iRate Over iPhone Costs? Join the Crowd

Let me be clear to start with, I don't own an iPhone and nor do I feel the desire to own one. I think the last cell phone I felt like owning was the Motorazr and I currently do have one. As for spending $600 on an iPhone? Forget it. But apparently there were enough people out there buying into the hype to stand in line overnight to buy one. I remember the day before the release there were hundreds of people camped out for the phone in places like Times Square. I think perhaps there is some appeal to doing something like this once in your life. Still, you only gain noteriety when you are the first in line or the first to buy something new like this. The rest of us are...well... groupies. Still, the iPhone is a neat little piece of technology that seems intriguing to a tech conscious person like myself but as the product stood at it's launch it wasn't so appealing to a guy like me.

I have been a loyal customer of Verizon for a number of years now and while I get annoyed with their "Can you hear me now?" ads, I will say that they have one of the better networks out there. That being said one of the immediate points of disappointment was the the phone was only available over the AT&T network. Now I know of quite a few people who are on that network and they aren't all that happy with it. What's the point then of having a high tech phone if you can't make and receive calls anywhere you want? Strike one! Then there were reports that the other great appeal of the phone was the fact that it could interface with iTunes so that you could use your phone as an alternate iPod. Great! No need to pay for the same music again! Your library can be on the phone now! Uh... no. Not exactly. There were reports that the interface didn't quite work that way and so you couldn't import your playlists to the phone. Strike two! And the final nail in the coffin, the price! Six-hundred dollars for a piece of technology that, while unique, doesn't function exactly the way you would expect? Strike three!

Now my tech knowledge has largely been an outgrowth of my father's interest in all things technical. Though he is a civil engineer by profession, he is a techophile by hobby. He has created virtual networks and wireless servers throughout his house and every weekend he seems to be on the forefront of some other technological discovery. One of the things he always taught me was that when new technology is released, it doesn't pay to be the first one to shell out money for the product. For one thing, (and being an economist I understood this principle), when there are a limited number of suppliers of something on the market, you can't search around for bargains. Apple is definitely one of those market monopolies. Sure there are other MP3 players just as good (if not better) than Apple's iPod but because of the hype and appeal of the iPod, it remains at the forefront. And because they are a monopoly, you will not find comparable products out there for any less. You pay for an iPod in England exactly what you would pay in America.

At least in that way then you know how much you will have to spend. The same thing happened with plasma and LCD televisions. At the outset, they were prohbitively expensive. It became the latest hype. You had to have one of these because it was the wave of the future. True, but it was also expensive as Hell. Sure I'd like to have one but I don't want to take out a second mortgage to pay for it. Over time, more and more companies entered the market and now, you can buy one for about as much as a couple of paychecks. What happened? Competition drove down the market price because there were options. Sure a Samsung might be better than a Sony but at these prices, you have the choice. Not so with Apple. An iPod is an iPod and there is no other. I guess the same could be said of the phone. Still, those desperate enough to want one on the first day would buy it no matter the cost or the bugs.

Steve Jobs, head of Apple, thought that the iPhone would tap into the same hype market as the iPod and so figured that as an exclusive product, they would be able to corner the market. Make a gizmo and they will pay! Unfortunately with the word getting round that the reality in no way lives up to the hype meant that people were getting ticked off and demand was dropping. Suddenly there were images of stagnating sales and losses in profits. What to do? Cut the price of course! Earlier this week, Apple announced that the company was cutting the 4 GB version of the iPhone and cutting the cost of the 8 GB model by $200. Well, seeing as how the product has been on the market for only a few months, you can imagine how this went over with the people who paid $600 a few weeks back. Yup. Not well at all.

According to statements by Jobs, this was always in the works and was always planned. And from an economics standpoint this theory makes a lot of sense to me. The basics of economics teach us that the perfect price for a product is at the market equilibrium where supply equals demand. Charge more and the company can supply more but demand will be reduced. In this case, Apple was selling the image of cool and by shelling out $600 you could have something that not everyone could have. I mean look at the iPod. You can hardly go anywhere these days without seeing those ubiquitous white earbugs sticking out of people's ears everywhere they go. Not so with the iPhone. You were going to be unique. At least until they decided to lure more people to the market. Again, this can be seen as a market correction to return the market to normal. You get buy in from the over excited hype believers and then get those on the periphery.

Remember the XBox 360 about two years ago? Sure Microsoft didn't produce enough to meet demand and I remember hearing so many people yell angrily at store managers and personnel as to why it was their fault (and not Microsoft's) that the store in question didn't have ample supplies of the product. Hype built and the supply eventually met demand and so the market stabilized. Now Microsoft also cut prices to the 360 by about $50. What was the result? More sales but not as many ticked off people. How come? Well, simply because it's been on the market for close to two years now and the demand has been largely met, now by cutting the cost by a bit, you appeal to those who may be on the fence. I think my 360 was a decent investment and I'm happy I have one. I waited for the product to also stabilize and the bugs to be worked out as anyone seeking to buy technology should.

People are ticked off now because they are buying a product that is not so different from other phones out on the market. Sure the iPhone has a slick interface and looks cool. I mean you honestly feel like James Bond with this thing but if you want to be James Bond, join the secret service or buy an XBox and play the game. It's going to be cheaper. Apple seems to have made this move a bit prematurely because they cut the price too soon on the heels of product launch. They also cut it by a lot. If you chop $50 from the cost (as Microsoft did) you can think in relative terms that it isn't much. When you cut $200 from the cost, then people are going to be pissed. I mean after all, what's the point in standing in line overnight to buy a phone if someone can now just walk into a store and buy one? Where's the sacrifice?