Steve Jobs: punishing his iPhone customers

That Jobs has made some huge mistakes with the iPhone is obvious. The phone isn't selling as well as he thought, he had to slash the price, then try to mollify angry customers who had already bought the iPhone with a rebate coupon.

ZDNet has a list of what it sees as his mistakes in the form of lessons learned:

Jobs realizes he can’t annoy his flock.
New customers aren’t as easy to win over.
The smartphone market is brutal.

All true enough. But fundamentally, the real problem was the first one. Jobs is used to acting like a monopolist. Monopolies have a tendency to punish their customers in the interest of squeezing every dollar they can out of them.

Cable companies drop the quality of service and raise the price. They create sloppy DVRs rather than letting customers buy Tivos. Cellular providers lock you in to two-year contracts and force you to re-enroll to upgrade your phone without paying absurd prices. We don't even need to mention Microsoft's sins.

Mac enthusiasts don't often switch to PCs, so Jobs can get away with high prices. When he returned to Apple he killed the Mac clone business, keeping short-term profits high but dooming the Mac to a permanent, distant second place to Windows computers.

In all the above cases, customers and the companies would be better off if those actions had not been taken. When forced to face competition, a company becomes stronger. What's surprising to me is that the Justice Dept. hasn't cracked down on any of those monopolists except Microsoft.

But Jobs was surprised when he tried his punish-the-customer-to-benefit-me tactic on a product where he held no monopoly. The price was not the problem. The problem was getting into bed with one monopolist and going up against the monopoly powers of the competition.

Why the hell did Jobs sign a three year contract to make the iPhone exclusive to Cingular, now AT&T? Does that benefit his customers in any conceivable way? No. It punishes faithful Apple lovers using any service except AT&T.

Jobs thought, in hubris, that his product was so insanely great that he could force people to pay penalties to their monopoly providers and switch to a second-rate cellular carrier. It was an insanely great mistake.

It didn't work, and not because of the price. What did everybody complain about? The AT&T service! A great phone with a lousy connection and slow service is a lousy phone system.

I wonder what AT&T paid for its exclusivity. I can just hear Jobs telling Cingular execs that he would  turn the company into the leading cell carrier by forcing people to switch.

If Jobs hadn't been so arrogant and greedy, if he had let the iPhone work on any network, he would not be having this problem today.

Like the monopolists, he sacrificed long term results to boost the short-term. Only this time, the short term did not pay off.

Lesson #1, so simple I shouldn't have to say it: Every time you make a business decision, ask yourself if it benefits your customer. If not, don't do it!

Comments

[Andrew]

Wow!!! Well well well well said!! One error... Cingular/ATT didnt sign a 3 year contract with Apple.. They signed a 5 year contract.

Also, I think its worth noting that I am a die-hard Windows/PC fan - i've hated macs since day one - but.. I purchased a macbook last week - and I love it.. Will i ever buy an iphone? NEVER. unless its on verizon. Nothing will ever make me switch to ATT. I dont care if they give me the phone for free, i wont switch.

Ahh.. Steve Jobs. Talk about a ig ego.

He deserved every bit of backlash he got with this iphone price reduction.. His claim that technolgoy prices always go down is absolute bs.. You know why??? No company in their RIGHT MIND would lower the price of an item almost two months after it was first released - without making SOME type of improvement to it!

What a shame Apple. You're stock price over the last two days explains it all.

[Richard Brandt]

You're right about his lame excuse saying tech prices always go down. What disappoints me is he refuses to take any responsibility for screwing up.