Crazy Stevie's iPhone Prices are Insaaane!

theodp writes "Slate takes a look at the alarming lesson of the iPhone price cut and ponders the long-term effects of a Fire-Sale Nation mentality, especially when companies go all Crazy Eddie slashing prices on products like homes and cars that have active secondary markets. 'High-profile price-chopping tends to occur whenever companies freak out about the vicious combination of a slowing consumer economy and the prospect of getting stuck with big inventories of unsold goods. The tactic often works in the short term. The hype over insanely low prices functions as a form of free advertising, and the lower prices tend to attract buyers. Apple announced on Sept. 10 that it had sold its 1 millionth iPhone.'"

As long as the only connectivity is AT and T...

It won't matter to me what his prices are. An incredibly short-sighted error, IMHO. I'm good for five of them (three kids and my SO.) But no connectivity, no buy.

Re:As long as the only connectivity is AT and T...

From a business standpoint, it makes sense. AT&T and T-Mobile are the only GSM carriers in the US. Apple wants GSM because it's an international standard and they don't want multiple versions of the iPhone for different countries. AT&T has a larger customer base and more coverage than T-Mobile, so Apple went with them to maximize sales. AT&T does suck (as someone who's currently locked into their glitchy network), but looking at the numbers, it was the logical choice. to make.

Re:As long as the only connectivity is AT and T...

Wouldn't selling it for use on any network generate more sales? If X is the number of users on AT&T and Y is the number of users on T-Mobile, then X + Y > X, unless of course, T-Mobile has less than 1 user. Would it be impossible for them to have a phone that works on all GSM networks. Oh, I forgot, they probably got really good kickbacks from AT&T for going exclusive.

Re:As long as the only connectivity is AT and T...

I was actually going to make much the same post as yours. I just Googled it and Apple are indeed getting a substantial monthly payment from AT&T for iPhone users, so again from the standpoint of a business it does make sense to go exclusive (although this doesn't seem to benefit the consumer in any way I can imagine). As for a phone that works on all GSM networks (assuming you didn't mean that rhetorically), it is very much possible (needs to be quad-band if you want to use it anywhere in the world, due to different frequencies, but that's by no means unheard of) and the only network feature I know of that is entirely proprietary to the iPhone is visual voicemail.

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Let's say you sell it for use on any network. For the sake of argument, let's pretend that it would magically work on GSM or CDMA so you could use it on Sprint/Verizon too.

Firs thing is first, that's 4 times the compatibility testing (minimum). That is 4

Re:As long as the only connectivity is AT and T...

I would lean towards a fourth choice - leave the carriers out of it. You seem to be working on the assumption that Apple needs to have any kind of relationship with the networks, which I guess means that's the state of affairs in the US? As I said in my post above, the cash that AT&T are paying them makes a perfectly good business rationale for going exclusive, but from a consumer point of view I would've thought that just selling the phone as a standalone device in the Apple stores and allowing the customer to choose their provider (perhaps sans visual voicemail, I guess, but AFAIK all the other features are standard, meaning no software customisation or compatibility issues) would be perfectly acceptable as well as neatly avoiding the problems you outline.

Re:As long as the only connectivity is AT and T...

Well, I used to work at Nokia (I guess you've heard of them) and specifically in phone testing. In short, your post is BS from beginning to end; Nokia would make sure their phone worked with every damn operator. Whether it will be then locked in in the USA it didn't matter, because we knew it wouldn't be locked in in Europe and half of the rest of the world. And we were painfully aware of the fact that in every single country of the world we were competing, almost toe to toe, with the likes of Motorola, Samsung and Ericsson (later SonyEricsson).

Yeah, testing takes time, but it's cost in time and money is nowhere so high that we'd simply NOT test and go exclusive with one (or $SMALLNUM) operator.

Whether AT&T was the logical choice or not, I don't know, but it certainly wasn't for the reasons you cite!

I can't believe the mods went for it, though?!

Re:As long as the only connectivity is AT and T...

I agree, and the more amazing thing, is that they are doing the same thing in other countries. I mean, I can understand doing something like that in the US with the crazy service provider situation there, but why do it in european countries too?

