This is what happens in technology price cuts

I want to write some more about all the recent mobile product announcements when I get more time, but tonight I have a chance for only a brief comment on Apple. I can't speak for Apple's motivations, and I know they pride themselves on thinking different, but no one I know in the tech industry -- and I mean no one -- cuts the price of a consumer tech product two months after launch unless they're seriously worried about demand. It's just not done, because it pisses off your early buyers, trains customers to wait a few months before they buy, upsets the channel, produces a lot of returned products, and distracts people from your other announcements.

If current iPhone sales are okay, the only other reason I can think of to cut prices this soon would be if you're worried about a competitive situation. Let's see, what competitive announcement could have possibly spooked Apple? Could it be Nokia's announcement last week of a music phone priced at 225 euros ($306)? (Link)


Anonymous said...

I am not saying that it is not concern about demand but I have noticed that cell phones prices often drop very quickly. Much faster than other consumer electronics. I remeber in the late 90's in germany it seemed like every new high end phone sold for 2500 marks for the first 2 weeks and than dropped to a quarter the price.

The buyers all knew the price was about to come down but REALLY wanted to be the first on the block with the latest device. What was different in thoose days is that it was still possible to be familar with every model of GSM phone and it was the IN THING to be seen at the local cafe or dlub with brand new super expensive phone.

It seemed that phones were more jewlery than communication devices in those days. But of course no one ever called anyone because cost over a dollar a minute.

Michael Mace said...

Good point. I hear the same thing happens in China all the time.

But the US isn't China, and price cuts this fast are not normal behavior here. Apple knows that.

Flasher T said...

I'm fairly sure it's not the Nokia rollout bothering them: this is not the first time the reindeer herders tried to make dedicated music phones, in fact the XpressMusic sub-brand has been around for a while. It's certainly not the bottom end of Nokia's new range, those are targeted at SonyEricsson's strong Walkman line.

No, the answer is the release of the iPod Touch. That's where they are expecting their demand to shift. The iPhone is not actually very good as a phone: people buy it because the design and the double-touch UI make it viscerally desirable. I'd venture to say that a prevailing majority of iPhone buyers would actually prefer a video iPod with a full-face touchscreen and WiFi, and use whatever well-designed 3G/HSDPA phone they get for free from their carrier.

People who want the iPhone because of the looks will get the iPod Touch, and people who want the hottest mobile gadget on the market will get the black N95.

marcelo said...

"People who want the iPhone because of the looks will get the iPod Touch, and people who want the hottest mobile gadget on the market will get the black N95."

I also thought this until I got out of my circle of nerd geeks friends and get to real people:

They would never buy the n95 after using the iphone for a couple of minutes. Why? simple because even with only 1/4 of the features, missing 3G and etc it has a lot more of "perception of coolness" than the Nokia. I have both phones and use them daily. It sucks to admit but the whole simple (browsing, mail, music) just works better on the less powerful iphone. In the N95 even with all the features, the lack of Ram (COME ON) and the fact that crashes my favorite news pages and the sluggish UI gives not only me the chills but every other person tha t was able to compare them

"come one... 650 dollars for a phone and it takes this time to turn the screen not automatically and flickering like hell?"

this is a comment that demonstrate the problems. N95 is a way better phone but for a non geek perception is just a plastic thing that doesn't work that well and dies pretty soon if you turn on the gps =)

my 2 cents (and I really dig nokia)

jerrytommygal said...

Apple could also be preparing to release a more expensive 16GB iPhone. After all the iPod Touch has it...

Erkko said...

Could it be that Apple thinks they might have the steam behind iPhone to really grab a larger part of the phone market than expected, hence the price-cut? Go full steam and not think of profits or anything else, just share?

Anonymous said...

Could it be that Apple is about to release in europe either at a lower price or for a more advanced network? They might want the price lower in the US so that americans do not feel cheated by paying more than europeans.

Anonymous said...

Apple really over-hyped the iphone after its announcement back in Jan. this year. I think Steve Jobs also under-estimated the brutal competitiveness of the cellphone/smartphone market.

Apple is in a catch 22 situation. To make its smartphone business viable long-term, Apple needs to cannibalize its iPod business, very much like the way Palm cannibalized its tradtional handheld business. With the introduction of the iPod Touch, it appears that it is more like the other way around.

And signing that 5 year exclusive deal with AT&T is now looking more and more like a strategic blunder.

Anonymous said...

The real issue I believe is that the iPhone was intended to be released earlier in April. The delay to June moved this preplanned price cut much closer.

Also, either a 16GB iPhone or a 3G iPhone could appear at $499 or $599 price points for the European launch. We'll know soon enough.

Krakowian said...

I'm with the last anon. poster, in so far as the price cut was not some sudden decision, but a long-planned and scripted (including, I suspect, the letter--although I bet Jobs _did_ read every last complaint--he's not into lying, last I checked). There is ample evidence on the net that this was long-planned, as well as the obvious that everything Apple does lately is typically well-scripted and planned, even though it sometimes doesn't look it. So, it is not safe to make the assumptions you make, Michael, as Apple would have had to make their decisions before the factors you suggest could have become factors. I think the best explanation is what anon. said, that the original plan was to have the iPhone released earlier, and drop the price at this event, when the touch iPod was announced--which, as far as I can see, the release of the new iPods right before the Christmas buying season, was the original reason for the price drop--it's a package deal. The surprise was on our part, because of the relatively recent debut... That's the only awkwardness, not Nokia.

Another point, Apple tends to ignore what everybody else is doing in just about everything it does--and I doubt Nokia would deserve special treatment. :-)

Michael Mace said...

Thanks for all the comment, folks. You may be right -- that's part of the fun of analyzing this stuff, you can never be sure what the real motivations are.

But for me the picture's getting clearer, and I think the price cut is part of a pattern.

It's too complex to explain here, so I'm writing a post on it. It'll be up in a couple of days...

El-Visitador said...

"if current iPhone sales are okay"

They are.

1 mill iPhones sold in 74 days. It took 740 days to sell the first 1 mill iPods.

Tony said...

10 million iPhones by end of 2008? hmmm...I don't think so.
9 million to go better be 3G/16G in Asia/ME/Europe with 3rd party apps.
Maybe there will be category lumping with the Touch.
Alex, I'll take "Data entry in the Calendar" for $200
Dang nabbit.