The $70 Million Giveaway
I am assuming on that $70 million figure, going on the idea that Apple will have sold a million iPhones by the end of September. The number may be higher.
And what I am referring to is this open letter by Steve Jobs, in which he announces the gift of $100 in store credit to anyone who purchased an iPhone so far.
True, store credit means that people may be buying stuff that carries a profit margin potentially as high as the iPhone did at $600; Apple is not actually giving away the full C-note. And it does seem fairly smart–this should relieve most complaints, as a $100 difference is easier to swallow, and Apple will move more goods and generate more good will. They will lose out on all the money those people would have spent themselves anyway, but in the end, Apple will do just fine. They do, after all, have gajllions of dollars socked away, and this much should be made up by the stock price rising another fifty cents or something.
Meanwhile, market analysts call this one an even trade-off: the lower price will entice a whole lot of new buyers in a competitive market, but that will be offset by the lower profit margin–which, if you recall, was one reason Apple stock went so high before.
There are those who are suggesting that the price drop is evidence that the iPhone is not selling as well as it should, but this flies in the face of a recent report which says that the iPhone is outselling all other cell phones on the market–a historic entrance by a new cell phone maker–and is firmly on course to sell the expected number of phones, 4.5 million in 2007 and 30 million by 2011.
It’s hard to imagine the 4.5 million figure–after all, they expect 1 million sales in the first three months; that means 3.5 million sales in the following three months? I know the holiday seasons are big sellers, but still. Since these forecasts (1 million by September, 4.5 million by December) have been around for a while, one wonders if the iPhone price drop were long-planned–that Apple expected to drop the price and so encourage a surge in sales for the end of the year. Or maybe they’re just counting on sales in Europe to be pretty big.
Another element to the equation: the price of making an iPhone dropped by about $54 since Apple started making them. iSuppli calculates that it costs $226.61 to make an iPhone, as of July; that still leaves a very healthy profit margin for Apple, even taking marketing and other costs into account.
That, plus a very strong new line-up of iPods, should do very well for Apple coming into the holiday season.
How much money they lose on the rebates depends on what’s available to buy. If people spend it all on low-cost items like headphones, it’ll hit them hard.
But software rebates, say, a Leopard upgrade, are basically meaningless to them. All they’ll have to pay for is the packaging. And if people use it to buy new laptops, it’ll just skim off Apple’s profit margin a bit (though they’ll still make a nice profit).
Just think who will be getting those rebates, too- early adopters that spend the most on high-end apple stuff!
Jjrs: Actually, the impact could be bigger; Apple loses little on software in the rebate deal only if the people doing it were not going to buy the software anyway. But if 100,000 people were going to pay more than $100 for Leopard and they use the rebates instead, Apple loses $10 million right there.
In many cases they might not have though. Most people I know with Macs are just thinking about buying a whole new machine when Leopard comes out, not upgrading their old one. And the intel-chips, great new imacs, and the rumored touch screen macbooks are going to make compelling cases to put that 100 toward a new machine.
They may want to grab lots of market share before other people jump in with similar devices, and in order to do that, they need a low price. The reason the price was high initially may be because there were no competitors, and limited supply, and they could therefore maximize profit w/ the high price. Now that the $600 buyers are gone and production is up, the can go after the $400 buyers, and then after that, the $200 buyers. I think all they care about is maximizing profit.
For more background and informed opinion on the subject check out I Cringely’s pbs post at:
http://www.pbs.org/cringely/pulpit/2007/pulpit_20070906_002891.html
Its interesting to say the least.
Hope you don’t mind posting a link to another web site, but after all, that’s how I found my way here from DailyKos a long long time ago.