Squealing Swine: The Sad Position of early iPhone Adopters

by Chris Seibold Sep 07, 2007

If you’ve got a passing interest in Apple products and live within a few hundred miles of an internet connection you’ve heard the news: Apple dropped the price of the iPhone by a cool $200. This caused no small amount of grousing from the Apple faithful and the web was filled to brimming with the amassed squealing of the most pampered and well funded cell phone users known to man.

Apparently the shrill cries, or warbling emails as they case may be, were too much for Steve Jobs to withstand. After personally reading every e-mail sent to him about this topic Steve has decreed that Apple will be issuing a $100 credit to the early adopters of the iPhone. This seems to have mollified all but the most vocal and determined critics so Appleland has reverted to its usual form of one big hippy tech love in. Yay!

Forgive the following tangent: Steve read every single e-mail about the iPhone price drop? Personally? One would think that ten e-mails could be chosen at random and represent the general feeling pretty completely. In fact, it would be a safe wager that the following mail represented the consensus:

From: .(JavaScript must be enabled to view this email address)
Subject: Pricing change
Date: September 6, 2007 6:47:07 PM EDT

Dear Steve Jobs,

I have been a loyal Mac user since 1984. Usually I love everything Apple but this time I think you’ve made a mistake. Cutting the price of the iPhone by $200 less than 70 days after the introduction shows great disregard for your core customers. I further feel with the utmost certainty (but without the necessary backing data) that such a move harms Apple’s reputation so severely among the loyal customers that the move may have a long term deleterious impact.

The effect will, as you have already surmised, be largely confined to the so called “early adopters.” But these are particularly important customers. Not only do early adopters have the cash to buy new products they are the ones who stay on the cutting edge, the consumers who motivate later buyers. If moves are not taken to rectify the situation I fear that the repercussions will be felt on Apple’s bottom line for several years.

Please rethink this move.

Sincere Thanks,
Chris Seibold

That polite e-mail notification is likely representative of the majority of e-mails but the tone is all wrong. The bulk of the e-mails probably read more like this:

From: .(JavaScript must be enabled to view this email address)
Subject: You [email protected]@rd!!!!
Date: September 6, 2007 6:47:07 PM EDT

Billionaire MotherFu#$%^,

I buy your s#!% all the $#%*(%@ time! And then you give a price drop to people who waited? You SUCK DONKEY BALLS.

Why don’t I just give you my ATM card and the number and you just come and steal my money whenever you want. Please use some of my money to build a pole for me to hold on to the next time you rape me.




Which says the same stuff as the first mail but conveys the message in a different fashion. For the record I have used my e-mail address in the examples but that is not the mail I sent. The e-mail I sent for the sake of transparency:

From: .(JavaScript must be enabled to view this email address)
Subject: iPhone Pricing
Date: September 6, 2007 6:47:07 PM EDT

Dear SJ,

[email protected]@ at low prices!!!
Click here

Your #1 online pharmacy! Check out our fake watches and porn!

That tangent was completely uncalled for, head to your local Apple Matters store for a free gift card worth exactly $25 in AppleBucks redeemable at all AM affiliates. Back to the topic at hand, the first thing we need to understand is Apple’s pricing. Apple, and in fact the great majority of businesses, don’t price products based on the cost of producing said product.

This is plainly apparent when looking at the cost of MacBooks. The black MacBook commands a $150 premium over the equivalent white MacBook for no other reason than people prefer, and will pay more money for, a black colored MacBook. For some that is a reason to be outraged, the black MacBook and white MacBook perform exactly the same, why would Apple charge a premium for nothing more than an added dash of carbon black in the plastic manufacturing process? These people clearly don’t understand how businesses price products.

The easy thing to think that business prices follow some simplistic formula. If it costs Apple a $1000 to build a computer they should reasonably charge $1500 for said machine. A moment’s reflection is all it takes to convince one that the notion of a cost plus profit pricing scheme is not only simplistic it also isn’t good business.

