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  • We Return to the Cheap Mac Equation

    October 28th, 2009

    Although it was widely expected that Apple would introduce a cheaper MacBook this year, they chose otherwise. Since there will be no new products in 2009 from Apple, based on their own statements, this issue is closed, unless they have reason to change things in 2010 or beyond.

    However, you can’t ignore the fact that an awful lot of people out there consider Apple’s products overpriced or at least premium priced. This is the mantra repeated regularly by Microsoft and its sycophants, and even the mainstream media says pretty much the same thing.

    Apple only has itself to blame for these perceptions, because for so many years their gear was priced considerably higher than comparable products. It surely helped enhance the bottom line, but this high profit business plan surely didn’t help Apple’s market share.

    These days, Apple still gets great profits, but not from overly high price points. Instead, it comes from smart management of the acquisition of raw materials and tight inventories. In other words, they control wasteful spending in virtually every department.

    At the same time, the prices of Apple gear remain highly competitive, far more so than you might imagine. By picking and choosing which markets and segments to enter, they don’t overwhelm themselves with confusing product variations, and the customers aren’t so confused about which models to buy. Just about everything is clearly defined. Sure Macs come with the ability to customize, but the choices are starkly limited.

    This, of course, is one key reason why Apple also gets a bad rap when it comes to being competitive, particularly in the PC arena, where there are so many different versions and subversions of a particular model, the mind boggles. If there is a nook or a cranny to fill, you can bet Dell, HP or one of the other PC box makers will attempt to fill it, even if there’s little money to be made.

    This explains, for example, why so many PC makers jumped headlong into the netbook mess. Yes, a whole lot of them are being sold, but it’s an open question whether such miniature note-books are going to be long-term successes, or just vanish when customers have enough money to buy something really useful. It’s too early in the game, but it’s a sure thing that there’s not a lot of profit in a $300 computer of any size, even if it’s a desktop model.

    So when Apple is asked about building a cheap Mac, they respond saying they don’t know how to build something inexpensive that wouldn’t wind up being a piece of junk. Surely they have the PC industry as a whole to present an example they don’t want to follow.

    Unfortunately, far too many members of the tech and financial media feel they are smart enough to exhort Apple to build this, that, or the other thing. If other companies are doing it, why not Apple? They have to be missing out on huge market share gains, or at least they can prevent lost sales if customers go elsewhere for the product they still refuse to build.

    People who believe in such things seem to forget that one of the reasons for Apple’s great success, despite the economic situation, is because they pick and choose carefully which products to make, and what to ignore. There may indeed be a tablet computer at some point in time, for example, but only if Apple thinks they can make a difference and make a profit. If the product doesn’t deliver on both, it won’t be built, or if it is, it’ll be discontinued.

    Consider the Cube. It looked great. It set a standard for style, and I recall writing at the time that it belonged in a museum. Well, that’s probably where it ended up, as a gadget that was mostly style, little substance, and priced too high to sell a sufficient number of units to keep it going. Based on a comment Steve Jobs made to the media during the Mac OS X rollout in early 2001, during which he denied that the Cube would be discontinued, those of us in the audience got the feeling that he had a personal commitment to its success. But a few weeks later, the Cube left Apple’s product sheets, because the hard numbers demonstrated it would not live long and prosper.

    This doesn’t mean that there can’t or won’t be a cheaper Mac. Certainly dropping the price of the MacBook Pro demonstrates that, if necessary, Apple can shave profits a little when it’s necessary, and in that case, they probably made up a lot of the difference by selling more of them.

    Now what a future Apple leadership might do is anyone’s guess, but it’s clear the current executive team — with or without Steve Jobs — won’t be building those cheap computers anytime soon. Yes, there are inexpensive iPods and the iPhone is priced right there with its smartphone competition. But when it comes to personal computers, Apple has staked out a territory where they can be exceedingly prosperous and grow the market at Microsoft’s expense. They have no reason to change their strategy.