Just sell the thing in Apple stores; put the visual voicemail thing on the internet as a service and allow people to pick their own plans.

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It still wouldn't matter. If they went with T-Mobile, people would complain them. People complain about Sprint (I'm one) and Verizon is right up there. There are 4 big cell phone companies in the US, and I don't know of any of them having a decent reputati

Re:As long as the only connectivity is AT and T...

By focusing solely on GSM, they're locking themselves out of most of the US cell phone market - over 120 million customers.

Most cell phone manufacturers do make different versions for different countries. LG is perhaps best known around here for their Verizon phones (CDMA), but they also make GSM devices. Motorola makes both GSM and CDMA versions of the RAZR and many other models, as do Sanyo, Samsung, RIM, and Palm.

Re:As long as the only connectivity is AT and T...

By focusing solely on GSM, they're locking themselves out of most of the US cell phone market - over 120 million customers.

Oh come on, you have to admit that is hyperbole. Yes, they may have somewhat limited themselves in the US market by being limited to a few carriers but I'm sure they did the research and the amount of lost sales because of that didn't out weigh the world market (the majority of the world uses GSM, the US is strangely skewed towards cdma).

Most cell phone manufacturers do make different versions for different countries.. Motorola makes both GSM and CDMA versions of the RAZR and many other models, as do Sanyo, Samsung, RIM, and Palm.

I was once told by someone in the industry never to buy a CDMA version of a phone that was originally designed as a GSM phone. The reasoning being that often the other version was an afterthought and not as thoroughly tested.

Maybe at this point Apple is testing the market (worldwide) and will eventually approach the much smaller CDMA market if it seems financially viable. You can't really fault them for going for the bigger pot of fish first.

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Oh come on, you have to admit that is hyperbole. Yes, they may have somewhat limited themselves in the US market by being limited to a few carriers but I'm sure they did the research and the amount of lost sales because of that didn't out weigh the world market (the majority of the world uses GSM, the US is strangely skewed towards cdma).

Well, no, it's not hyperbole. Like I said, there are over 120 million CDMA customers in the US, and if Apple doesn't release a CDMA iPhone, they probably aren't going to get many of those customers.

But I agree that Apple probably took that into account. P

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"Most?" I thought GSM took the majority share in the U.S. last year, and that it was still growing at a faster pace.

Well, these are the numbers I've found:

Verizon (62 million) + Sprint (55 million) + Alltel (12 million) = 129 million for CDMA

AT&T (64 million) + T-Mobile (25 million) = 89 million for GSM

Perhaps I'm missing a few smaller carriers, but these are the m

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I couldn't find any numbers, but I did find some interesting information. GSM is the world-wide standard, with about 3/4 of the mobile phone users being on GSM. CDMA is mostly a US thing apparently.

Also, Verizon recently chose GSM for their new '4g' stuf

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CDMA is mostly a US thing apparently.

Indeed, mostly North American, though it gets some use in other countries [wikipedia.org] as well.

Also, Verizon recently chose GSM for their new '4g' stuff.

Well... I wouldn't say that, based on the info in those articles. They chose a technology that's supported by the GSM group, instead of the next revision of CDMA2000, but i

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If you're targeting a world wide market, it's just common sense to go for GSM first.

Agreed... but it's also just common sense to include 3G, especially when your selling points include a full-featured browser and YouTube. Apple's initial strategy seems to be a compromise that isn't particularly tailored for the US or world markets.

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What are you talking about the specs for the UK iPhone haven't been posted yet? Steve himself was asked and answered that its still an EDGE phone, no 3G for Europe at all. Its all over the web man. Engadget, Gizmodo, just google for "UK iPhone Edge"

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Apple wants GSM because it's an international standard and they don't want multiple versions of the iPhone for different countries.

That would appear to not really be true. According to USA Today [usatoday.com] (as well as the rumor mill around the time of the iPhone an

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Nope. The only thing UMTS and CDMA have in common are that at an air interface level, both use a Code Division Multiple Access multiplexing scheme, and that only applies to UMTS for versions R99 through Rev. 7: Rev 8 is OFDMA based.

