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  • So Maybe Apple Didn’t Cave on Pricing

    June 18th, 2009

    I really find it humorous to read some of the chatter about Apple Inc. that suggests they were forced kicking and screaming to slash prices on their uber-expensive note-books at the WWDC. The theory goes that Apple looked at the sales reports and concluded that potential customers were rebelling at paying an Apple Tax, particularly in a down economy. So they went back to their number crunches, pulled out their calculators or whatever, and decreed that they must make their products cheaper to keep sales moving along at a good clip.

    Now maybe some of this is true. Certainly one reason why Mac sales have flattened is the price of admission. However, as I’ve long contended, this alleged Apple Tax is a largely a fiction created by Microsoft and its PC box building partners. In saying that, though, Apple isn’t the sort of company that looks at the current financial quarter and regards it as the beginning and end of their business, as some of the other PC makers seem to do.

    Instead, Apple has to consider the long-term impact on any decision they make. That’s the sort of DNA instilled in them by Steve Jobs and his crew of executives over the years. Certainly most corporate leaders are starting to feel that the economy has more or less bottomed out and that things will get better from here on.

    That said, Apple is engaged in its annual back-to-school promotion, where students can get free iPods and the usual educational discount on their new Mac hardware. At the same time, building more units results in cost reductions for each of them. Component prices are also down, particularly solid state drives. Add all that together and it’s quite possible Apple decided that they could still earn their required 30% to 35% profit margins on the revised MacBook Pro lineup at lower price points.

    Understand that I never thought Mac note-books were particularly overpriced even at the original cost of admission. I know that some of you will persist in attempting to demonstrate how the $1,500 PC portable is the equivalent of what used to be the $1,999 MacBook Pro. But now that the latter is $1,699, the arguments have even less affect on me.

    What remains to be seen, though, is whether Apple has reason to give desktops a similar treatment. Sure, the March upgrades really gave you a lot more value for the same price. That’s particularly true of the $1,199 20-inch iMac, which is near as capable as the previous $1,499 version. You could say Apple did deliver a $300 price cut. It might have been nice to see a $499 Mac mini and a cheaper Mac Pro also, but I have no idea what they cost to produce, since they sell in far lower volumes. Or at least that’s what the evidence appears to indicate.

    With the iPhone, the original development expenses for the iPhone 3G were no doubt amortized long, long ago. It shares its case and a very few parts with the 3G S, the cost of flash memory is down, so selling it at a subsidized price of $99 is just the ticket. Now when a customer comes into an AT&T dealer, or an Apple Store, seeking a low-cost smartphone, they now have another hot contender costing not much more than those so-called “free” or “free after rebate” alternatives.

    Sure, they will have to pony up extra money to cover the requisite data plans and such, but that’s not normally a serious factor when someone considers a low-cost option to help them get with the plan, as they say.

    With Snow Leopard, a $29 upgrade price is so fundamentally logical that there’s little to argue about, as far as I’m concerned. It is not a major feature upgrade, except for the addition of Microsoft Exchange support, which is great for Macs in the business world. The under-the-hood changes will, over time, yield great speed boosts, but how many people buy a new operating system strictly on the promise that it is faster? In addition, those 100 “refinements,” features or whatever you choose to call them might have justified a full upgrade price, but I still think many would be skeptical.

    Besides, it’s in Apple’s best interests to move most of the Mac user base to Snow Leopard as quickly as possible. For those with a PowerPC still chugging along, Apple hopes they’ll just buy new Macs. Indeed, in light of Snow Leopard’s requirement of an Intel-only Mac, you can just bet that more and more developers will ditch PowerPC support over the next few months.

    Now whether or not my suspicions are correct will probably not be fully confirmed until Apple releases is financials for the current quarter in the latter part of July. Then I can say “I told you so” or you will have the ammunition to demonstrate that I was way off base. But I’m quite confident that I’m on the right side this time.

    Of course, we don’t want to let facts get in the way as far as some media commentators are concerned. They prefer to repeat the conventional wisdom of a decade ago in describing Apple’s products rather than observing the new reality.



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