Apple's Golden Goose

Jobs makes surprise cuts

Less than 3 months after the most hyped product introduction of our time, Steve Jobs shocked the world when he abruptly discontinued the 4-gig iPhone model and chopped $200 off the price of the 8-gig model.

“That’s what happens in technology” was Job’s initial response to the outrage expressed by owners and critics alike. That’s what happens when a product is in trouble is my response.

Apple loyalists, who in some cases camped outside stores for days to be the first to get their hands on the all-in-one iPhone, now look foolish for being so quick on the trigger. The gall of Apple to cut the price so quickly was seen as a thumbing of its nose at its most devoted followers. Not a wise move. Even Apple legend Steve Wozniak personally blasted Apple in a recent article.

Not surprisingly, a negative PR firestorm erupted and public outcry was heard from the blogosphere to the media to the water cooler and beyond.

Jobs gives lame $100 credits

In a lame attempt to neutralize the negativity, Jobs then announced he was giving iPhone buyers $100 Apple store credits. Wow! Attempting to placate the 8-gig $600 suckers with a $100 Apple store credit is just adding insult to injury.

No cash refund, only store credit? In my experience, this never works out in my favor. Store credits usually make me buy something I don’t really want or need for more than the dollar amount of the credit. If it had happened to me, it would piss me off even more than the price cut.

How many things can one possibly buy for $100 in an Apple store anyway? Not too many. The only real product would be the iPod Shuffle at $79. But come on, the reason people are supposedly buying an iPhone the first place is the desire to have only one device that does it all. Ergo, you don’t need a Shuffle.

All this is not good news for Apple’s iPhone. Yes, they have told us the have sold 1 million phones. But that is wholesale not retail. For all we know, 500,000 phones could be sitting on the shelves at Apple and AT&T stores. And by most accounts the phones are readily in stock, as AT&T ads point out on almost a daily basis.

Also, I have never heard of a product, even a high-tech product, having its price cut so fast. Usually companies cut prices only when a next-generation model comes out that is faster, lighter and has double the memory. That didn’t happen with the iPhone nor did stiff competition arise. The only thing stopping the iPhone seems to the iPhone itself and its homage to the false idol of convergence.

If the iPhone were truly living up to anything near its hype, then Jobs is the dumbest person alive. Lesson number one in business school: You don’t drop the price on winners.

iPod Touch gets ignored.

The really interesting angle to this saga is the recent introduction of the latest iPod, the iPod Touch. Its launch has been mostly overlooked and usurped by iPhone mania. After the over-the-top iPhone hype and its dramatic price cut, the media were just not interested in giving much ink to another Apple product.

Furthermore, without any exciting new functions that weren’t already included in the iPhone, the iPod Touch has little news value. It is basically just a smaller iPhone without the phone or email access. Big whoop.

This disregard of the iPod Touch is tragic. The iPhone took the wind out of the iPod Touch’s sails before it got the chance to set sail.

iPhone - Convergence = Touch

The iPod Touch is brilliant. The iPod Touch is revolutionary. The iPod touch is everything the iPhone is not.

It you take all the convergence stuff out of the iPhone and leave in all the cool features, you end up with an iPod Touch. Not a all-in-one, but a great music player.

The iPod Touch is a high-capacity media player with a touch screen that connects to the internet and Apple’s new mobile store to buy music and watch videos.

The reason the iPod Touch is so great and the iPhone so problematic is that the two main functions of iPhone, the phone and music player, are at odds with each other.

Both a phone and music device are considered essential tools that people can’t live without for even brief periods. Both use a lot of battery power. Both are used for long periods of time during the day.

The disaster of sucking the battery dry while out for the day is easy to imagine. Out of the office and your cellphone battery dies? Disaster. Two miles out on a 4-mile run and your music player dies? Disaster.

Jobs loves to create cool things. And Jobs is a great salesman. Initially the media, the market and consumers eat his stuff up. But eventually you come crashing back to reality.

iPhone is distracting Apple

The iPhone is a distraction not an opportunity for Apple. A novelty product built on the technology whims of Jobs and another in a long line of convergence chasers.

In theory, everyone would like to carry one device, have one card in our wallet, shop at one store for everything and drive a flying car to work. But the reality is that none of these is ever likely to come true. It is not the way the world works.

Size, price, memory, and battery life always end up bursting the convergence balloon. From flying cars to media center PCs to N’Gage, Newton and the iPhone.

What Apple should have done is to put its marketing and PR muscle behind the new iPod Touch.

The golden goose.

The iPod is the goose that lays the golden eggs at Apple. Overlooking it and not giving it its proper attention is foolish. The iPod resurrected Apple from the ashes. The iPod is the leader in the growing MP3-player market. The iPod is the dominant brand in the U.S. with over 60% of the MP3-player market. Taking your golden goose for granted is unwise in the competitive and fast paced world we live in. Just ask Dell.

Apple has some serious work to do globally where its iPod is less than dominate and more than vulnerable. In Europe the iPod has only a 20% market share which includes a 40% share in Britain.

Distractions are not what Apple needs. A focus is what they need. The way to build a monster brand is to attain global dominance. Which is what Nokia did in cellphones, Red Bull did in energy drinks and Google did in search.

