Life of an Internet Entrepreneur

Apple announced today that it has sold 1 million iPhones in just 74 days, in a move that has the industry buzzing about the effect on software developers, cell phone manufacturers, and wireless service providers.

Steve Jobs, Apple CEO, stated that it took 2 years to sell the same amount of iPods. 

This development comes just a week after Apple shocked everyone and lowered the price of the iPhone to $399 ($200 off the original price).  That switch, while angering some past purchasers of the iPhone at the original price (who were eventually offered a $100 credit with Apple as appeasement), also allowed Apple to move more aggressively into the cell phone market.

It is truly remarkable how fast the iPhone sold at $599, and that added to mystery of why they lowered the price suddenly.

If we look closer at the environment Apple faces, it starts to make much more sense:

1) Holiday gift sales have been growing over the last decade (boosted by tech gadget purchases).  Apple knows a lot of money is about to be spent in the next few months by customers, but also knew that $599 is a lot to ask for a gift.

Apple likely had watched the oddity last holiday season.  During that period Playstation 2 outsold the Playstation 3 ($599), effectively cannibalizing the newer product.  Additionally, Microsoft Xbox 360 and Nintendo Wii outsold the PS3. 

The lesson learned: don’t try to push overly expensive products during the holiday if you want bulk sales, and keep the product at a price point that is still viewed as “special”, but not prohibitively expensive – this works out to around $199-399.

2) Apple is rolling out a whole new line of iPods which sport video screens and other neat features.  Lowering the price on the iPhone keeps the phone in the front of customers’ minds, and seeks to recreate the buying frenzy the iPhone experienced in its first few weeks out on the market.

3) Following the much publicized unlocking of the iPhone by a 17 year old kid and iPhoneSimFree, Apple realized that like it or not, the reality of an unlocked iPhone hitting the market was coming true.  By lowering the price of the iPhone, Apple reduces the value of the unlocking – why spend money unlocking the phone if you can get it for a low enough price to use the built-in service?

4) Many cell phone manufacturers are coming close to coming out with their own knock-offs of the iPhone (nothing like copying someone else’s idea), and Apple would be foolish to let them cut into the market simply because they are less expensive.

5) Ever since the iPod became a culture statement, with everyone from President Bush to Britney Spears partaking in it.  These days it is hard to go anywhere without seeing the “iPod zombies” walking around, oblivious to everything around them. The key to making this occur is making sure everyone can get one.  At $599 a pop, only the most well-off Americans could afford to purchase an iPhone. 

Basically Apple is saying “It’s good to get the suckers to buy it at that price, but we don’t really want to miss out on the general public’s money”.  This isn’t evil, since the early purchasers of the iPhone undoubtedly received a raised social status from their friends for having one so early on.

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