ANALYSIS |If you missed the news last week, alongside an entire refresh of the iPod line-up, Apple also slashed the price of the iPhone by 33% to $399.
If you missed the news last week, alongside an entire refresh of the iPod line-up, Apple also slashed the price of the iPhone by 33% to $399.
Over the course of the week, this news plus a general slide in the NASDAQ sent Apple shares down about 9%. It would be easy to argue that the opposite should have happened. With a refreshed iPod lineup and aggressive iPhone pricing Apple shares should have gone up because these two pieces of news are incredibly important to Apple's future growth.
Firstly, the new iPod lineup is the best iPod range Apple has ever had -- and apart from the continued lack of FM Radio and Voice Recorder -- puts every other digital music player on the market to shame. Before this week's announcement the iPod was still the undisputed leader in terms of user interface, design and accessibility. In typical Apple style, they've made their best products look seemingly old with this refresh. You'd be brave to bet against the iPod being atop of the Amazon best seller list this Christmas.
Interestingly, all the new iPods, except for the Shuffle, play video and support video out. Now that all new iPod owners can view video, and Apple has successfully launched their Apple TV 'hobby' perhaps now is the time to role out a new movie rental service?
However, the more important and frankly more exciting news to come out of last weeks announcement was the price cut of the 8GB iPhone from $599 to $399.
Regardless of the pain existing iPhone buyers felt when they heard about the price cut (and then the comfort when they heard they'd get $100 back) this is great news for the iPhone as a platform.
Apple's price cutting practice, while heavily criticised by the press, is not dissimilar to others in the IT industry. The NY Times put the price drop in context: Motorola, for instance, introduced the ultra-thin Razr phone for $499 with a two-year service contract in early 2005. Six months later, Motorola realized it had a hit on its hands and dropped the price to $199 in an effort to aim at more mainstream buyers. By the end of 2005, the price was $99.
At $599 the iPhone was one of the most expensive smart phones on the market. More expensive than a Treo, and more expensive than a Blackberry. At $399 however it's one of the least expensive. That, coupled with the fact that the iPhone -- with its very high resolution, huge screen, and advanced 3D graphics -- makes other phones look like bricks, and that means that Apple is going to have a runaway success on its hands.
In fact, before the price cut, iSuppli (who surveyed 2 million participants online in the US) announced that the "two models of the iPhone on the market sold more than Research in Motion's Blackberry series, the entire Palm portfolio and any individual smartphone model from Motorola, Nokia or Samsung. Sales equaled those of LG Electronics' Chocolate, the most popular feature phone on the U.S. market."
Another report from compete.com suggests that 8% of consumers said they would be willing to pay for the iPhone at its original price point of $599 while at the $399 price point interest increased to two-and-a-half times to 18%.
An additional indicator that the iPhone is doing well is the availability (although not 'officially' supported by Apple) of third party apps (and these will most likely also function on the new WiFi enabled iPod Touch). Remember, these hacks are less than 2 months old and some already exhibit better fit and finish than Java or Symbian software you'd find on other competing devices.
Lastly, the iPhone price drop, while viewed as a means to increase sales probably indicates a new model is waiting in the wings. If you believe the latest rumour it's going to have HSDPA and 16GB memory. Having experienced what it's like browsing over EDGE on the first-gen iPhone, the upgrade to HSDPA would be a huge improvement.