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iPO Reports - Apple Drops 8GB iPhone Price to $399, Axes 4GB Model

Wednesday, September 5th, 2007 at 2:15 PM - by

Apple CEO Steve Jobs announced on Wednesday during its "The Beat Goes On" media event that his company is pleased with iPhone sales so far, but wants to be more aggressive. To that end, Apple is dropping the price for the 8GB iPhone from $599 to $399.

Along with the price reduction, Apple is discontinuing the 4GB model. Mr. Jobs claimed the decision to drop the lower capacity version of the combination iPod and smart phone was because customers are more interested in the higher capacity model.

Apple also reduced the price of the refurbished 8GB iPhone from $399 down to $349.

The newly reduced iPhone price goes into effect today.

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A guest said: (hide)

Wed Sep 05, 2007 2:27 pm

wtf. so much for early adopting. do i get $200 back?

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A guest said: (hide)

Wed Sep 05, 2007 2:27 pm

I'm simultaneously happy and furious that they would cut the price $200 so quickly after releasing the iPhone. This seems like a major kick in the pants to those of us who bought the iPhone already, but this is probably just sour grapes on my part.

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A guest said: (hide)

Wed Sep 05, 2007 2:29 pm

If you didn't think it was worth $599, then why did you pay it?

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A guest said: (hide)

Wed Sep 05, 2007 2:32 pm

Guest wrote:
If you didn't think it was worth $599, then why did you pay it?

its absolutely worth it but i would have waited if they were going to drop the price after ONLY TWO MONTHS. i predict a lot of early adopters are going to be annoyed about this. i still love my iphone to death but i dont think that was right to cut the price so soon.

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A guest said: (hide)

Wed Sep 05, 2007 2:46 pm

I know I'm upset! (2 week-old iPhone)

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Gators Fan said:

member since 03 Sep 2007 with 17 posts, unranked, send him a message or view his profile

Wed Sep 05, 2007 2:49 pm

Looks like Apple's learned one of the first rules of retailing: Every item has a "sweet spot" when it comes to what people are willing to pay for something (anything). While I doubt that $400 is a sustainable price point ---my guess is that $199 is about right--- the drop in price should spur sales dramatically for a while. However, as others enter the market with similar products more sensibly priced, I look for further price reductions (rebates, perhaps), or tie-ins with other Apple product ("By a MacBook AND an iPhone, get $XXX.xx dollars back!").

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A guest said: (hide)

Wed Sep 05, 2007 2:50 pm

Right, so they can piss off 4 or 6 months of early adopters instead of 2 months. Good plan.

I bought one the 4th day and as with any early adoption I knew this was a possibility. I've been really happy with it, so while a little bummed, that's life. Still don't regret it personally.

Still, this shows a good trend by Apple. If this were the old Apple, the iPhone would have been $800 and wouldn't come down for a year.

If it's less than a month, take it back. (I know they say 14 days) but a similar thing happened when I bought a Powerbook a few years back and it was over the 30 days and the did give me the difference back after a price drop.

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daemon said:

member since 17 May 2007 with 343 posts, unranked, send him a message or view his profile

Wed Sep 05, 2007 2:53 pm

I think $399 is very sustainable if AT&T starts subsidizing the iPhone like they do every other phone they sell.

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A guest said: (hide)

Wed Sep 05, 2007 3:02 pm

If Apple's margins are anywhere near as good as they were supposed to be on the iPhone AND they are now able to leverage the parts because of the Touch (remember economy of scale) then $399 is likely very sustainable.

If they are nearing sales of 1 million now and that was largely at $599, a price drop and the sales of the Touch will work just fine for their bottom line.

Since Apple has a profit sharing plan with AT&T, I seriously doubt AT&T is in any rush to subsidize. Plus sales are doing just fine without it.

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vasic said:

member since 09 Aug 2005 with 278 posts, unranked, send him a message or view his profile

Wed Sep 05, 2007 3:04 pm

et's make sure everyone clearly understands what happened here. The original price of the iPhone ($600) reflected enormous hype and pent-up demand. The price was set to $600 (or $500, but apparently, few people bought the $500 model); it could have easily be set at $800 and they would have still sold out in first three days. This was a premium, deliberately set for a very special and unique group of consumers, called 'Early adopters', who are used to paying hefty premium in order to be first. Admittedly, there were about a million of them in this case, but the fact remains; this group is expected to pay substantial premium over a realistic price of the product.

