The iPhone, before the price cut, was the nation’s #1 selling smart phone. At $399, unit sales should more than double. Apple is now entering the smart phone market in a serious way and should outsell Palm over the next 12 months and put a serious hurt on Moto’s efforts to reinvigorate its cell product line.

By the end of FY ‘08 Apple will be a major player in the global cell phone market and the nation’s undisputed leader in smart phone sales and product development.

Why is Apple deciding to take this road to success?

Well it seems pretty clear to me that they want to quickly establish themselves in the phone segment as a significant player.  The price cut will certainly help in this regard.  Perhaps there will be less expensive models.

The question I am starting to ponder is, “Can they get out of the exclusive relationship with AT&T?”  We’re starting to hear talk of the 3G version of the phone - is this only for European carriers, or does this mean that they are eying other N.A. cell phone networks as well?

I can’t imagine Apple delaying the release of a 3g phone in the US after intro in Europe. To get out of the AT&T agreement, T would have to continue to blow the rollout and show withut doubt in the national media space the company can’t or refuses to make the most of the phone.

From story at The Street

I’d argue that AT&T is good for AT&T, but bad for Apple.

First, AT&T has been the poster child for the cause opposing “Net neutrality.” Many consumers don’t get worked up by that debate, but the technophiles who are the earliest adopters of hot products like the iPhone do. And it’s prevented a lot of them (including me) from buying an iPhone.

Beyond that, ever since AT&T bought Cingular, its wireless service has alienated a lot of mainstream customers. The complaints on Consumeraffairs.com echo that theme. Hacks are emerging to allow iPhones to use any mobile provider, but they remain too difficult for many iPhone users.

Worst of all for Apple, AT&T doesn’t seem to be trying very hard to sell iPhones. According to Piper Jaffray analysts Gene Munster and Mike Walkley, AT&T’s stores sell one iPhone for every seven that Apple sells. Piper Jaffray has no underwriting relationship with Apple or AT&T.

Over at TUAW.com, a blog concerned with all things Apple, contributors noted that there are some AT&T stores where the marketing effort for iPhones is muted. It seems that this is becoming a lopsided partnership, with Apple essentially carrying AT&T and all its anti-consumer baggage.

jimlongo, I would also love to see the iPhone officially unlocked. I would love to purchase one, but not if AT&T is the only carrier I can use and not if I am unable to get one without a service contract.

The price drop and iPod touch launch reveal that this is (rightly IMO) intended as a mainstream product, not a high-end smartphone. And that platform wars are here again, but no-one else has shown up at the fight yet. iPod-iPhone-Mac-ATV are morphing into a single platform.

An important part of the AT&T exclusive is the unlimited data contract, which is made affordable by being Edge based.

Apple’s solution for other carriers is that you should carry an iPod touch and your cellphone. Chances are, many such customers will opt for no cellular data service & the cheapest cellphone, picking up email at WiFi hotspots when travelling. Chances are, AT&T customers will choose iPhone over iPod plus phone.

I see the current spec lasting a little longer, but perhaps being supplemented in January by a higher priced iPhone Pro with: 3G; iChat AV; maybe GPS; maybe Java support. A higher-priced unlimited 3G data contract would be available, and maybe the basic iPhone would upgrade to 3G by subscription. (i.e. you get 3G enabled if you pay the higher contract price).

I don’t see that Apple needs to “get out of” the exclusive at all. There’s plenty of market for the next couple of years, even with the AT&T constraint.

Re: The $399 iPhone - Now It Gets Serious!

[quote author=“DawnTreader”] ... Why is Apple deciding to take this road to success?

I believe you’re asking why did Apple launches iPhone at $499/$599 on Jun 29 and not at $399 for iPhone 8Gigs, which is a logical thing to do since it was announced at MWSF 07.  A price drop with better spec would be good PR.  Instead, it launches at the announced price and dropped $200 off 66 days later followed by a store credit of $100.  Seem so messy and inelegant.

It is clear from SJ keynote during MWSF that iPhone is intended for mainstream, not for the smartphone segment only.  For the six months leading to Jun 29, we’ve gathered from media and survey that many think iPhone at $499/$599 is too expensive for mainstream but is ok for early adopters.  Also, its appeal is constrained by an exclusive contract with AT&T.  Phone models change every six months ... launching a product six months later with same price and spec is surprising ... what is more shocking is cut price drastically two months later ... seem to have intentionally overshadow iPod touch ... and a hasty decision to give $100 store credit ... why why why.

Re: The $399 iPhone - Now It Gets Serious!

[quote author=“Mace”]what is more shocking is cut price drastically two months later ... seem to have intentionally overshadow iPod touch ... and a hasty decision to give $100 store credit ... why why why.

