Musical Counterpoint To The Hypothetical Humorous Aspects Of iPhone Pricing (And Other Things)

Putting aside the HD-DVD AACS hoopla of the past couple of days the news have been rather boring, so I decided to put a little (musical) spin on things.

No, I won't post the AACS key - I find it rather childish to do so, actually - "sticking it to the man", whatever "the man" is these days, is sooo 70's, and I've never been a hippy of any sort. The Streisand Effect on Digg was fun to watch, though.

Ain't Dell a Shame

(with apologies to Fats Domino)

The "Ubuntu on Dell" frenzy is doing the rounds, but I can't see that lasting - it feels more like a nice, handy (and cheap) club for Dell to threaten Microsoft with than true "diversity".

Remember, kids, Vista came with a new set of rules for OEMs, and although I lost track of the details, I wouldn't be surprised if Microsoft got the better end of the deal.

Dell is just playing Linux against Microsoft for a while, to see if it sticks. After all, what hardware manufacturer wouldn't love a good argument to sell more, pricier hardware?

Riffs on the iPhone

But on the Apple realm, things have been quite a bit more interesting. For starters, it's nice to see that John Gruber, besides taking on Ballmer, has made a lasting impression in Apple culture. The "Translation from PR-Speak" meme is probably one of the funniest things around these days...

His piece on the iPhone pricing (and Ballmer's view on it) bears some reflection. Here's a quote that a lot of people really ought to wrap their brains around, and that echoes my own feelings on the topic -

Why worry about the iPhone’s appeal to corporate IT? The iPod isn’t marketed to businesses and Apple has sold 100 million of them. The iPod is marketed to people, and the iPhone is, too. RIM sold 2 million Blackberry devices in its most recent quarter; Apple sold 10.5 million iPods in the same period.

I'd quote him regarding the iPhone's price as well, but that has always been pretty much a (non)-issue to me.

Suffice it to say that, say, an N95 costs around as much, and that a decent Windows Mobile smartphone is clearly on the same ballpark - whoever wants to challenge this notion with random figures fished out of a Google search should take a good, close look at operator subsidizing models, permanence contracts, and the like.

In short, whoever disses the iPhone on price alone simply doesn't know one whit about the mobile business. Microsoft, in particular, really ought to know better (in all senses).

Ain't No Price High Enough

(with apologies to Diana Ross)

But putting that aside for the moment, here's a neat little Marketing axiom for your consideration -

Price is a balance between the size of the market you want to start with and the overall revenue you aim for.

Like the iPod before it, the iPhone will start out as a high-end purchase and percolate downwards - moving from highly desirable to barely affordable in the process, and generating a bundle of cash for Apple.

Probably not in the same league (i.e., gross margin) as the iPod (since phones have more expensive innards in general), but surely enough to break even.

And, in case Ballmer hasn't noticed, Apple is doing a lot more than breaking even. Here's a quote from the latest issue of ATPM that drives home that point and summarizes a lot of things very neatly (emphasis mine) -

During the first calendar quarter of the year (Apple’s 2nd fiscal quarter), Apple shipped 1.517 million Macintoshes worldwide. During the same period Apple shipped 10.549 million iPod digital music players. The combined sales activity contributed to the most successful 2nd fiscal quarter in the company’s history. Revenue totaled $5.26 billion and net profits reached $770 million dollars. Gross margins, due to falling component prices, were an astonishing 35.1%.

If that isn't breaking even (and plenty of breathing space for launching a first generation of iPhones), I don't know what is.

Whole Lotta Shakin' Goin On

(with apologies to Jerry Lee Lewis)

And with that out of the way, I'll just skip to the really good bit on John's piece (as far as I'm concerned) -

Microsoft, Palm, Motorola, Sony, the other phone carriers (and maybe even Cingular, too) – the executives running these companies clearly have no idea how much the software user experience matters when you’re trying to create a gadget with iPod-like appeal. If they did understand, they wouldn’t have spent the last decade selling phones with such crummy UIs.

Having been on the inside for most of that last decade, I'd say John is spot on - except, of course, that there are very notable exceptions.

But it's pretty obvious that the iPhone has shaken a few trees here and there.

I'm sure a lot of people will have their own ideas about this - for the moment, I'll keep mine to myself.

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