Imagine you manufacture oven windows. Due to a radical breakthrough you can produce an oven window for $1. Your competitors charge $50 for an oven window.  The industry (imagine) requires a million oven windows a year. Where will you price your new oven window?  The naive answer is that you’ll charge $1.50 per window. Congrats, you’ve just screwed yourself out of $45,000,000 or so. You would, in fact, charge just slightly less than $50. By pricing your oven slightly below the competition ($47.50) you’ll sell a million windows and rake in $47.5 million. Price your window at $1.50 and you’ll sell a million windows and bring in $1.5 million. The simplistic illustration is an example of profit maximization, businesses don’t try to charge enough to “get by” they charge as much as the consumers are willing to pay. Apple is no different, the company charges what research indicates consumers are willing to pay. You can get angry about the amount they charge but Apple isn’t in the game to make you feel good.

Now that we’ve established that Apple charges whatever the company thinks people will pay it is time to address the screeching whiners. In this case, the screeching whiners are also known as early adopters. Let us set up the scenario: Steve Jobs reveals the iPhone to a hungry crowd at MacWorld ‘07. The price justification is twisted logic at its best: it isn’t only a phone, it is an iPod and an internet device. If you purchased these things separately it would cost you an ungodly amount of cash but, thanks to Apple, it would cost a mere $599 plus a meager two year contract with AT&T. The only thing missing form the spiel was a bunch of hooting, a price cut and a set of free steak knives.

So the faithful buy into the pitch (they always do) and they buy into it for 6 months. That is right, they have six months to analyze whether or not the iPhone is a good value. And since they were standing in line to get one of the things they obviously decided it was a good deal. A deal they were willing to trade $600 of their hard earned money for. Well, that is until someone else got it cheaper.

And this is the troubling thing. The kind of people who buy the iPhone have cash, in fact they are flush with the green stuff. Face it, if your biggest worry in the world is that you look silly because you overpaid for an iPhone you don’t have many problems. It is a lot like going to a restaurant and throwing a fit because your steak is two degrees away from the ideal temperature. It is hard to imagine that any person who bought the iPhone got the cash by cutting back on essentials, can you imagine a scenario where a soon to be iPhone owner might say something like “I’m taking public transportation because I’m saving for an iPhone!” The reason that mental picture is so difficult to comprehend is because it is so wildly fanciful. On the other hand if you try to envision an iPhone buyer opting for a 1963 bottle of port instead of a 1945 bottleto save a few hundred bucks because of the iPhone, well that is a mental image that is not troublesome to generate.

So when Apple quells the crowd with a $100 gift card to the early adopters of the iPhone, people who waited, salivated and planned for the thing for six months you have to wonder if Apple is providing excellent service or simply paying off a bunch of vapid, style obsessed, shallow, overly moneyed individuals who like to yell very loudly.

And yes, I’ll be first in line for an Apple gift card.


  • It’s interesting Robotech that you concede that market research generally prices smart phones at $400, and yet you don’t consider the possibility that Apple in bucking the market research might have priced its phone in error.

    SterlingNorth had this to say on Sep 10, 2007 Posts: 121
  • Sorry, Chris. My tone of comments are largely in reaction to the tone of the Infidel who is so amazingly adulatory it’s nearly beyond parody.  I am willing to consider that he made a mistake with the USA Today interview, but it seems like such an uncharacteristic thing Jobs to do, which is why I think it the whole rebate thing was ad-hoc. Speaking of which, there is one huge piece of the puzzle that we’re overlooking… largely because it hasn’t put into place yet.

    “Therefore, we have decided to offer every iPhone customer who purchased an iPhone from either Apple or AT&T, and who is not receiving a rebate or any other consideration, a $100 store credit towards the purchase of any product at an Apple Retail Store or the Apple Online Store. Details are still being worked out and will be posted on Apple’s website next week.”

    If this rebate had been in the pipeline since they even considered lowering prices, why haven’t the details been completely worked out yet. I can’t see any better evidence that the $100 Apple credit was improvised after the fact.

