The iPhone

You know, a few years back, one of my assistants at my old job, both of us Mac users, were musing.  The iPod had just come out, it was pretty, but still small, I think it topped out at 4Gb of storage.

So we had the idea that one day in the future, that Apple would produce a phone based on the iPod.  It would be called the iThing. What would it do?  Everything, we theorized.  In addition to making phone calls, it would let you browse the internet, send email and instant messages, watch movies, listen to music, it would connect to your computer, your car, your refrigerator. It might even cure cancer, but we knew we might be out there on that one.   The price tag?  Well, naturally somewhere in the $1300 range.

So we were wrong on some of that, obviously.  To my knowledge, it doesn’t cure cancer, at least not this version.

Ah, but the price is where we were really wrong.  There are 2 versions, one 4Gb and one 8Gb, costing $500 and $600 respectively.  But what is the cost to produce such a wonder of technology?

Apparently according to this site, the 4Gb cost $200 in parts, and the 8Gb costs $220 in parts.  Soooo….  the profit margin on the 4Gb model is $300 and for the 8Gb its $380.  Well, thats a helluva ROI, wouldn’t you say?  This is so Steve Jobs.  He is putting immediate profit above really affecting the market.  He did the same thing with the iPod when it first came out, made it really expensive and restricted it to Mac only.  He eased up on that restriction later on, making millions again over night, I’m sure when someone pointed out to him that he was only marketing to 3% of the computer market.

Here is the mistake.  If he priced the object in question, this time the iPhone, below its competitors, it would very very quickly take over the market.  Look at what happened during its release.  People lined up around the block to drop 5 to 6 hundred dollars a pop for what will be an obsolete piece of tech in a year.  I’m hearing that they have sold 700k units to this point, and with a based profit margin of $300 per unit, Apple just pulled in over $210 Million dollars.

But imagine, that they priced it a bit more reasonably.  Put somewhere in the $300 range, imagine how many units they would move.  Apple, just getting into the cellular communication market, could become one of the leading producers of cell phones over night.  They could lock down that market so hard and fast that Motorolla and Blackberry would probably lose most of their market share over night.

But this is not the Steve Job’s way.  The Jobs’ way is to milk it for all its worth right out of the box, and this is exacly what cost Apple their position as a leading computer manufacturer all those years ago, and this continues on to the present day.  They price their products such that they are the Jaguar of computing, a term that Jobs hates.

I think all I’m trying to say is that, Apple’s mistake is always to go for immediate profit over market position.  Hey don’t get me wrong, $210+ Million dollars in a day would be nice, but if they thought about things in the long term, they would be more profitable.  This is the difference between the Gates’ and Jobs’ philosophies.