The $600 Apple Tax (UPDATED: now only $300 for me)

I don't see why people are complaining. Whenever you buy something new, you should expect that the price will go down. I guess usually they don't announce such a dramatic one, but it would've been the case eventually anyway. Just be happy we haven't bought something new and expensive, only to have it flop and be discontinued.

It's just that Apple did what you should never do: cut 1/3 off on the SAME product after 68 days!

Get a better product and sell that at a lower price, if you want. But make it a different product. Tell people that now with the new product you were able to produce at a lower price. That's OK because you don't slap people who bought the other product in their face.

But don't lower the price on exactly the SAME product. That's really a slap in the peoples face. It's not understandable why from the sudden they could cut it down at 1/3 after 68 days!

I knew I was paying more when I decided to be an early adopter. One of the worst mistakes I made in life was not getting a computer when I really wanted one and even then I settled for something cheat. I have learned over the years how crucial it is to be an early adoptor if you are passionate about something.

Of course I am in a business where a device like the iPhone is crucial to my work. Our business develops for the web, print and portable media and I have been using it some of my talks to demonstrate podcasts, web sites and photography that my company provides.

However I'm glad I didn't buy the 8 gig model before. The 4 gig has been serving my purposes for the most part and I'm glad the other people on my team will get a better deal. Yeah the 68 days is kind of a bummer as the above person said but they are also in a spot of providing the product at the price for the holiday shopping season.

For the record I have made over $200 in income because of what I have been able to do with the iPhone from winning a customer over that I am preparing for the technology to being able to show other clients things where we normally would not have had a connection.

Patrick: I totally agree. If you worry about prices being lower tomorrow you'll never buy any technology. It will ALWAYS be cheaper tomorrow. And I LOVE that!

I think part of the reason people might feel yanked around over the iPhone prices is the uber clevernesss of Mr. jobs, who acts like everything is part of a master plan that he won't let you see.

As for gas prices, no one in N. America can complain that we're paying too much. Look at prices in Europe if you want pain.

Robert-

On behalf of late adopters across the world I thank you for always being an early adopter and paying the price. If it was not for the guy and girls who want the cool toys, I would never get anything.

I have a very cool phone that I got free when my early adopter friend had to have a razor phone. His phone was only four months old, and has served me very well for almost 2 years. He has already moved onto the next new phone (and another buddy got the razor).

Steve just announced that you can get a $100 gift certificate if you bought an iPhone before the price drop.

http://www.apple.com/hotnews/openiphoneletter/

It may make sense for you, but it just cements my resolve never to buy anything from Apple. An abrupt price cut is a lot like saying "Now that the fanboys have paid an awfully high price, we can sell out iProduct for what it's REALLY worth".

I personally wouldn't subject myself to that kind of treatment, but I suppose everybody is different.

Alejandro: it's not just Apple. EVERY technology goes down in price. My Sony HDTV has gone down in price in just 1.5 years by about $2,000.

Steve Jobs just wrote back, by the way: http://www.apple.com/hotnews/openiphoneletter/

Alejandro: I never saw Sony's CEO turn around and give out a $100 certificate to people who were very happy to pay the higher price. Nor any other CEO. If I lived life like you say you are I'd never buy any technology cause I know the price is going down tomorrow.

Very nice gesture of Apple. They didnt have to do it, but boy their PR team need huge bonuses.

I believe you're comparing apples (no pun intended, really) and oranges. Of course technology goes down in price, and of course that's wonderful! But this was an extreme and unusual example. The exact same product, sixty eight days after it was first made available, is now selling for 33% less. That pushes the boundaries of acceptable behavior in my view.

The offer of $100 store credit seems like exactly the right move. No, they didn't need to do it, but as I've said, introducing a product and then lowering its price by a full one-third without offering any kind of break for the customers who bought your product at the higher price just seems truly underhanded.

Robert,

Your examples are of a price drop a year later or 2 years later. Here we are talking about 2 months. The reason prices drop is because of better manufacturing or cheaper labor or more people are buying.

Here in this case it seems like it was premeditated by Apple. They figured the early adopters will pay extra for the iphone and they will make extra money. It had nothing to do with lower technology costs, but pure GREED!

Yosef: wrong. Best Buy gave me a $500 refund on my TV because it went down in price within 30 days of me buying my TV.

