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  • So What About a Cheap Mac?

    May 19th, 2009

    The critics say Apple needs to reduce the price of Macs. Apple says they won’t build junk. So between these two extremes, is there a happy medium that would make your next Mac more affordable?

    Today’s Mac begins at $599, for the entry-level Mac mini. You can customize it after a fashion with a larger hard drive and additional memory, but that’s pretty much the extent of the hardware changes. However, this is the sort of computer that is closer in concept to an appliance. You would probably have it configured on Day One the way you want and the only internal changes you’re likely to make after that would involve repair of a defective part, such as a failed hard drive.

    Although lacking a keyboard and mouse, the Mac mini is a pretty complete package, and it’s really designed for people who already have input devices and a display. Since it comes with built-in gigabit Ethernet, Bluetooth and Wi-Fi, along with a fair selection of basic consumer apps, a fair number of new owners can use it without installing anything extra.

    If Apple were to make the Mac mini less expensive, how would they go about accomplishing that task? First and foremost, they could, I suppose, just reduce the price for the same two models, and hope that increased sales would compensate for lost profits in terms of volume. That is the approach taken by most of the PC makers who don’t earn a whole lot of cash from their low-end models. They also provide rich customization options, hoping that if you check enough boxes on the ordering slip, you’ll help make up the difference for those who want their cheap PCs without any extras whatsoever.

    Absent profits, what else can Apple ditch? Unfortunately, less memory and a smaller hard drive would, while saving a small amount of money, simply make the product less usable, particularly for the Mac user who has big photo and music libraries. Suddenly you’d be forced to upgrade a hard drive, which doesn’t make your Mac mini so cheap.

    Yes, slower Ethernet, and dropping Bluetooth and Wi-Fi might knock another $40 or $50 off the purchase price, but that’s trivial. And, again, if you need any of those things, the upgrade expense would exorbitant, since the mini isn’t easy to open and take apart for a non-technical audience.

    Indeed, a $549 Mac mini, or even a $499 version, which removes those extras and reduces Apple’s profit margins, might sell more units in the end, but would that compensate for the inconvenience of forcing people to pay a lot more for possible upgrades later on? Is a $100 price difference the deal breaker?

    On the software side of the ledger, I’m sure Apple allocates a certain percentage of the cost of building each unit for the bundled software. On the practical side, when it comes to manufacturing costs, it doesn’t matter what’s on the factory disk image, so removing iLife makes little sense. Besides, having it preloaded is one of the attractions to the new Mac user, particularly the ones migrating from Windows and accustomed to the ever-present crapware loaded on their new hard drives.

    Another way to cut costs without building junk is to find ways to produce the same product less expensively, aside from the savings from higher production levels. One way might be to bundle a 3G connection card and then arrange for a subsidy from AT&T or Apple’s wireless partner in your country, whatever it might be. That can reduce the price of admission by $100 to $200, and suddenly put loads of new Macs into the homes of people for whom price was once a serious obstacle. Then again, that’s probably an approach for which a note-book is a better fit.

    As a practical matter, Apple could, I suppose, produce knock-offs of a cheap PC, only preloaded with Mac OS X. That would enable them to take advantage of the same quantity pricing as all their competitors, but would it be the same solidly built Mac or just another piece of electronic junk?

    No, that doesn’t make much sense. But Apple could also return a 17-inch iMac to their consumer lineup. Maybe a screen that small wouldn’t be quite so compelling, but at $799 or $899, it might make an awful lot of sense to those who want a complete package but are faced with the typically tighter budget caused by the world’s economic crisis.

    As far as a note-book is concerned, Apple seems to feel we require a 13.3-inch screen, and maybe that’s true for most customers. But there are a fair number of people who loved the original 12-inch PowerBook, and building a MacBook nano with that sort of form factor would also let Apple reduce production expenses somewhat. The cheapest MacBook, last year’s model with a faster graphics chip, is $999. An $899 12-inch MacBook might seem less of a stretch to folks paying just a little bit less for the low-end piece of garbage that PC makers hawk.

    Overall, however, I don’t see Apple making serious inroads in the low end of the PC market. There’s just not enough profit in it, and I doubt any of you would like to see Apple sacrifice earnings in the hopes of making a few more sales. They’re doing quite well right now, thank you.



