Apple as High Roller

Much yapping was made of Apple's decision to lower the price of the iPhone two days ago, then offer a $100 credit to the earliest adopters. Some questioned whether the iPhone was selling well at all, while some early adopters complained they got burned by a price drop that happened only two months after launch. I have no interest in doing a big think piece about what this or that means, mostly because it's all masturbatory speculation, but I will mention what I think is most interesting about these last few months watching Apple. The iPhone signifies a new strategy for Apple. They released a glut of information about the device six months before launch, obviously a smart play that built a fever pitch, but diametrically opposed to the way Apple traditionally handles product launches. They priced the iPhone at $600 knowing full well that they would be launching the iPod Touch only a couple of months later. Then Jobs took a step back and offered the $100 credit, which may or may not have been calculated—we'll never know—but is as close to a mea culpa as we've ever seen. These aren't the moves of the stoic hits factory we all have come to know and love (and loathe). This is a company that is straining at full tilt to capitalize on their unique place in the market, working every engineer they've got to maximum capacity, juking quickly when they once would have silently taken their lumps. Whether previous sales were a factor in the iPhone price drop is hard to say. But this is the product line-up Apple has been putting together for the last several years, right in front of a Christmas they certainly hope will be their biggest sales quarter yet, with media giants like NBC starting to really get the taste of fear in their mouths. What we're seeing now is an Apple cashing out all their stored up success and making a big play. Apple is going all in.
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15 Responses to Apple as High Roller

  1. monopole says:

    Tubman @14
    Actually, when playing Divx straight off the net the T|X does a journeyman task, pray tell what does the touch do? Sure, transcoding to 480×320 15 fps is preferred (and a single drag and drop operation for files, or a simple setting for fairuse wizard). And of course this reduces even a large feature film to hundreds of megabytes. TCPMP easily handles these files without a single skip. I easily pack half a dozen films on a 4 GB card (and carry as many of those as I like.) Of course you don’t need to pass files through a program coughiTunescough.

    And, no I don’t need a stylus to play music on the Palm T|X, fingers will do nicely, although fingerprints all over the screen does detract from the cinema experience for me. Actually, the palm has a little two dimensional side controller with tactile feedback as well as a stylus.

    As for the bluetooth GPS, word processing, real keyboards, I want a single tool, not an expensive toy and status symbol.

    But it is terribly unfair to compare iPod touch with a general computer, I’ll compare it with heavily DRMed 8 GB PMPs. Oh yeah, really next level.

  2. Tubman says:

    @Ben Wisdom: The other key reason for letting people know ahead about the iPhone was because of the way the mobile market works: potential customers needed to know ahead of time that if they wanted the iPhone at launch they shouldn’t be tying themselves into a new contract in the next six months.

    As for the $100 credit, it may have been floated as an idea prior to the price cut, but it clearly wasn’t planned: if it had been it would have been announced along with the price cut, thereby avoiding some bad press and upset clients.

    I think the price cut furore is a great example of how the relationship between Apple and its followers: had any other company pulled a similar stunt there would have been some grumbling and then a collective shrug of the shoulders, but because it was Apple, there was an emotional response and people treated it as a betrayal. It’s to Jobs’ credit that he realised he’d made a mistake quickly.

  3. Joel Johnson says:

    @Monopole: Well, I think it’s possible that Apple is heading for a fall, too. I’m just saying it’s interesting to see them act this way.

    @Ben Wisdom: The FCC can keep filings private if they choose to. I think you’re basically right, though. That would have been a heck of a product to keep under wraps.

  4. monopole says:

    dculberson @10
    Yea pity about the Palm T|X the iPod just takes it to the next level! I mean the SDK… well the thousands of third party apps… the removable media…the lack of DRM…the eBook support…the capacity to play just about any audio or video format w/ TCPMP… the bluetooth… the capacity to use real keyboards… the bluetooth GPS support… truly makes it so next level. Oh wait, those aren’t iPod features! Well something must be next level, maybe the pricing!

  5. Michael Davies says:

    It looks to me as though Apple played a twin-track strategy here.

    The core strategy was to launch a bleeding-edge, early adopter device to the Apple faithful, take their knocks from the critics, learn their lessons about what they’d failed to understand about this new market. They would then be in a position to make some software upgrades in time to make the device more attractive in time for the Christmas rush, and then release a second-generation device with wider appeal, and a better price-point some time next year. Standard Apple strategy.

