Early iPhone Buyers to Get $100 Credit

By Michelle Kessler

SAN FRANCISCO — Apple is offering early iPhone buyers $100 in store credit in an attempt to squelch the backlash against a dramatic price drop.

In a letter on Apple’s website Thursday, CEO Steve Jobs said he received “hundreds of e-mails from iPhone customers who are upset about Apple dropping the price of the iPhone by $200 two months after it went on sale.” The price of the 8-gigabyte model fell to $399 from $599 on Wednesday.

Jobs said Wednesday that abrupt price changes were “what happens in technology” — an argument that proved unpopular with many iPhone buyers. Now, those who paid the higher price will receive a $100 credit for Apple’s online or retail stores. Details will be posted on Apple’s website next week.

Despite that concession, Jobs maintained in his letter that there is “always someone who … misses the new price.” He called it “life in the technology lane.”

Even with the credit, early iPhone buyers paid a premium of at least $1.47 per day for the 68 days that the higher-priced models were on sale. And Apple isn’t offering to return customers’ money. The only exception: Customers who purchased their iPhones in the 14 days before the price drop can get $200 back if they bring a receipt to the store where they made the purchase, Apple spokeswoman Natalie Kerris says.

Apple could do more, but the refunds should soothe some bad feelings, says Todd Dagres, a general partner with venture firm Spark Capital.

“At least it’s something,” says Marc Taylor, a 35-year-old computer sales engineer from Fort Lauderdale who bought an iPhone shortly after it came out. The quick price cut “hurt,” he says.

Electronics makers often lower prices. Motorola’s regularly updated Razr cellphone cost $500 when launched in 2004, but some models are now free with some service plans. Flat-panel TV prices decline about 30% a year. But Apple typically doesn’t make such deep cuts, says tech analyst Tim Bajarin with researcher Creative Strategy.

Bajarin thinks Apple kept iPhone prices high early to earn big profits. (Researcher iSuppli estimates that each costs about $280 to make.) Then it lowered prices to woo more customers, who would hopefully buy other products, too, he says.

Equity analyst Ashok Kumar at CRT Capital Group says the cause was simpler: disappointing iPhone sales. Apple has said it can sell a million in about three months. Apple shares, which fell 5% Wednesday, slipped another 1.3% to close at $135.01 Thursday.

Apple wouldn’t say if the lower prices were boosting sales. But Dave Moldavon, a 31-year-old director from Los Angeles, says his local Apple Store was packed after the cuts were announced. The offer was “too tantalizing,” says Moldavon, who bought two. (c) Copyright 2005 USA TODAY, a division of Gannett Co. Inc.