Apple's IPod Strategy: Aggressive Prices,

Overwhelming Features
By Charlie Sorrell 09.06.07

Apple's CEO Steve Jobs on Wednesday cemented his company's lock on every segment of the
media player market from $80 up to $400. With the revamped lineup, Apple has an iPod for
every pocket. Coupled with the ridiculously capable new iPod Touch -- which has every major
feature of the iPhone except for its phone capabilities -- will any other manufacturer stand a
chance?

Analyst Tim Bajarin, president of Creative Strategies, thinks not.

"I don't see how anyone can respond to a product lineup like this," he said. "Who out there has
the ability to compete with this? Microsoft and the Zune simply can't compete. And Sony's new
video Walkmans (announced earlier this week), they pale in comparison."

The basic iPod hasn't received a major upgrade for two years, and it was showing its age. On
Tuesday, the iPod was rebranded as the iPod Classic and given a major increase in capacity, up
to 160GB, which model will sell for $250.

The new kid on the block is the iPod Touch. In addition to its other features (multitouch
interface, video playback, web browsing) the Touch's 16-GB flash memory alone puts it well
ahead of competing flash memory-based media players, even at its $400 price point.

Overall, pricing for all iPods has become significantly more competitive, shrinking the premium
that the company has typically commanded for its products.

"Apple's new products are extremely impressive, though I would argue -- particularly at the low
end -- that you're still paying a small premium for an Apple branded (device) instead of
something from SanDisk, RCA, or a no-name Chinese import," said Avi Greengart, principal
analyst at Current Analysis.

Apple also announced significant price cuts on the iPhone. The 4-GB iPhone has been
discontinued, with remaining units selling for $300 until they're gone. The 8-GB, the most
popular model, is now a third cheaper, down from $600 to $400.

Such steep cuts, coming just two months after the iPhone's much-hyped launch, may risk
angering the Apple faithful who lined up to buy an iPhone on the day it came out. As Apple
customer Rachel Kane, who bought her iPhone in August, said, "It's not the losing $200 that
bothers me. What bothers me is the idea that the company grossly overpriced their product and
took advantage of the faithful few hundred thousand who initially purchased the iPhone."
"Now what they originally called this end-all-be-all of phones is being price-slashed for the
holidays as a stocking stuffer," Kane continued.

Customers aren't the only ones rattled by the price drop. Despite the iPhone grabbing a 1.8
percent share of the smart phone market in June alone, the stock market seems to think that the
33 percent price cut is a sign of weakness: AAPL share prices dropped 7.4 percent for the day.