When it's good (and not so good) to be behind the curve

by admin on September 5, 2007

in General

Now that the hubbub around the new iPod lineup has died down a little, the real fun begins. The $200 price cut on the 8GB iPhone has royally pissed off a number of people. The prospect of dropping the 4GB version altogether has not been well received either. Apple CEO Steve Jobs reckons the company is on target to reach 1 million iPhone units shipped.

Fortunately for disgruntled iPhone buyers, Apple has a 14 day cost difference refund policy. Let’s assume they only sold 50,000 in the last 14 days. That equates to $10 million. Double the figure and we’re talking $20 million. In the scale of things this is not a huge number except that it will go direct to the bottom line. So on the one hand, Apple wants to tell us how well the iPhone is doing but we’ll find out the reality when the numbers come in at the next quarter end. You can be sure that questions will be asked.

For those of us who live outside the US, not having the iPhone now means we get to benefit from the price reduction when it does turn up. But do we? Apple has publicly stated its prices but when you look at the retail cost in Europe you quickly find Apple is good at playing fast and loose with exchange rates.

The new 20 inch iMac when bought in the US is priced at: $1,199 ex-sales tax. In the UK, it is £799 (£680 ex-VAT) and in Ireland it is €1,199 (€990.91 ex-VAT)) and Spain €1,169 (€1,007.75 ex-VAT) When you work out the price differentials based on exchange rates, buying in the US ‘saves’ significant amounts, even if you pay import duty. On the basis of today’s exchange rate, the UK ‘price’ should be: £594 and the EU price €878. The differences are not inconsiderable.

However, the person I feel most sorry for today is Ismael Ghalimi, organizer of Office 2.0. According to Zoli Erdos:

Conference-organizer Ismael Ghalimi did not receive a special deal from Apple, in fact he was not even allowed to buy the gadgets in batch, he had to do it one-by-one, which created its own logistical nightmare. The ‘default’ was the 4G model, which is now being discontinued, but attendees could pay an extra $100 to receive the 8G model – which today just saw its price dropped from $599 to $399. Of course this is great news for consumers, but I wonder what attendees will think. Will they ask for refunds?

If I was in Ismael’s shoes, I’d feel like I’ve been stitched up like a kipper. For the Office 2.0 event alone, Ismael planned on buying 400-500 of one sort or another. Regardless of Apple’s economic gymnastics, I suspect it could be in for a rough ride in the coming weeks. While I am an unashamed Mac fanboy, I find it hard to believe the company has done anything other than shoot itself in the foot, generating a lot of badwill in the process. Such an apparent elementary error in pricing judgment so soon after the iPhone came to market cannot be an error in the conventional sense. Jobs is way too smart for that. It has to be deliberate. Therefore while you can always snigger at the people who jumped in early, there is a whiff of cynicism on the part of the company I find hard to stomach.

If our software providers behaved in the same way, we wouldn’t give them a pass. If Microsoft behaved the same way, you can be sure that people would be baying for blood. Apple is no different and should be treated accordingly.

UPDATE: Vinnie Mirchandani thinks Apple did a good thing in lowering prices – they did of course. But I still find it hard to believe this was not in the works a considerable amount of time.

UPDATE2: Jemima Kiss provides entertaining commentary on the launch and all the latest on UK pricing. Ready..

UK prices have been confirmed as £99 and £129 for the 4GB and 8GB Nano, and £159 and £229 for the 80GB and 160GB iPod Classic.

And if you’re sold on the iPod Touch, that will set you back £199 for the 8GB and £269 for the 16GB. Unless you happen to be popping over to the US anytime soon…

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Dennis Howlett September 6, 2007 at 12:12 pm

@Al – that was a reason not to go. WTF am I going to do with an iPhone? More to the point why when I've got the N95 other than for the super Apple coolness factor. Even I'm not that daft. ;)

@Vinnie – check out http://www.kayak.com, they consistently come up with great prices for airline travel. You're right on pricing but I still have a problem with the timing on this. 68 days is it? Hmmm…

I'll save my pennies and buy a 30 inch screen when I'm next in NYC.

Al September 6, 2007 at 1:16 pm

Even worse for Ismael is that the Ipod Touch would have been so much more suitable as a give away than the IPhone as it is as usefull to international attendees as the US folks.

vinnie mirchandani September 6, 2007 at 1:36 pm

Den, I am not an Apple fanboy. I think Apple did a lot of things right but made 3 mistakes with iPhone. the 2.5G decision (ostensibly a battery power decision). The exclusive At&T relationship. The price. The first has shown it a large percent of its consumer base dont travel nearly as much as you and I, and do fine with home or office or other local free WIFI (and from there VoIP) Hence the new iPod. Second it will fix with multiple providers in Europe (and the new iPod in US as iPhone without the dependence on AT&T). Price in a US market where phone companies have subsidized mobiles, a product at 10X to 20X what the average customer paid meant less than 1-2% market share for iPhone. Even worse in the developing world. Having realized its mistake (the NY times says "unexpectedly" and "(Apple)which rarely drops the prices on its products" ) I give it credit for quickly fixing it. You and I deal with too many software, telecom and other vendors which resist price adjustments, or worse, price differently for each consumer. Think that buys more customer satifaction?

As far as differential in UK pricing…for as long as I have traveled globally, I have noticed arbitrage in electronics, airline tickets, duty free alcohol etc. For the longest time, the cheapest Scotch in world was at Dubai airport bang in the middle of the most supposedly dry market in the world. Have never been able to explain it but I have bought plenty of those bottles, gadgets in Hong Kong and tickets originating in London …of course these days cannot afford anything with the dollar so weak -)

Krupo September 7, 2007 at 2:41 am

I'm glad to be able to drive an hour across the border should I really need to take advantage of FX issues with CAD vs USD. I must say, I haven't been buying many books lately when the publishers charge a 10-20% premium while the Canadian and American dollars are almost at parity!

As for the fancy phones, I figure the features I want will be perfected in the next 5 to 10 years. I can wait. :)

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