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Enough about Apple!

The mornings RSS News Feed reader is bursting with news and opinion about Apple (AAPL), the IPhone price cut, and who did what to whom and why. If you don’t know what I am talking about then consider yourself lucky because it is all meaningless noise.

The explanation is simple. There is a consumer slowdown. Apple is at the very knife edge of discretionary consumer spending. $600 Phones don’t sell in an environment like this. The price had to be cut more rapidly than planned to ensure market penetration. It is not some masterful marketing plan by Steve Jobs.

Apple is a great company. The iPhone is a killer product. I am not alone in that opinion.

What is unseen is that Apple has evolved from being a computer company to a consumer products company with a highly elastic relationship to discretionary consumer spending. People who are paying $500 more a month on their ARM mortgage aren’t going to be buying $599 iPhones.

We can debate the presence and depth of a consumer slowdown, but can anyone debate with a straight face that the iPod and iPhone are at the extreme margin when it comes to consumer discretionary spending? Why doesn’t anyone else see this? Am I mad? Discuss.

Discussion

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  1. Andrew,

    Spot on! And you are not mad; just very insightful, which makes you who you are (and we are thankful for that). The reason why others are not seeing the same thing has to do with analytical depth or, more precisely, the lack thereof. Religion is also based on the same principles. Namaste.

    Posted by Bill Baker | September 7, 2007, 12:12 PM
  2. As James J. Cramer puts it “Apple is a style play”. Isn’t it custom to have high initial prices to increase the cachet of said item? Just as with a meaningless upscale purse they have to start high to induce lust. I personally thought this was in the works before the subprime problems. They wanted to get a good christmas season. At most it seems it came early by only a few months. Following up on your **killer product** I’ll be impressed when I can get a dataplan that doesn’t charge by the kilobyte when you go over 5 Meg transfer per month. Cell phone systems are walled gardens of such pathetic backwardness. When I think of all I SHOULD be able to do now but can’t short of mortgaging the farm or not at all I realize how badly it sucks to have regulated monopolies. Its like a flash back to the bad old days of wired phones when you could not even buy your own damned phone equipment. I hope google actually buys the spectrum space and puts up some open network architectures.

    Posted by Fred | September 8, 2007, 1:02 AM
  3. Always appreciate your take on things, Andrew. However, rather than people thinking this is some sort of “masterful marketing plan by Steve Jobs” it seems people are thinking that Apple got caught with its pants down here and seriously miscalculated on several fronts. I haven’t heard anyone give them more credit than that, but I haven’t really been looking. After all, the consumer spending environment didn’t turn on a dime in recent months, did it? Apple had time to more appropriately position their new product before release. Personally, I can’t see this as anything other than an error. And that Apple is now a consumer electronics company is no real secret, maybe except to them.

    Posted by FGF | September 8, 2007, 1:23 PM
  4. When the first Apple computer came out, it was revolutionary. Matter of fact, I learned CPM and learned assembly language programming on it.
    When the iPod came out, it was easily the best mp3 player.
    When the iPhone came out a few weeks ago, it was clearly not revolutionary. It was pretty damn nice looking, but where’s the beef? 3G would have made this a must have, but EDGE is all we got. Specially when Apple is marketing it as not a cell phone, but a multimedia device. It is plain ole slow on the internet.

    Also, why did Palm hit gold with the Treo PDA line? Simple. It was business oriented. Businesses will pay the $350 for the device, and pay $80 per month for data, and pay $80 per month for voice. And marketing and sales people will demand it so they can do “work” while they are driving or waiting for the airplane to start boarding.

    Consumers simply will not. A few did, and now are bitching because Apple lowered the price. That’s too bad. My last house took a dive too but no one gave me money back.

    Anyway, Steven Jobs is human after all.

    Posted by Ed Draker | September 8, 2007, 4:36 PM
  5. I look at it this way. Apple only helps the cellphone industry. Everyone from Motorola to Nokia has stepped up their product lines. Even if you don’t buy the iPhone you will feel its effect. It may even cause other prices to go down. Who could justify chargeing more than $399 for a phone unless it has something better than what Apple has to offer.
    And as far as the $100 credit, Heck, I haven’t even got my freaking rebate on my Blackberry Pearl.
    I to would like for Apple to open the OS to the masses. But even if they don’t. We as customers will have better phones. Feel the effect. And if you don’t agree with me fine. (feel free to e-mail me xxx@yahoo.com). Email removed for your own safety…

    Posted by AJ Barnes | September 9, 2007, 5:05 PM
  6. For what it’s worth, my backgrouond is Healthcare Technology and Engineering. I have owned Mac products from the very beginning and continue to do so (Powerbooks, Towers, iMacs, etc), and also own Apple stock. My son and wife insisted I have the iPhone as a gift. I would not have bought it on my own. I have owned Nokia and Motorola (Razr) phones and consider myself to be pretty critical and demanding of technology products. That said, the iPhone is a game changer, as will be the iTouch. Pricey yes, but not so much any more. So it cost my son an extra $100 to be one of the first. you pay your money, you take your chances. As for these products being “on the extreme margin when it comes to consumer discretionary spending” I would say with a straight face that they are not. But the proof will be in the spending as we approach the Holiday season and the end of the current Apple quarter. I predict a blowout quarter with significant proportion of iPods in the iTouch category. their most expensive iPod product short of the iPhone. the technology of multi touch is a breakthrough. I watch consumers play with the iPhone in Apple stores with amazement on their faces. What Apple does right is they get the user interface. The vast majority of their competitors simply so not. It is that user interface that sets the Mac apart, it is that same user interface that sets the iPod apart, and the same ability to engage the user at the iTouch/iPhone level. People are williing to poney up more for the best. I was always told that you are never sorry for buying the best (not necessarily the most expensive, but the best). Apple was not the first to market with mp3, but they did it best. Apple may have made some strategic errors early on on the Mac side, but again, the best designed product. So too is the case on the iPhone/iTouch…their implementation is the best.

    We’ll have to wait and see who is correct, since none of us have a crystal ball, and in the end, none of us really know. Hindsight however does have 20/20 vision!!!!!

    Posted by Ira Tackel | September 9, 2007, 5:56 PM
  7. So are the big screen TVs. But GLW has been following the macroeconomy trend which Apple has been defying.

    Posted by yf | September 9, 2007, 9:38 PM