Crazy Stevie's iPhone Prices are Insaaane!

theodp writes "Slate takes a look at the alarming lesson of the iPhone price cut and ponders the long-term effects of a Fire-Sale Nation mentality, especially when companies go all Crazy Eddie slashing prices on products like homes and cars that have active secondary markets. 'High-profile price-chopping tends to occur whenever companies freak out about the vicious combination of a slowing consumer economy and the prospect of getting stuck with big inventories of unsold goods. The tactic often works in the short term. The hype over insanely low prices functions as a form of free advertising, and the lower prices tend to attract buyers. Apple announced on Sept. 10 that it had sold its 1 millionth iPhone.'"

Comments

As long as the only connectivity is AT and T...

[fyngyrz]

It won't matter to me what his prices are. An incredibly short-sighted error, IMHO. I'm good for five of them (three kids and my SO.) But no connectivity, no buy.

Re:As long as the only connectivity is AT and T...

[wyldeone]

Apple wants GSM because it's an international standard and they don't want multiple versions of the iPhone for different countries.

That would appear to not really be true. According to USA Today (as well as the rumor mill around the time of the iPhone announcement) Apple approached Verizon (which uses CDMA) before AT&T, but was turned down.

Re:As long as the only connectivity is AT and T...

[hey!]

Apple wants GSM because it's an international standard and they don't want multiple versions of the iPhone for different countries.

I don't think that that true at all. Palm, after all, has come out various treo models in GSM and CDMA simultaneously, even tweaking features to suit the carrier. I don't know if it's just a matter of firmware, or plugging a different modules onto the system board, but carriers sell LOTS of phones.

I think the key has to do with marketing, particularly positioning against the treos, which are highly capable PDAs, more capable than the locked iPhone in that category. Introducing them at a much higher price will milk the early adopters and position the iPhone above the Treo. However, in the long run pragmatists who want a smart phone will look at the price differential and go with a more "conventional" model if it sells at less than half the price, and pragmatists are where the bulk of the gross revenue is made. The iPhone costs about $250, so at the original price they were making a respectable 58% margin; At $399, they are making a 37% margin, and the future holds even lower prices.

So what that means is that they'll take it out of the customer's hide in service fees, passed through by the carrier. In return, the carrier gets and exclusive, which works with the "exclusive" product positioning, and they probably get a lot of people switching services so in the long term everybody (in the deal) is happy.

In the end, they position the iPhone above the competition (at a very health margin), get a nice cut of the phone revenues, then turn around and offer the iPod touch for all the customers who want an iPhone but aren't willing to switch services, so they haven't really lost their business.

Re:As long as the only connectivity is AT and T...

[dubbreak]

By focusing solely on GSM, they're locking themselves out of most of the US cell phone market - over 120 million customers.

Oh come on, you have to admit that is hyperbole. Yes, they may have somewhat limited themselves in the US market by being limited to a few carriers but I'm sure they did the research and the amount of lost sales because of that didn't out weigh the world market (the majority of the world uses GSM, the US is strangely skewed towards cdma).

Most cell phone manufacturers do make different versions for different countries.. Motorola makes both GSM and CDMA versions of the RAZR and many other models, as do Sanyo, Samsung, RIM, and Palm.

I was once told by someone in the industry never to buy a CDMA version of a phone that was originally designed as a GSM phone. The reasoning being that often the other version was an afterthought and not as thoroughly tested.

Maybe at this point Apple is testing the market (worldwide) and will eventually approach the much smaller CDMA market if it seems financially viable. You can't really fault them for going for the bigger pot of fish first.

Re:As long as the only connectivity is AT and T...

[Mr2001]

"Most?" I thought GSM took the majority share in the U.S. last year, and that it was still growing at a faster pace. Well, these are the numbers I've found:

Verizon (62 million) + Sprint (55 million) + Alltel (12 million) = 129 million for CDMA

AT&T (64 million) + T-Mobile (25 million) = 89 million for GSM

Perhaps I'm missing a few smaller carriers, but these are the major ones.

Re:As long as the only connectivity is AT and T...