This is still crap, they are saying to the consumer that the price at launch was a hike and we haven't sold our millionth yet so to reach our forecast lets hit you with one hell of a price drop.
I was just telling a friend of mine about you and the 3 iphones you purchased, but for some reason I knew that you would put some kind of spin on this.

stop following the carrot, also or get a job in PR

The first computer my family bought when I was around 12 was an Amstrad 8086 8Mhz with a 30mb hard disk, 1Mb RAM and VGA COLOR display. Yay! It cost around 1500 UKP (at a guess over 2000 USD). 'nuff said!

Oh yeah, and it ran MS-DOS 5, played a mean "Sopwith Camel" (does anyone remeber that game?) and Wordperfect 5.1 was an excellent word processor...

The open letter from Jobs clearly states the reason for the timing of the price drop. Apple sees a whole large enough to drive a truck through in the cell phone industry, but only if the price is right, and they've come to the conclusion that it's better to take less margin and establish more market share. They have been tracking the sales very closely and have decided that it's time to go for the mainstream. It's a very good tactical move that is looking at the larger picture. The quickly-offered olive branch to the early adopters is probably the best thing to do, PR wise, though I hate to see the whiners encouraged.

price drop makes sense. here's why

A price cut on the iPhone can be easily summised by what's right in everyones face.

Look at it this way:

Apple introduces 8 & 16 GB iPod Touch at $299 & $399.

(Clue-16GB flash memory available.)

Apple cuts price of 8GB iPhone from $599 to $399 matching price of 16 GB iPod Touch.

Discontinues $499 4GB iPhone.

(Note @ $499 & $599 Apple has sold close to 1Million iPhones in 1st quarter of availibility. Meaning customers are willing to pay price for product. History shows that Apple never walks away from customers willing to pay premiums for its products.)

(Note-Apple plan Euro launch of iPhone by end of 2007, which mostly uses 3g mobile network.)

Reasonable assumption:

Before Euro Launch of iPhone Apple will:

1)introduce $499 16GB iPhone

2)introduce $549 8GB 3g iPhone & $599 16GB 3g iPhone

It would also seem reasonable that by Euro launch there will be upgraded camera features, maybe even the addition of video capabilties.

Seems logical. Technology is already available. Euro market will demand 3g network capabilty. Reasonable explanation for price drop so soon after introduction.

If you look at the patterns that Apple has displayed with product introductions since the return of Steve Jobs, then one would know certainly know that Steve and Apple would never leave a robust market for a $600 product behind.

Apple got the market primed with the original pricing struture of the iPhone and proved to the Market that they can compete on the high end. They then turn around a drop that high bar for entry and hit the market with a new high end.

I never try to predict what Apple will do next but these moves are so obvious that I'm willing to go out on a limb on this one.

If nothing I've learned, being one that watches Apple, is that Steve Jobs has figured out how to play the market like a fiddle in many cases. What's astounding is that analyst and journalist and Wall Street hasn't figure this out yet.
--

Steve Zerby: I think that Apple was planning the pricedrop for a while - they were hinting about lower margins for the Sep-Dec quarter back during the 3Q earnings conference call.

That said, if people didn't think the phone was worth $600, they shouldn't have bought it.

You mention an iPhone you bought a week ago. Apple has a 14-day price guarantee and you should get $200 for that one. So now your tax drops to only $200 for all four phones!

Herb, I'm sure you're right. But I bet they weren't thinking 200.00 I think that sales probably tapered off a little sooner than they hoped, and concluded that most of the resistance was to the price point. And based on the overwhelmingly positive feedback from those who own them now, want to get as many of them into people's hands now to solidify the head start they have. I'm sure the aggressive price points of the rest of the ipod lineup are also part of the tightening margins they were planning on.

All in all, it should make a fascinating business school case study down the road, regardless of how things work out.

I love the UD-PATEs!

Robert, I do not think it is an early adoption tax. Usually I am okay with the decreasing price of consumer electronics because I know that the manufacturing costs fall down over time. In iPhone case, I do not see any natural reason for the price to come down by $200. DO touch-screens become cheaper or the memory of the battery?

