Thursday, October 4, 2007

iPhone price cut

Welcome to the mobile phone business, Apple! A mere ten weeks after introducing the iPhone, Apple has made some big adjustments. The company is slashing the price of its 8 GB iPhone from $599 to $399 in time for the holiday shopping season. The company is also phasing out the 4 GB version, which had sold for $499.

Handset price decreases are nothing new to the mobile space, but such drastic price reductions at such an early stage are a rude wake-up to Apple as it enters a market where it faces stiff competition. There's no question that the iconic iPhone is as slick as a device as the mobile phone industry has seen in sometime, and Apple is already transferring features such as the touchscreen to its new iPod devices.

However, after such a hyped introduction, it would appear that Apple hasn't overcome the resistance that we predicted in our June white paper - The iPhone: A Consumer Perspective. Granted, we know that Steve Jobs is definitely not referring to the iPhone as a "hobby" (as he did with the underperforming AppleTV). However, even with Apple's great history of developing intuitive and in-demand products, pricing is a big hurdle to overcome as consumers consider the purchase of an advanced mobile phone handset.

In Parks Associates' white paper we noted that only 3% of consumers surveyed in a recent study (Mobile Entertainment Platforms and Services: Second Edition) expressed a strong willigness to pay $499 or more for an iPhone. We're still not convinced that a $399 price point is going to spur significant dividends, either. At this price point, the needle only bumps to 4% of consumers.

Apple has enjoyed some great gains in the last few years, but it's got major challenges ahead of it if growth is going to continue. Recent defections from content providers away from the iTunes service and the company's need to convince millions of users to replace their existing iPods are among two key issues. Perhaps this is only a moment where Apple simply catches its breath before charging ahead, or it's a sign that even the great Apple has its limits. We're watching closely.

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