Dealing with the fallout from the recently announced iPhone price cut seems to be Apple’s biggest issue of the day. It’s too bad they got greedy to start with as everyone knew the original price was way too high to be sustainable.

Here’s the apology:

To all iPhone customers:

I have received hundreds of emails from iPhone customers who are upset about Apple dropping the price of iPhone by $200 two months after it went on sale. After reading every one of these emails, I have some observations and conclusions.

First, 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. iPhone is a breakthrough product, and we have the chance to ‘go for it’ this holiday season. iPhone is so far ahead of the competition, and now it will be affordable by even more customers. 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.

Second, being in technology for 30+ years I can attest to the fact that the technology road is bumpy. There is always change and improvement, and there is always someone who bought a product before a particular cutoff date and misses the new price or the new operating system or the new whatever. This is life in the technology lane. 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. The good news is that if you buy products from companies that support them well, like Apple tries to do, you will receive years of useful and satisfying service from them even as newer models are introduced.

Third, 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.

Therefore, 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. Details are still being worked out and will be posted on Apple’s website next week. Stay tuned.

We want to do the right thing for our valued iPhone customers. We apologize for disappointing some of you, and we are doing our best to live up to your high expectations of Apple.

Steve Jobs
Apple CEO

Apple had it’s big announcement event today and had a lot to share, but the big news that has caught the attention of the media is the price cut on the iPhone. The 8GB iPhone will now be $200 less costly coming in at $399.

As expected, Apple also announced a video Nano, a touch screen iPod similar to the iPhone without the phone, and build your own custom ringtones for the iPhone. Apple even inked a partnership with Starbucks that sounds like fun.

Jobs also announced that Apple’s iTunes podcast directory had hit a milestone of 125,000 podcasts. Jobs made the announcement as part of his introduction of the fall iPod line.
“This is amazing material,” said Jobs. “It’s free, and over 25k are video podcasts.” Go podcasting!

Having reviewed all that, forgive me if I don’t gush all over the place. I love my iPod and I like what Apple’s doing, but the news today just didn’t seem to have the impact that I have come to expect from Apple’s big announcements. The lead story picked up by big media is the price cut, and while that’s nice for consumers, it’s just a bit depressing if you ask me.

iSuppli is reporting that the iPhone has become the best selling smart phone.

Apple Inc.’s iPhone outsold all smart phones in the United States during July, and equaled the sales of the most popular feature phone, according to iSuppli Corp. The iPhone accounted for 1.8 percent of all mobile-handset unit sales to U.S. consumers during July. Most iPhone purchasers in July were male, 35 years of age or younger and possessed a four-year college degree or more.

Strong early consumer uptake conforms with iSuppli’s forecast of 4.5 million iPhones shipping in 2007, rising to more than 30 million units in 2011.

…the two models of the iPhone now on the market outsold all smart phones in July, including the Blackberry series, the entire Palm portfolio, and any individual Motorola, Nokia, Samsung or other smart phone model from a branded service provider. The iPhone’s U.S. sales in July were equal to those of the most popular feature phone, LG’s Chocolate.

Apple will not add new NBC shows in iTunes due to a contracting disagreement between Apple and iTunes. NBC tried to force Apple to raise prices on its shows to $4.99 from the current $1.99.

This means that popular shows like The Office, Heros, Saturday Night Live and other NBC shows will no longer be available via iTunes. Apple is likely to pull all the NBC shows off iTunes.

NBC, which plans it’s own online video site with News Corp, said that the dispute was caused by Apple’s unwillingness to let NBC package together shows with variable pricing.

It seems to me that Apple should be able to control it’s retail prices, not NBC. If NBC wants to raise it’s prices to iTunes that’s NBC’s business. The desire for NBC to control a stand alone retailers pricing is just wrong, and maybe illegal as well.

In a 1911,the Supreme Court concluded that under the Sherman Antitrust Act, it was illegal for a manufacturer and distributor to set a minimum retail price for its products. However in June, 2007, the Supreme Court made a new decision that price maintenance plans will be decided on an individual basis, and courts will consider whether a particular plan is likely to increase or decrease consumer welfare. So it’s not clear what NBC might be able to get away with regarding setting retail prices.

