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Mon, 10 Sep 2007 Most iPhone owners happy with $100 credit

It was a smart business decision, that won't cost Apple nearly as much as people might think, says an analyst.

Gregg Keizer, Computerworld (US online)

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Apple's turnabout offer Thursday of a $100 credit to customers who bought iPhones in its first two months has brought most, but not all, back into the company's fold of the faithful.

It was also a smart business decision, added an analyst, that won't cost Apple nearly as much as people might think.

Late Thursday, Apple CEO Steve Jobs announced the credit as his response to customer complaints about the $200 iPhone price cut made the day before. Although he staunchly defended the discount – "now is the right time to do it. IPhone is a breakthrough product, and we have the chance to 'go for it' this holiday season," he said in his open letter. He also apologized and said Apple had stumbled. "Our early customers trusted us, and we must live up to that trust with our actions in moments like these."

Reaction on Internet message boards, including Apple's own, was swift and generally positive, sometimes extremely so. "Completely satisfied. Faith restored," wrote one user on the Apple support forum. "This is way more than a step in the right direction, this makes everything OK," added another.

Others, however, weren't satisfied. "I still feel it should be $150 but this is at least a better solution than giving some credit and others nothing," griped one.

And some remained mystified by the whole mess. "For someone presumed to be 'cutting edge,' Mr. Jobs appears to have suddenly misplaced his 'Marketing for Dummies' book," said a user identified as y-me. "In one fell swoop, he has cheapened his most impressive product, diffused its mystique, undermined thousands of loyal consumers, circumvented positive attention on new products with negative attention on an existing one, cast doubt on future product pricing ... and generally torpedoed a campaign under full sail."

It wasn't that bad, said Ezra Gottheil, an analyst at Technology Business Research Inc. In fact, he suspects that the credit wasn't pulled out of Jobs' hat. "This had to have been kept in their back pocket, ready to use if necessary," said Gottheil. "If people hadn't complained, they would just not have used it."

Apple's reputation also played a part in the decision. "They know that pretty happy customers are pretty important to them," Gottheil said. "It has to pay the cost of taking good care of its customers."

That cost is different for Apple. When asked if any other technology company would have bent to users' complaints about a price cut, with Microsoft and Dell offered up as examples for comparison, Gottheil first laughed, then said: "I can't think of any [others] that have this kind of relationship with their customers. I could see a specialized automaker doing this kind of thing, a BMW, maybe."

And by giving credit toward future purchases at Apple's retail stores or through its online shop, the company is getting a lot of goodwill for little cash. Assuming that Apple has sold 750,000 iPhones, Gottheil said, his back-of-the-envelope calculations estimated the expense at $25 million, tops.

"If they spend less than $100, they get less out of the credit," he noted. Now does $100 worth of products cost Apple that amount for the goods. "I suspect some of Apple's lowest-price items, like the shuffle and accessories-like cases, have much higher margins than say, the MacBook. And if they spend more than $100 [at the store], Apple is getting the profit on the purchase beyond $100."

Plus, Apple is getting people back into its stores, back online to shop its wares. "That alone is worth something," he said.

Bottom line, said Gottheil, the episode, complaints included, has a huge upside for Apple and Jobs. "Long term, this is a big win for them. With the unqualified apology enhancing the effect of respecting the customers, it's well worth [the $25 million]."

"It may be the best screw-up since 'New Coke.'"

The iPhone owner dubbed k2tha-izzo put it more poetically. "While I feel that this entire situation has ended up being a PR nightmare for Apple, I believe that what Mr. Jobs has done here is fair. This $100 credit is the cold steak that I'll press against my black eye from yesterday's punch in the face."

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