iPhone pricing and the Early Adopter Tax

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There was a lot of great news that came out of Apple’s “The Beat Goes On” event in San Francisco on Wednesday, but none that’s met with more controversy than Apple’s decision to drop the price of the 8GB iPhone by $200 to $399. The 4GB model also got a $200 drop, to $299—at least, while supplies of that discontinued model last.

The news that the iPhone would be a staggering $200 less—that’s a full one-third less than before, if you’re keeping track—has sent many iPhone fans into a frenzy. A lot of people are feeling ripped off right now, because they paid what I call the Early Adopter Tax.

I didn’t pay that, so I’m gloating right about now. In fact, I’m still not using an iPhone. I haven’t ordered one at the lower price, and at the risk of offending some of you, I think that $400 for a cell phone, even one as orgasmic as the iPhone apparently is, is still ridiculous.

You know, there was ample evidence to think that Apple and AT&T were going to cut prices on the iPhone sooner rather than later. The cell phone business is an incredibly volatile market, with new products entering the business almost constantly and service providers constantly looking for ways to attract new customers. (If you’re a recent buyer of an iPhone and you’re fuming about the extra $200, you may be in luck: Apple is offering credits to iPhone buyers who have bought their phones within the past 10 days. To get a refund or credit, you need to contact Apple within 14 days of shipment. You can contact Apple Sales Support at 800-676-2775.)

The Motorola Razr was the last phone to have anything even close to the iPhone’s sex appeal, and I’m sure that early adopters who paid $500 for the privilege of owning one in late 2004 felt badly ripped off when, if they’d only been patient, they could later get a Razr model for free, or even ultimately putting money back in their pockets, after rebates and incentives.

So it shouldn’t be any surprise at all that Apple has cut the price of the iPhone. What’s notable, especially on Wall Street, which pummeled the price of Apple stock following Steve Jobs’ announcement (down $7.40 to close at $136.76, more than a 5-percent drop) — was the magnitude of the price reduction and the relatively short amount of time after release.

Why drop the iPhone’s by such a big amount?

Pardon me if I’m skeptical of Apple’s beneficence here in what Steve Jobs called the company’s desire to “make iPhone even more affordable for even more people this holiday season.”

I expect the price drop to boost short-term demand for the iPhone to help Apple handily beat its previously stated goal of selling 1 million iPhones by the end of September, but I also see the price drop as a possible sign of weakness in the iPhone market. I think once Apple got through the first throngs of early adopters, it discovered that, as neat-o keen as the iPhone is, that $500 or $600 was just a little too dear for most of us to pay. It’s no secret that iPhones have been in plentiful supply at Apple and AT&T retail stores for the past few weeks.

Another factor has likely has played into investor fears resulting in Apple’s stock drop: Some analysts commenting on the price cut have suggested that it’s even likely to chill any “halo effect” Apple might see in future product sales from early iPhone adopters who aren’t already Mac or iPod users—after all, if they’re feeling ripped off, what’s the likelihood they’ll give Apple another chance?

At the end of the day, I didn’t understand Apple’s original pricing strategy for the iPhone—$600 was just stratospheric, and it was the single biggest roadblock that prevented me from pre-ordering one. At $400, the 8GB iPhone is certainly more reasonable, especially compared to Windows Mobile-based smartphones and other similar devices you can order from AT&T with a new service plan.

But let’s face it—there are a lot of other devices on the market that provide excellent features, albeit not with the iPhone’s revolutionary interface nor with its tight integration with Mac OS X. But those other devices cost markedly less money, thanks to subsidies and rebates you can get with new two-year plans, and you can close the sync gap dramatically using third-party products ( which I do, and which I’m very pleased with).

It’s just a shame that people who were so anxious to get their hands on the iPhone at $600 are now feeling the pain of spending all that money when people who waited can get such a better deal today. But as I’ve said countless times over the years to people who ask me for Mac buying advice, the best suggestion I can offer is to buy what you can afford when you need to get it, and be prepared to feel a pang of regret when the next, more improved model comes out, which will only only be too quick, as far as your wallet is concerned. Buyer’s remorse and consumer electronics go hand in hand.

Me? I’m still sitting on the fence for the moment. The iPhone may be the best iPod ever, as Steve Jobs says, but for $349 that 160GB iPod is looking like an awfully nice upgrade, and I still think that I can get by with my BlackBerry 8700 for a while longer.

Editor’s Note: After we published this blog entry, Apple announced that it would offer a $100 credit for iPhone owners who weren’t eligible for other rebates or refunds. Click here for Macworld’s news coverage.

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