 billion dollars). I don't think his strategy failed.
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Re: Did it backfire?
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Backfire?
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Re: Backfire?
Apples are overrated & overpriced junk. Always have been & always will be.
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Re: Re: Backfire?
There are soooo many over-priced cell phones on the market today. So what! You say it like Apple invented over-priced electronic devices.
I have never owned a single Apple product until the iPhone came along, but I have owned MANY cell phones. The iPhone: RDP, FTP, full web browser, unix, video, audio, emulator, cell phone, etc.; junk it is not.
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If only
However, Jobs has successfully opened consumer market for full featured internet devices; a market that will grow exponentially from here. Like it or hate it, the iPhone is a game changer. The mobile phone market is changed forever.
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Not sure why say it's unclear
" Requires new 2-year AT&T rate plan, sold separately "
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They could have sold more...
With T-Mobile, Verizon and Sprint also selling them, they would easily be past the 10 million mark right now. In fact, I would probably have one right now but I refuse to do business with AT&T.
I'm not really sure what the "exclusivity" contract bought them, but I hope it was a lot of money.
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Re: They could have sold more...
Where I live (small town in the middle of the Midwest) AT&T is the worst possible service to have as there aren't many towers in the are that support it and the few people that do use can't make or receive calls in a lot of locations, plus the AT&T data network here is horribly slow.
If Apple had chosen two cell companies that don't compete directly with each other (i.e., there are no AT&T cell stores anywhere near here, it's all Altell or U.S. Cellular around here) and maybe, just maybe there had been a cell company that I could have used, then I just might have bought an iPhone, but as it sits now - as long as AT&T is the only choice, then it would be stupid of me to buy an iPhone as it would be virtually unusable where I live, work, etc.
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HAHAHA!
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Higher monthly plans, lower phone price
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Re: Higher monthly plans, lower phone price
I was an existing Cingular/ATT customer. I purchased an iPhone and only had to pay $10 more per month for the additional line. THAT'S ALL.
The multimedia packages cost more for the iPhones but they are not a requirement. These plans cost around $20 more a month. They HARDLY subsidize the cost of the phone.
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Cingular/AT&T
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Strategy
This strategy was also used for a number of gaming consoles. I remember the PlayStation 1 being sold for over $700 at first. The price dropped by over half after a few months.
Now Apple are obviously employing a penetration or predatory pricing strategy to gain maximum market share - since the features that made the iPhone unique are no longer thought of as revolutionary by the market.
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consider this
The actual cost of ownership of a new iPhone has actually gone *up*, thanks to the higher AT&T rates for the 3g iPhone.
Nothing ever really goes down in price in Apple-land.
Remember the $499 Mac Mini launched years ago? Despite computer prices continuing to decline, its now $599.
The cheapest Apple laptop is still 2X as expensive as a mid-range Dell.
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Takeaways from WWDC '08
Now, most of the keynote was focused on:
+ Renewed enterprise focus (MS Exchange, VPN, Push Email, Remote Wipe, et al)
+ Developer support with SDK 2.0 (Which by the way.. is very, very impressive)
+ 3G
+ excellent contracts and vendor management (70 countries-- their goal was only 12)
...And only lastly was the price drop.
Apple's foray into SaaS/Web 2.0 with Mobile Me is extremely impressive, and seems useful as a Outlook replacement.
Of all the points, it seems that the SDK and Third party support is really going to push the platform forward. I think it's going to be tough for anyone to catch them.
Today's $4.00 drop of the stock is real telling of how Wallstreet doesn't fully grasp what's cooking in the kitchen.
http://stream.qtv.apple.com/events/jun/0806wdt546x/m_080690210abcn_650_ref.mov
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"no-subsidy" model backfired
now the hope is that android/google can make a real dent on openness.
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