Let's get ready to rumble...
In the blue corner... a rotten old Apple: Steve Jobs.
In the red corner... a bunch of sour Apples: iPhone customers.
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Just 11 weeks to the day that tech titan Apple (Nasdaq:AAPL) launched its much-ballyhooed, hyped-to-the-max iPhone, some punters are already riled up.
Contrary to fears, it's not because it has a ton of early bugs, or because the service is patchy (and with exclusive carrier AT&T having spent $16 billion on network upgrades and locking iPhoners into a two-year deal, I'd certainly expect stellar service!) From what I've heard, the device has justified the hype so far, with many owners happy.
The problem: Some customers are miffed because Apple CEO Steve Jobs abruptly slashed the price. And with the iPhone set to hit the European markets in November, he's had to scramble to save face...
Apple slashes iPhone price
Last Sunday, Apple sold its one-millionth iPhone a full month ahead of schedule. A great achievement in just 74 days, for sure. But it was tempered because of some front office shenanigans.
Without warning, Apple slashed the price of the 8-gigabyte iPhone from $599 to $399 and discontinued the $499 4-gig version.
Cue lots of smoking keyboards, as ticked-off customers fired complaints to Apple. Okay, timeout. Sure, Apple was a little shifty and the speed of the price cut took people by surprise. But these folks knew what they were doing when they breathlessly bought their iPhones.
As with all new products (particularly in the cellphone industry), you know the price is going to decrease eventually and you'll always pay top dollar if you can't wait to get your hands on the latest, flashy gadget so you can show it off to your mates.
Nevertheless, Jobs didn't break the news very well. He initially told annoyed customers to 'go back to the store where they bought it and talk to them. If they bought it a month ago, well, that's what happens in technology.' Nice.
Once the sensitivity trainers got hold of him, however, he changed his iTune the next day, promising to '... do the right thing for our valued iPhone customers.' We need to do a better job taking care of our early iPhone customers [who] trusted us and we must live up to that trust.'
And right now, for Apple, this is a major issue...
Has Apple's image been tarnished?
Those who bought iPhones within 14 days of the price cut are eligible for a $100 credit if they opened the box, and a full refund if they haven't.
Okay, fine. But I'm pretty sure that Apple knew what it was doing from the start. Jobs & Co. aren't dumb. They had to know that early buyers would be unhappy with a hefty price cut just two months after the launch. So they probably already had the $100 credit in mind to make them look generous. But it doesn't do anything for those 'early' customers that Jobs mentioned.
The more important question is whether this has damaged Apple's thus-far pretty spotless image. There's no doubt that Apple slashed the iPhone price to broaden the customer base and sell more phones, once it thought it had fully tapped the initial wave of excited buyers. That could propel iPhone sales this holiday season.
But will loyal customers - the all-important trendsetters - who feel stiffed trust the company with future product launches? They may be less likely to buy early again if they suspect the price is going to sink just weeks later. This situation could result in weaker product launches. And that's not what Apple wants, with the iPhone building for a major European launch in Britain, Germany and France.
And here's one iPhone/Apple alternative you may want to consider...
The global giant who said 'No' to Apple
When it comes to mega telecommunications companies, you don't get much bigger than Vodafone Group plc (NYSE:VOD). Through its subsidiaries in Europe, Asia, Australia, South America, Africa, the Middle East and in the U.S. with Verizon Wireless, it's got a vice-like grip on the industry across the world. As of June 30, 2007, the firm had 232 million customers.
The stock trades on both the FTSE-100 in London and the NYSE (as American Depositary Shares), boasting a market cap of £89.6 billion and $180.9 billion respectively.
Earlier this summer, the company was vying to be the exclusive British carrier for the iPhone. But the bigwigs at Vodafone HQ quickly nixed the idea once Apple demanded too much revenue, as well as restricting content.
Instead, Vodafone backed off and left Britain's O2 to partner with Apple in the U.K., while T-Mobile and Orange will become iPhone carriers in Germany and France respectively. But that doesn't mean Vodafone is sitting on its hands - far from it. Rather than getting into bed with Apple, it's going into all-out battle with it instead...
Can Vodafone compete with the iPhone?
Just as the iPhone will hit Europe in time for Christmas, so too will Vodafone's new MusicStation product - a music subscription service, designed to appeal to the company's 17.4 million British customers, who will be able to access it on existing Vodafone handsets, plus new customers.
The difference is that unlike the iPhone, where you're forced to cozy up to Apple alone because it's not 3G data network-compatible, MusicStation uses multiple operators' networks and allows for more choices.
It's the brainchild of Rob Lewis, CEO of tech firm Omnifone, and a group of other British dotcom millionaires, who have agreed a deal with Vodafone. The service is subscription-based, charging £1.99 ($4) a week for unlimited downloads from major record labels like Sony, EMI, Warner Music and Vivendi. Lewis says, 'We hope to do for mobile music what Blackberry did for e-mail.'
To sweeten the pot, Vodafone has also launched a new range of smart phones from Nokia and Samsung, which will also hit the market in time for Christmas. And not only do they offer web browsing, they will do so faster than the iPhone. The only catch is that once subscribers stop paying, the music becomes unplayable. But Vodafone is hoping to attract customers who would ordinarily stick with the service and who are also keen to avoid running up a large tab on downloaded music. For $4 a week, they get as much as they want.
So can Vodafone compete with the iPhone in Europe? With unlimited music downloads, more choices from other operators, smart phones, and faster Internet speed, I think it can. It may not beat it, since the iPhone is certainly not going to flop in Europe, but Jobs & Co. haven't done themselves any PR favors recently and Vodafone offers a viable alternative. And if you fancy a flutter, the stock trades in New York and London under the symbol VOD.
By Martin Denholm, Managing Editor, Mt. Vernon Research for the Smart Profits e-Report, www.smartprofitsreport.com
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