HD-DVD and Blu-Ray are current examples of the same concept. These devices started at $1400 or so. Very quickly, they begun dropping in price. They're still premium products, but already shaved about half of that price. Same story years ago with DVD players, which started at $800 and can now be had for about $20.

It is very unfair to most of us who wanted but couldn't afford an iPhone, to complain now about this price cut after showing off with your precious devices for over two months while we watched from the outside. Your $200 have bougt you more than TWO MONTHS of bragging rights over the rest of us. In my opinion, you got more than your money's worth.

As for those who have had it for a few weeks or so, my previous experience with Apple (consistent with everyone else's I know) tells me that if you still have your receipt, they'll refund the difference wihout problem.

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Bosco said:

member since 03 Jun 2002 with 1001 posts, unranked, send him a message or view his profile

Wed Sep 05, 2007 3:06 pm

Not only did they drop the price of the iPhone, they also dropped the price of AAPL stock. Down over $6 today, probably on news of the fat nano. But seriously... The iPod Touch is friggin amazing. It may replace my Palm T|X.

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Gators Fan said:

member since 03 Sep 2007 with 17 posts, unranked, send him a message or view his profile

Wed Sep 05, 2007 3:16 pm

Something to consider is Apple's potential revenue stream from the iPhone.

Take a look at the new iPod Touch with Wi-Fi. You'll be able to tap into iTunes Store from anyplace. Now, take a look at being able to buy tunes being played at Starbucks while you in one of their stores. Does anyone doubt that Starbucks will get a cut of this revenue stream? (I don't.)

Now, back that up a step, and think about the iPhone being used to make a purchase someplace. (Stay with me here.)

You're at a major box store, looking at an item. With your iPhone (or maybe someday your iPod Touch), you go online and check the price at one of Apple's partners, say Amazon.Com. You see where you can save money buying it online, so, via a pre-approved iPhone-only account, you order the item direct from Amazon, with a percentage of the sale going to Apple. Voila!

Such technology is used worldwide (except, it seems, in North America). It's only a few more lines of code to allow the phone to buy a HDTV than it is to get a machine to spit out a can of soda, or a subway turnstile to allow the passenger through. I've no doubt that Apple's looking far down the road with much of their product line.

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A guest said: (hide)

Wed Sep 05, 2007 3:32 pm

You know who I feel real sorry for???

Those Ebay t*****s STILL selling iPhones at a premium.

Ha, suck on this one!

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iVoid said:

member since 10 Jan 2007 with 65 posts, unranked, send him a message or view his profile

Wed Sep 05, 2007 3:35 pm

I should have hesitated more. 4 weeks with my 8gb iPhone now... ah well.

If you're in the 2 week return window, I wonder if Apple will cut you a deal to avoid returns/repurchases?

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A guest said: (hide)

Wed Sep 05, 2007 3:40 pm

There are *always* risks with early adoption. The risks aren't always the same, but you're always taking chances.

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Sir Harry Flashman said:

member since 08 Feb 2007 with 787 posts, unranked, send him a message or view his profile

Wed Sep 05, 2007 4:03 pm

Gators Fan wrote:
Something to consider is Apple's potential revenue stream from the iPhone.

Take a look at the new iPod Touch with Wi-Fi. You'll be able to tap into iTunes Store from anyplace. Now, take a look at being able to buy tunes being played at Starbucks while you in one of their stores. Does anyone doubt that Starbucks will get a cut of this revenue stream? (I don't.)

Many times when I am at Starbucks I will hear a jazz tune and ask one of the employees what is playing then go home and see if it is available on iTunes.

I am already carrying an iPod and a cell phone. When traveling I will put a lot of playlists and audiobooks on my iPod, more than 8GB. So I am thinking that an iPhone is my next purchase, followed by an iPod Classic when my current pod finally goes south.

Have you all tried to visit apple.com today, the site is very busy.