UMTS and CDMA don't e

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Apple wants GSM because it's an international standard and they don't want multiple versions of the iPhone for different countries.

I don't think that that true at all. Palm, after all, has come out various treo models in GSM and CDMA simultaneously, even

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I think Apple deliberately made the iPhone "easy" to make it as open as possible whilst still giving lip service to AT&T's locking and security requirements.

Perhaps so. However, I am not going to do that; I am not interested in a fairly expensiv

Don't forget

Crazy Eddie ended up in jail.

Re:Don't forget

He's not in jail, he's been on the cover of every Iron Maiden album ever made.

Gimme A Break!!!

Does anybody really think that Apple won't make money on it at $399? For Grid's sake, it's assembled overseas for slave wages. It only has a few parts (if you count the main board and display as one part each). I don't think they will hurt. And if they do -- that is, if they are dumping it on the market for a loss -- then they are prosecutable under antitrust laws.

Please, let's see some real news, rather than trying to make problems up.

Re:Gimme A Break!!!

Does anybody really think that Apple won't make money on it at $399?

I completely agree.

if they are dumping it on the market for a loss -- then they are prosecutable under antitrust laws.

But now you are off in la-la land. There is nothing preventing a company from selling below cost. It's only when they are doing it to maintain monopoly of a market. And while its arguable that Apple's 90%+ hold of the mp3 player market is a monopoly, they don't have anything even close to a monopoly in the phone market.

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There are lots of examples. For just one, not many years back we saw certain computer memory manufacturers who were charged with "dumping"... even though none of those companies had a corner on the market. They WERE trying, though... which is the point.

If there are lots of examples, then you need to find another one. The memory dumping issue was NOT about monopoly, it was about unfair trade practices for imported goods. Micron, the only large-scale US memory manufacturer accused the koreans of dumping

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Isn't the PS3 being sold at a huge loss to inflate sales? Shouldn't that make it illegal too?

Re:Gimme A Break!!!

Now you're just being silly. No one wants to ban the PS3 on the grounds that it's being sold "too cheaply" to inflate sales. That's ridiculous. The reason that informed, serious activists want the PS3 banned is because it uses too much energy for the benefit it provides, just like incandescent lights.

Don't try to trivialize the solid case for banning PS3s by associating it with the cranks who want to ban PS3s for being too cheap.

(Unfortunately, I have to remind people this is sarcastic...)

falling prices are normal

Its funny how much we've been conditioned to think that the price of things should go up not down. Think about it, all other things being equal, as we get smarter, more efficient with our production of goods prices should go down. Prices only go up because inflation is an even more powerful force than innovation in our economy.

Second, the cost of everything has an fixed component and a quantity component. One reason an F22 fighter is so expensive is that relatively few are built. The same thing happened with the iPhone. At the beginning they weren't sure if they'd sell 1 or 1 million. They had to guess and price accordingly. Now that so many are sold, the fixed costs (like engineering) are paid-in.

Meanwhile, they are competing with many other kinds of smart phones. Most of which were cheaper already. Doesn't anyone remember all the talk about how the iPhone was outrageously priced above competing smart phones?

Yeah. So after their profit margin was clearly fat, they cut prices to be competitive and more than just fan-boy enthusiasm. We should be worried? This article is drawing ridiculous connections between the iPhone and the panic over the sub-prime mortgage market.

still overpriced

I don't care how nice a screen it has, at $400 with a 2 year contract, a locked phone with no extensibility and EDGE-only speeds is still far from cheap. The best one can say is that it has gone from an insanely overpriced phone to merely an expensive fashion phone.

iPhone doesn't start hitting "Crazy Eddie" pricing until it's below $100.

Re:still overpriced

Agreed. The iPhone should be giveaway phone considering the restrictions, lock-ins and mandatory contracts that AT&T and Apple saddled it with.

Deflation Indeed

You certainly don't find many devices with the iPhone's feature set in the $0-$100 after contract price range.

