iPhone anger pushes Jobs to apologize

The Baltimore Sun

SAN FRANCISCO -- In June, they were calling it the God Phone. Yesterday, it was the Chump Phone.

People who had rushed to buy the Apple iPhone over the past two months suddenly and embarrassingly found they had overpaid for the year's most coveted gadget by $200.

Apple, based in Cupertino, Calif., has made few missteps over the past decade, but it angered many of its most loyal customers by sharply dropping the price of its iPhone to $400 from $600 only two months after it went on sale. They let the company know on blogs, through e-mails and with phone calls.

Yesterday, in a remarkable concession, Steve Jobs acknowledged that the company had abused its core customers' trust and extended a $100 store credit to the early iPhone buyers.

"Our early customers trusted us, and we must live up to that trust with our actions in moments like these," Jobs wrote in a letter posted to Apple's Web site.

The rebate, at least, was enough to mollify some early iPhone customers such as Kevin Tofel, a blogger in Telford, Pa., who writes about mobile phones at a blog called jkOnTheRun. Tofel was so annoyed with the surprising iPhone price drop he was planning to make T-shirts that read, "I was a $200 iPhone beta tester for Apple."

"I just felt so used as a consumer," he said. "They hyped up the iPhone for six months and built up our expectations, and then they grabbed our extra $200 and ran."

But Tofel was pleased to hear about the store credit. "I think it was probably the best compromise from a PR standpoint and the right thing to do for consumers," he said. "I'm sure they are taking a lot of heat, but they are listening to their customers."

Jobs defended the price cut as the right thing to do and, referring to his 30-year history in the high-tech business, lectured readers about the risks and rewards of buying into a fast-changing and volatile market for consumer technology products. "This is life in the technology lane," he wrote.

While Apple's iPhone price cut follows the general pattern of falling prices, quickly knocking a third off the price of a high-profile product is unusual for any consumer electronics company, let alone Apple, which rarely drops prices.

Mobile phones tend to be more prone to price declines because the pace of product introductions is faster than for televisions or DVD players.

Ken Dulaney, a vice president at Gartner Research, said that in general starting high and dropping the price slowly is a smart strategy. By starting the price high, manufacturers can gauge early demand and reap greater profit from early purchasers who are willing to pay any amount to be the first with a particular device (so they can then write about it on their blogs). "It's probably a formula taught in business school," he said.

Jobs said the cut was precipitated by a desire to aggressively build demand for the product during the holiday shopping season. Analysts wondered if the reduction perhaps indicated sagging demand for the pricey phone.

"I don't think it's a stretch to deduce from this that maybe the rate of sales weren't meeting expectations, so they decided to drop the price," said Charles Golvin, an analyst at Forrester Research. "Bear in mind that Steve Jobs said at the last earnings call that they expected to sell a million devices in the following quarter. Maybe they recognized the trajectory wasn't going to get them there at that price."

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