In any case, NBC should be building a strong distribution channel and without iTunes they have cut themselves out of a lot of the market. We will have to wait and see how it plays out.

Finally, we are getting some real data on iPhone sales. Analysts had speculated that 700,000 iPhones were sold the first weekend. The facts turned out much different and quite disappointing compared to the hype.

AT&T reported that only 146,000 iPhone users signed up the first two days of it’s launch.

Apple will probably report iPhone sales later today when it announces it’s earnings.

UPDATE: Apple sold 270,000 iPhones in the first few days.

Reuters is reporting that Apple plans to launch a cheaper version of the iPhone in the fourth quarter that could be based on the ultra-slim iPod Nano music player, according to a JP Morgan report.

According the the Reuters report, Kevin Chang, a JP Morgan analyst based in Taiwan, cited people in the supply channel that he did not name and an application with the U.S Patent and Trademark office for his report dated July 8.

Apple filed a patent application document dated July 5 that refers to a multifunctional handheld device with a circular touch pad control, similar to the Nano’s scroll wheel.

“We believe that iPod Nano will be converted into a phone because it’s probably the only way for Apple to launch a lower end phone without severely cannibalizing iPod Nano,” said Chang noting that the new phone could have “rather limited functionality.”

Because of the anticipated lower price, 2008 sales of 30 million to 40 million units “is achievable,” according to Chang.

This would be a much larger volume than is expected of the first iPhone, Apple has targeted sales of 10 million units in 2008, which would give it a 1 percent share of the global market and present a much bigger threat to long-established phone makers such as Nokia and Motorola.

Business 2.0 Reports 1 Million iPhones Activated

The number of iPhones Apple had stockpiled at its 164 stores last Friday is still a closely held secret. But an unconfirmed report at the website waitingforphone, quoting an anonymous staffer in ATT Mobilty’s Commerce Group, suggests that AT&T (T) may have already fulfilled more than 1 million iPhone activations.

Macrumors, which reposted the 1 million figure, suggests that the July 4 holiday may have delayed restocking shipments.

Reuters reports 700,000 iPhone Sales

Analyst estimates for iPhone sales in its first weekend run as high as 700,000 units and investors are expecting that momentum to continue.

CNNMoney reports iPhone sales said to hit half-million

Opening weekend sales of iPhones may have reached 500,000, according to an analyst’s estimate, as Apple’s much anticipated product saw sales that lived up to and even exceeded its hype.

Rampant speculation by the press about iPhone sales without real guidance from Apple. You would think Apple would want to make sure the street had a sensible estimate of sales volume or it’s stock could be way out of whack.

iTunes blew by Amazon to become the third largest music retailer in the US. Amazon was growing, but not as fast as iTunes apparently.

iTunes still lags behind Best Buy and Walmart, but I bet that it’s only a matter of time before iTunes digital downloading blows by those two as well.

Apple has followed through with an earlier announcment about launching DRM free MP3s from EMI.

Apple announced the launch of iTunes Plus—DRM-free music tracks featuring high quality 256 kbps AAC encoding for $1.29 per song. iTunes Plus is launching with EMI’s digital catalog of recordings, including singles and albums from Coldplay, The Rolling Stones, Norah Jones, Frank Sinatra, Joss Stone, Pink Floyd, John Coltrane and more than a dozen of Paul McCartney’s classic albums available on iTunes for the first time.

iTunes will continue to offer its entire catalog, currently over five million songs, in the same versions as today—128 kbps AAC encoding with DRM—at the same price of 99 cents per song, alongside the higher quality iTunes Plus versions when available. In addition, iTunes customers can now easily upgrade their library of previously purchased EMI content to iTunes Plus tracks for just 30 cents a song and $3.00 for most albums.

Apple has set up a web page called the iTunes Podcast Spotlight. Much of the page is dedicated to promoting public radio, BBC and other big media podcasts, but a few independents seem to be included.

I think it’s great that Apple is continuing to support podcasting, although I am disappointed in the design quality of the spotlight page – Apple can do better.