The Critics Are Losing the Apple Price Argument

October 29th, 2010

On this week’s episode of The Tech Night Owl LIVE, we talk with Laptop magazine’s Avram Piltch about Apple’s spanking new MacBook Air. Along with reports that the product may already be flying off the shelves, particularly the 11.6-inch version, the early reviews are nothing short of spectacular.

Piltch, who is certainly no ardent fan of Apple, has high praise for this revision of this sexy thin and light note-book, and it’s not just the performance factor. You see, compared to other note-books that use solid state storage, the Air is actually priced competitively. It may even be cheaper than some of the generic PC alternatives, simply because Apple is able to get the best price on flash memory.

With a base price of $999, the entry-level MacBook Air may not be the cheapest note-book on the planet, but the designs that come closest cost even more.

Now take a look at the promised iPad killers that are slowly coming to market. Some companies are tying them in to two-year data plans with wireless carriers to make them seem less expensive, but soon as you add up the price of admission — particularly in the months where Wi-Fi access is sufficient for you — you’ll find that the iPad is a much better deal.

Worse, without a 3G plan, such products as the Samsung Galaxy Tab, with a 7-inch display, may be priced at the same level or higher than the cheapest 9.7-inch iPad. Go figure!

Add to that the fact that Apple’s latest SEC filing warns of somewhat lower profit margins — still high compared to most of the consumer electronics industry — and that typically conservative outlook has spooked Wall Street and stalled the meteoric rise in the company’s stock price.

But remember that Apple never releases a product that fails to deliver great profits to the company, even if it’s a few percentage points less than some might hope. What that means is that Apple is going to be far more aggressive about pricing, not to mention the need to cover R&D for new product releases. In the end, as much as Apple is regarded as the BMW of the tech business, you can’t call their prices high compared to identically-equipped competitors.

So, yes, you can buy a big screen Windows note-book for $700. But now load it up with essentially the same options that Apple provides as standard issue, including a superior LCD display with higher resolution, and suddenly the Mac doesn’t seem so expensive.

When you move to the high end of the equation, the Mac Pro has almost always been priced similar to, or lower than, competing workstations from Dell and other top-tier PC box assemblers.

Yes, there are loads of PC boxes out there that are much cheaper than a Mac, and businesses may not particularly prefer to buy computers equipped with Wi-Fi, digital lifestyle apps, not to mention a Web cam. None of those features may be suited to an office environment, yet all of Apple’s note-books, along with the iMac, have them. It makes them more expensive to build, and the price of admission is higher, but Apple sharply limits customization. You can’t, for example, buy ten thousand copies without these and other features, and that is often a reason why businesses won’t choose Apple.

I wonder how things might change with Apple’s new enterprise push, and their deal with Unisys to mine the corporate and government markets. Certainly Apple is taking business customers seriously, but it doesn’t appear they’re going to sacrifice product design or customization to get there.

When it comes to the iPhone, pretty much any competing smartphone using the Android OS, RIM, or Windows Phone 7 OS, will have a similar subsidized price. There may be times when a carrier will cut prices to move product, such as those two-for-one deals at Verizon Wireless. But since Verizon didn’t grow its postpaid subscription roster as much as they hoped in the last quarter, the days may be numbered for such product giveaways.

You can rest assured that there won’t be any two-for-one deals if and when the iPhone joins Verizon’s product list. Apple wouldn’t accept such a marketing scheme for a moment, and Verizon clearly would have to cede major levels of control to get an iPhone to sell. That the iPad is already available almost certainly cements the likelihood such a deal is already in place.

In any case, the next time someone tells you that Apple’s gear is way overpriced, remind them of the iPad, iPhone and iPod. At $49 for an iPod shuffle, you can’t call it costly, nor can you say anything of the sort about the $499 iPad. Indeed, that trendsetting product is priced far more cheaply than pretty much any alleged analyst expected when it was introduced earlier this year.

The version 2.0 iPad will likely be priced the same, since there appears to be no incentive for Apple to drop the price. At the same time, it’ll have more features; consider the presence of a camera almost a lock.

But Apple did reduce the price of the MacBook Air, and that decision has made it tremendously — surprisingly — competitive, even against cheap PC gear.

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8 Responses to “The Critics Are Losing the Apple Price Argument”

  1. John says:

    On the PC side you also have to add the price of anti-virus software ( $0 on the Mac) and the price for software. Apple ships iLife for free and iWork is about $90 depending where you buy it.

  2. […] This post was mentioned on Twitter by Brian Norris, Derrold Purifoy, No Doji, Andreas O. Kleutgens, Dan Tylenda-Emmons and others. Dan Tylenda-Emmons said: RT @jimcramer: Mac reaping the benefits of the iPhone "margin umbrella" […]

  3. dfs says:

    Time was when I would have disagreed with this because Macs used to ship with such chintzy amounts of memory that I always purchased more at the time I bought a Mac, I regarded this as a regrettable but necessary tax for a Mac-buyer. Noadays Macs ship with enough memory that they work decently right out of the box.

  4. steffenjobbs says:

    Let’s face it. There will always be a place for the lowest priced junk you can buy. It’s human nature to constantly look for the cheapest initial package. Apple is always saying that they don’t know how to build really cheap junk. They claim it’s because the user experience would be unacceptable. But for Windows users, there is acceptance of very low user experience as long as they save money. Apple is always said to be cheating customers by making them pay more for nothing but an Apple logo. Yet most Apple customers seem to be happy with their products and it’s been proven as such. The Wintards say that all those iSheep standing on line to buy Apple devices are idiots. I wonder if that’s true. I buy my Apple gear over the internet, so I wouldn’t be standing on line, either.

    So there is a place for both bargain devices and higher cost devices and that’s up for the consumer to decide which is best for them. I’ve never had to compare prices because I knew what I wanted and a few hundred dollars more spread out of years of use really doesn’t mean all that much. I do know that Apple is making plenty of money from supposedly overcharging consumers for useless products, as I’ve often heard said, but as an Apple long shareholder, I’m quite pleased to hear that. I know that I’m extremely happy with my Apple products and that’s good enough for me.

    I sure hope the Unisys pact works out well for Apple. Ingram Micro is also going to help sell iPads to businesses along with AT&T and Verizon. If Apple doesn’t get solidly into the enterprise next year, then I guess it’ll never happen. The iHaters continue to say that iPads are just toys and they stand no chance at all of beating Windows tablets in business, so I’ll have to see if the Wintards know what they’re talking about.

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