Agreed. I was convinced that when the device finally launched, it would come with double the capacity originally promise, and was both surprised and disappointed that it stuck to the 4/8GB specification.
I remain convinced Apple is launching a 16GB 3G iPhone imminently, and that they are going to do so sooner than they intended.
I think the original plan involved introducing a higher capacity (ie. 16GB) iPhone after the launch to coincide with the European launch, and a 3G model sometime after Christmas. Instead, they have brought forward their 3G/16GB plans to launch months earlier than originally planned to coincide with the European launch, and are now running down inventory of the EDGE/8GB version as fast as possible with the aid of the price cut.

Re: The $399 iPhone - Now It Gets Serious!

[quote author=“DawnTreader”]The iPhone, before the price cut, was the nation’s #1 selling smart phone. At $399, unit sales should more than double. Apple is now entering the smart phone market in a serious way and should outsell Palm over the next 12 months and put a serious hurt on Moto’s efforts to reinvigorate its cell product line.

By the end of FY ‘08 Apple will be a major player in the global cell phone market and the nation’s undisputed leader in smart phone sales and product development.

Why is Apple deciding to take this road to success?

At $599, the iPhone was too expensive, comparatively,  to the iPod Touch. At $599, the iPod Touch would destroy iPhone sales and probably get Apple in trouble with ATT.  The discounted price makes the iPhone much more attractive to the masses.
Apple, in both computers and iPods, has always been about price points. The iPhone now fits nicely into the iPod families price points.

Re: The $399 iPhone - Now It Gets Serious!

[quote author=“Play Ultimate”]
At $599, the iPhone was too expensive, comparatively,  to the iPod Touch. At $599, the iPod Touch would destroy iPhone sales and probably get Apple in trouble with ATT.  The discounted price makes the iPhone much more attractive to the masses.
Apple, in both computers and iPods, has always been about price points. The iPhone now fits nicely into the iPod families price points.

I fully agree with you.  IMO all these other rationales are tangents.

Re: The $399 iPhone - Now It Gets Serious!

[quote author=“macglenn”][quote author=“Play Ultimate”]
At $599, the iPhone was too expensive, comparatively,  to the iPod Touch. At $599, the iPod Touch would destroy iPhone sales and probably get Apple in trouble with ATT.  The discounted price makes the iPhone much more attractive to the masses.
Apple, in both computers and iPods, has always been about price points. The iPhone now fits nicely into the iPod families price points.

I fully agree with you.  IMO all these other rationales are tangents.

Play Ultimate merely explains why iPhone price needs to be cut by $200 when iPod touch is launched at that price point.  It doesn’t address the following issues:

Is iPod touch launch date planned?  If yes, isn’t it neater to launch iPhone at $399 on Jun 29?  If no, what drivers compel Apple to launch now?

I haven’t heard anyone reason that the price drop can also be justified by the price drop of 8GB nand chips as 16GB chips come out at the same price point the 8’s were at.  The soon to be released 16GB iPhone will most likely be priced at 499.  Maybe June nand prices didn’t justify the 399.  Don’t forget to Include other component price drops in this thinking.

Re: The $399 iPhone - Now It Gets Serious!

[quote author=“Mace”][quote author=“macglenn”][quote author=“Play Ultimate”]
At $599, the iPhone was too expensive, comparatively,  to the iPod Touch. At $599, the iPod Touch would destroy iPhone sales and probably get Apple in trouble with ATT.  The discounted price makes the iPhone much more attractive to the masses.
Apple, in both computers and iPods, has always been about price points. The iPhone now fits nicely into the iPod families price points.

I fully agree with you.  IMO all these other rationales are tangents.

Play Ultimate merely explains why iPhone price needs to be cut by $200 when iPod touch is launched at that price point.  It doesn’t address the following issues:

Is iPod touch launch date planned?  If yes, isn’t it neater to launch iPhone at $399 on Jun 29?  If no, what drivers compel Apple to launch now?

iPod touch launch in Sept is ideal and planned for the holidays.  In fact I would argue that the iPhone was really just a beta of the iPod touch,  the touch being the more critical revenue product until the iPhone goes mainstream.

Also the other possi ility you may be overlooking is that the iPhone launch was delayed and nonideal.  An iPhone launch in early June would have eased the PR pain of the Sept price drop, and a May launch would have eliminated it.

EDIT:  a third sneaky possibility is that Apple wanted June 29 for the iPhone launch so as to best hide the iphone sales figures from competitors.  An earlier launch would have meant reporting much more revealing sales figures for the quarter.  And, the launching with the $599 price was a clever misdirection play to mask Apple’s mainstream plans for the iPhone, consumers be damned.  Nokia et al have been workng since January to match the iPhone challenge at the $500-$600 pricepoints.  Those designs are now duds. 