Really? No GPS, no tethering, no mem card, no IRda, no real bluetooth PAN, no MMS, no OTA pda syncing, no useful push email, no IM, no tactile fee

Flation - In or De?

After the rate cut that the Fed announced, fellow-liberal Jon Stewart asked Greenspan [ifilm.com] pointed questions of whether America is a free economy given the invisible hand of the Fed that favors "investment over work", these guys [dailyreckoning.com] have been wondering what kind of

Investment = Work

The fed doesn't favor investment over work. What does that even mean? When a company invests in a new technology, that means more work. When a city invests in new infrastructure, it means more work. When farmers plant more crops, it means more work. I

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Call it "investment over hoarding", and use "buying gold" as your basis for comparison.

When people buy gold, they basically stick it under their mattress. They don't use it themselves, and no one else gets any benefit from it either. For all intents and

nature of phones

When the iPhone first come out, one of the biggest complaints was that it was impossible to sell a phone in the market where most phones were free or near to free. Of course cell phones are not free, most people pay for them over time, usually paying $1.5k over a two year period. If one buys a phone with an upfont cost, this might add 20-30% to the price.

Many pundits also complained that the iPhone could not compete with the smart phones. Of course, the iPhone is not competing with the smart phone, but merely assuming that some people might be willing to pay more for a phone upfront if it provided a value. Such a market was made clear by the Razr.

Now pundits are saying that Apple is desperate and crazy because it lowers prices. It is true that Apple never has a sale, but this is a phone. Phones start expensive and then get cheap. It always happens. I don't have an iPhone. Being an early adopter was not worth the price. I was waiting for this price drop, and a relaxation to contract rules typical to ATT. The price drop is not like the price drop of a Mac or an iPod. With those devices, one is not contracted with a total costs that is at least $2K.

10 million phones in a year?

Now pundits are saying that Apple is desperate and crazy because it lowers prices

No... pundits are saying that Apple is desperate and crazy because they aren't even close to making their target of 10 million phones in the first year. [macdailynews.com] If Apple gave us

That's right!

I'll club a seal to make a better deal!

Autos

The car example cited in this article (Toyota with $850 of incentives per car vs. US car manufacturers with $3K average) is a perfect example of why US automakers are so very, very screwed.

No matter how much Consumer Reports et al. say the reliability has improved, and no matter how much the US makers craft intriguing and unique new offerings, their cars' value will continue to tank.

Sure, all cars lose value the minute they're driven off the lot, and it's a substantial number. But go take a look at what happens to a Civic or Camry versus what happens to a Fusion/Taurus or Malibu. Go ahead, check it out. It's awful.

I bought a new Scion tC last year. I was all primed to buy a used carwith ~35K miles; it makes sense to let someone else take the financial hit. Then I looked at the prices on used Scions, used Civics, etc. $17K cars were selling for $14K after three years. It made absolutely no sense to go buy a three year old car with a nearly-expired warranty and a possibly shady maintenance record when $3K got me a brand new one. On top of that, I was paying cash; the price difference is narrowed even more if you're financing, because the used car will almost certainly have a higher APR.

Now contrast this with a Ford Focus or Chevy Cobalt or similar. Go look at the similar models, and marvel at how much more has bled off of the value; it's because the $17K Ford, depending on when you catch it, might be only $15K, and might have a 7% or a 0% APR. It's great in the short term, and if I was interested in a Focus I'd be all over it.

Ultimately, if I was buying this car to drive it into the ground and toss it at 300K miles, it would be smarter to buy the Ford (assuming the reliability was the same, which isn't really the case with the Focus). Most people, myself included, don't do that. They get rid of the car in the 80K to 120K range, when it's starting to show some age but before it might potentially require major repairs. And many people look at how the US automakers have played their "SUPER LOW 72 MONTHS 0%! $3,000 CASH BACK" games and they walk across the street to the guys who might charge a bit more, but won't slash their prices next week. All things being equal, a Camry with the same MSRP as a Malibu or Fusion will resell for more at every step in its life, and it's because Toyota has shown that they're going to hand out approximately the same deal to everyone.

