The $100 iPhone Rebate: The What and the Why

Illustration for article titled The $100 iPhone Rebate: The What and the Why

Steve Jobs and Apple announced the $100 Store Credit "rebate" for all iPhone owners that were eager enough to buy an iPhone when it first came out. The early adopters had enough faith in the company to buy early, even though it cost a good $500/$600. It's a great gesture, in theory, but let's analyze why they did this.

Third, even though we are making the right decision to lower the price of iPhone, and even though the technology road is bumpy, we need to do a better job taking care of our early iPhone customers as we aggressively go after new ones with a lower price. Our early customers trusted us, and we must live up to that trust with our actions in moments like these.

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Taken at face value, it's a great gesture to the early adopters, without which the iPhone would have tanked at launch. But if we dig a little deeper, we find out that there's not much loss in the decision.

$100 doesn't go a long way in Apple land. It can get you a keyboard and 3/5 of a mouse. It can you get an iPod shuffle and almost an entire set of spare headphones. It will buy you 5/6 of a Bluetooth headset. And this is just the cheapest items. Most people will use this $100 on something more expensive, like a Mac mini or as more of an incentive to buy a MacBook Pro or an iMac. Either way, the money's going back to Apple.

While we're poking around, what's up with the sudden price drop? What other product have you seen that dropped $200, or 1/3 of its price, only two months after it was launched? Did that product do well? Was it because the product was selling so fantastically that the manufacturer needed to drop the price? Probably not.

We're not complaining about "only" being offered $100 in rebate certificates. No, not at all. We think it's a great offer and a great gesture. But whether they did this because they really care about their customers, or they did this because people complained really, really loudly, is known only to Apple.

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And for those of you who bought the iPhone on a credit card with price protection, $200 in cash is better than $100 in store credit. And if you're really sneaky, maybe you can get both. Don't tell them we said anything. [Gizmodo]

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DISCUSSION

The sizable price drop and subsequent rebate makes a lot of sense for several reasons. First, if the iPhone launched at $399, there would likely have been more shortages at Apple Stores. iPhones would have sold for a premium on ebay, money Apple never would have seen. As it was, most people who bought iPhones early and then tried reselling on ebay sold the phones at cost or at a loss, or returned them to Apple. Thus Apple ensured adequate supplies of the product by reducing demand through a premium price.

Second, the rebate is actually much less of a cost. Apple has been sitting on hundreds of millions of dollars— which they have no doubt been incurring interest on. If they sold 600,000 iphones that are entitled to $100 rebates, they are only giving back $60,000,000— but they've collected interest on all that money for in some cases as much as 2 months, and they will continue to collect interest on the money until its redeemed at the Apple store.

Third, assuming Apple is getting a head hunter fee for customers who were not already an AT&T subscriber, they want as many new customers as possible. But canceling cellular services usually costs somewhere around $175. The $200 off is essentially a rebate on the cancellation fee customers incur when they switch to AT&T— and that Appple is presumably earning back at least part of from AT&T.