All Things Digital

Motorola added another dancer to its conga line of disappointing quarters today, posting an ugly first-quarter loss. The ongoing collapse of its post-Razr phone business continued to weigh heavily on the company, which lost $194 million in the quarter ended March 31. That’s significantly worse than its year-ago loss of $181 million. Sales fell about 21% to $7.45 billion, from $9.43 billion a year ago. Mobile-devices losses were $418 million on sales of $3.3 billion, down 39% from the year-earlier quarter.

Suffice to say, the gruesome performance fell short of Wall Street expectations. Motorola (MOT) shares slipped into the mud following the news. They’re trading around $9 right now, down some 4%.

Not to worry, though, says CEO Greg Brown. Motorola, which plans to shed its money-losing handset division in 2009, is well positioned for recovery. “Motorola is still a huge business and an iconic company,” he told USA Today. “I see a vibrant, very successful mobile-device business with a fresh portfolio that is aggressive and competing effectively [in the global market]. These elements, I think, will allow it to compete ferociously in the future.”

With its offer of a $100 store credit to iPhone owners galled by its surprise one-third price cut, Apple seems to have quelled its burgeoning fanboi rebellion.

And today, many observers are describing the $100 credit as an admission by the company of a rare marketing misstep. Buried in a firestorm of hate mail from betrayed loyalists who stood in line June 29 to be the first to pay as much as $599 for the viciously hyped device and fearing that Apple had tainted its integrity, CEO Steve Jobs blinked.

Or did he?

Because let’s face it, Apple’s $100 mea culpa and the events that preceded it conjured up untold millions of dollars in publicity. The company, its products and the emotional investment some consumers have in them have been in the headlines all week. Think people would get this worked up over a Razr price cut? … And Apple isn’t exactly going to suffer from those $100 credits that probably cost it half that sum to issue and will drive consumers back into its stores. Think about the iPhone price cut that way, and the “fiasco” begins to look more like an ingeniously scripted marketing stunt.

“So why did [Jobs] do it,” asks PBS columnist Robert Cringely. “Why did he cut the price? I have no inside information here, but it seems pretty obvious to me: Apple introduced the iPhone at $599 to milk the early adopters and somewhat limit demand, then dropped the price to $399 (the REAL price) to stimulate demand now that the product is a critical success and relatively bug-free. At least 500,000 iPhones went out at the old price, which means Apple made $100 million in extra profit.

“Had nobody complained, Apple would have left it at that. But Jobs expected complaints and had an answer waiting–the $100 Apple store credit. This was no knee-jerk reaction, either. It was already there just waiting if needed. Apple keeps an undeserved $50 million and customers get $50 million back. Or do they? Some customers will never use their store credit. Those who do use it will nearly all buy something that costs more than $100. And, most importantly, those who bought their iPhones at an AT&T store will have to make what might be their first of many visits to an Apple Store. That is alone worth the $50 per customer this escapade will eventually cost Apple, taking into account unused credits and Apple Store wholesale costs.”

“I feel like a $200 whore.”

That was one iPhone early adopter’s crass assessment of his feelings of self-worth, after Apple unexpectedly cut the price of the device by a third–just two months after it arrived at market. At an unveiling of a new line of iPod music and video players in San Francisco yesterday, CEO Steve Jobs said Apple was dropping the price of its 8-gigabyte iPhone from $599 to $399 to drive sales of the device over the crucial holiday selling period. “The customer-satisfaction numbers for the iPhone are off the charts,” Jobs said. “The customer-sat[isfaction] numbers are higher for the iPhone than for any Apple product ever. They love it. But we want to make the iPhone even more affordable for even more people this holiday season. So we’re going to do something about that today. We’re not going to sell it for $599 anymore.”

Now price cuts for cellphones aren’t unusual. Samsung’s Blackjack and Motorola’s Razr both saw rapid price cuts following their respective debuts. But neither was launched into a market of monomanaical loyalists willing to camp out on a sidewalk overnight just to be among the first to own one–many of whom are today feeling a bit used. “Over time I have owned a 3G iPod, original Shuffle, iBook G4, iMac, new Shuffle, 4G iPod, video iPod, iPod mini and now the iPhone,” one wrote in a post to everythingiPhone. “I can see updates to the product line being made over time, but $200 in two months is a kick in the nads to EVERYONE who bought an iPhone.”

Perhaps, especially if the cut was made possible not by a sudden drop in component prices but a calculated overpricing conceived to exploit early-adopter demand. But ultimately, those who don’t think the iPhone was worth $599 when it debuted probably shouldn’t have bought it. “That’s technology,” Jobs told USA Today. “If they bought it this morning, they should go back to where they bought it and talk to them. If they bought it a month ago, well, that’s what happens in technology.”

One last point worth noting here: Early adopters probably aren’t the only folks to be taken aback by the sudden and precipitous drop in the iPhone’s price. Apple’s rivals in the handset market must be absolutely reeling. Here they were scrambling to produce iPhone-like, and iPhone-lite devices they believed would compete with a $600 phone they could easily underprice. Now, they’ve got to compete with a $399 device that is perhaps one of the best examples of Apple’s design and engineering prowess. And they’ve got to do it in time for the holiday shopping season …