Apple's price drop may look like a preemptive holiday strike, but is it really the result of struggling sales figures?
Former CNET contributor Don Reisinger is a technology columnist who has covered everything from HDTVs to computers to Flowbee Haircut Systems. Besides his work with CNET, Don's work has been featured in a variety of other publications including PC World and a host of Ziff-Davis publications.
With last week's announcement by Steve Jobs that his company would be reducing the price of the iPhone from $599 to $399, many people were wondering why.
Some said it dropped the price to look more attractive to holiday shoppers. Others claimed it was due to the fact that production costs were lower, and Apple could afford to drop the price and still make a nice profit. And as for me? Well, I think Apple dropped the price because its fanboy well dried up, and the average consumer wasn't willing to spend that kind of money for a cell phone.
Now, before you start throwing these vaunted numbers of 1 million iPhones sold in just 74 days, don't you think Apple has at least one million fanboys in this country? Sure, not all Apple fanboys ran out and bought one, but I can assure you the vast majority of them did. If I had to guess, I would say that Apple fanboys accounted for more than 75 percent of that one million units.
Realizing this, Apple needed to do something before it would be forced to tell the world that its iPhone wasn't selling nearly as well as it hoped in the few weeks leading up to last week's press event. So, using simple economics, the company decided to bring the price down to a more consumer-friendly level so average Joe and Jane would run to the store to buy one. After all, $400 is reasonable for the average person who pays a mortgage, pays for the kids and puts food on the table--$600 isn't.
Last month, many news outlets (this one included) reported that the iPhone was the best selling smartphone in July. Citing analyst iSuppli, reports noted that the iPhone accounted for 1.8 percent of all phone sales in July, which sent Apple shares up.
Unfortunately, iSuppli was forced to backpedal after watchdogs discovered that the iPhone did not outsell total Blackberry sales in the same period. In fact, Blackberry sales doubled the number of iPhone sales in July.
If nothing else, this report and eventual clarification highlights one interesting nugget of information: maybe the iPhone appeals to the tech-savvy, Apple fanboy, while the Blackberry, with its cheaper price and broader appeal, is the everyday worker's smartphone.
Now, as an iPhone owner, I was happy to buy one on the first day it was out. And while some have called me an Apple fanboy in the past (although this should create the ever-popular moniker of "Apple-hater"), I can assure you that I am no such person. In fact, I'm included in the 25 percent of people who bought the iPhone without any undying love for Apple, but just wanted to have a slick, new device. Unfortunately for Apple, I'm not in the majority.
Could it be that the vast majority of people who owned an iPhone before the price drop were Apple fanboys? You bet. Now, I obviously haven't taken a poll and I'm sure someone will come up with an obscure figure that supports and discounts this point, but the facts stand by themselves: Apple dropped the price in the first week of September, just two months after the initial release of the iPhone.
If a price drop was initiated to appeal to holiday shoppers, why would Apple do it in the first week of September? Historically speaking, most companies drop prices around late October or early November to capitalize on the holiday season--no sooner, no later. And if Apple was releasing a new iPhone that would sport 3G and all of those other goodies we all want in the next few months, don't you think it would create an even worse firestorm than this pricing fiasco?
The iPhone price was high for one reason and one reason only: Apple did its market research and found that the vast majority of its cult following would stand in line on the first day and pay anything just to have the iPhone. In fact, I would venture to say that it expected a sales slowdown, realizing that the average non-Apple fanboy wouldn't even consider paying $600 for a cell phone.
People can cite any figures they'd like to show Apple sales in the past two months and tell me that the price drop was the result of Apple wanting to give back to the community or some other rubbish, but the truth is this: Apple played us all and did so without reservation. It knew its installed base would support it through thick and thin and realized that a $600 price tag meant nothing if they could own another Apple product.
And now, Apple has come back down to Earth to appeal to the average consumer. The fanboy well has dried up--it's time to attract new members.