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    17 Responses to “We Return to the Cheap Mac Equation”

    1. shane blyth says:

      outside the US the price of Macs dropped drastically

    2. Andrew says:

      Its funny how PC blogs rave about how great Netbooks are, while Mac blogs rant about how bad they are. I don’t own a Netbook, but I can certainly see the attraction in something very small, very light and very cheap, even if vastly underpowered. After all, these things were never meant for playing games, editing video or writing a novel on. For accessing email on the road, working on a slide presentation in-flight, showing the photos offloaded from your camera or even watching a movie, Netbooks are more than good enough.

      I’m glad I can afford a MacBook Air as my lightweight travel and courtroom machine, but if I couldn’t, a Netbook would do the job nicely, thank you. In fact, I see a few young attorneys carrying them these days and most seem quite pleased. They don’t replace high-end ultraportables, but for $300, they really don’t have to.

      • shane blyth says:

        @Andrew,
        Netbooks … alls they are good for is as a web browser and email for sure. A friend has an ASUS model and it is not that great. For travel these days I use the Apple Netbook the iPhone.. does a similar thing obviously not as large a screen but a heck of a lot more practical to carry about . I went on holidays for 4 weeks and never missed my macbookpro.

    3. shane blyth says:

      I noticed a post from someone in Canada so checked our local apple stores. That being New Zealand and our nearest neighbor Australia.
      Now we have always felt that outside America even with the correct exchange rate that the prices other countries have paid have been way out. Alot higher in other words.

      An example of the current price drop is the bottom end iMac in NZ was retailing for $2600 NZD yes thats the bottom end! when the new 21.5 units came out the other day the spec went up on the bottom end units drastically as we all know but the price dropped $600 NZD to $1995. Australia had a similar % drop in price. We checked and thats right across the board all the models. So to non US residents I think you will see a massive jump in Mac sales. Interesting that it coincides with Windows 7 release. My flatmate works at a big chain similar to best Buys in the States called Noel Leeming and they sell alot of computers and they are finding people are going hey I dont want to learn a new OS (Windows 7 they seem to think is something new they have to learn) and staff are able to sell them to a Mac alot easier as they say might as well jump especially with those price drops and the specs going up and they see the nice shiny Mac and buy it instead of a Windoze box

      end of storey

    4. Jeff says:

      Apple already has a netbook, it’s called the iPhone. Twice this year I lugged my MacBook Pro along on vacation and never open it up once, finding the e-mail, web, music, videos, and applications on the iPhone to be totally suitable for most uses. The next flight I take I’m not carrying a laptop of any kind.

      Too many pundits don’t have anything original to say, so they simply adopt whatever the herd is talking about. It’s telling that you don’t see any talking about BMW building an economy car or Tiffany’s opening kiosks in every shopping mall in the country… and you can bet that if they were in the news as much as Apple is, that would be the first thing the pundits would be advocating.

      Apple’s business model depends on selling a quality, integrated system to those that are willing to pay a little extra for it. As an investor in Apple, the last thing I’d want to see would be them slapping their logo on anything simply to gain an extra percent of market share coupled with a corresponding decrease in profitability. I’ve been around too many marketing executives that believe that if you’re not in a particular market you must be doing something wrong.

      • Karl says:

        @Jeff,

        iPhone is Apple’s netbook. For email and checking web pages it’s pretty much a no brainer. I wouldn’t say I “web surf” on the iPhone but it does beat opening up a notebook or even a netbook to take a quick look at a web page.

      • Karl says:

        @Jeff,

        (Posted to quickly with the first post) – so yeah I pretty much am in agreement with you. 🙂

      • Kaleberg says:

        @Jeff, That’s exactly right. The iPhone and iPod Touch are netbooks. They run a pretty good browser. They have a easy to use and easy to learn alternative to the traditional keyboard and trackpad. They have WiFi connectivity. They have lots of software scaled down for good performance. They are even fairly good gaming machines. Even better, they can actually fit in your pocket, unlike the larger, bulkier netbooks.

    5. Louis Wheeler says:

      The Wintel market place has been rushing headlong toward the bottom since the Windows 95 days. Do you remember when a computer was all about hardware checklists and the lowest possible price? A computer was a commodity item; they all did the same boring things; they were utilitarian. They all looked alike — beige, even. There was no room for product differentiation except in Megahertz.

      The NetBooks are close to the end of the line for those trends; Diminishing returns are setting in. The people who seek the NetBooks are welcome to them. And those who think that Apple is missing the boat if it doesn’t produce a NetBook are grievously wrong.