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ijak said:

member since 04 Jul 2003 with 6 posts, unranked, send him a message or view his profile

Wed Sep 05, 2007 4:04 pm

I just wonder when we will have a dock connector earphone/mic for the TouchPod??? And then I want a skype client. ... Then I could forget AT&T and all the rest.

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Small White Car said:

member since 02 Jul 2004 with 1960 posts, unranked, send him a message or view his profile

Wed Sep 05, 2007 4:37 pm

daemon wrote:
I think $399 is very sustainable if AT&T starts subsidizing the iPhone like they do every other phone they sell.

Dude, at $600 the cost of owning an phone over 2 years was ALREADY cheaper than the Motorola Q, Palm Treo, or Blackberry Pearl.

http://roughlydrafted.com/RD/RDM.Tech.Q3.07/28CE05EF-2E0F-4912-A62A-CBAB41E0D305.html

(Scroll down to the 4th bar chart on the page.)

Today Apple made it even cheaper. What more can you ask for?

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A guest said: (hide)

Wed Sep 05, 2007 5:13 pm

Welcome to Mac IIvx World. (Long-time Mac afficionados should remember that one...)

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gslusher said:

member since 13 Nov 2002 with 2088 posts, unranked, send him a message or view his profile

Wed Sep 05, 2007 5:48 pm

daemon wrote:
I think $399 is very sustainable if AT&T starts subsidizing the iPhone like they do every other phone they sell.

To riff on Small White Car's post: Do you really think that the subsidies are FREE? As the data in the Roughly Drafted article SMC linked to show, the carriers pay the handset manufacturer, then make that up by charging more for the service. It's no different than the printer manufacturers, who sell inkjet printers at ridiculously low prices and make it up selling ink (and, to a lesser extent, paper). Gillette made a fortune by getting men to switch from straight razors--expensive to buy, a pain to use and keep sharp, but lasted a lifetime--to the safety razor--cheap up front, easy to use, but got them hooked into buying the blades.

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A guest said: (hide)

Wed Sep 05, 2007 7:11 pm

The pent up demand thing does not hold water as Apple does not want to be in the business of scalping its customers. Second if they waited 4 or 6 months and did a price drop then it would be seen as something that was going to happen. In this case I think they just saw sales running flat and needed to boost it.

Now how do they address the customers that feel ripped off? They are a company that wants to have great customer satisfaction and loyalty. Will they ignore us customers or will they find away to get us feeling great about Apple again? Apple never releases a product and then drops the price by 33% in two months.

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A guest said: (hide)

Wed Sep 05, 2007 7:14 pm

Any ideas if I got mine on August 21st? I have a receipt and everything. I completely would not have minded if I got mine after waiting in line and all that jazz, but 2 weeks of "bragging rights" hardly seems worth $200. I thought they'd reduce prices for the Holiday season, not this early...

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Terrin said:

member since 29 Jan 2006 with 411 posts, unranked, send him a message or view his profile

Wed Sep 05, 2007 8:18 pm

It is business 101. When you release a new product it costs you more because then it would later because the manufacturer is not likley getting bulk buying discounts, there is a higher cost assocaited with manufacturing as the kinks in the process are not yet worked out, freshly introduced products suffer the risk of being returned at a higher rates because the manufacturing processes still have not been refined, and you have to try to recoop your development costs quickly in case the product is a flop. Moreover, it is hard to judge a new product in terms of much you will sell.

It is clear what happened because as you say Apple has never been a company that is willing to sacrifice profit margins. In addition, Apple is never a company, at least since Jobs return, that tries to demand more then a 25 to 35 percent profit margin. So, here Apple is suffering flat sales (as you suggest), has improved its production costs, or is being highly aggressive in the pricing front to ward off anticipated competition. In this last scenario, Apple would essentially be trying to flood the market to quickly gain market share. I personally suspect all three apply.

It is also fair to note that Apple is partnered with AT&T. There was no way Apple could determine how that would effect iPhone sales. With all of Apple's other products, it only has to worry about itself.

I personally do not think Apple has to do anything for anybody who bought an iPhone prior to 14 days ago. Sure I can see people being disappointed, but this should be directed at the market, not Apple.

Guest wrote:
The pent up demand thing does not hold water as Apple does not want to be in the business of scalping its customers. Second if they waited 4 or 6 months and did a price drop then it would be seen as something that was going to happen. In this case I think they just saw sales running flat and needed to boost it.