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    13 Responses to “So What About a Cheap Mac?”

    1. hmurchison says:

      A $499 Mac mini will be possible likely at equivalent margins on the $599 unit once the Mac mini begins to use Intel 32nm parts with integrated GPU.

      As we consolidate more and more functionality into fewer chips we gain power savings. money savings and reliability.

      The goal for computers shouldn’t be arbitrary price points but to deliver options for every person and every need. Quid Pro Quo, there has to be profit potential for the vendor as well.

      I see nothing wrong with an individual in say 5 years having a mobile device that accesses the internet..having a desktop computer for more power and maybe even a laptop. The glue that will tie everything together is reliable sync that makes data entry as simple as inputting data once and having it replicate to all other devices. Then we may see RFID and other technologies that basically allow access to ones “virtual profile” wherever we go.

      Low cost computers = more people connected which = more opportunity to provide services and support. Apple needs to play this game like every other vendor. Marketshare does matter…it always has.

    2. RAY says:

      PRINTING STILLF/U
      PLEASE GO BACK TO FORMER APPROACH>

    3. David says:

      I don’t think Apple should make a “cheap” Mac. The low end of the market is no place for profit and that’s what drives the innovation that Apple is famous for.

      Having said that, the overall cost of purchasing a PC has been going down forever and has reached new lows with the advent of the netbook.

      Apple can and should continue to drive home the message that a PC running Windows is no bargain at any price, but it’s going to be increasingly difficult to avoid the sub-$1000 market. Already it represents over 80% of all computer sales and most people simply can’t imagine paying more, regardless of the features of the higher priced unit.

      Look what happened to the cellular telephone market. The phones got so cheap that people stopped caring about build quality or features. They became a disposable item that stopped showing up in the lost and found ads because getting a new one was easier than trying to find the lost one.

      The smart phone is the industry’s attempt to change attitudes, but it’s been a tough road. Windows Mobile has been around for years with gobs of features, but the public doesn’t care because the phone isn’t free. RIM succeeded with business users, but have also been unable to crack the larger market. It took Apple to make it acceptable to pay for a phone again, but even they have had to drop their retail pricing strategy in favor of a carrier subsidized one. The public generally believes that a free phone or set of phones is part of a wireless contract. Once established that expectation is nearly impossible to displace.

      That sort of thinking has found its way into all consumer electronics including computers. There is a strong perception that certain products shouldn’t cost more than a certain amount and that paying more is foolish. Try introducing a 32″ television set priced above $1000 and see how long you last. It could be an OLED screen with better specs than anything seen before and you’d still go out of business within a matter of weeks. The public “knows” that 32″ sets cost less than $900 and anyone who tries to say otherwise is insulting their intelligence. Nobody wants to be treated like an idiot, even when it’s deserved.

      Likewise the public “knows” that a “good” computer costs less than $900 and that a “decent” one can be had for much less. A thousand Justin Long commercials won’t change that perception.

      I know more and more people are fed up with Windows and interested in Macs. Some have probably heard the message that the Mac will give them fewer headaches and cost less in the long run, but if the first impression a potential customer gets is sticker shock, you’re never going to make the sale.

      Fortunately for Apple there will always be people willing to pay for a premium user experience. That group may stop growing and Apple with it, but they have established a permanent position offering healthy profits.

    4. Yacko says:

      What Apple should do is not lower prices but up the base configurations. Full memory and a 50-100% larger hard drive. It cuts margins but Apple should be dealing with sufficient quantity so it is minor. Technically it is a price cut, but… Competes with Windows configurations better and eliminates the stiff upgrade cost Apple charges.

    5. win39 says:

      I really think Apple is right about not making a cheap Mac, but maybe they could solve the dilemma the way Toyota did with the Scion brand. They could do a cheap netbook with OS X, but not have the Apple logo anywhere on it and sell it through normal Apple channels. They could call it the Pip.:-) Having a completely separate brand should prevent quality problems from rubbing off on Apple or the Mac. The only real problem might be that the iBook and iMac might be cannibalized a little more than the PC netbooks are doing.

    6. hmurchison says:

      I think “cheap computer” is a misnomer because it cannot defined absent a context.