    The secret ‘reality-distortion field’ vision was that the critics would love the iPhone, and sales would start very strong and stay that way, meaning that demand was potentially insatiable. Amortise your costs over sales say 5x what your core strategy estimated, and suddenly there’s a ridiculous amount of margin to play with.

    Sacrifice all that excess margin, and you’ve got a insanely great product for the price. You’re wiping the floor with all the smartphones, and many of the high-end phones, and you’ve got the buzz that means that their new, competing products are all still-born.

    You’ve got AT&T getting customer conversions out the wazoo, you’re only 20 months away from the end of your deal, and all the telecoms companies are getting edgy about Google’s bid for wireless spectrum. Everyone will want to cut you a deal (siooma, AT&T).

    You’ve got a potentially massive revenue stream from your cut of all those accounts. You’ve got iTunes music and ringtones revenues ramping up (siooma NBC).

    Steve Jobs is probably now looking five years down the line, where ‘smartphone’ means ‘60% Apple, 39% other brands, 1% ZunePhone :-), and smartphones all that anyone buys in the west…

    DISCLAIMER: Please note that I’m not going all fanboi here, and saying any of this is bound to happen because Jobs can do no wrong, but if you take something like that as his vision, you can understand why he thought the risk of upsetting a few of his old ‘Apple Computer’ customers was worthwhile.

    I’m just glad I’d not bought one!

  6. pork musket says:

    @Tubman: I think it was planned for the exact reasons you mentioned. If they had announced it at the same time as the price cut, then a few things would have turned out differently.

    First, there would have been less coverage of the event (no angry early adopters posting on blogs about how they got screwed) – any press is good press, especially with an army of fanboys to get your back. Besides, early adopters pay a premium and that’s always been the case, so the backlash was basically unjustified whining and lots of people (fanboys or not) pointed this out on the blogs I read consistently.

    Additionally, now Apple can spin it as a ‘listening to their customer base’ mea culpa (as Joel put it) and say ‘hey, would any other company do this?’. They’ve also now set themselves up to increase the base of early adopters, as people in the future may think ‘hey it’s okay, they’ll refund me when the price drops.’ Even if they do post refunds in the future (and they may not), the early adopters are essentially free advertising – ask anyone who got an iPhone the day they came out how many times they were asked to how it was, if someone could play with it for a few seconds, etc. Part of the early-adopter mindset is the exclusivity factor, and with a hyped up gadget like the iPhone, that exclusivity translates into market interest and eventually sales when the price comes down out of the crazy-expensive range.

    They pissed off Wall Street, but they won the media war, sedated their loyal early-adopting customers, and increased their credibility amongst future early adopters. All in all, a very strategic market-motivated move from my perspective.

  7. Tubman says:

    @Monopole: Your argument might make more sense if you tried comparing the iPod Touch with, you know, another PMP, rather than something which plays video and audio as a sideline. Yes, the T|X is a pretty decent PDA, and it can do lots of funky things, but most of them are not only irrelevant to watching video and listening to music, but actually detract from the experience of doing so. Do you really need a stylus to listen to Sergeant Pepper? Does BT GPS support mean I can find out where the island is if I’m watching Lost?

    Anyway, when you say it’s able to handle just about any video format, that’s only partly true: try playing a 1.5mbps 30fps 640×480 video (you know, the kind of file you might already have on a PC) in the format of your choice. Better yet, try explaining it to someone who still thinks a stylus is something to do with phonographs. Remember to mention that they’ll need to overclock the CPU through some third party software, and that it would be best to go with FAT16 formatting on the SD card (which means nothing over 2GB, natch) because the FAT32 driver’s a little on the sluggish side and may cause the vast majority of frames to be dropped instead of just a simple majority. It’s all pretty much plug and play, really.

  8. pork musket says:

    They’re just trying to get more people to drink the kool-aid, and they’re doing a fine job of it. It’s unreal how people have this unnatural cult-like dedication to a corporation, almost like sports team fanaticism. I guess it just furthers the feeling that a good bit of Apple’s perceived value is in the image – it doesn’t stop at the products, it extends all the way through the corporation ($1 salary for Jobs, this _almost assuredly_ calculated $100 gift card play, etc). I wouldn’t be shocked if there are people that kneel and face Cupertino five times a day and say a prayer to Steve. I don’t think they’re going all-in, they just know the strength of their hand and they are pushing ahead with that strength.

