• Is Apple Finally Getting a Hand on Pricing?

    February 26th, 2005

    For as long as I can remember, one of the biggest objections Windows users posed to buying a Mac was the price. The conventional wisdom, repeated by many technology writers, had it that you must pay a premium to buy a product with the Apple logo on it. But is it really true?

    Well, if you consider value, reliability and ease-of-use, the price issue is less important. What’s more, if you look down and deep into the issue you’ll find that Apple has been busy slashing prices on a pretty regular basis. The latest iPod update is just one example, but it’s an important one. You see, the competition, such as it is, has tried to beat Apple with either extra features, a lower price, or some combination of both.

    But each time Apple comes out with a newer, cheaper iPod, it throws those companies into a tizzy. Consider the iPod shuffle. At $99 for the 512MB version, it actually undercut the pricing of players from such companies as Creative Technology by a fair margin. All right, not having an LCD display surely helps reduce production costs, but Apple was positively aggressive in making the shuffle relatively inexpensive and almost a casual, impulse purchase for many. I’ve been tempted to pick up one or two myself at times.

    And now that the lowest priced iPod mini is $199, again it hits other music player makers right between the eyes. It forces those companies to attempt to reduce their prices or add even more features, and that has to erode profit margins fast. Apple builds hardware with an efficiency that matches Dell, and clearly saves from selling more music players than anyone else. In addition, as the price for the raw materials continues to go down, particularly hard drives and flash memory, you can bet Apple will continue to take advantage of the situation. Is there a $79 or even $49 iPod shuffle in our future? Don’t bet against it! Imagine finding them in your grocery store, next to the cheap DVD players and TV sets.

    That’s no doubt the plan with the Mac mini. At $499, and considering the fact that it uses tried-and-true components, Apple is probably making a decent profit from each sale. Now consider what will happen if mini sells go through the roof and then some, which may already be the case. The cost benefits from buying higher quantities of parts may well mean that, by the fall of this year, the original mini will be $399 or $449 at the most. This is not a pipe dream. It’s a very logical assumption, at least from this vantage point, and it’s bound to put the PC box makers into an even more shaky situation. Few of those companies earn a profit as it is. In fact, HP, usually the number two PC maker, really gets most of its profit from selling printers and their consumables.

    Now as we move up the pricing scale, the situation seems different, at least on the surface. The cheapest Apple laptop, an entry-level iBook, is $999, but Wintel laptops cost less. Just walk into a Wal-mart store in your neighborhood, and you’ll find them for as low as $548. Of course, when you look at the specs, you’ll see where corners are cut. In addition to having just 128MB of RAM, that cheapest model doesn’t even have a CD burner. That, and some extra memory and a little more processor speed, add $100 to the price tag. It does come with Wi-Fi, but it’s the older, slower 802.11b standard. These two models, plus a $798 HP Pavilion, all use low-cost graphics hardware that share system memory. Even the low-end iBook has an ATI graphics chip. If the PC laptops were brought up to par with the iBook, the prices would be just about the same.

    There’s no contest with the iMac G5. It hits such competing models as the Gateway Profile right between the eyes. Even the PowerBook is incredibly compelling when you price it fairly against business note-books from Wintel-land.

    As to the Power Mac, well if you regard it as a workstation rather than a desktop computer, you’ll have to pay a lot more to get anything remotely comparable from the likes of Dell and HP. If you regard it as the latter, the Power Mac still holds up well when you properly configure a PC box with similar options.

    So what’s going to happen from here? Well, if the recent price reductions in the iPod and PowerBook lines are any indication, it seems logical to expect cheaper eMacs, if the line continues of course, cheaper iMacs and cheaper Power Macs in the months ahead. One technology writer suggested Steve Jobs is playing a game of chess with Apple’s competitors, and Macs may really be poised to make that market share jump so many of us have hoped for.

    Now if I only bought Apple stock at $13, but as a technology journalist, it wouldn’t be ethical to hold a piece, even a tiny one, of a company I’m writing about. But I can always dream, can’t I?

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