iPhone: Perfect PR move by Steve Jobs

Steve Jobs gives iPhone early adopters $100 in store credit. This was the right thing to do (and a good PR move) and should appease the lion’s share of people who’ve felt wronged. Too bad it took the participation and public screams from thousands of customers to get this reaction.

What strikes me as perfect is the tone of the letter. It explains the situation well, the reason for the move (albeit at a high level), and has one of the best mea culpa’s I’ve seen yet, “…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.

The “technology road is bumpy” comment removes the USA Today customer-bitch-slap comment as a problem. Jobs ends the note with an apology. Overall, it just feels right and I’m impressed with the immediate reaction and one done so well.

Now on to my thoughts as a shareholder. The margin hit will be analyzed ad nauseum I’m certain (and the stock may drop even further tomorrow), but think about store credit and that most products sold by Apple enjoy high gross margins. From Apple’s recently filed 10Q:

Gross margin percentage for the third quarter and first nine months of 2007 was 36.9% and 34.1%, respectively, compared to 30.3% and 28.9%, for the comparable periods of 2006, respectively.

Considering other factors — and the higher gross margins in the Apple Stores vs. in the channel (e.g., MacMall or Best Buy) — one could guess that the net effect of this offer on Apple’s balance sheet is roughly in the range of $63 to $72. Certain accessory products like cases, headphones, software and the like have higher gross margins than Apple core products so it depends on what people buy to really see the effect on the bottom line.

Figuring an average store credit of $67.50 times a guesstimate on the number of iPhones sold to date (700,000?) would translate into $47,250,000. Sounds like a lot, but the gross revenue of those 700,000 iPhones is roughly between $350M and $400M and who knows about the kickbacks Apple is receiving from AT&T and other mobile providers slated to rollout soon.

They did the right thing to maximize the iPhone opportunity worldwide. The right thing by we early adopters. The right thing for the shareholders.

About Steve Borsch

I'm CEO of Marketing Directions, Inc., a trend forecasting, consulting and publishing firm in Minnesota. Prior to that I was Vice President, Strategic Alliances at Lawson Software in St. Paul where I was responsible for all partnerships at this major vendor of enterprise resource planning software products and services. Read more about me here unless you're already weary of me telling you how incredible and awesome I am.


  1. Steve, there isn’t much, other than high-margin accessories, you can even buy at the Apple stores (online or off) for $100. I know, I have a $100 gift card. And, an Apple store credit or gift card can not be used at the iTunes store or used to buy iTunes gift cards online. My guess is most will have to add bucks to their their credit to get anything they really want or don’t already have.

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