Apple cuts the price of the iPhone and decreases their profit margin on it and they are making more money?
Essentially,
YES. More than they would have at the current pace. iPhone sales have slumped considerably since July.
1. People who were on the fence price-wise will now maybe buy one.
2. People who have one and are less than enthused with the software updates will be less likely to sell it (
since the value just plummeted) thereby keeping the visibility of it where or near where it is to help #1.
3. See #1. They'll get a cut of those new contracts they wouldn't have gotten by selling it at $399 vs. NOT selling many more at $599.
4. See #1. All of those 8 gb models they produced that would have never sold will (might) now sell and help some "new users" buy more iTunes stuff since they "saved so much money" on the device itself. Another $100 per new $399 user or whatever in songs or video sales they never would have gotten.
Not to mention tying them to the iTunes media formats before they choose another. $$$$$
5. Produce a 16gb model using the same flash from the new iPod Touch (how hard can that be, a couple of screws?) and bring in some more suckers at the $599 price-point they just cleared away. Prepare to line up. Maybe even $499.
6. They need to get as much of the contract % money from AT&T as possible before the unlock solutions get out fully. They need the shelf-stock in peoples hands as soon as possible. In this case the hacking was a bad thing... it threatens their long-term profits from At&T contracts.
Your question seems to assume that they were continuing to sell briskly at $499 and $599 and they will now lose money with the reduction to $399. In fact they will probably make more money (short-term) than they would have made under the current conditions.
I would prefer a smaller short-term profit and better long term customer loyalty and trust.
I think the fall of the stock price after the event shows the problem they have. The market thinks this may not be a successful long-term strategy and/or the products they showed are not that great. Or (like I do with the iPods) priced too high.
Basic marketing/sales, you potentially make more money selling a lot of lower cost things than selling only a few higher cost things and being stuck with tons of unsold stock that cost you money. It's called a
sale.
They've pretty much tapped out the $599 suckers... us. Now they are having an iPhone sale.
I hope NOBODY is buying and I will discourage everyone I know.
My postition is that had they focused on releasing great software for it after the launch and gotten it out to early adopters, it would have held it's value and sustatined sales at the original price points and none of this B.S. would have been necessary. Many more people would have jumped on the bandwagon. A minor discount ($50?) may have still been in order.
I find it hard to believe that exact position wasn't supported by SOMEONE in Apple at some point.
Developer X: "Why don't we just write kick-ass programs and keep it at $599 through next spring?"
Jobs: "No, we need to make this years projected sales targets..."
If only they had written spreadsheets and MMS and chat and file access and many of the other things that kept so many people away. I thought that's what they were doing.
I was SO wrong. They're acting exclusively like a hardware company, not a hardware/software company.
There are NO new iPhone applications from Apple. None. Zip. Nada. Say what you will about Microsoft, they wouldn't have missed that point. SOFTWARE APPLICATIONS are KEY to smartphones. SDK supported and encouraged 3rd party development would have done the trick. We'd have all kinds of useful apps... and a REAL smartphone.
Steve Jobs has gotten my last dollar.
This a a move to clear stock and increase short-term profit. If it was still selling briskly at $599 they would not have done it... that would have been stupid.
So to answer your question...
YES.
MORE MONEY. And the stock market seems to think they made the wrong choices... the stock fell. The market recognizes they are playing catch-up to the profits that got away and have executed a poor long-term stategy with the iPhone.
More money than they would have made otherwise since they apparently have no intention of adding the kind of software features that would make it appear to actually be worth $599 and still sell for, or near that, to those many smart people who held out.
But less money than they probably could have made if they had done it right in the first place. Which doesn't speak well for Apple management and is reflected in the stock market... no matter how many they sell now at $399.
I think if one could see the last 30-60 day sales reports of the iPhone it would be pretty clear what happened here.
Wide profit margins are useless if nobody is buying the product anymore. To make money you must actually sell them.
They screwed us for more short-term "Christmas Season" profit. The thing only cost $250 to make, they could probably burn their current stock and still be ahead. But ... there's still more money to get. But they still did it wrong.
Line up... future suckers. I'm done.