Clearly the time for Apple to launch massive iPod marketing programs in both the U.S. and the rest of the world is now, while the brand is riding high with ground-breaking technology and a heap of iPod killers lying in wait. But the distractions and confusion created by the iPhone are likely to slow the iPod’s momentum and keep it out of the fast lane where it rightly belongs.

Instead Apple is cooking the goose that has laid the golden eggs.

Comments

[Laura Ries]

Thank you for the lively debate. The iPhone continues to get the blogosphere buzzing.

[dennis]

Laura,

You are back peddling now.

You need to stick by your story and just admit you where drunk when you wrote it at 4 am.

[Laura Ries]

iPod was always brilliant and i have always looked at it that way.

(A post from Sept 2005: http://ries.typepad.com/ries_blog/2005/09/nano.html )

When iPod was first introduced, Apple computer sales were floundering terribly.

iPod was a new brand name in a new category. It wasn't a line extension, it was a Lexus. As a high-capacity player is was the opposite of the competition. The PR generated was outstanding.

As for Apple computers, after getting black and blue from the Win-Tel machines they should have focused on a segment of the market.

FedEx did just this. Emory was killing FedEx in the delivery business. So FedEx focused on overnight. At the time a small market. But they grew that market and made it important and dominant.

For Apple, our advice was to focus on graphic arts, a place where Apple was very strong already. Graphic arts is really a broad market that could include slide presentations, movies, photos, and many other areas.

Obviously there is a lot to say about Apple. I have several posts on it, have written articles and mentioned it in books.

[Chuck]

Laura says,
"That’s what happens when a product is in trouble is my response."

I appreciate your thoughts, but do you really think you know better than Steve Jobs? Do you KNOW that iPhones aren't selling well? Have you not figured out yet that Apple is not your typical technology company yet? Geez, everyone said the iPhone was too expensive, then when they cut the price it was too fast and too soon. They can't win.

"The only real product would be the iPod Shuffle at $79."

What about $100 in iTunes music, videos or movies for your iPhone? What about a case for it? What about software for your Mac if you have one, or a tech book, or printer or external HD? Apple sells a lot of products at their stores other than Apple-branded stuff.

"If the iPhone were truly living up to anything near its hype, then Jobs is the dumbest person alive. Lesson number one in business school: You don’t drop the price on winners."

If Jobs ran Apple like most CEOs they wouldn't be Apple. I for one am glad he didn't go to college. I can only imagine what Apple would like like with your business school logic.

"But eventually you come crashing back to reality."

What?! Macs are selling better than they EVER have been. There are estimates that they will sell over 2 million this quarter. And iPod sales are still growing after 5 years! And 270K iPhones in 30 hours? Apple's reality is a money-making machine. What's yours?

"A focus is what they need."

Are you kidding? What other company is more focused than Apple? MSFT? Intel? Dell? They would all KILL to have the kind of brand recognition and brand loyalty Apple has. Why? Because Apple is focused on delivering, not FUD like so many other companies. Apple's stock is at an all-time high and they are making more money than ever. Not focused? That statement is delusional.

"...a heap of iPod killers lying in wait."

If I have to hear that term one more time, I think I will vomit. Where are they? I keep waiting and I haven't seen them in five years. Good luck. Let us know when they arrive.

I just don't understand where you are going with this. Apple's stock is at an all-time high today. I know several people who LOVE their iPhone because it is very close to a truly convergent device. And with software updates it is only going to get better. Try that on a phone with fixed buttons. Your arguments sound way too MSFT-like: you can't imagine Apple having anything so great, yet the public has spoken and they are moving to Apple products in hordes.

This entire column is like reading a biased opinion based on pure speculation, no facts, dumb business school cliches and no ability to truly understand Apple as a company. I bet you end up on roughlydrafted.com tomorrow as Danial hands out a Zoon award to you.

[nobody]

You sound like a Republican. Which red state do you live in?

[Wow, did you step in it.]

Sorry Laura,

You've made a major mistake which completely undermined your "Apple Screwed Up" report. I'd reality check the facts on any future Apple column.

1 - Apple actually DID SELL 1 million phones to real customers in 74 days. The number DOES NOT REPRESENT 'SHIPPED' ("Zuned") numbers.

2 - From 1: As we move on, the iPhone introduction will be historically noted as the most successful product introduction ever. You'll see that "You don’t drop the price on winners" doesn't apply here. Jobs is shooting for dominance in high powered cell phones and reducing the price will speed Apple's takeover.

3 - You're right about the Touch. It will absolutely kill AND it will kill along side the soon-to-be dominant iPhone lineup (expect at least 3 iPhone models in 2008).

4 - You're also right about the $100 rebate and some other poor customer moves by Jobs. But, he is a quick learner and will be more sensitive and humble in the future.

Regards,

[Popsa]

Are you familiar with the GEICO "Caveman" spot where the "Analyst" on the fake talk show says: "We live in a society where the individual ego is at the front"?

When prompted for a response, the caveman says, incredulously, "What?"

Exactly.

You also probably said Apple should stick to their computer business when they launched the iPod.

