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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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    6 Responses to “So Maybe Apple Didn’t Cave on Pricing”

    1. gopher says:

      Apple’s price cut is really nothing of the sort. The new 15″ and 13″ MacBook Pros are actually crippled enough to be called MacBook. Why? Before November 2008, all MacBooks had Firewire.
      The $999 MacBook White remained, and remains to the present day. Just a slightly faster shared GPU, and a slightly faster processor.

      Between November 2008 and WWD 2009 the $1000 to $1998 range saw only a drop in Firewire, an increase in GPU, and an aluminum casing. Come WWDC 2009 Firewire was added back, removable battery was removed, and SD media slot was added. Nice if you have a digital camera that supports digital media, but useless in all other cases. Furthermore, the GPU remained a game incompatible shared GPU. Worse yet, they crippled the $1999 15″ MacBook Pro with an SD slot, and no Express/34 anymore.
      Now you have to get a gigantic 17″ screen which only fits on the widest airplane tray tables, if you want Express/34. Not to mention the bottom line MacBook Pro doesn’t have that Express/34. So by some people’s book, to keep Express/34 you have to pay more, because you have to buy the 17″ MacBook Pro.
      Now only the MacBook White remains wiht a removable battery.

      The only thing that is cheaper is the 17″ MacBook Pro.

    2. Andrew says:

      The biggest price drops were with the MacBook Air, although that model is the least changed receiving nothing more than a processor speed bump.

    3. Kaleberg says:

      One reason for the price declines is that it now costs less to build a full function laptop.

      It’s not as if Apple could seriously upgrade the processor. There aren’t any faster laptop processors or laptop processors with more cores. The CPU is usually the big price driver. Sure, Apple could add more memory or a slightly faster bus, but those are low cost improvements, and they often cut the production cost since the development costs are paid for by their use in the server and desktop world.

      They could upgrade the graphics processor, but this has run into the same problem as upgrading the CPU. They only run so fast on laptops before power consumption and heat become problems. They actually cram two graphics processors into some machines and give the user a choice of speed versus battery life. Surely they aren’t going to add a third. That would just clutter the user interface.

      What else could Apple really cram into a laptop?

      Sure, they could go for BluRay. BluRay, of course, requires mollifying the studios and content owners, quite likely at the expense of user satisfaction. A poor BluRay implementation befouled with pervasive DRM would be worse than simply not supporting it. BluRay only makes so much of a difference on a 13″ to 17″ screen, and most Mac users can afford a separate BluRay player for their home.

      They could play around with the I/O ports configuration and listen to their users howl. There is a mechanical limit to this since they already have one machine called the cheese grater. They don’t want their laptops nicknamed “swiss cheese”.

      I am probably showing my lack of imagination, but I can’t think of how they could produce a more expensive machine that offers anything to their users. My guess is that they make as much profit as ever, and the lower prices are juicing sales.

    4. DaveD says:

      I think that Apple has a particular customer profile in mind. One that is affluent, intelligent, and artistic. If Apple wanted to attract the more mainstream public then the Mac mini price would drop into the $300 range. It would be hard to see that Apple go further making the Mac mini a “loss-leader” in order to pick up the “low end” crowd if the support costs go up dramatically.

      Apple is so unlike Dell. Apple doesn’t have to cater to all. It would rather focus on making amazing, useful products. Something that cost is not a major obstacle. Basically pricing a product for a certain consumer market would be able to bear.

    5. Joe S says:

      I find that the new laptop lineup has Cook’s fingerprints all over it. It had gotten to the point that the MacBook was a crippled MacBook Pro that probably cost more to manufacture. These is significant savings in unifying the lines. For example one battery is used in all the MBPs unlike the hodgepodge of batteries in the previous lineups. This change unifies the 15 inch MacBook and 15 inch MacBook Pro. I think the simplified inventory and reduced number of manufacturing lines are going to keep these new portables quite profitable for Apple. This is the sort of thing that Cook understands inside and out.

    6. Ed C. says:

      gopher wrote:

      Before November 2008, all MacBooks had Firewire.

      Not to get into the pricing arguments you made, but I just want to clarify that, today, all Apple laptops include FireWire. FW400 on the white MacBook, FW800 on the MacBook Pro line. There were several complaints when FW was dropped from the MB line (white MB notwithstanding) and Apple responded to that.

      The $999 MacBook White remained, and remains to the present day. Just a slightly faster shared GPU, and a slightly faster processor.

      The white MacBook uses the NVIDIA 9400M. The slower 15″ MacBook Pro also uses the NVIDIA 9400M, while the faster MacBook Pros (including the 17″) also include the NVIDIA 9600M GT. None of these graphics processors are “shared” or “integrated” in the same way as Intel GMA integrated graphics (i.e., part of the CPU). They are integrated only in the sense that the graphics chip is non-user-replaceable.

      Not to mention the bottom line MacBook Pro doesn’t have that Express/34.

      I understand that this might be a deal breaker for some. But in my personal experience, I have never used the expansion slot on either of the PowerBooks I owned, and I don’t foresee a need for the Express/34. Likewise, I don’t have a need for an SD slot since there are FireWire SD card readers (I have a FireWire CF card reader). I do have a need for FireWire (transferring files over FW is much, much faster than USB or even Ethernet), and if I were to hook up an external drive, it would be via FireWire.

      According to Apple, most MacBook Pro owners didn’t use the Express/34 slot. Still, I imagine that if enough people complain about it Apple will bring it back (just like they did with FireWire).

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