[Mr2001]

If you're targeting a world wide market, it's just common sense to go for GSM first. Agreed... but it's also just common sense to include 3G, especially when your selling points include a full-featured browser and YouTube. Apple's initial strategy seems to be a compromise that isn't particularly tailored for the US or world markets.

Re:As long as the only connectivity is AT and T...

[blind biker]

Well, I used to work at Nokia (I guess you've heard of them) and specifically in phone testing. In short, your post is BS from beginning to end; Nokia would make sure their phone worked with every damn operator. Whether it will be then locked in in the USA it didn't matter, because we knew it wouldn't be locked in in Europe and half of the rest of the world. And we were painfully aware of the fact that in every single country of the world we were competing, almost toe to toe, with the likes of Motorola, Samsung and Ericsson (later SonyEricsson).

Yeah, testing takes time, but it's cost in time and money is nowhere so high that we'd simply NOT test and go exclusive with one (or $SMALLNUM) operator.

Whether AT&T was the logical choice or not, I don't know, but it certainly wasn't for the reasons you cite!

I can't believe the mods went for it, though?!

Re:As long as the only connectivity is AT and T...

[Aladrin]

I couldn't find any numbers, but I did find some interesting information. GSM is the world-wide standard, with about 3/4 of the mobile phone users being on GSM. CDMA is mostly a US thing apparently.

Also, Verizon recently chose GSM for their new '4g' stuff.

http://www.boygeniusreport.com/2007/09/21/verizon-adopts-gsm-standard-for-4g-network-cdma-limelight-fading/
http://www.engadget.com/2007/09/21/verizon-dumps-cdma-for-gsm-based-lte-in-4g-networks/

This is an odd move by any account, and nobody really knows what it means yet, but it doesn't look good for CDMA right now.

So while you may be correct about the US counts (and that's what the GP was talking about), by worldwide counts, GSM makes more sense for Apple to use.

Re:As long as the only connectivity is AT and T...

[Mr2001]

CDMA is mostly a US thing apparently. Indeed, mostly North American, though it gets some use in other countries as well.

Also, Verizon recently chose GSM for their new '4g' stuff. Well... I wouldn't say that, based on the info in those articles. They chose a technology that's supported by the GSM group, instead of the next revision of CDMA2000, but it's not the same GSM that's in use today by such carriers as AT&T; putting today's GSM chips in a phone won't prepare it to be used on this upcoming 4G network.

In fact, even UMTS (aka WCDMA, aka GSM's 3G) uses a CDMA-based air interface. The real loser is TDMA, the system for dividing the radio channels into timeslices that's used in GSM (and hardly anything else these days).

Re:As long as the only connectivity is AT and T...

[NDPTAL85]

What are you talking about the specs for the UK iPhone haven't been posted yet? Steve himself was asked and answered that its still an EDGE phone, no 3G for Europe at all. Its all over the web man. Engadget, Gizmodo, just google for "UK iPhone Edge"

Re:As long as the only connectivity is AT and T...

[UnrefinedLayman]

from a consumer point of view I would've thought that just selling the phone as a standalone device in the Apple stores and allowing the customer to choose their provider ... would be perfectly acceptable

Apple doesn't do this for the same reason they don't sell iPods without iTunes and Macs without OS X; they're providing the user with an end-to-end experience. To whit:

• You walk into an Apple store, buy an iPhone, and go home
• You connect it to your computer by USB
• iTunes opens, walks you through the two minute activation process over the web, and links your new phone and AT&T account to your Apple ID

In addition:

• Every iPhone has the same available plans (everyone will always have unlimited data)
• Every iPhone has the same feature set (e.g., visual voicemail, unlimited data gives you unrestricted use of Safari, YouTube and Mail)
• Every iPhone has the same reception

If people could use the iPhone with any provider Apple (and the person) would lose the cohesiveness of the activation, there would be discontinuity among the user-base, and there would be a lot of angry people who didn't realize that putting their T-Mobile SIM into their iPhone and opening MySpace on Safari would get them a 10 cent per kilobyte charge for a $4000 bill at the end of the month. The people that would have the technical understanding ahead of time not to fuck this up don't seem to be in the majority (based on my personal experience with the average person).

