iPhone Price Review

[Admin]

Yesterdays price cut announcement on the iPhone in the UK has sparked interest back in to Apple’s first stab at the mobile handset market. If you haven’t heard already, the price of the iPhone 8GB model is set to be cut by £100 by both O2 and The Carphone Warehouse, and is part of a promotion running until 1st June. While those consumers sitting on the fence due to the price point may now be more convinced to roll with the purchase, what does this change really mean and why has it come now?

There is no mistaking that Apple got the recipe wrong in the UK (and the rest of Europe) – charging several hundred pounds for a handset (unsubsidised against its line rental package) on a tariff structure that, over the contract duration, would cost the owner a minimum of £630 in line rental is a deal that just doesn’t fit the current mobile phone market we have here. We live in a society that pays for its handsets but not it’s line rental or pays for its line rental and not its handsets, we’re just not used to paying a lot for our handsets AND our line rental.

Steve Jobs shows off the iPhone at a keynote speech

While high line rental, lengthy contract durations and no handset subsidies are one of the largest constituents to the lack of iPhone activity in Europe, this is by no means the sole reason for its poor performance. There are two other big reasons why this has not gone as planned for the Steve Jobs clan.

The first of these reasons is that, while from a design and GUI perspective the iPhone is excellent, it is technologically flawed. With such a comprehensive 3G capable network in Europe, we simply shun any smart device which cannot offer us high speed connectivity – especially those devices which promise us the best mobile internet experience (what’s the point in the best website rendering without the best browsing speeds)?

The other reason why the iPhone is flawed is that, again unlike the rest of the industry, the lack of vendors allowed to sell it and the ‘price fixing’ which seems so rife with Apple products cannot promote any decent competition for customers. Walk in to any high street mobile phone retailer and they jump all over you to offer the best Nokia or Sony Ericsson at the most competitive price – this does not happen with the iPhone, and even today’s price reduction has been a carefully organised strategy which has had to seek Apple approval.

So seeing that the iPhone price reduction is not simply one vendor trying to ‘do a deal’ and the other vendor has had to follow suit, this surely means the price reduction has come in for a reason – it has, specifically two reasons:

1. It comes as no surprise that the iPhone has underachieved. In recent keynote speeches Steve Jobs has been accused of massaging his figures, and when he talked about his millions of iPhones sold in Europe he failed to mention that was how many Apple had sold to its network partners, not how many had actually been purchased by customers and were being used. The reality is that many devices have been sitting in warehouses and stock rooms gathering dust as only the Apple fanatics and those flexible with cash and curious enough to try it have ventured in its direction. Those vendors with these stock levels want to (need to) shift them as, after all, they’ve already paid Apple for them and now need to resell them on. The move came from Carphone Warehouse because they simply invested in more iPhone stock than O2 did (although that was because they have more retail outlets). Similarly to the existing stock issue.....

2. A new iPhone is coming, which means that existing stock of the 2G iPhone must go soon or Apple’s partners will be stuck with them. It’s a ‘wine lake and cereal mountain’ theory, but a true one. We are likely to be more interested in the 3G iPhone because it has the technology Europeans demand, but it will also need to come in at the right price otherwise it will all go wrong again. Seeing that Apple are bound to sell the 3G iPhone for less than the 2G iPhone it’s safe to say those left with existing 2G iPhone stock will be battling to give it away, so it’s best to knock something off the price now and get things moving.

To actually see how the iPhone measured up in the UK against other competing devices (such as the Nokia N95) it would be nice to have some sales figures to analyse – sadly there are none. Both O2 and The Carphone Warehouse refused to release any official sales figures for the iPhone, and this has been the case for two reasons. Firstly, the figures are obviously poor – if they were good, both iPhone vendors and Apple would shouting about it. Secondly (because the figures are poor) Apple placed a ‘gagging order’ on its partners that prevented them from releasing any official sales statistics which was confirmed in January by spokespeople for both O2 and The Carphone Warehouse.

The key to iPhone success is not too difficult; market rate handset subsidies, the right technology and distribution through a competitive amount of channels including dealers and service providers. Why this has not been the case is, to many, a mystery - however the sceptical will claim that the handset cost, lack of channel availability and profit sharing that the networks have to provide Apple with has been nothing short of greed.