      Cheap computer in 1996 was $2399 (for a PowerPC 601 based computer)
      Cheap computer in 2001 was an iMac for $1299 (based on a PowerPC 603)
      Cheap computer in 2009 is a $599 Mac mini based on a Intel Core2 Duo

      If the historical trend remains we’re be discussing cheap $199 computers by 2014 and whether
      Apple will deliver the $99 net-terminal device that everyone else does complete with built in 24″ monitor

    7. RAY wrote:

      PRINTING STILLF/U
      PLEASE GO BACK TO FORMER APPROACH>

      Lose the all caps please, OK?

      For reasons other than that, we did restore the original printing capability. It makes for a better-formatted page.

      Peace,
      Gene

    8. David says:

      I beg to differ. I worked for a computer retailer in 1996. A cheap computer system was $1299 back then. The least expensive Apple Mac was the $1999 Performa 5260. The gap between PC and Apple was filled with clones from Motorola, Power Computing and Umax.

      By 2001 PCs were already under $1000 and today a cheap PC without a display (like the mini) is only $299.

      PCs have always been and will always be significantly cheaper than a Mac in every sense of the word.

    9. hmurchison says:

      Exactly David that’s why I had to qualify my statement by adding in the processors.
      Apple’s made “inexpensive” Macs for a long time but the Macs everyone wanted were the
      more expensive full featured models.

      I actually saw a statement from a person that said something to the effect of “Apple should never have a computer over $3000” (any old timers who remember the IIFX at over 10 grand or the 8100/8110 at $5200 starting laughed certainly at that statement)

      I’m not concerned with price points but rather what you get for that pricepoint. I see a profitable $499 Mac mini by late 2010 that is well featured (this doesn’t mean gobs of RAM and HDD space) because the hardware at this time will allow for simpler yet high quality components.

    10. @ David: David, you were sounding real sensible for the first two paragraphs, and then you fell off the cliff.

      As I’ve mentioned a number of times, Macs and PCs, when identically equipped with both hardware and software, are quite close in price. Apple doesn’t play in the low-end, beyond the Mac mini, but to say that the PC is always cheaper “in every sense of the word” is provably nonsensical.

      Peace,
      Gene

    11. DaveD says:

      In the past there have been association of Apple in the PC business to BMW in the automobile. I have not seen of any news of BMW going into bankruptcy. Catering to the higher end of the buying public is not a bad business plan as long you can show and provide good value for the money.

      I want Apple to remain profitable, continue its leadership in R&D and make stuff of good build quality work better and easier. Basically, doing what it is doing.

      If Apple needs to go into the low end PC market, it would signal the beginning of a sign of desperation. IBM sold off their PC business and Gateway got bought by Acer. Dell after playing the “growing its market share” game for years is now trying to be all things to all people (Adamo, anyone?). Is this the beginning of Dell becoming the next PC dinosaur?

    12. I really like the 12-inch iBook form factor. I’d buy one over the 13-inch if given a choice.

    13. Richard says:

      hmurchison,

      Your first post hit the nail on the head. Apple is all about charging too much for a given product to maintain outrageous profit margins. The cost of the product (cost of goods sold) is not that much different from anyone else’s for a comparable product…although Apple would benefit from increased sales by getting better component pricing, notwithstanding the historically tough stance Apple takes with suppliers.

      Apple have been content to play in a small pond and pretend to be a big fish. That seems unlikely to change even though the change would benefit the shareholders, the actual owners of the company. Let’s face it, you don’t need to be a Phd to figure out that R&D costs for hardware, OS and apps, on a per unit sold basis, can be driven down dramatically by growing sales and market share. Doing so also has the effect of creating greater awareness and acceptance of the product line by the buying public.

      That does not mean that Apple needs to build a $359 computer that competes with some of the ultra bottom end machines that they are constantly carping about being of poor quality. Apple just needs to get a more realistic marketing plan. Far too often, Apple simply does not have an offering in the target price range of many potential purchasers, both business and consumer. Jonathan Ive may have garnered awards and a knightship from his design work, but much of it is sorely lacking in functionality. He sometimes reminds me a of Vietnam era cartoon (Bill Mauldin?) where the Army was presenting a 105mm howitzer to a village and the village elder said we were hoping for a tractor.

      Anyway, Apple is caught in a trap of their own making which limits the company’s potential for growth.

      Regards

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