In a typical reaction, analyst Iain Gillott of iGR good-naturedly called last week’s price cut on Apple Inc.’s iPhone the “iShaft.”
Of course, that was before Apple quickly offered its fanboys a $100 credit to assuage the latter’s sense of betrayal.
Legions had purchased the device at $600 upon launch June 29 or thereafter, only to hear last week that Apple would cut the 8 GB model to $400, effective immediately. (Apple discontinued the neglected $500, 4 GB model.)
Gillott said the next day that, between the price cut and his newfound $100, he might buy his wife an iPhone for Christmas.
“It’ll be perfect for her,” the analyst said, laughing at the irony.
The long-term impacts of Apple’s latest moves are another matter entirely.
Analyst Carl Howe at Blackfriars Communications declared that the real impact of the iPhone discount and a new product dubbed the iPod Touch (priced at $300 and $400) meant that “carriers are under siege by handset makers”-at least one from Cupertino, Calif.-and the future promised “Chinese water torture: drop by drop, dollar by dollar.”
Life’s not fair
Meanwhile, many of the Apple faithful howled at the price cut in comments that ran to the unprintable. Whether they are assuaged, as Gillott was, by the $100 store credit-good only for more Apple purchases-remains to be seen. (But if you Google “fanboy,” the term “sycophantic devotion” is mentioned.)
Underlying the frenzied back-and-forth over the iPhone price cut and the introduction of the iPod Touch, which eschews the cellular capabilities of the iPhone, was the sense that, good or bad (or, possibly, evil incarnate), Apple has been driving much of the conversation in the wireless industry since the beginning of the year.
Playing the passion
Given that Apple has had a wireless device on the market for less than a financial quarter may, in part, be fueling this phenomenal attention. Without hard results on iPhone sales for either Apple or its cellular network partner, AT&T Mobility, the void has been filled with speculative chatter.
“iPhone Owners Crying Foul Over Price Cut” blared The New York Times last week. “Palm, Motorola seen most hurt by iPhone price cut” declared staid Reuters. “It’s Official: Apple is the New Microsoft” suggested PCWorld in a wanna-be-hip take. iPhone, iPhone, Apple: rock, paper, scissors, Steve Jobs wins!
“This is a marketing play, pure and simple,” said Howe of the iPhone price cut. “Apple decided on an aggressive play for the holiday season. Make no mistake-this is the holiday season. Apple gets one-third its annual revenue from the holiday season and it is just like any other retailer.”
Apple took such an aggressive stance last year with its iPod sales and the strategy paid off, Howe said, adding although no one outside the company knows for certain, in his view Apple was likely already close to selling its declared goal of 1 million iPhones by the end of September. For its part, AT&T Mobility “got taken by surprise” over the price cut and may be “a little annoyed,” Howe said.
An AT&T Mobility spokesperson was not available for comment.
Euro trip
Howe also speculated that the price cut was timed to smooth the way for pending deals with European carriers, which may have balked at the retail price of the device, once taxes were levied. Analyst Bill Ray, based in the United Kingdom, agreed. As did Howe and Rob Enderle of The Enderle Group.
“The price cut may well have been driven by the fact that European customers would never have paid what they were asking-bear in mind that the Nokia [Corp.] N95 is free these days, with a contract,” Ray said.
Ray predicted that O2 in the U.K. would announce an iPhone deal later this year, with Orange in France and T-Mobile in Germany following suit next year. (If a 3G version of the iPhone was headed for O2, Apple would have announced that last week as well, according to Ray.)
“The old price would have been a problem in Europe,” said Enderle.
Enderle questioned whether the iPod Touch would kill sales of the iPhone in the United States, as “it gives you 90% of what you want at a fraction of the price.”
Howe agreed with that assessment of the category-blurring, Wi-Fi-connected multimedia and browsing capabilities of the Touch.
“The Touch may be the hotter product than the iPhone because it doesn’t require a service contract,” Howe said. “And you get two-thirds of the iPhone at a lower price. The iPhone price cut may well have stemmed from the need to rationalize the price of the Touch. And the iPhone’s former price would have been at the higher end of consumer tolerance in Europe.”
Howe predicted a rapid, global launch for the Touch, a path smoothed by the fact that, without cellular connectivity, it doesn’t need to pass time-consuming muster with regulatory agencies and could be sold at mass-market retailers.
Howe compared the iPhone price cut to that of another runaway best-selling handset, the Razr, which launched in November 2004 at Cingular Wireless L.L.C. at $500. The carrier sold 750,000 units in 90 days and 5 million in the course of an eight-month exclusive at the carrier, according to Current Analysis. By May 2005, Cingular began cutting the price-to $400, then $350, then $200.
Abracadabra
“This is the first shot at a restructuring of the cellphone business,” Howe said. “You can’t put the genie back in the bottle.”
As for whether Apple understood the depth of the backlash it would create by slashing its iPhone price by one-third, Gillott noted a message board post on one Web site that suggested Apple was “floored by the negativity.” While Apple probably had a contingency plan for offering a credit, it was not completely prepared, Gillott said.
As for the AT&T Mobility angle? “Does Apple really care what AT&T thinks?” Gillott asked rhetorically. “We don’t know. But AT&T’s role with Apple is definitely the dumb bit-pipe.”
Whether the iPhone has been to AT&T Mobility’s benefit will be revealed by third-quarter results, Gillott said. If AT&T Mobility’s net subscriber adds rise with a corresponding rise in data revenue and subscriber drain at other carriers, AT&T Mobility’s deal with Apple may have served its purposes.
Between its iTunes content play and the inter-related nature of the Touch and the iPhone, Gillott said, “Apple gives you a reason to buy their next device.”
