THE BLOG
09/07/2007 06:05 pm ET Updated Dec 06, 2017

iPhone Pricing, Stock prices, and Market Myopia

The news today is Apple stock falling hard in apparent reaction to Apple's announcement of either new iPods, a sharp drop on iPhone prices, or a $100 rebate for early iPhone purchasers. Take your choice, it's yet another example of how poorly stock prices analyze long-term business strategy.

The juxtaposition of the price announcements and the stock price drop are fascinating because good business strategy, once again, gets dinged by the market. Doesn't smart long-term business building ever make stock prices go up?

Dropping the iPhone price makes perfectly good business sense. It's related to the economics that make dumping illegal, gain share quickly in the beginning, combine a cool product with a more accessible price and win customers. Cell phones are extremely sticky compared to a lot of other goods, because of those long-term contracts. Sure, you can charge your price premium and skim the luxury cream off the top of the market, those high margins that market analysts love, but that leaves you, over time, with a small customer base and a target painted on your back. That kind of high-end price strategy was what kept the Macintosh from establishing the market share its quality deserved back in the early days when it could have been possible.

It's good to see Apple avoiding making the same mistakes too many times. It was priced too high, so get it down, and get it out there.

Of course it's more interesting news to quote the unhappy early users who feel somehow cheated by the price drop, but the long-term impact of combining the pricing with a $100 rebate is going to be good for Apple. Give the earlybirds some fun and exclusivity for a while, then give them a rebate, then give them a few million more fellow users.

I'm one of those earlybirds. I was on the Web about 3 minutes after sales opened on June 29. I bought a $599 8-gigabyte iPhone. I'm not offended that somebody else can get the same thing 10 or so weeks later, because I chose to buy when I did. Since I got my first computer back in 1981, everything high tech I've ever bought has been cheaper later on. I used it in the meantime. Will it keep me from buying early the next time something like iPhone happens? No, probably not. I'm a lot more offended by having to pay almost $300 to get the damn thing fixed when I dropped it.

For the record, I don't own Apple stock and I'm not really a stock market watcher either, and I'm not one of those quasi-religious Macintosh advocates. The axe that I'd like to grind is one I've posted about here at the Huffington Post before, stock prices reward short-term managerial thinking and penalize long-term strategy.