Now how do they address the customers that feel ripped off? They are a company that wants to have great customer satisfaction and loyalty. Will they ignore us customers or will they find away to get us feeling great about Apple again? Apple never releases a product and then drops the price by 33% in two months.

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Terrin said:

member since 29 Jan 2006 with 411 posts, unranked, send him a message or view his profile

Wed Sep 05, 2007 8:19 pm

Yes, go enjoy your iPhone. It was worth the money to you when you bought it. Nothing should have changed.

Guest wrote:
Any ideas if I got mine on August 21st? I have a receipt and everything. I completely would not have minded if I got mine after waiting in line and all that jazz, but 2 weeks of "bragging rights" hardly seems worth $200. I thought they'd reduce prices for the Holiday season, not this early...

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rjackb said:

member since 08 Dec 2005 with 37 posts, unranked, send him a message or view his profile

Wed Sep 05, 2007 9:24 pm

While I fully expect to pay more as an early-adopter and don't feel that Apple has any obligation to compensate early-adopters, you have to admit that the price drop is virtually unprecedented in both the amount of the drop and the very short time frame in which it occurred. I think the right thing for Apple to do, especially given that a significant percentage of the early-adopters are probably very loyal to Apple, would be to offer a gift certificate to the early adopters of anywhere from as little as $50 to as much as $150, or even $200, that is redeemable at an Apple store (or give us free ringtones for life ). I just think something like that would be the proper way to treat loyal customers despite the lack of any obligation to do so. I do have to honestly say that I feel that, absent some goodwill gesture from Apple, this sudden price drop will, at least temporarily, negatively affect my purchasing of Apple merchandise.

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A guest said: (hide)

Wed Sep 05, 2007 9:52 pm

The same folks complaing about the price drop probably have no complaint when they buy a new car, and the very second they sign on the dotted line their $30,000.00 car is now worth $20,000.00, before you even get to drive it off the lot! Detroit has been pulling a far greater scam on it's consumers for decades, yet everyone is getting worked up over this phone reduction.....go figure.

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A guest said: (hide)

Wed Sep 05, 2007 9:57 pm

rjackb wrote:
While I fully expect to pay more as an early-adopter and don't feel that Apple has any obligation to compensate early-adopters, you have to admit that the price drop is virtually unprecedented in both the amount of the drop and the very short time frame in which it occurred. I think the right thing for Apple to do, especially given that a significant percentage of the early-adopters are probably very loyal to Apple, would be to offer a gift certificate to the early adopters of anywhere from as little as $50 to as much as $200 that is redeemable at an Apple store (or give us free ringtones for life ). I just think something like that would be the proper way to treat loyal customers despite the lack of any obligation to do so. I do have to honestly say that I feel that, absent some goodwill gesture from Apple, this sudden price drop will, at least temporarily, negatively affect my purchasing of Apple merchandise.

I could not agree with you more! I have never seen Apple axe a product (4g) in such a short time after release or price drop so significantly in such a short time. Me being past my 14 day return by less than a week not to mention my iPhone is in for repairs as well, I feel bad for the newcomers to the Apple brand, I think Steve just scared away alot of potential Mac buyers, hence the stock dip right after the keynote?

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A guest said: (hide)

Wed Sep 05, 2007 10:30 pm

$599 was apparently the early adopter price.

I don't know if they planned this all along, but how will it effect the next hyped fruit from Apple.

More people may think twice about diving in early if they know in a short while the price will drop like an apple.

I'm thinking it may have always been a possible part of the marketing. If we hit a certain sales mark keep it, if we hit a lower mark, drop it and go in aggressively at chestnut roasting time. or maybe they're worried about the google wi-fi phone which may have free service options.

I do think $599 buyers should have gotten something the $399 phone doesn't have, well I guess they did get to be an early adopter.

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diverreb said:

member since 11 Feb 2002 with 14 posts, unranked, send him a message or view his profile

Wed Sep 05, 2007 11:40 pm

OK... Reality check here guys.... The only reason for the drop in price is the iPhone is not meeting the target sell through to the consumer. Apple took a calculated risk by teaming up with AT&T because Verizon wouldn't meet all of the demands Apple wanted to put on their perspective partner. That's a huge hunk of the market that was left out in the cold. They also underestimated the importance of not having a high-speed network. The "must have buyers" are all gone now and the rest of the market is slow to jump on the band wagon. Sure it's a great product, but version 2 will be even better, cheaper, and hopefully faster.