By restricting the options available to purchasers of iPhones Apple is containing the user's experience. It allows Apple and the user to have certain expectations and limits confusion and support problems. They do the same thing with Macs and OS X, which was the genesis of "It Just Works." As it is, iPhones "just work."

Therefore I would counter that allowing people to choose their provider is not perfectly acceptable but instead has a number of problems. There is no perfectly acceptable solution to make everyone happy, and Apple has done what they've always done by trying to make it "just work" for the crowd that wants it to "just work."

Don't forget

[2.7182]

Crazy Eddie ended up in jail.

Deflation

[michaelmalak]

Is it too much to ask to name the phenomenon rather than describe it?

And margin-shredding behavior tends to spawn more margin-shredding behavior

That's called deflation. Deflation is 100x worse the inflation because during deflation the economy stops: nobody's working, nobody's buying, nobody's selling, and everybody's hoarding what little they can -- i.e., a Great Depression.

Re:all the hype

[b0s0z0ku]

for all it does its not that good of a PHONE.

It sounds better than the other two phones I've had -- Siemens SK65 and Nokia 3120. It's a pretty good phone, though it could do with voice dialing if you drive a lot and need to dial whilst driving. Me, I don't drive much, so it's fine.

-b.

Re:uh ohhhhh

[russellh]

Steve didn't say: let's make a phone that we can sell to 120 million people. He said : let's make the best phone we possibly can and I'll be happy if we get 1% of the market.

Re:Gimme A Break!!!

[UbuntuDupe]

Now you're just being silly. No one wants to ban the PS3 on the grounds that it's being sold "too cheaply" to inflate sales. That's ridiculous. The reason that informed, serious activists want the PS3 banned is because it uses too much energy for the benefit it provides, just like incandescent lights.

Don't try to trivialize the solid case for banning PS3s by associating it with the cranks who want to ban PS3s for being too cheap.

(Unfortunately, I have to remind people this is sarcastic...)

Deflation Indeed

[meehawl]

You certainly don't find many devices with the iPhone's feature set in the $0-$100 after contract price range.

Really? No GPS, no tethering, no mem card, no IRda, no real bluetooth PAN, no MMS, no OTA pda syncing, no useful push email, no IM, no tactile feedback. I'm having trouble finding some features, can you point them out?

Re:Autos

[Chapter80]

While paying cash often ends up being to your advantage, I disagree with the statement "Always pay cash" (for a new vehicle). The correct statement should read "Do the math, and choose the best alternative."

Here are several scenarios where I, personally, have found it better to NOT Pay cash:

• The car dealership actually took a credit card. I negotiated my best deal, and then pulled out my credit card, which pays me 1% back. I "charged" a $25K car (using two cash-back cards), and got $250 back from the credit card companies, and had 30 days to pay it off, interest free.
• The dealership had a "special" financing deal which was well below market rates. I took the 2% financing, and did better by putting my money into a CD.
• I once evaluated my alternative uses for the cash, and found an investment that paid a higher rate than my credit union's new car loan rate. Yes, there was a little risk involved, but it ended up being well worth it.
• Once I decided that I wanted to maintain a little liquidity due to some outstanding business transactions, so decided not to tie up $30K of cash in a vehicle, and instead paid the interest for a couple of months until there was more certainty in the other transactions. (I wanted to be sure to "make payroll" in my business, and I needed the van as part of the business. Finance the van, make payroll, collect the outstanding receivables, pay off the van.)

You don't do anyone any favors by making blanket statements like "always pay cash". The right answer is for people to think for themselves.

Re:Autos

[maeka]

Cash. Always a great bargaining point.

No, cash is a horrible bargaining point when buying from an auto dealer. They make money on the financing, and assume people will be financing through them (or at least allowing them to arrange the loans - where the bank gives them cash kickbacks or points.)
You always want to finalize the price before you start talking financing (or lack-there-of) or trade-in. It is only when done in this order you will have a chance at working with unpadded numbers.