    SterlingNorth had this to say on Sep 10, 2007 Posts: 121
  • Fair point, Sterling.

    My only comeback would be they were still debating which Plan B to go with. But, that sounds pretty weak, doesn’t it? smile

    Maybe I will have to let go of a little bit of cynicism.

    Chris Howard had this to say on Sep 10, 2007 Posts: 1209
  • Sterling, you said:He didn’t even try very hard to defend the price drop. He didn’t think he needed to. then you confess: That was his full throated defense of the price drop. How you even missed that is amazing to me.

    After pointing those articles numerous times, you yourself were unable to defend one stand. How can a judge or jury believe your case?

    I did respond: He didn’t and won’t because it was planned all along… although superficially he is apologizing from the sound of his open letter. But that doesn’t mean he is “defending” himself for the apparent “mistake”.

    The open letter is part of the plan. It is a publicity stunt by the greatest puppeteer of them all. I can’t believe you and most everyone else (sans Chris H. and Chris S, fortunately) fell for it.

    I do love Apple gadgets and I do listen to Steve’s every keynote but this one I had to sift, smell, and make my own judgement based on other evidence prior and that day it was announced.

    Robomac had this to say on Sep 10, 2007 Posts: 846
  • ...he is disappointed by the ferocity and self-righteousness of the backlash. And that intensity is what he doesn’t seem to have fully anticipated. -Chris H

    That I can believe. No amount of pre-planning can anticipate <u>the level</u> of reception or backlash (in this case). Not even Master Steve nor his genius managers can see beforehand <u>BUT</u> I still adamantly believe that he knew there would be some anger by the whiny early adopters (I’m getting sick of saying that… but nonetheless)

    Robomac had this to say on Sep 10, 2007 Posts: 846
  • I said: ...the iPhone is a “phone” with internet communications capabilities. The iPhone is swimming in an industry dominated by oligopolies named Nokia, Samsung, Moto to name a few. This price drop thing is an everyday non-event when it comes to cell phones.

    Then Sterling counter with this: How is this very different from the computer industry which is dominated by the likes of Hewlett Packard, Dell, Lenovo, Gateway, etc. and which price drops also occur so frequently that nobody bats an eye.

    Did you <u>see</u> the mention of a <u>phone?</u> Phone pricing is a very complicated matter and involves wholesale, retail, subscription, subsidies, to name some. Computer devices such as Macs and iPods are much simpler. Just fairly price them at retail and the onslaught of whiny early adopters come bargin’ in. The retail-only products do not have subsidies nor subscriptions (calling plans?). The retail-only products have a fairly stable price points.

    Not so when you step into the cellular biz where subsidies and onerous subscription contracts abound. These are so complicated no one really understands them all. Their one purpose - to extort pennies and dimes from all subscribers. The reason I stick around to my CDMA Palm hybrid is that I get $20 off from my monthly extortion. That is a lot of pennies that I don’t have to pay Verizon.

    I am not a self-proclaimed expert on this. I just understand the main differentiating features between the computer and cellular phone industries. To you Sterling, they are just the same big businesses that appear to rob your $$$ at will.

    Well, except with Apple Computers where it is taken as an article of faith that its resale value remains high and where Apple isn’t known for cutting prices, despite the strong industry pressure. -Sterling

    Apple is a new player in this humongous market easily topping a <u>billion</u> phones per year worldwide. Apple is a 2-year old child learning to walk with grown-ups. Those grown-ups are mean and battle-scarred. They can cozy up together as in business ventures to try to foil this 2-year old child’s momentum. But they don’t realize this 2-year old child is a wiz at design and his understanding the customer will surely out-flank any of these attempts to quell the iPhone momentum.

