iPhone “Rebate” is the right thing to do

Steve Jobs Open Letter to early iPhone adopters is the right thing to do.

I’m not sure it’s the perfect response. I’m not sure there is a perfect response, but after being royally ticked off for over a day (I heard about the price drop yesterday when it happened, but didn’t hear about the $100 credit until late this evening), my immediate response was “I can live with $100.” That response came on as fast as my anger at the news yesterday, before thinking or processing kicked in.

Yeah I would have liked it to be the $200 credit I heard some folks got from AT&T. Yeah I would have liked it to be the $150 credit on Apple Store orders that I heard others got from getting the right person yesterday. Both of which may have been fiction (not that anyone lies on web forums), or have been for people who were more recent purchasers, however if you noticed in the Open Letter, Steve said the $100 would only be for those who are “not receiving a rebate or any other consideration” which leads me to believe that some people did do better than the $100 announced today.

The Initial Response

I spent some time on the Apple Discussion Forums yesterday and watched people demand cash back and thought to myself “That’s never going to happen.” The simple logistics of it, not to mention the accounting nightmare.

Others were saying they would pirate Leopard or other Apple software in retaliation.

One particularly ridiculous commenter on the Apple forums who threatened to go into his local Apple store and “accidentally” break $200 worth of merchandise. Actually I think he was talking about breaking a display model of the Apple Cinema Display. Then he was going to sprinkle himself with pixie dust to disappear before Apple employees called security. Or something.

Clearly rational thought was not operative…. on either side.

Many, many, many users indicated that their complaints (posted in threads on the iPhone Discussion Forum) were being deleted almost as fast as they could post them. Censorship does not reflect well on Apple, and I hope they will be better prepared in the future. Better to suspend the discussion groups for a cooling off period than deleting that which is unpopular.

Apple Reporters Chime In

Anger about the iPhone price-drop threatened to bury the iPod news. Even the immediate response to the event had to address it. John Gruber wrote soon after the news broke:

…for those of you who’ve already bought one and are pissed about the price cut, if you didn’t think the iPhone was worth $599, you shouldn’t have bought it. That’s how supply and demand works.

His response really surprised me. Except for his inexplicable devotion to the world’s most annoying baseball team (seriously John, it’s like rooting for OOXML), I usually find myself agreeing with his opinions. The “suck it up” response struck me as a bit cold.

He certainly wasn’t alone. As he later linked, Steve Jobs said in a pre-rebate interview:

Q: What do you say to customers who just bought a new iPhone for $599? Sorry? A: That’s technology. If they bought it this morning, they should go back to where they bought it and talk to them. If they bought it a month ago, well, that’s what happens in technology.

Another quote John highlighted under the header “No Longer Joe Cool.” about those who felt stung by the price drop:

But now the self esteem kicks in. He’s no longer joe cool on the block. In fact, any schmuck with $200 less can buy one and laugh at him. That is why people are upset. Being laughed at, poked fun it. It was all good as long as they had the phone that others could not afford. Now more people can and those early adopters are less special.

Again this struck me as completely… cold. Or rude. Or dismissive. Or arrogant. Something like that. Actually what it sounded like was that he was describing an absolute caricature, an edge case so far removed from what I presume to be the norm that I’d call it Artie Macstrawman’s little brother (Artie MaciPhoneguy?).

Then I read a Macworld editorial, introduced in the RSS feed with these words:

Apple slashed the iPhone price by $200 Wednesday, and some early adopters are steamed. Peter Cohen isn’t terribly sympathetic.

And when you actually read the article he goes on to say “I didn’t pay that, so I’m gloating right about now. ”)

Gloating? Really?

Gloating that almost a million of us gave Apple an extra $200 for 2 months to spend with the iPhone?

Peter Cohen, while looking over your mangled body at the scene of an accident: “Well, when you left the house that you might get run over by a bus. You knew the risks.”