I do not see $200 price drop. I see that Apple either did an error in estimating the size of the market at $600 price point or they purposely decided to take advantage of early adopters - a loyal fan base. If it is the former case, then they should be able to correct the error for exiting buyers too not only for the new ones. It is easy to show a $200 credit on ATT bills. If it is the latter case, then Apple's fan base is justified in feeling angry with Apple.

Yes, I accept my analysis wrong if the manufacturing cost actually fell (for an example, Apple could claim they got bigger than expected economies of scales).

Think everyone's upset now? Wait til the 3G iPhone is announced later this month in Europe, and goes on sale the day after Thanksgiving in the US.

Then I'll be able to buy a first-generation iPhone for $100 from the sucker early adopters! Go me!

What *everyone* seems to be missing is that this $100 rebate by Jobs is an absolutely inspired move against his competitors.

Is Dell now going to have to respond whenever its fanbase feel they got miffed by a price-drop? HP? IBM? Apple handed out $100 value, which it knew would be spent in its own store - they effectively bundled content in with the iPod. How on earth will Dell match that?

The playing field is definitely leaning in Apples direction after this move...

"I do not see $200 price drop. I see that Apple either did an error in estimating the size of the market at $600 price point or they purposely decided to take advantage of early adopter"

They are rubbing salt in NBC's wounds. When you are sipping your latte in Starbucks watching videos, guess what you WON'T be watching-- NBC/Universal c**p.

"I do not see any natural reason for the price to come down by $200. DO touch-screens become cheaper or the memory of the battery?"

Actually, I do. How about economies of scale? The iPhone orders that Apple has been placing are probably large enough that they can afford to drop the price without completely sacrificing the profit margins. However, the iPhone is only a drop in the bucket. The product that really lowers the price of the iPhone is the new iPod Touch. No doubt, Apple has ordered massive numbers of these. And I can only imagine that these likely share the same battery,memeory,screen and chassis as the iPhone. And I have a feeling that Apple is going to sell five times the number of these units compared to the iPhone. They are perfectly complementary products, neither cannibalizing the sales of the other (another reason for the price drop, so that the products are priced at smaller ascending increments for more features), yet with such a large number of common parts, it allows the iPhone to become cheaper through economies of scale. This is absolutely brilliant!

Unprecedented sales volume = increased economies of scale. Apple's cutting the price now because they can afford to.

Mr. Scoble, with all due respect, not a single one of your examples is applicable to the iPhone price cut situation. You could not buy your same model HDTV 60 days later at half the price. Moreover, all your examples, (except your car an gas example which have no relevance whatsoever) involve a better product being produced at a cheaper price. What is new and better about the iPhone 60+ days later that justifies the lowering of the price?

The people complaining the biggest are likely non-Apple computer buyers. Anyone who ever bought a Powerbook is used to getting burned.

Agree with everyone else on the fact we are talking 2 months (with nothing new about it) vs multiple years.

I'm starting to think you post this kinda stuff just so people comment and correct you

Where'd the smart scoble go?

The problem isn't that early adopters pay more. The problem is that the iPhone was overpriced (by a significant margin) to begin with. At $600, I laugh at anyone I see carrying one. At $400, I may still laugh, but at least that gets almost into the realm of being reasonable.

I have a PPC-6700 (HTC Apache) that I got over a year ago. I paid about $150 for it. It's a far superior product to the iPhone in almost very way. The iPhone only has two things going for it that my Apache lacks, the iPhone UI, and an 8 GB card for multimedia. My Apache does have a miniSD slot, but the max it can handle is 2 GB.

Other than those two things, there's really no comparison between the two devices. The Apache wins in every single case (internet speed, add-on software, e-mail sync, e-mail in general). So, why would anyone pay 4X (or even 3X) for the iPhone?

Only because they think having one makes them look cool. In fact, having one makes them look dumb.

I'll bet most of the complainers are the exact same one's that in the same sense happily took a bigger whack (comparatively) in the time spent to buy one. why would anyone spend 24 hours in line to buy a product that in 1 days time could be bought immediately!! Where is the wailing about the cost of time spent in line? Should Apple rebate those moron's who spent hours in line??

I love that the Apple fan kids think they are getting some sort of 'rebate' when they have to use that 100 dollar 'gift' certificate at the Apple store.

That is some kind of scam Jobs is running there ... LOL...!