iMproving iNnovation: Apple Becomes its Own Worst Enemy

Apple Inc. has been dominating the consumer technology market for the last few months, releasing the highly anticipated iPhone, which sold 1,000,000 units in a mere 74 days—a feat which took the iPod two years - and unveiling a new line of iPods just in time to poise themselves for a gigantic holiday season.

However, not all Apple customers are pleased; in fact, early iPhone adopters, who shelled out $600 to get their hands on the coveted gadget when it was released in June, responded angrily when Apple slashed iPhone prices by $200 earlier this month. In fact, so many irritated buyers contacted Apple that CEO Steve Jobs decided it would be best to confront the issue, formally apologize to the customers, and offer them a $100 store credit to either Apple or AT&T. And why shouldn’t customers be ticked? This is essentially the first time Apple has admitted to overcharging its customers.

Beauty Before Age?

An article posted on CRM Daily covers this topic in an interview with Jim Kane, a senior partner at Brookside, a Boston-based management-consulting firm focused on customer and partner loyalty. Kane tells CRM that, in the past, Apple had always adjusted product prices by either eliminating features or introducing new models at old prices. In the case of the iPhone, however, Kane points out that Apple simply cut the price on the existing model, just months after its debut.

He also calls attention to the fact that Apple has never been price-competitive, relying on a line of products that are innovative and stylish. Now that Apple is entering the highly competitive cell phone market, they are attempting to charge what is perceived to be an exorbitant amount for a phone, when people are accustomed to lower prices, or even a free phone with a long-term plan. Not to mention Apple is imposing additional loyalty by asking customers to commit to AT&T. Kane comments on this by saying “Are people truly loyal, or are they being held hostage? When people feel they don’t have a choice anymore, that will erode their loyalty.” Perhaps the reason for the quick price drop is because Apple knows they are on the verge of yet another technological revolution…

With the proper approach, the iPhone could easily become the next must-have gadget, especially after the kinks have been worked out, memory has improved, different sizes are available, and consumers’ current phone plans have expired.

A new type of iPod called “Touch” also hit stores recently, boasting many iPhone features, such as the patented touch screen, loads of memory, and wi-fi Web browsing.

This leads to some interesting questions: will the iPhone eventually mean the death of the iPod? Will the new iPod hamper the sales of the iPhone? Or will both products continue to be useful enough to remain independently profitable? All signs point to the inevitable extinction of the iPod.

Size Doesn’t Matter

In this day and age, consumers inevitably gravitate toward the all-in-one device: gadgets that are small and can function in a variety of ways. In this regard, the iPhone has the edge in multipurpose use, acting as a phone, Web browser, and mp3 player. And although the 8GB version currently holds about 1,200 songs, there is no doubt Apple will find ways to cram more memory into a smaller-sized version of the iPhone in later models (see: iPod vs. iPod nano). Apple certainly understands the challenges that lie ahead of them, and perhaps have even begun to look at the iPhone as their premium offering. A recent article in MacWorld states that tests on the new iPod show that its screen is inferior to the touch screen of the iPhone. Testers at Gizmodo report that “The iPod Touch’s screen turns black areas somewhat greyish, washed out shadow detail, with absolute blacks appearing shimmery.”

MacWorld also touched on the subject of the iPhone’s effect on the iPod, citing several reasons why the invention of the iPhone could very easily make iPods “historical anachronisms.” Diffusion Group analyst Brion Feinberg’s opinion is that “within the next few years, demand for stand-alone portable music players will peak and begin to slowly fade into the background,” and that “within 10 years, these devices will be relegated to museum shelves next to the vinyl LP and the 8-track player.”

Stop and think about it for a minute: why carry a phone and an mp3 player when you can have it all in one? Eventually the iPhone, as well as whichever similar phones become available in time—just as the Rio and Zune mp3 players mimicked the iPod—will be affordable and convenient, paving the way for the next technological revolution.

The iPhone has a bright future ahead, and Jobs expects to sell 10 million units by 2008; if and when that happens, Apple will be able to sit tight for at least a few years before they start thinking about iDrive or iCook—devices that will add yet another feature to the repertoire. As for now, the iPod will continue to flourish, as the iPhone still commands a hefty price and requires users to sign up with AT&T. As with any evolution, however, the process will be slow but steady.