Apple Giving Back To Early iPhone Buyers

In this undated photo provided by Apple, Apple's new iPhone is shown that was introduced by Apple CEO Steve Jobs during keynote address at MacWorld Conference & Expo in San Francisco, Tuesday, Jan. 9, 2007. (AP Photo/Apple, ho)
AP Photo/Apple
Faced with a huge outcry from customers who bought the most advanced model of the iPhone before a $200 price cut, Apple Chief Executive Steve Jobs is offering to give a little bit back to early buyers.

"We have decided to offer every iPhone customer who purchased an iPhone from either Apple or AT&T, and who is not receiving a rebate or any other consideration, a $100 store credit towards the purchase of any product at an Apple Retail Store or the Apple Online Store," Jobs wrote in an open letter posted on the Apple Web site.

Jobs acknowledged that Apple disappointed some of its customers by cutting the price of the iPhone's 8-gigabyte model and said he has received hundreds of e-mails complaining about the price cut.

"Our early customers trusted us, and we must live up to that trust with our actions in moments like these," Jobs wrote.

The letter says the details of the rebate are still being worked out and will be posted on Apple's Web site next week.

"Many loyal Apple customers who paid nearly $600 felt that that they had been punished for being an early adopter," said CBS News technology analyst Larry Magid. "By giving them $100 store credit, Jobs not only hopes to make them less angry, but Apple gets another benefit. It brings them back into an Apple store where perhaps they'll spend more than $100."

Apple's price cut of its iPhone and the new lineup of iPod players are expected to ring in healthy holiday sales, but Wall Street investors accustomed to Apple's meaty profit margins appear a bit disappointed.

Apple's stock, after falling 5 percent on the news of Wednesday's announcements, fell another 1.3 percent Thursday to close at $135.01, or $1.75 lower than Wednesday's close.

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Meanwhile, gadget enthusiasts who snapped up the ballyhooed iPhone before Wednesday are coping with a bitter aftertaste now that it is $200 cheaper within 10 weeks of its introduction.

The price cut, from $599 to $399 for the 8-gigabyte iPhone, immediately set off a debate on online tech forums between early adopters, who said paying a premium price came with the territory, and those who said they felt burned. The price reduction was too much too soon, some complained.

In a discussion on The Unofficial Apple Weblog site, the views were split evenly.

Many customers took the iPhone price cut in stride, however. Ryan Roth, who bought one for $599 on Friday after months of research, chalked up his purchase to "the worst timing ever."

"I realize this is not their problem: I agreed to the original price - it's my fault," said Roth, 32, of New York, who has been thinking about getting a cell phone for four years but held out until the last week.

Jobs defended Apple's price cut in his letter to customers.

"I am sure that we are making the correct decision to lower the price of the 8GB iPhone from $599 to $399, and that now is the right time to do it," he wrote. "It benefits both Apple and every iPhone user to get as many new customers as possible in the iPhone 'tent'."

But Jobs added that "the technology road is bumpy," and there will always be people who pay top dollar for the latest electronics but get angry later when the price drops.

According to Apple's return policy, anyone who purchased an iPhone within the past 14 days and has the receipt can get a full refund if they haven't opened the product. If they have opened it, they still can get a refund of the price difference.

The steep price cut less than three months after the iPhone's launch on June 29 - and the discontinuation of the 4-gigabyte iPhone, which sold for $499 - were surprising from Apple, which usually keeps prices steady while adding new features. It normally discounts products only when they age.

Analysts said quick discounts are typical for the cell phone industry, however. The world's best-selling cell phone, Motorola Razr, for instance, debuted at $499 but can now be bought for less than $100.

"This is about Apple learning how to become a cell phone retailer," said Jeff Kagan, an independent telecommunications industry analyst based in Atlanta. "All of a sudden it's in the cell phone business, and everyone is trying to figure out how to measure it, and we don't know yet."

Jobs said the company is on pace to sell 1 million iPhones in the United States by the end of September.

The newest iPod media players, also announced Wednesday, include a model called iPod Touch that incorporates the iPhone's touch-screen and adds the ability to wirelessly download songs directly from the new iTunes Wi-Fi Store. Also new are a version of the best-selling iPod, the Nano, that plays video and a larger capacity, 160-gigabyte version of the video iPod, newly dubbed the iPod Classic.

Apple also announced a partnership with Starbucks: Starting in October, the coffee chain's icon will light up on the Touch whenever a user nears a shop that has Wi-Fi access. Users can then download the song that's playing in that Starbucks shop or get a list of the 10 most recent songs played.

Apple executives said the revamped and expanded iPod line - in which the iPhone is recast as the top model - is the company's most robust lineup ever for the holiday season. In 2006, Apple sold a record 21 million iPod players during the holiday quarter, about 50 percent more than in the same period the year before.

Apple has now sold more than 110 million iPods since they debuted in 2001.