iPhone Price Cuts Could Mean Its Doom?

I'll be on the air on Street Signs discussing what on the surface seems to be a provocative premise: That somehow price cuts could lead to the doom of the Apple iPhone.

Apple iPhone 3G S
Apple iPhone 3G S

We got a pitch today about a new book from Kevin Maney, technology columnist for USA Today, that opines, "Could lower pricing spell DOOM for the iPhone? It certainly did for the Motorola RAZR."

Wait, iPhone and RAZR in the same sentence? This is wrong on so many levels. Maney's book (I haven't read it yet) has a great theme to it, based on the pitch today: "Once THE super-fidelity (luxury) phone, the RAZR brand was destroyed when Motorola flooded the market, lowering the price from an original retail of $400 to in some cases $0."

The conventional wisdom is that Motorola somehow alienated its customer base with those price cuts because those spending more thought they were getting gypped. And what was once aspirational became commoditized instead.

But to suggest this could happen to Apple's iPhone misses the point of the power of the iTunes/App Store/iPhone/Mac ecosystem. Motorola failed for a number of reasons, not the least of which was severe managerial missteps, market miscalculations, the failure to bring new innovations to its customers, and the inability to figure out what the market wanted and come up with something to meet that need.

Apple's iPhone on the other hand is everything the RAZR -- and Motorola -- isn't. Think about it: As a smart phone, iPhone weaves itself into so many levels of a user's life that it becomes almost painful to switch platforms. It was easy to move from a RAZR to a Samsung to an HTC or even another Motorola handset. It was just a phone. But the iPhone is a platform, and its Mac OS becomes so compelling to its users that they can't imagine doing it any other way. It's a gateway to the net, a game-player, you're buying and downloading music and video and all those apps. Buying an iPhone is a commitment to the platform, the architecture and making a switch is infinitely more complex than it was for RAZR users.

And as far as innovation is concerned, sure, Apple is doing its part. Regular, if only incremental, improvements in both hardware and software keep the product interesting; but the robust App Store, with nearly 70,000 programs and over a billion downloads keeps the product downright fascinating.

And finally a word on those price cuts. Motorola may have alienated some users with steep price cuts, but Apple learned the hard way that quick cuts could lead to frustration among users. So Apple offered rebates, coupons, apologies and kept that community feeling alive. Disappointed customers, maybe, when price cuts came, but nowhere near "alienated."

Unlike the RAZR, price cuts will only expand iPhone's appeal and reach in the marketplace. And as long as component prices keep declining, and Apple brings R&D in house to cut costs even further, the company can maintain margins even in the face of falling prices. Motorola missed that boat almost entirely.

Steve Jobs told me long ago that iPhone was a platform, not merely another handset. It embodies everything Apple would be doing "next," he said. By today's standards, Motorola is almost anachronistic, and if anything, Apple learned some powerful lessons from Motorola's demise. Research in Motion and Palm learned the same lessons. Same with Microsoft and maybe Google too.

At the end of the pitch this morning, there's this: "Good news -- Apple is playing the game right. As newer models are released, prices do drop on older models, but Mac’s strategy of high fidelity (i.e. elite club for owners) and low convenience (i.e. price and AT&T) and continuous focus on “smaller and better” models should keep the iPhone on top for a long time."

In other words, we'll tee up a provocative topic that no one thinks has a RAZR's chance in the marketplace of being true, and then shoot it down.


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