Saturday, September 08, 2007

iPhone, Therefore i Am (...i Think!)

In which we ponder what appears to be an existential dilemma thrown up by Apple's baffling moves...

There can scarcely be any doubt that Apple's iPhone is among the most celebrated technology products in history. This admittedly ingenious little device can lay claim to several superlatives - coolest (great interface), most keenly awaited(announcing it 6 months ahead was a brilliant ploy), most innovatively marketed (they leveraged technology to the fullest, and let the media and the user community do most of the marketing - viral marketing at its best).

And sure enough, its post launch sales appeared healthy. Which is why Apple's latest move to cut the iPhone's price by a whopping $200 are puzzling at best. Equally baffling is the withdrawal of the lower priced 4GB phone from the market.

Although the price cut has been partially rolled back, and Steve Jobs has apologized to miffed iPhone owners, I must say that I find these moves utterly confounding. As a general rule, it is bad strategy to cut the price of any product, for several reasons: A price cut may be interpreted as signaling financial distress or desperation on the manufacturer's part. It can lay a manufacturer open to accusations of opportunism. It can arouse suspicions that the manufacturer's own faith in the product has been undermined, perhaps due to defects that have been discovered. It may cause unease among buyers, due to a feeling that the manufacturer knows something about impending market or regulatory moves that may undermine sales of the product. Or it may signal an overly aggressive posture to competitors, provoking a possible price war. This is not to say that a company can never cut the price of its products, but that such a cut should be effected only after really, really deep thought.

But the most important reason not to reduce prices is that customers who have already bought the product are likely to feel cheated. And it is poor strategy indeed to give an impression of betraying your customers' trust, however tenuous or unfounded that impression may be.

So what has prompted this apparently confused move from a company otherwise known for its razor-sharp strategy and very keen sense of what its customers want?

Jobs' explanation that this is how technology markets work is not entirely convincing. Even in the high-tech space, manufacturers do not cut prices of a product while it is still top-of-the-line - if they must, they wait at least until after it has been superseded by a more advanced product. And when that product has been in the market scarcely for 3 months, having prospective customers wait for a heavily hyped six months, a price cut looks even sillier.

The widely pilloried move, followed by the partial rollback and apology clearly show that the company has faltered. Of course, the apology does show that Apple's heart is in the right place, but then it is a half-hearted apology at best, tempered with admonitons that this is a risk that customers must expect when they buy technology products. Can it be that the company has lost its fabled touch? Is the appearance of an existential waffle a la Descartes justified, or is that reading too much into it? We can expect lots of analysis, both scholarly and otherwise, that tries to get at the bottom of the move.

For the moment, the horse sense view would appear to be that iPhone sales momentum is slowing as the initial hype and heady expectations ebb. And Apple is worried the iPhone will be a forgotten product by the time the all-important holiday season rolls around. And therein lies one lesson that we can most certainly take away from this development - that in the technology world, hype dies early, and yesterday's star quickly becomes today's also-ran. As the legendary Intel pioneer Andrew Grove said, it's a good idea to be paranoid.