Friday, September 07, 2007

The iFiasco

I know a couple of people with iPhones. One of them stood in line on opening day to get it.

They are proud of their gadgets. They show them off. They pull up YouTube videos or take your picture and show how they can link it to your phone number so it will show when you call. Sometimes they even make phone calls with the things.

I was never interested. At $600, I could buy a new PC and a new MP3 player and possibly have money left over for a low-end digital camera. None of those would obligate me to sign up for an expensive phone service (and pay a cancellation fee for my current service).

The iPhone owners didn't care about any of these things. They had their toys. But some discontent bubbled out out out the masses of iPhone owners. It turns out that the iPhone is a lousy phone. My dedicated phone is small, the battery lasts all day, and I can operate it one-handed. For commonly called numbers I can turn it on with my thumb, hit a button with my middle finger and tell the phone who I want to call and it will dial for me. With the iPhone, you have to use both hands and go through several motions.

Then there is AT&T. Their Internet service is dead slow, possibly too slow to be usable for many web pages. Their reputation took a major hit when it got out how poor their coverage is. Some states don't have any coverage to speak of. Others do but suffer from dropped calls (a columnist at Huffington complained that his conversations always ended with "Hello?" "Hello?")

Some people were buying the iPhone just to use as a wi-fi Internet device. I thought that it might be useful like that but the price was still much too high.

It turns out that a lot of people think like I do. Apple just introduced an iPod that is an iPhone without the phone part and it is only $300. That's still a lot of money to me but it is no longer out of the question.

It also appears that sales must have spiked then dropped fast because Apple dropped the price by $200. The phone that cost you $600 in June now costs $400. That has a lot of loyal Apple customers upset.

Everyone knows that technology changes. What is on the market today will either be cheaper next year or replaced by something more powerful. People accept that and factor in the cost of waiting when deciding to buy. The thing is, people expect these drops to take a year or more, not a few weeks. Apple has always charges a premium price but this time they admitted that the price was in the gouging range.

Keep in mind that Apple could sell the iPhone below cost and still come out ahead. They get a cut from AT&T's monthly bill so you continue to pay Apple as long as you keep your phone contract.

Apple set the original price too high. They want to attract the people who are not willing to pay $600 for a poor phone with a great interface.

There is no graceful way out of this. It only took a day for them to announce that current customers would get a $100 credit. Considering their margins, that probably will cost them at most $50 per phone. That's not very generous. And the group they offended includes the hard-core Apple fans. It's a wonder that their stock only dropped a little.

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