    Robomac had this to say on Sep 10, 2007 Posts: 846
  • ...people might start to ask you to consult the oracles to explain how failures like the PowerPC architecture, the Cube, and even perhaps the AppleTV fit into the grand unified theory of Steve dominance. -Sterling

    Even the most intelligent CEO can not foresee into the future and accurately predict the <u>exact</u> outcome but that can be calculated beforehand. You are defending here that this was unplanned and the $200 price-drop was decided haphazardly. Both views I have firmly doubted from day 1.

    Steve is not Steve Almighty as you are juxtaposing but a very smart fella who sees the BIG picture. It is that overall view that we have no capability to see but we can piece together his “chess” moves since the original iMac, the killing of the clones, the purchase of Logic Pro, SoundJam (I still own the very last CD pressed for anyone to bid on), the iPod announcement, Shake, CoverFlow, and on, and on.

    You don’t have to be a certified Mac Oracle to mesh all these little <u>facts</u> and meld the Mona Lisa, or should be called the Mac Lisa in this case. Whatever. You, Sterling, just have to open your thinking cap as a certified Mac faithful to comprehend - like Chris S., Chris H., and moa - Robo.

    We can talk about product cannibalization and differentiation but I doubt you are capable of understanding them.

    Robomac had this to say on Sep 10, 2007 Posts: 846
  • Just to top off this thread.

    My man Steve has just announced today (Monday, 9/10/2007) that: “One million iPhones in 74 days—it took almost two years to achieve this milestone with iPod,” said Apple chief executive Steve Jobs. “We can’t wait to get this revolutionary product into the hands of even more customers this holiday season.”

    Now, do you begin to see the 8 million iPhones by 12/31/08 was not a mere slip of the tongue at Macworld 07? It is real, and it will be huge! This $399 price point is meant to even surpass that expectation my friends. I am now expecting 10-14 million happy tappers. Don’t ask me how I know. It is just a well thought-of hunch based on current momentum and that momentum will only increase.

    So, the price drop sounds like a solid plan from the beginning to me.

    Robomac had this to say on Sep 10, 2007 Posts: 846
  • Since it so rarely happens, I would like to say that I agree with Veeb.  Who cares how we got here?

    I just hope (beyond hope) that Apple is following the pricing model of the rest of the industry and will eventually drop the price to $100-150, like the RAZR or other high-end phones.

    Beeblebrox had this to say on Sep 10, 2007 Posts: 2220
  • Who cares how we got here? -Bbx

    Apparently 750,000 whiny first adopters do.

    I just hope (beyond hope) that Apple is following the pricing model of the rest of the industry and will eventually drop the price to $100-150, like the RAZR or other high-end phones.

    If the high-end smartphone competition is obliterated by this $399 price-point, do you expect Apple to lower it again??? Not a chance. Alas, the iPhone does not compete with the RAZR or the LG Chocolate although it is making a good run at them. Feature phone pricing will not pressure the iPhone’s. When customer demand falls off the cliff that will.

    And for that move to be possible, all their current iPod price-points will have to move down as well. Management and Wall St. wouldn’t like that. Impossible? No. Will we get that several Macworlds from now? Maybe, like when pigs sprout wings and fly and hell freezes over.

    Let me know when you can prove me wrong.

    Robomac had this to say on Sep 10, 2007 Posts: 846
  • Details are still being worked out and will be posted on Apple’s website next week.

    Oops, sorry, dang! Cynicism… kicking… in… can’t… fight…

    Sorry, Sterling, I’ve slept on it, and now wonder most cynically, if that was just words to make it look like a genuine reaction to customer backlash.

    Like, Steve’s not about to say “We thought something like this could happen so we’ve got a couple of things planned to appease the mob, we’ve just got to sit down and work out what’s the best option, that is, which of our Plan B’s will quell the riot for the least cost.”

    It looks much better to say “Gee, we didn’t expect this, we operated out of all sincerity, honesty and good faith. Just give us a couple of days to work out something to demonstrate our sincerest apologies for getting this wrong.”

    Dang that cynicism!

    Chris Howard had this to say on Sep 10, 2007 Posts: 1209
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