"A novelty product built on the technology whims of Jobs and another in a long line of convergence chasers."

This blog post shows virtually zero insight. A complete waste of bandwidth.

[Laura Ries]

Credit note:

On September 7th all the media reported that only customers who purchased the $600 iPhones would receive the credit to compensate them for the $200 price cut. This did not apply to the $400 phones since they were being discontinued. The fact is Apple didn't sell very many of the smaller memory phones anyway.

USAToday, September 7, 2007

"Now, those who paid the higher price will receive a $100 credit for Apple's online or retail stores."

http://www.usatoday.com/tech/products/2007-09-06-apple-iphone-apology_n.htm

In reading Apple's website today, the credit offer doesn't mention which phones it applies to. I imagine in looking at it, it made more sense to just give it to everybody in an attempt to dampen the negative outrage.

http://www.apple.com/iphone/storecredit/

I appreciate you bringing this to my attention, Dale. But I don't appreciate you insulting my integrity. I take my blog posts seriously and I spend a lot of time reading several newspapers and many magazines every day to gather facts.

In terms of how Apple reports sales, they may not count Apple store purchases until they go to a customer. But the ones to AT&T are different and AT&T accounts for a huge percentage of phone sales.

[Aaron Chang]

Which device do you carry with you wherever you go? Which device do you use most frequently? If you answered "phone," then why not consider the iPhone? And even if you said iPod, why not have the added convenience of having your phone in the same device?

And the real golden goose is OS X and the Mac. iPod and iPhone and AppleTV etc., are all just golden eggs that have been strewn about to engage people's interest in the real thing, the Mac.

[Michael]

I'm sorry, but I just don't agree with you at all, Laura. As Dale Brown said, the $100 credit applied to both iPhone models. And the 4 GB had only accounted for about 5% of sales according to most analysts... which explains why Apple decided it wasn't worth continuing.

The $100 credit is actually worth a lot at an Apple store: a bluetooth headset, a second iPhone charger or even just $100 to spend in iTunes. To say that the only thing you can get is a shuffle is disingenuous. You can buy lots of things for $100 that will make the iPhone experience even better.

Apple has put its focus on the iPhone, yes, but I think that was the *right* thing to do. I *love* my iPhone. Your idea that convergence will never happen is idiotic. Before my iPhone, I had a phone and an iPod... and yeah, I took my iPod on runs and such, but I was never the guy that took it everywhere I went, because I simply don't like having my pockets crammed full of stuff. The iPhone, even in its present state, already works 100% for me as a convergence device. I have yet to use anywhere near the entire battery in a single day. And to imply that convergence is a pipe dream is ignoring all the advancements we will quickly make. One day *really soon* everyone will be carrying around one device that does everything.

I will never buy another iPod again. That is why Apple has put their focus on the iPhone. They know that once someone has it, they're never going to want to go back to two or three devices again. I will, however, be upgrading my iPhone as fast as they come out with better models.

That said, Apple definitely still cares about the iPod. The iPod touch is the only one that would appeal to me at all if I were looking for another player. The media might have neglected it a little, but the iPod touch will get lots of attention from consumers. The idea of an "iPhone without the phone" is *exciting* to most people, not boring. There are tons of people outside the U.S. or who don't want AT&T for whom it is a godsend.

[Morriss Partee]

Hi Laura,

You have to realize that re-defining a space through all-in-one technology IS the very core of Steve Jobs and Apple. That is exactly the strategy and history of the Macintosh... Apple IIs were the golden goose that paid for the all-in-one Macintosh to revolutionize Apple in its day, just as the iPod is the golden goose paying for the all-in-one iPhone to potentially revolutionize hand-held computers. I applaud Apple for continuing to pursue innovation and not sticking with existing sacred cows. That takes guts, leadership, and vision.

[Dale Brown]

The $100 refund was for both iPhones, not just the 8GB models. But don't let a little research get in the way of your vitriol.

[Guy]

Laura, you're mistaking the way Apple announces sales figures with how Microsoft does. The Zune announced they sold 1 million units, but that really was a wholesale number. Apple doesn't account for sales until they've either been shipped to the customer (online) or actually _sold_ through the retail stores.

Apple knows the iPod is still an important product, and the recent revisions make this obvious. However, they're acutely aware of everything with a chip also being an MP3 player and camera. If they ignore the phone market, and the movement towards device convergence some other nitwit would be whining about that and talking about how in 3 years no one will buy iPods because whatever crap Nokia puts out is 'good enough'. Microsoft won with 'good enough', but that was mostly with businesses, consumers are the target now, and consumers are much better at seeing the difference between 'good enough' and 'insanely great'. A big part of the reason iPod isn't as big in Europe is that a lot more people there are using MP3 playing phones as their media device

[Peter Cranstone]

Simply spot on. Excellent analysis and on target. The phone business sucks and is a huge distraction. Google is about to find that out as well.

Peter

[Dileep]

Hi Laura,
Nice Post :)

Just take a look at these blogs too-http://adformula.blogspot.com/2007/09/invading-content-part-1.html
we had been doing this for a while..not so intersting as yours still,
Warm Regards!