      All this scurry is a outgrowth of the one-size-fits-all mentality of the Wintel market place. That market place is breaking down and even System Seven is doing its part. The OS market is fragmenting.

      Soon computers will be split up between Windows XP devices which won’t budge until the hardware breaks down irretrievably, System Seven, Mac OSX and Google’s Chrome.

      The first case are the devices around the world which run cash registers, displays, front ends to a mainframe or the web. There is no reason for them to ever budge off of XP. The second are regular windows users who were on XP and Vista. The third are Macintosh users with many converts from Windows. The fourth is a new category of casual Linux users. 95% of the market will be divided between these groups. And System Seven will be well below half the market.

      I expect that Apple and Google Chrome will, in time, divvy up the consumer market with Chrome taking over the Netbooks and moving toward Apple’s half. System Seven will be pushed back toward its niches in the big business and Government markets.

      The hope it that Google will make Chrome a light weight OS for web use which is as easy to use and secure as a Mac. That won’t threaten Apple’s market share, because the Mac will be running very heavy duty applications — many not yet invented. The leading edge will be in the Mac market. Apple is not quite ready for Games, but will be soon. It has to migrate to 64 bit apps first.

      Apple sells to the discriminating shopper, not to the riffraff. It sells to people who can tell the difference between price and value. It sells to people who want craftsmanship, elegance, ease of use and panache — to people who know what those virtues are, that they cost money and are worth it.

      In almost every other product we buy, we are looking for value.
      Oh! We want a good price, but that is never the first priority. If it were, then we would all live in the ghetto, eat out of cans, drive a Yugo, date a slattern and dress like a bum.

      Apple will be adding power to those above virtues. Its operating system will be capable of fully utilizing the most powerful hardware. Microsoft is too far behind the curve to catch up.

      The point is that the advantages which Microsoft used to gain its near monopoly are turning on them. The NetBooks are an ideal example of that; they are no asset to either the buyer or seller.

      The arguments for running Window are coming undone. Windows is popular, because it is cheap. It doesn’t do anything particularly well. It gained a high market share because it had little competition.

      But, Microsoft has competition now; it is fighting a rear guard action and losing. Apple is better off leaving the NetBooks to Windows and Chrome, because there is no money in them.

      Perhaps, Apple should adopt the motto of “I may cost more, but I’m worth it.”

      • DaveD says:

        @Louis Wheeler,
        A lot of good points presented. Yes, it is all about price versus value. PCs are at the price end and Macs at the value.

        The netbook is a detector like the canary in a cage used back in the old days of mining. The more it sells, the more Wintel makers get closer to the breaking point as profits begin to dry up. You can see this with Dell as it is trying to get rid of its manufacturing operations and provide more services by buying Perot Systems. Making more “artsy” and “thin and light” computers to get in on the actions where Apple is at.

        Apple after going through hard times in the 90s no longer wanted to be a part of the Wintel makers’ herd mentality. In order to look for future growth and have success, it must think differently.

    6. MichaelT says:

      I’ve seen it elsewhere but it bears reiterating here: Why should Apple follow a trend that is causing companies to lose money when the path they are already on is earning money? “Apple needs to sell such-and-such like this-or-that company.” And this-or-that company is being lauded because it didn’t lose as much money selling such-and-suches as everyone thought they would.

      Yeah, that sounds like what Apple should do.

      Not.

    7. Louis Wheeler says:

      Yes, MichaelT, it sounds like a case of “follow the losers.”

      But, Microsoft has been playing that game for ages. This is why Microsoft and its shills in the Media are always after Apple to sell its OS.

    8. Viswakarma says:

      OS does not make a computer (desktop, laptop, netbook, smartphone etc.)!!!

    9. Louis Wheeler says:

      That is true, Viswakarma; you also need hardware and applications.

      Twenty years ago, the Macintosh was behind the eight ball, because it had proprietary components which were often judged inferior in Megahertz. It also had fewer applications than Windows. None of that is, any longer, true.

      If you look for a name brand computer of identical specifications and build quality, the price of a Mac is little different from a PC. Often, the PC costs more, because it has less software or uses a less capable version of Windows. The few manufacturers who match Apple in design, craftsmanship, elegance and panache are quite expensive as are upgrade to Windows versions.