A fun conspiracy theory that I probably stole from some SG posts in past threads.

Re: The $399 iPhone - Now It Gets Serious!

[quote author=“DawnTreader”]The iPhone, before the price cut, was the nation’s #1 selling smart phone. At $399, unit sales should more than double. Apple is now entering the smart phone market in a serious way and should outsell Palm over the next 12 months and put a serious hurt on Moto’s efforts to reinvigorate its cell product line.

By the end of FY ‘08 Apple will be a major player in the global cell phone market and the nation’s undisputed leader in smart phone sales and product development.

Why is Apple deciding to take this road to success?

I just want to throw one more theory out there.  Whether the price cut was all according to plan, or some non-ideal reaction to changes in the iPhone sales or roadmap, I think what is partially motivating Steve Jobs is his experience with the MacIntosh launch.

The simple story of the Mac was that the goal of a $500 machine was quickly scrapped, then a $1500 machine was the engineering target, and the final design was $2000. But Scully overruled Steve and dictated a $2500 launch price to pay for a marketing blitz.  I don’t even think the price was brought down after the marketing costs were recuperated, but I’m not sure. (Maybe the $599 launch price was needed to pay for all the iPhone commercials?)

Sales started strong, and SJ was triumphant.  Software apps were written by vendors and SJ felt he had won and had a established the new standard. (both the Mac and iPhone are new products attempting to establish a new platform.)

But, SJ was in denial about a cratering of sales figures a few months after the launch.  Marketing was a afraid to adjust sales forecasts for fear of catching Steve’s anger, and I don’t think that Apple cut the Mac pricing or adjust manufacturing run rates efficiently.  Holiday sales in 1984 were a complete dud.  Also, hardware and software development slowed and the Mac team seemed to lose all drive.

So it seems to me SJ is applying lessons learned for launching a revolutionary new platform.
-Ron Johnson is rumored to be on point to manage sales velocity, likely, down to a store level detail!  No hiding bad news this time.
-It’s rumored Apple adjusted iPhone manufacturing orders down once they had visibility into sales rates
-Price cut in September for the first holiday. No waiting until low sales became a problem and no padding margins past the launch or after the marketing expenses are paid for.
-Unlike the Mac, the iPhone team is not letting down.  They’ve already launched the iPod touch, and the roadmap is aggressive and likely being accelerated.

Here are some sources for the story of the Mac launch:

Scully forcing the Mac price up:
Price Fight, Folklore.org

Mac sales trouble leads to SJ’s ouster
The End Of An Era, Folklore.org

I may be stretching the comparisons beyond reason, but the similarities and more importantly the differences between the Mac launch and iPhone fascinate me.

PS that Folklore.org site is a true gem. Written by Andy Hertzfeld and other members of the original Mac team it is a treasure trove of stories about the development and launch of the Mac. 

BTW, it is also how I found AFB!!  One story on folklore.org linked to an open letter written by a Michael Mace in 1995 or 1996 posted in another website. He was the head of Mac marketing from 1988 to 1994, IIRC, and the letter talked about reasons for the failure of the Mac and Apple (those were dark years).  So I did a search for Mace hoping to read more of his writings on how Apple works or worked as a business, and lo and behold I found a post by our friend, the other Mace!!  Now his post was so visionary and compelling that I actually PM’d him, and asked if his name was Michael Mace.  Alas, he wasn’t.  

So, since we’re all trying to guess Mace’s genetic makeup, he is NOT an older, balding white man, ex-marketing head of Apple !   The real Michael Mace is still writing about Apple and guess what the cell phone industry!  It seems Michael Mace moved from Apple to Palm, and now consults and writes a blog covering cell phones. Mace must be having a head trip ever since the iPhone was announced!

alcatholic,

Apparently, you’ve not read all my posts on recent events .  My comments in this thread is to point out that no one have answered DT’s question “Why is Apple deciding to take this road to success?” adequately (hope no one take offense, IMHO: no one answer the question, so I need to rephrase DT’s question and point out missing issues in some bloggers’ comments).

I believe my comment “SJ is following his heart to push out iPod touch globally now. This decision drives all other decisions.” in this thread is of similar opinion as your “I would argue that the iPhone was really just a beta of the iPod touch, the touch being the more critical revenue product until the iPhone goes mainstream.”

[quote author=“Mace”]alcatholic,

Apparently, you’ve not read all my posts on recent events .  My comments in this thread is to point out that no one have answered DT’s question “Why is Apple deciding to take this road to success?”

Oh of course, I’m sure I haven’t, and you likely covered more than what you wrote in this thread.  I just was working off the list of possibilities you wrote in this thread.

Didn’t mean to imply you’re wrong in any way. Besides, I said very nice things about you in my next post on this thread, so my admiration of you is on public display for all to see!