Steve Jobs smart credit move

Steve Jobs smart credit move

Summary: When Steve Jobs yesterday told early iPhone buyers the equivalent of 'tough luck,' I like many others was pretty ticked off. On my personal blog, I said:Regardless of Apple’s economic gymnastics, I suspect it could be in for a rough ride in the coming weeks.

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TOPICS: Apple, iPhone, Mobility
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icon.jpegWhen Steve Jobs yesterday told early iPhone buyers the equivalent of 'tough luck,' I like many others was pretty ticked off. On my personal blog, I said:

Regardless of Apple’s economic gymnastics, I suspect it could be in for a rough ride in the coming weeks. While I am an unashamed Mac fanboy, I find it hard to believe the company has done anything other than shoot itself in the foot, generating a lot of badwill in the process. Such an apparent elementary error in pricing judgment so soon after the iPhone came to market cannot be an error in the conventional sense. Jobs is way too smart for that. It has to be deliberate. Therefore while you can always snigger at the people who jumped in early, there is a whiff of cynicism on the part of the company I find hard to stomach.

I didn't say that because I actually have an iPhone (I live in Spain) but because of Jobs confirming his a**hole status. If you do a Google search on steve jobs a**hole you get 857,000 hits, which makes Oracle CEO Larry Ellison look positively angelic at 59,400 hits for the same search term.

Today's announcement of a $100 store credit has done plenty to repair the damage. Jason O'Grady certainly thinks so and at first blush, I agree. But being the curmudgeonly accounting type I am, I have a slightly different perspective.

Digging around in Apple's latest quarterly earnings filing reveals that Apple sold $5 milliion worth of iPhones to June 30th, 2007. Petty cash in the context of $5.4 billion total revenues. Overall gross margin is pegged at 36.9% although earlier in the year Gizmodo estimated iPhone margins at 50%. That may have been true earlier on but not now. The recent sales price reduction will have tracked falling costs so it is fairly safe to assume that at the next earnings report, there will be an uptick in margin, especially following the introduction of the new generation iPods. iPhone sales will not have a massive impact on margin as they will come in at less than 10% of total revenue.

While Jobs will draw plenty of plaudits, he's done so in a clever way. On the one hand he plays directly to the heart strings of the Mac fanboys and girls because they get to 'spend' their $100 at his store. On the other, he mollifies Wall Street because he protects his margins. The real cost of redeeming those credits is likely $37-40 so with a bit of luck and a fair wind, Apple could come out net-net even.

The difference is that without the kind of blog media we have today that gives voice to these issues, do you think Jobs would have backed down? I doubt it. Regardless, it is a very good outcome for consumers and one that is sorely in need of replication in the enterprise world where customers are regularly charged premium prices for commodity products. It's such a pity that we see little of those dog eared price books in the public domain.

In the meantime, I wonder if Professor Bob Sutton will be downgrading Steve Jobs a**hole status. ;)

Image credit: Jaanus

Topics: Apple, iPhone, Mobility

Dennis Howlett

About Dennis Howlett

Dennis Howlett is a 40 year veteran in enterprise IT, working with companies large and small across many industries. He endeavors to inform buyers in a no-nonsense manner and spares no vendor that comes under his microscope.

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8 comments
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  • You're the 'curmudgeonly accounting' type and Jobs is the 'a**hole'?

    I don't see any difference.
    YinToYourYang-22527499
  • Can you be more specific?

    You write: "where customers are regularly charged
    premium prices for commodity products".

    Give some examples because the only ones ZDNet
    bloggers care to point out are the overcharges made by
    Apple on thumb-sucking acolytes. It's getting tiring.
    YinToYourYang-22527499
  • Total Whining Crap

    What happened to shopping around, deciding your budget, and making the best deal you can at a given point in time.

    What makes us think we are somehow entitled to price adjustments after the fact?

    Get real. Do you buy a house and expect the seller to re-write your contract 6 months later when the economy tanks? Of course not.

    Are you people adults or what?
    croberts
  • RE: Steve Jobs smart credit move

    Thanks all for entirely missing the point

    @croberts: when it comes to an iPhone you don't get to shop around: single supplier and all that.

    @YinToYourTang: I suggest you look the two terms up. There's a difference.

    Of course Apple can charge whatever the heck it likes - that's market dynamics. Note it was NOT those who were going nuts over buying the device in the first place (Scoble etc) who were making a noise. It was others who felt they'd been shafted. The fact Jobs backed down (and I'd wager that was a backstop position) tells me plenty.
    dahowlett9
    • You missed

      The iPhone is Apple's PDA, more or less. The market is the iPhone, and every other Windows Mobile device. Maybe even including the Blackberry. If you pick the iPhone, that was your choice. It's like saying that there is only a single corvette supplier and complaining about it. Go buy a mustang then.

      I don't see it. Just because it's Apple the rules should be different? Economics 101. Don't like it, vote with your wallet.
      croberts
      • your vote

        That's always your privilege but who said that tech buyers are rational?
        dahowlett9
  • If you bought a new car

    and the manufacturer offered a $2,000 rebate two months later do
    you think you'd get anything? Apple made a smart move with the
    store credit.

    As for the price cut, I believe that Apple base it on how successful
    their production ramp up was, suppliers ability to deliver significantly
    more components and their developing supply line, like Best Buy. If
    things were just "average" in these areas then the price cut would
    probably have been $100. The $200 price cut says to me that Apple
    is ready in terms of production capacity to blow out the originally
    planned sales level for the holiday buying season.
    Ken_z
  • RE: Steve Jobs smart credit move

    I think the best response to the iPhone credit move is Seth Godin in his post about making customers feel special. People were willing to buy the iPhone at a premium price. These people aren't worried about the money, they are more worried about being the special early adopters. I give Jobs credit for his quick, public response, but there are many other ways to make the fan boys and girls feel exclusive than to throw them a stupid in-store credit. http://sethgodin.typepad.com/seths_blog/2007/09/how-to-spend-20.html
    ewherrmann