Apple iPhone Price Cut is, Oddly, About the Buzz

Equity analysts and presumably some investors are said to be quite unhappy about the $200 price reduction on the eight gigabyte vesion of the iPhone, which now sell for $399, $200 less than the price consumers paid just three months ago when the iPhone launched on June 29. "Leaving margin on the table" is the problem.

Apple announced a credit of $100 for early buyers after the price reduction. The credit is a bit unusual. The timing of the price cut is quite unusual. Apple has in the past waited as much as a year to drop prices on a device.

Some say the move is a significant strategic and tactical misstep. Maybe. But Apple once again gets huge buzz, refocusing attention a couple months after the splashy launch. Lower than anticipated sales is unlikely to be a drive, as the company stands by its initial projection of one million sales by the end of the quarter.

It might sell twice as many. Nobody knows yet. Undoubtedly some thought was given beforehand to the customer irritation factor. The credit could have been part of the plan, not an afterthought when a hue and cry arose about the unfairness of the price cut for early buyers.

Yes, there is some margin hit. But Apple now stands ready to move past the "gotta have it" early adopter crowd and occupy other niches in the market. Just what niches is the issue. Everybody intuitively understands that a BlackBerry is "email in your pocket."

I'm still having trouble coming up with a simple description of what precise niche the iPhone occupies. It might be the "heavy iPod user who doesn't want to carry a mobile phone." The iPhone might simply be a communicating iPod. It doesn't seem quite right to say it occupies the "whole Internet in your pocket" position.

It might more plausibly be something like an "easy to use mobile phone" positioning, analogous to the way the early Apple PCs held that niche in a world of command line interfaces. Graphical user interface is then the idea; "mouse"-based instead of "C: prompt"; finger rather than scroll wheel or button.

With the price cuts, Apple gets a chance to establish something more like its ultimate market position, as enough users are aggregated to figure out how end users view the device. Right now it still seems to be a device whose niche is evolving.