    BTW Joel, I’ve really enjoyed the blog so far – your writing and humor are great, keep it up!

    • Joel Johnson says:

      That’s an interesting analogy you make, Pork Musket. (Great handle, by the way.) What’s wrong with loving a computer company as much as a sports team?

      I think Apple makes some great products, but the whole thing is a mess to talk about. Call ‘em a cult, you’ll have people say they aren’t (and they aren’t…exactly); it’s just a big slop to wade through every time you want to talk about the company. I almost think all the vitriol helps shield them from criticism at times. The people who are always on the defense continue to stay on the defense.

      Anyway, at some point I’d like to get more into my thoughts about Apple as a company – and more interestingly, the way people and journalists react to them – but for now I just wanted to note this change in their tactics for posterity.

  9. scaught says:

    I just want people to stop whining about the price decrease. Personal responsibility is at an all time low. Suck it up, people.

  10. dculberson says:

    All I can add is that the price drop has had me, a previously completely disinterested party (beyond “oh that’s cool”), become actually 50-75% seriously interested in an iPhone.

    The only thing holding me back is the AT&T lock-in. And I’m not going to use a “hacked” phone as my main (and sole at home) means of telecommunication.

    So I think the move might work out well for Apple.

    Oh, Re: The Palm TX.. it’s not on the same level as the iPhone, sorry. It’s cool, but it feels 2 years older and far less advanced (and bigger!). The UI is the key with the iPhone, not checkboxes on a feature list.

  11. J. Lasser says:

    First, I expect that the iPod touch was announced only because Apple confirmed that they’d have the capacity to manufacture enough screens, ensuring that there was an adequate supply of iPhones first. I don’t think Apple knew that even three months ago, let alone when the iPhone was announced. (Think about all of the Apple products plagued with shipping delays due to component shortages.)

    Second, imagine that Nintendo had taken a similar tack with Wii pricing, starting it at say $800 and dropping its price as manufacturing capacity rose and the neophilia-induced demand dropped. There wouldn’t have been any shortages, or any wait; someone could simply make the decision to buy when the price dropped to the number they were comfortable with.

    In my opinion, pricing can and should be used as a mechanism to control demand. I’m not advocating for an airline-style pricing model, where the goal is to maximally screw the customer at all moments. However, we’ve already accepted graduated price drops; it makes sense to me to start the prices higher and drop them more quickly, as supply and demand dictate.

  12. monopole says:

    Seriously, this is the 5 millionth “Steve Jobs meant to do that” post in the past 10 seconds. The truly astounding thing about the reality distortion field is that it convinces everybody that whatever action made by apple is de facto not only brilliant, but by definition the best possible strategy! This coupled with the insane level of hype drives a mediocre line of products.

    For example, I already have a compact 3.75″ diagonal touchsceen video/mp3 player with bluetooth and wifi, a very good browser, an 4GB of removable memory. It has a huge base of applications (I can even control my telescope with it) and can keep up with the iPod touch at every turn. It was released over 2 years ago. The one problem is that since it’s stamped with a Palm logo (Palm T|X to be precise) it isn’t given the time of day. While the wholly derivative ipod touch is feted as the latest second coming.

  13. Ben Wisdom says:

    “The iPhone signifies a new strategy for Apple. They released a glut of information about the device six months before launch, obviously a smart play that built a fever pitch, but diametrically opposed to the way Apple traditionally handles product launches.”

    Apple did not choose to do it this way. Word got out about the iPhone so early because Apple had to publicly ask for approval from the FCC about six months ahead of time before releasing the iPhone onto the market. They made the best of the situation by starting up the hype machine much earlier than usual, but they probably wouldn’t have done it that way if they didn’t have to.

    Nevertheless, I do agree with you about Apple’s high ambitions. That’s why I bought a few shares of Apple stock a few weeks ago. :)

  14. aeiou11235 says:

    Job’s done nothing wrong. i read all that s*** on the apple forum and people want to agitate against Jobs and Apple. WTF!? Jobs is totally right: if I buy a computer today, I know it will be worth 1/3 the price as soon as I left the shop. It is technology, it has a rapid obsolescence. If someone thinks that the iphone was too expensive, why did s/he buy it for that price in the first place?

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