Peter Cohen, on hearing that you’re getting a divorce: “Sucks, but you know, about 50% of marriages end that way. You knew the risks.”

Ok, so the iPhone price break wasn’t quite on the level of either of those two life events, the point is that it’s fairly cold. Or rude. Or dismissive. Or arrogant. Something like that. Aha, it’s Nelsonesque to gloat at someone who has essentially thrown away $200 and already feels upset about it.

I didn’t expect a Macworld editor to kick us while we were down.

Maybe I’m not the usual case, but…

I didn’t buy the $600 iPhone to be “Joe Cool” and I don’t give a whit that anyone else can buy one for $400 today. It won’t make me feel like less of a man or less special.

It simply made me feel I had been taken advantage of.

I wasn’t one of the ones who stood in line waiting for an iPhone. My contract with Sprint expired on July 4th. I bought an iPhone a few days early because I live two hours from an Apple store and my AT&T store had a few 8GB models in stock.

My decision to buy an iPhone came after doing careful comparisons between it and a new Treo (see PalmAddicts: Which is more expensive: a free Treo 680 or an iPhone?). I made a decision to spend more up front compared to spreading it out over 2 years. I gave up a lot of Palm OS software I had invested in, because the iPhone was the best tool for the job. This is the same reason I bought a Treo a few years ago when I had to replace my Palm and my cell phone.

Yes, I knew that the price would go down. Everyone knew that. No one, no one, no one expected it would be this fast. Not Crazy Apple Rumors, not AppleInsider, not FakeSteve, no one. There was not one hint that it would come this fast. It is, I would wager, unprecedented in its speed. Yes, the Razr went from $500 to free. Yes, you can now (several years after it first came out) get a Treo for free. But $200 after 2 months? Can anyone point to one other comparable example, even in the “bumpy” road of technology?

Steve is calling this a price reduction for the “holiday season” — um, what holiday? Labor Day? I expect a white sale at Penneys and perhaps car sales. But cell phone sales?

Oh, you mean the Christmas holiday season? Since when, since when, does the holiday shopping season start in September? Yes, new iPods come out in time for the back to school season, but again, point to even one expectation that the iPhone would drop as part of the new iPod releases. If this was so predictable, who predicted it?

Yes, I expected a price drop, maybe in November, maybe in January. After following Apple product releases for the past few years, I expected 4-5 months, maybe 6. So why didn’t I wait? My Treo was wearing out (the “w” was iffy) but for $200 I would have put up with it for 2 more months.

(Oh, I also thought that I’d be able to get a corporate discount and a bundling deal as I have AT&T for my home phone. Apple refused to let AT&T give any discounts on the iPhone. They made sure to squeeze us for every last dime.)

$600 was more than I wanted to spend, but it was the going price. I, like apparently most other people, saw the 4GB version as too limited and dismissed it almost immediately.

I could have bought a cheaper smartphone at the time, but it would have cost me more in the long-term.

But it was not money that I just merrily tossed into Apple’s record-breaking coffers.

Since July, I have looked at everything I’ve with an extra cautious I-spent-$600-on-a-phone eye. Yes, over the course of 2 years it would be cheaper than the alternatives, and like my Mac I would spend less time/energy/frustration trying to use it than I would my Treo, but that’s a seriously large amount of money.

So everything went under the microscope: new software, magazine renewals, new hardware, my Blockbuster Online account, even going out to eat. Maybe the above commentators would say that I shouldn’t have bought it. I needed to replace my smartphone, I use a Mac, what was the best other alternative? Another Treo and MissingSync? When the iPhone shipped, the current version of MissingSync couldn’t even sync contacts between the Treo and the Mac. The iPhone was the right decision. But it was very expensive.

So I bought it.

Yes I knew it would get cheaper, but I didn’t — and you didn’t, — expect it would happen nearly this quickly.

To hear that someone is “gloating” that it cost me an extra $200 to get 63 days of iPhone usage is insulting. To hear someone insulting me by saying that what bothers me is not being the cool kid on the block is its own kind of snobbery.

