Apple calms the iPhone storm with $100 credit offer

After protests over its decision to cut the price of the iPhone in the US by $200, Apple will give iPhone users a $100 store credit.

The company on Thursday posted an open letter from chief executive Steve Jobs on its Web site defending the decision to cut the price of the 8GB iPhone from $599 to $399, but acknowledging that Apple shouldn't have treated its early adopters in such a fashion. Jobs had announced the price cut just a day earlier at a San Francisco event at which the company unveiled a refresh of its iPod line, including the new iPod touch.

"Even though 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. Our early customers trusted us, and we must live up to that trust with our actions in moments like these," Jobs wrote. Details on how to obtain the $100 store credit will be posted on Apple's Web site next week, he said.

An Apple representative said the $100 store credit will not apply to the iTunes Store. The store credit also does not apply to customers who are eligible for a rebate because they bought a $599 iPhone either 10 or 14 calendar days before Wednesday (10 days for online sales, 14 days for retail sales).

In the letter, Jobs echoed comments he made to reporters on Wednesday that Apple wants to attract new customers this Christmas with more aggressive pricing. "It benefits both Apple and every iPhone user to get as many new customers as possible in the iPhone 'tent'. We strongly believe the $399 price will help us do just that this holiday season," he wrote.

He also pointed out that this can be the way of life in the technology business. "If you always wait for the next price cut or to buy the new improved model, you'll never buy any technology product because there is always something better and less expensive on the horizon," Jobs wrote.

Apple doesn't often admit mistakes, and the letter was a forthright admission that the company didn't handle the price move correctly. "We apologize for disappointing some of you, and we are doing our best to live up to your high expectations of Apple," Jobs wrote.

How Apple could not have foreseen the backlash, we're not sure. But the move should go a long way to mollify some iPhone customers peeved by the steep drop, although a store credit isn't as good as money in hand. Still, those who were iPhone early adopters probably own a few other Apple products, and will want to update those in the future. Leopard's coming soon, after all.

Some Mac bloggers and users seemed satisfied with Apple's response to the iPhone flap. "I think it's clear that Apple was taken by surprise by the magnitude of the backlash regarding the price cut. They've responded quickly, humbly, and well, to avoid letting this issue spoil the good news from their impressive product releases yesterday," wrote John Gruber on his blog, Daring Fireball. Scott McNulty, on The Unofficial Apple Weblog, wrote "While I still think the reaction to the price reduction was way overblown, this is a great example of Apple listening to their customers and trying to make the situation right."

Others noted that Apple, so dependent on a core group of loyalists to help create buzz for its products, had little choice. "You just don't screw over your most ardent fans... always a bad plan. You may not pay for it initially, but you will long-term," wrote poster TBaggins on AppleInsider's forums. Samir Bhavnani, an analyst with CurrentAnalysisWest, saw a savvy business move in offering a store credit instead of a refund. "They'll get new traffic to the site and stores, and almost everything costs more than $100 in any case, so customers will be spending even more of their dollars with Apple," he wrote in an email.

But on CNET.co.uk's sister site News.com's own TalkBack section, Jake Kushner, president of JK Media, said that Apple's response doesn't go far enough to satisfy those who bought a 4GB iPhone for $499, only to see the 8GB model become $100 cheaper. "I feel wronged and misled by Apple. Such a quick price reduction indicates that Apple pre-meditated this reduction before the initial release. I read your public response on apple.com to this issue, but I still feel that the solution you are offering is not adequate," Kushner wrote, calling for Apple to offer a free upgrade to an 8GB model to owners of the 4GB iPhone or a $200 rebate.

Some iPhone customers are reporting that they have received at least partial refunds from their local Apple stores. And some AT&T customers have said the same thing, as News.com reporter Maggie Reardon noted yesterday. It's difficult right now to tell what exactly is going on at individual stores around the US -- we're trying to get more details about people who received at least some cash back.

Jobs pointedly did not address in the letter whether iPhone sales were living up to expectations, although he said on Wednesday during Apple's iPod event that the company remains on track to hit its stated goal of shipping 1 million iPhones by the end of September.