If it were a hot product Apple would continue to hold the distribution for themselves, but soon the phone will be flowing through other outlets to help boost demand.

A price reduction of $200.00 after only two months is a slap in the face to the loyal customers who forked over the full retail, as well as the folks who bought the lesser model.

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Terrin said:

member since 29 Jan 2006 with 411 posts, unranked, send him a message or view his profile

Thu Sep 06, 2007 12:48 am

Interesting you make the point that the market controls the price, but then you turn around and claim Apple slapped it's loyal customers in the face. You should have stopped with the market controls the price because Apple didn't promise its loyal customer's anything regarding price. If it is true Apple is having trouble moving inventory, then lowering the price is a matter of self preservation.

As far as Version 2 goes, I doubt you will see that until well after Apple releases Leopard. A price drop is one thing, releasing a new product is another.

Funny people do not get all mad when they go into a supper market and pay full price for some Twinkies, but the next day the same super market is holding a buy one get one free sale (essentially robing the customer by fifty percent). Or how about when you buy a fifty dollar pair of pants, when two weeks later they are placed on the half off clearance rake. It is a given that practically everything you buy in a store December 24, will be significantly reduced in value by december 26. This stuff happens everyday.

If you can't deal with living with the deal you made, don't shop.

diverreb wrote:
OK... Reality check here guys.... The only reason for the drop in price is the iPhone is not meeting the target sell through to the consumer. Apple took a calculated risk by teaming up with AT&T because Verizon wouldn't meet all of the demands Apple wanted to put on their perspective partner. That's a huge hunk of the market that was left out in the cold. They also underestimated the importance of not having a high-speed network. The "must have buyers" are all gone now and the rest of the market is slow to jump on the band wagon. Sure it's a great product, but version 2 will be even better, cheaper, and hopefully faster.

If it were a hot product Apple would continue to hold the distribution for themselves, but soon the phone will be flowing through other outlets to help boost demand.

A price reduction of $200.00 after only two months is a slap in the face to the loyal customers who forked over the full retail, as well as the folks who bought the lesser model.

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A guest said: (hide)

Thu Sep 06, 2007 12:52 am

Maybe I'll get an iPod Touch and just act like I'm talking on it.

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mmsfo said:

member since 06 Sep 2007 with 3 posts, unranked, send him a message or view his profile

Thu Sep 06, 2007 2:08 am

I took my receipt for the $599 iPhone I bought 12 days ago to the San Francisco Apple store, and was credited $200 plus sales tax is less than five minutes. It might be more complicated if you have passed the 14-day return date, but I got the impression that Apple was honoring reasonable claims.

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A guest said: (hide)

Thu Sep 06, 2007 10:42 am

How is selling 1 million in the first quarter and accounting for 1.8% of the US market in July (above their target) flagging sales?

Good article, spells out rationale for the cut: http://www.roughlydrafted.com/RD/TechQ307/Entries/2007/9/6_Apples_iPhone_Price_Cut_Unleashes_Complaints.html

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rjackb said:

member since 08 Dec 2005 with 37 posts, unranked, send him a message or view his profile

Thu Sep 06, 2007 9:16 pm

rjackb wrote:
... I think the right thing for Apple to do, especially given that a significant percentage of the early-adopters are probably very loyal to Apple, would be to offer a gift certificate to the early adopters of anywhere from as little as $50 to as much as $150, or even $200, that is redeemable at an Apple store...

Steve must be reading my posts .

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A guest said: (hide)

Wed Nov 14, 2007 1:20 pm

I really liked the iPhone's overall design, interface, and the ads were captivating. However, something on the side of my head - I don't let those voices get to the back of my head - told me to wait. So I waited, no knowing for what, and then the reviews started coming-in, the news of the price-cut fell like a bomb-shell, and all the hype is starting to fade away. Most importantly I discovered the Hipster-PDA!..

Would the iPhone become the next NeXt?... Only time will tell.

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