It was also not unreasonable to expect that Apple would do something.

That’s not just an opinion. Apple did exactly that before.

Remember the Aperture

When Aperture came out at the end of November 2005, it was $499. When Aperture 1.1 came out on April 13, 2006, they dropped the price to $299 and offered a $200 rebate to those who had bought it for $499.

December, January, February, March: four full months.

Did Steve Jobs tell them the technology road is bumpy? Did he tell them “that’s technology”?

Nope, he said “Here’s $200 to spend at the Apple Store.”

Why is it unreasonable to expect the same treatment for iPhone adopters? I suspect most would say it was largely because the early version of Aperture wasn’t very good. But if that’s the case, then why did anyone buy it? Unlike iPhone users, Aperture users had a chance to demo Aperture before they bought it.

The best explanation for the rebate is that Apple didn’t want to hack off its most loyal customers.

So why did they get $200 and we’re only getting $100? My best guess is that Apple was not approaching 1 million Aperture users on April 13th when they made that rebate. It was a small list of people. By giving them a rebate, they made some good press and didn’t lose out that much.

Reports are that Apple expects to sell its millionth iPhone this month. Assuming there are already 800,000+ iPhone users, each of whom is now getting $100 in the Apple Store, this is going to cost Apple a pretty penny — but those pennies came from us in the first place, so I don’t feel that badly for them in the first place.

Another oddity was the lack of mention of Aperture by Macworld or Gruber or any Mac site that I saw at least. It was mentioned fairly quickly on the Apple Discussion Forums.

Apple Caught by Surprise

What is perhaps most interesting to me is that Apple thought we’d all just accept having spent an extra $200 after such a short amount of time.

From TUAW:

…[an American Express price] protection-line operator said “the number of calls we’ve received about [AmEx customers wanting price protection on the iPhone] is utterly insane.”

Someone on the Apple Discussion Forums got through to the Apple store 1-800 number to complain and said that the salesperson he spoke with told him she had talked to more angry iPhone owners than people wanting to buy new iPods.

How many people wanted to buy iPods but couldn’t get through because iPhone users were jamming the lines?

In John Gruber’s response to Jobs’ open letter, he wrote:

I think it’s clear that Apple was taken by surprise by the magnitude of the backlash regarding the price cut.

John usually chooses his words pretty carefully, and I assume he did so here. His choice of words suggests that Apple anticipated some backlash but not this much. Otherwise, Apple surely would have announced the $100 rebate yesterday, which would have prevented 90% of the complaints.

Another possibility is that Jobs planned it so that yesterday you got $0 back and today you get $100, making him look very responsive and caring, rather than announcing $100 rebate yesterday and getting criticized for not giving enough of a rebate. But you’d have to be a serious conspiracy theorist to believe that, especially in light of the USA Today interview above.

I think Steve really just believed “that’s technology” would cut it.

John’s right that they were surprised by the magnitude of the negative response. “Magnitude” is a word normally associated with earthquakes, which are sudden, unexpected, disruptive, and potentially devastating. Yet more proof of Gruber’s careful word choice.

I also listened to Macworld’s Apple Event roundup podcast and they were dismissive of the complaints as well. One of them referred to a Macworld forum posting which read “Only in America would you hear complaints about a price break.” The others laughed in agreement.

Why the disconnect?

What are we to take away from the fact that so many Apple customers went against the perspective of not only Apple, but also (arguably) the best-known Apple blogger and the best-known Mac publication?

Apple, Macworld, Gruber, and many others seem to have had an “Inside the Beltway” moment here.

On the one hand, those who live & breath Apple, technology, news, gadgets, etc brushed off the price cut as “business as usual” or “that’s technology” or “tough sh*t” (which John didn’t say, but which was between the lines of a lot of commentators responses yesterday, including Jobs’ own comments to USA Today.)

