Apple drew a lot of shocked responses when it announced last week that it would slash prices on the uber-hyped iPhone, from $599 to $399.
The Wall Street Journal reported that Apple’s stock price took a hit from nervous investors. And my “early-adopter” friends who paid full price last summer for this gorgeous gizmo must have been wincing at the news.
But I think the market got it wrong. This isn’t bad news for Apple at all. The iPhone was never supposed to be another iPod -- a breakthrough product that redefined a category (digital music players) and transformed its customer reach (from engineering students to the music-loving masses).
The iPhone represented a very different strategy: an extremely well-designed new offer intended to help Apple get a foot into a large and mature (i.e. price-sensitive) market, cellular phones.
The cut in the iPhone's price makes sense for Apple’s ambitions. As Gene Munster, an analyst with Piper Jaffray, told the Journal:
"The bottom line: Apple is investing iPhone profit dollars over the next few quarters in order to be a legitimate player in the phone market," Mr. Munster wrote in a report.
Apple was smart to cash in on the iPhone’s hyper-buzz this summer (though it’s thoughtfully offering a $100 coupon for its customers who bought the full-price bullet). But with Holiday Season 2007 approaching, Apple may be able to use a less stratospheric price to achieve some meaningful penetration in the cell phone market.
At only $399, I would even consider buying one.
-David Rogers
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