      There is a wider selection of software on the Mac than any other computer system. First, there are the applications which are designed for Mac OSX. Mac users are spoiled by the quality and utility of Mac applications. Next, there is forty years of development in UNIX Open Source software which can be run in the Terminal application. And finally, since you can run different versions of the Windows OS in BootCamp or in virtual machine technology such as VMware or Parallels, you have all the windows applications too. No other computer system has as wide a selection to choose from.

      It is true that Apple does not choose to sell into every niche of the computer market. Apple specializes in the upper end of the Consumer Market, its niches in the graphics, design and Education markets, and is moving into the SMB market and the servers which would satisfy them. Apple leaves alone the low end consumer market, specialized game machines, large servers, government and big business sales.

    10. matt_s says:

      It’s not about cheap, it’s about value. There’s no value in an under $300 Windows netbook that has little if any guts or horsepower. I think Apple should go the other way – more innovation, denser packaging delivering a higher ASP.

      I’d pay $1600 for a real road warrior machine from Apple.

      • Small and lightweight!

      • Something with a 10-11″ LCD… more suited to reading documents or spreadsheets (vertical space) than watching movies (horizontal). These wide screens just mean more scrolling when you’re doing real work (look around in any airport – 99% of folks with a laptop open are working, not watching movies). I have a 50″ HDTV at home, why in God’s name would I even want to watch a movie on a 13″ laptop? Plus, 13″ is just a bit too tall for the airline seat back tray – especially when the person in front of you decides to nap.

      • Replaceable battery absolutely required (not all of us have private jets, Steve). It’s 9 hours from ORD to CDG. It’s 9-1/2 hours from SYD to HKG. It’s 15-1/2 hours from LAX to MEL. Not everyone can afford to go business class, where the power ports are. After 4-5 hours & no juice left, I am supposed to just turn my computer off & twiddle my thumbs for the next 5-10 hours? Get real, Apple. Let me keep working.

      • Get rid of the DVD drive to trim weight. If folks want to watch a movie, they can rip it to the hard drive. Sell an optional external model.

      • Three USB2.0 + one 1394a + a Gig Ethernet port. Don’t get all cheap on us like the MacBook Air. Depopulating functionality does not = innovation. Road warriors need connectivity & IO, so we don’t have to schlep hubs & extra cables.

      • Fingerprint ID login.

      • Smaller, more compact power adapter.

      • DVI port. Stop making me tote extra crap around, Apple. Give me an industry standard video out port to plug into an LCD projector. Every customer on earth will have a cable, I won’t have to carry special adapters with me. Streamline! Reduce weight, reduce weight, reduce weight.

      • Not required but it sure would be nice to see something different than aluminum. Apple used to be so good at industrial design but after 6-7-8 years of same looking metal Pro laptops (Think Same! :-), it’s getting boring. Something new would be refreshing.

      The current MB & MBP offerings are awesome machines but they’re desktop and television replacements, not travel companions for work. It’s getting heavier and heavier lugging this MacBook around through airports across the globe every month that goes by… I want a real road warrior machine, dammit!

      • js says:

        @matt_s,

        Oh man would that be a sweet machine. Where’s my checkbook?

        Have you seen that little Fujitsu 4410? Core2 Duo, under 4 lbs, 12″ LCD. VGA, three USB 2.0, one IEEE 1394, Gig Ethernet, one HDMI port, Docking port (100-pin, to dock with port replicator), stereo headphone jack, stereo microphone/line-in jack. A lot of functionality. Unfortunately, ships with Win7.

        I don’t want something cheap from Apple, either. They need to offer a much smaller form factor, lightweight, powerful machine. You can get 2 sizes of iMac but only one size of MacBook! Hey – if Fujitsu can do it, you have to think that Apple could, too. I had high hopes for the Air… but it’s just not a serious world travel unit.

        I still use my PowerBook 12″ for travel because I can swap batteries to keep going & it’s the perfect size for an airline tray, even if the the seat in front of you is jerked all the way back. That one extra inch of space makes a huge difference – sometimes, the difference between getting a couple of hours of work in … or not!

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