On the other hand you have a bunch of people who may go a long time without thinking much about their Mac, or their iPhone, or their iPod. They bought them because they “just work” and they go on with their lives. Many of them are used to paying “the Apple tax” on iLife, iWork, new versions of OS X. They’ve learned that those “Upgrade Coupons” that Apple puts in the box are completely worthless, but they didn’t know it when they got their first Mac. They feel a little cheated when they have to pay full price for an OS upgrade. Meanwhile Macworld tells us it’s cheaper than Windows, and there’s this mentality that Apple is this little company taking on the world and we’re expected to give a little more.

Recently we’ve watched academic pricing get dramatically reduced or eliminated altogether. As I mentioned above, Apple made sure that absolutely no one got a break on the price of an iPhone or their AT&T rate plan.

The extremely fast price drop may have just be the last crack in a dam which had been waiting to burst.

For example, I probably don’t need a new wireless keyboard, but I ordered one the day it was released. Why? Because I use one daily, and having the MacBook-esque keyboard was going to make a small-but-noticeable difference in my daily life. My reaction to the price drop news? I immediately cancelled the order to recoup some of the difference.

The negative response caught Apple, Macworld, and others by surprise because they are so immersed in that world. Note that I’m not accusing anyone of being influenced by the so-called “Jobs Reality Distortion Field” which I don’t really believe in. Yes, I’m often amazed at how smooth Jobs is, and yes I often get wrapped up in listening to his keynotes, but witness the death of the iPod Hi-Fi, the cube, and various other projects, and you’ll realize that Jobs can only sell us that which we are willing to buy.

But if you spend a significant amount of time immersed in a culture, objective perspective is difficult to maintain. A friend once told me that she had an idea for a business called a “common sense consultant” where she would hire herself out as a non-expert that you could bring in to explain your plans for whatever project you were working on: designing a building, a specialty restaurant, a business, anything, and she would give you an outsider’s response. She believed, rightly, that a lot of boneheaded mistakes could be avoided if people outside the system had a chance to say “Wait, you’re planning to do what?!?!”

She definitely would have set them straight as to what to expect from the price drop news.

One Last Anecdote

Let me give just one, totally unscientific, statistically insignificant example of how this news was received by an “outsider.”

We were out to dinner tonight, and at the next table was a man who looked to be in his late 30s, early 40s. He was out with (I’m guessing) his wife, one set of parents, and another family member or friend. About 6 of them in all. During a lull in conversation at our table, I happened to overhear him say:

“Did you hear Apple slashed the price on their iPhone? …. Yeah, $200…. Imagine all those people who camped out and it’s already dropped $200…. Oh yeah I bet they’re pissed….. That’ll teach ’em.”

The outsider’s perspective here was clearly that A) they shouldn’t have bought so quickly, B) they shouldn’t have been so excited about the launch of a new product, and C) it was surprising even to the outsiders that the price had already dropped.

Apple absolutely does not want to douse early adopters in that much cold water. Yes, we all know that there will be newer, better iPods next year. But how would Apple commentators respond to the news of new iPods in November 2007 such as a 32GB iPod Touch for $199? They’d think it was crazy, that they were undercutting those who had bought them in the first place just a few months ago.

With Aperture and now the iPhone, Apple has given us a lot of reason to think “If there’s a significant price drop, they won’t leave early adopters completely twisting in the wind.”

One More Thing…

In the flurry of postings on the Apple Discussion Forums yesterday was a clear tendency of Apple Retail Stores (and perhaps Apple online as well) treating iPhone customers differently depending on whether or not they had purchased their iPhones at an Apple Store or an AT&T store.

I bought from an AT&T store because the closest Apple Store is 2 hours away. The idea that I might have to deal with AT&T over some form of rebate was chilling. I was greatly relieved to see that Apple was smart enough to include all iPhone customers, regardless of where we bought our iPhones. It may seem like an obvious thing to do, but I’m still very glad they did it.