I want to buy American, or at least be able to widen my prospects when looking at cars. I really do. If I were willing to drive cars into the dirt, I could probably do it, but I'm not comfortable with the risks near the end of the car's life. A $2,000 engine repair does make better financial sense than buying a new car, but not when your car won't start, and you have to get a rental for a week, and you're wondering if it will be okay for another year or will require a new transmission in four months. So, like most people, I sell mine before I think those problems will show. As long as the US automakers are willing to go "Crazy Eddie" and reap the short-term profits, though, they'll continue to lose out on long-term buyers like me. I sincerely hope other industries are willing to look at Ford, GM, and Chrysler's experience when they think that it's a good idea to slash their prices.

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While paying cash often ends up being to your advantage, I disagree with the statement "Always pay cash" (for a new vehicle). The correct statement should read "Do the math, and choose the best alternative."

Here are several scenarios where I, personally

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Cash. Always a great bargaining point.

No, cash is a horrible bargaining point when buying from an auto dealer. They make money on the financing, and assume people will be financing through them (or at least allowing them to arrange the loans - where the b

Makes sense, but the iPhone's a bad example

The iPhone's price cut was surprising (way earlier than I expected), but that's the nature of the cellphone/personal electronics business. Always has been. A device comes out at a premium price, and then over the 6-12 months of the device's lifecycle the price drops drastically. By the time the new hotness replaces it not only has the price collapsed, but it's not even a lust object anymore. But we've been going through those cycles ever since the Walkman.

What's masked it a little here in the US has been the subsidies that cellphone carriers pay to get lock-ins. And they increase the subsidies as the life of the gadget progresses (at least on paper), to reduce the perceived cost more. Remember, once upon a time the Motorola RAZR was the hottest phone on the market. And it cost around $400-$500, even with a contract. And that was just a phone! Now, of course, they're free with contracts, and have been for quite a while.

Anyhow, I'd say the dependency of the domestic auto market on rebates is a much better bellwether for the state of the "Crazy Eddie Economy" (and I grew up in New York, so I remember those ads), along with the use of incentives in the housing market. Heck, supermarket coupons are part of it, too. When discounts are the norm without any real reason to do so (real costs are always dropping in the electronics business), prices have no real floor, and consumers have no incentive to pay the "real" price, because they know that it's going down. A lot.

It's just profit maximisation

Apple knew there were a bunch of fanboys who would pay almost anything to get an iPhone early, so they gouged them for as much as they would pay. Once they'd all bought iPhones, it made sense to cut prices to attract a different market. It turned out that the fanboys were annoyed enough that Apple decided it was worth giving them partial refunds.

So nothing surprising, just Apple doing whatever seemed likely to maximise profits. You don't like it? Tough luck. Those who live by the sword shall die by the sword.

Deflation

Is it too much to ask to name the phenomenon rather than describe it?

And margin-shredding behavior tends to spawn more margin-shredding behavior

That's called deflation. Deflation is 100x worse the inflation because during deflation the economy stops: nobody's working, nobody's buying, nobody's selling, and everybody's hoarding what little they can -- i.e., a Great Depression.

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No kidding. I'm on Sprint and I dropped the data plan because it was too costly, and if you don't have a plan data is about 7c per kilobyte. Per K! Let alone the fact that Sprint won't let you get a goddamn picture off your own camera phone unless you subs

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let's make the best phone we possibly can

Congratulations for so whole-heartedly buying into Apple's marketing, but he was going for the biggest possible profit, not a desire to make the perfect cell phone. There's easy to imagine improvements, that would

prices drop over time?

Sounds almost like a Mr. Obvious sketch. What do you mean technology prices drop over time?

Re:Apple "rebate".

Well they decided that it was worth $599 to them when they handed over that money. They should be grateful to get any rebate, let alone $100.

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Common sense is expensive. I'd say $100 is pretty cheap a price to pay for a lesson, really.

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for all it does its not that good of a PHONE.

It sounds better than the other two phones I've had -- Siemens SK65 and Nokia 3120. It's a pretty good phone, though it could do with voice dialing if you drive a lot and need to dial whilst driving. Me, I d