Squealing Swine: The Sad Position of early iPhone Adopters

If you’ve got a passing interest in Apple products and live within a few hundred miles of an internet connection you’ve heard the news: Apple dropped the price of the iPhone by a cool $200. This caused no small amount of grousing from the Apple faithful and the web was filled to brimming with the amassed squealing of the most pampered and well funded cell phone users known to man.

Apparently the shrill cries, or warbling emails as they case may be, were too much for Steve Jobs to withstand. After personally reading every e-mail sent to him about this topic Steve has decreed that Apple will be issuing a $100 credit to the early adopters of the iPhone. This seems to have mollified all but the most vocal and determined critics so Appleland has reverted to its usual form of one big hippy tech love in. Yay!

Forgive the following tangent: Steve read every single e-mail about the iPhone price drop? Personally? One would think that ten e-mails could be chosen at random and represent the general feeling pretty completely. In fact, it would be a safe wager that the following mail represented the consensus:

From: .(JavaScript must be enabled to view this email address)
Subject: Pricing change
Date: September 6, 2007 6:47:07 PM EDT

Dear Steve Jobs,

Sincere Thanks,
Chris Seibold

That polite e-mail notification is likely representative of the majority of e-mails but the tone is all wrong. The bulk of the e-mails probably read more like this:

From: .(JavaScript must be enabled to view this email address)
Subject: You [email protected]@rd!!!!
Date: September 6, 2007 6:47:07 PM EDT

Billionaire MotherFu#$%^,

GET BENT,
Chris

Which says the same stuff as the first mail but conveys the message in a different fashion. For the record I have used my e-mail address in the examples but that is not the mail I sent. The e-mail I sent for the sake of transparency:

From: .(JavaScript must be enabled to view this email address)
Subject: iPhone Pricing
Date: September 6, 2007 6:47:07 PM EDT

Dear SJ,

Your #1 online pharmacy! Check out our fake watches and porn!

That tangent was completely uncalled for, head to your local Apple Matters store for a free gift card worth exactly $25 in AppleBucks redeemable at all AM affiliates. Back to the topic at hand, the first thing we need to understand is Apple’s pricing. Apple, and in fact the great majority of businesses, don’t price products based on the cost of producing said product.

This is plainly apparent when looking at the cost of MacBooks. The black MacBook commands a $150 premium over the equivalent white MacBook for no other reason than people prefer, and will pay more money for, a black colored MacBook. For some that is a reason to be outraged, the black MacBook and white MacBook perform exactly the same, why would Apple charge a premium for nothing more than an added dash of carbon black in the plastic manufacturing process? These people clearly don’t understand how businesses price products.

The easy thing to think that business prices follow some simplistic formula. If it costs Apple a $1000 to build a computer they should reasonably charge $1500 for said machine. A moment’s reflection is all it takes to convince one that the notion of a cost plus profit pricing scheme is not only simplistic it also isn’t good business.

Imagine you manufacture oven windows. Due to a radical breakthrough you can produce an oven window for $1. Your competitors charge $50 for an oven window.  The industry (imagine) requires a million oven windows a year. Where will you price your new oven window?  The naive answer is that you’ll charge $1.50 per window. Congrats, you’ve just screwed yourself out of $45,000,000 or so. You would, in fact, charge just slightly less than $50. By pricing your oven slightly below the competition ($47.50) you’ll sell a million windows and rake in $47.5 million. Price your window at $1.50 and you’ll sell a million windows and bring in $1.5 million. The simplistic illustration is an example of profit maximization, businesses don’t try to charge enough to “get by” they charge as much as the consumers are willing to pay. Apple is no different, the company charges what research indicates consumers are willing to pay. You can get angry about the amount they charge but Apple isn’t in the game to make you feel good.

Now that we’ve established that Apple charges whatever the company thinks people will pay it is time to address the screeching whiners. In this case, the screeching whiners are also known as early adopters. Let us set up the scenario: Steve Jobs reveals the iPhone to a hungry crowd at MacWorld ‘07. The price justification is twisted logic at its best: it isn’t only a phone, it is an iPod and an internet device. If you purchased these things separately it would cost you an ungodly amount of cash but, thanks to Apple, it would cost a mere $599 plus a meager two year contract with AT&T. The only thing missing form the spiel was a bunch of hooting, a price cut and a set of free steak knives.

So the faithful buy into the pitch (they always do) and they buy into it for 6 months. That is right, they have six months to analyze whether or not the iPhone is a good value. And since they were standing in line to get one of the things they obviously decided it was a good deal. A deal they were willing to trade $600 of their hard earned money for. Well, that is until someone else got it cheaper.

And this is the troubling thing. The kind of people who buy the iPhone have cash, in fact they are flush with the green stuff. Face it, if your biggest worry in the world is that you look silly because you overpaid for an iPhone you don’t have many problems. It is a lot like going to a restaurant and throwing a fit because your steak is two degrees away from the ideal temperature. It is hard to imagine that any person who bought the iPhone got the cash by cutting back on essentials, can you imagine a scenario where a soon to be iPhone owner might say something like “I’m taking public transportation because I’m saving for an iPhone!” The reason that mental picture is so difficult to comprehend is because it is so wildly fanciful. On the other hand if you try to envision an iPhone buyer opting for a 1963 bottle of port instead of a 1945 bottleto save a few hundred bucks because of the iPhone, well that is a mental image that is not troublesome to generate.

So when Apple quells the crowd with a $100 gift card to the early adopters of the iPhone, people who waited, salivated and planned for the thing for six months you have to wonder if Apple is providing excellent service or simply paying off a bunch of vapid, style obsessed, shallow, overly moneyed individuals who like to yell very loudly.

And yes, I’ll be first in line for an Apple gift card.