Daring Fireball Linked List: September 2007

Daring Fireball Linked List: September 2007:

Apple lowered the price of the iPhone
because it wants to make lots more money by selling boatloads of
them this Christmas.

I think Jobs speaks the plain truth far more often than many think. Or at least he says what he believes is the truth.

Another thought on why the price drop doesn’t mean sales have been
slow. The central rule of technology is that the unit price drops
sharply with volume. If Apple sold more than it hoped, then it
would achieve scale faster and would be able to drop prices
sooner. Apple’s introduction of the iPod Touch, using many of the
same components as the iPhone, gives it an even bigger checkbook
to brandish in Taiwan to secure good supplies at good prices.

I think there’s another aspect of this people haven’t tied together. There are continuing rumors of other companies coming into this space — most notably Google and the rumored G-phone.

So lets say the rumor is true: the G-phone is a few weeks away. Let’s say that Apple’s analysis indicates that (a) it’s a pretty good phone, and (b) Google’s got its act together. Which leads to (c) the iPhone might well have a serious competitor in the market very soon.

How best to counter-attack the G-phone? Change the financial landscape it’s being introduced in. If the biggest gripe about the iPhone was price, then change the price? Introducing the G-phone against a $599 iPhone is a lot easier than introducing it against a $399 one. Suddenly, Apple’s made Google’s life a lot harder to get that phone out and generate some enthusiasm. Now, the G-phone doesn’t just have to be a good phone, it has to be a damn good phone, and it has to be price competitive with a $399 iPhone.

It’s a great strategy; take a profit hit early on to prevent a significant competitor from creating a beachhead in the market? It’s also a really gutsy move, not one a lot of companies would be willing to make just weeks after a product intro.

The idea that they want to sell a zillion units during Christmas seems to ALSO be true, but from my experience with Apple, that doesn’t seem to be the “right” reason to drive this change — it’s a nice “other feature” and a useful shield so they don’t have to talk about the real reason, but to be honest, if they’d been planning to drop prices for Christmas, they would have introduced the unit at that price. Something changed to drive this change after intro, and to me, the obvious reason is impending competition that Apple takes very seriously (unlike the (ahem) Zune).

Now, with the introduction of the iPod Touch and the realization that everyone wanted the larger unit anyway, Apple can generate some interesting improvements in manufacturing cost — better discounts on component purchases and manufacturing costs on one side (because there are fewer different units to build), so they can make this change while minimizing the margin hit — but it seems to me Apple’s willing to take a profit hit now for some long-term advantage here, and it’s not “sell a zillion” iPhones, because they were going to sell half a zillion anyway.

And this is a classic Steve-speak situation: he doesn’t lie, but he’s a master of only telling you the part of the truth that works to his advantage. The trick to understanding Steve is to see if you can figure out the parts he’s — not hiding, but, well, simply not talking about. It’s someone else’s problem to figure those out, he sees no advantage in making life easy for his critics (do you blame him?) — and it’s a lot like watching a master magician. The trick is keeping an eye on the OTHER hand, not the one he wants you to watch. Easier said than done, too.

But to me, there’s clearly more to this price cut and the timing than the christmas shopping season. Apple is reacting to something, and I think in classic Apple style, it’s something they’ve figured out that nobody else has noticed yet. But I’m betting there are some product managers somewhere pissed as hell because their intro plans and marketing strategy just went to hell….

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