Yes, Folks, Apple Can Price Aggressively

November 19th, 2010

Apple’s stock took a bit of a hit a few weeks back when they disclosed, during their conference call with financial analysts, that profit margins would be down this quarter. All this despite the fact that the company was still tallying record sales and profits.

Of course, low profit margins for Apple are extraordinarily high for most other tech companies, so it’s not as if you should be concerned that their continued survival is at stake.

In fact, when the iPad first came out, industry analysts were surprised that the opening price, starting at $499, was so much less than they estimated. Certainly that raised expectations that netbooks, regarded by some as a main competitor to Apple’s tablet, would suffer, and it appears they have.

In an interview recorded for this weekend’s episode of The Tech Night Owl LIVE, Stephen Baker, vice president for industry analysts for the NPD Group, suggested that the iPad, though perceived not to be a costly gadget, was actually priced higher than lots of popular tech gear, suggesting that a starting price of $499 doesn’t quite take it into the “mass market.” With soaring sales, he offered a prediction in response to my question of whether iPad 2.0 would have a lower retail price: “I think you will see in 2011 much cheaper iPads, yes.”

Baker didn’t contradict my suggestions of prices for the entry-level model starting at $349 or $399. More to the point, whether or not Apple makes the iPad any cheaper, it’s a sure thing you’ll see one or two cameras as part of the package. It’s not because the alleged iPad killers have beaten Apple to the punch with such features. Rather, it’s a natural evolution of the product. Besides, it’s not as if sales have suffered any.

When it comes to the iPod, when it first came out, at $399 for the debut version in 2001, so-called expert analysts said it was too expensive. There was no way people would buy a digital music from a company at that price. Besides, and this is awfully familiar nowadays, what experience did Apple have in building consumer electronics gear? They had conveniently forgotten Apple’s earlier forays into that arena, such as the QuickTake digital camera.

These days, sales of the iPod are declining slightly. Nonetheless, Apple is safely ensconced in the number one spot, and also runs the number one legal digital music resource on the planet. The cheapest iPod is $49 in one of several colors. Nothing expensive about that.

The iPhone was pricy at its debut, largely because there was no carrier subsidy. Today, you can get a 3GS remnant for $99 in the U.S., assuming you sign the standard two-year service contract. The iPhone 4 is $199 and $299, depending on storage capacity, and all these prices are identical to most competing gear with the Android or Microsoft mobile operating systems. The exception is where carriers want to dump product into the market place, and offer a two-for-one special. But even two pieces of garbage isn’t exactly a replacement for one quality product, but I’m half serious. I’m not really suggesting that phones from the likes of HTC, Motorola, and other handset makers, are necessarily junk. They certainly seem usable enough.

When it comes to Macs, the price versus value equation is cloudier. Some suggest it’s hard for Apple to justify a $999 price for the MacBook when mainstream PC box assemblers are offering supposedly full-featured note-books for as little as a third of that price. Of course, when you actually look at the features, option them appropriately, the price disparity is almost always sharply reduced.

A thin and light portable, such as the revised MacBook Air, actually appears to be a bargain at the $999 entry point, especially compared to competitors who traditionally offered somewhat similar models for quite a bit more.

Moving up the price scale, among all-in-ones, the iMac remains extremely competitive, particularly when you actually do the proper feature comparisons. The Mac Pro historically tends to be ahead of Dell and HP workstations, particularly when they all sport the same expensive Intel Xeon hardware.

I am troubled, though, at the slowly rising prices of the Mac mini. The original G4-based model debuted in 2005 at $499. Intel-equipped models began at $599, and the current version, with a tinier, fancier aluminum-clad case, is $699.

You’d think Apple might have found a way to upgrade hardware, offer a slimmer case, and keep the mini at the original price. Yes, I understand the server version, at $999, is a downright bargain. But those who crave a cheap desktop computer may just find that the elegant mini is just a little too rich for their blood.

In that case, I’m going to avoid the price and feature comparisons. At the same time, there’s no reason whatever for Apple to drop the price or even consider cheaper gear. They know how to butter their bread, and they have no incentive whatever to change their ways.

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2 Responses to “Yes, Folks, Apple Can Price Aggressively”

  1. dfs says:

    Raising the price of the Mini certainly can’t be helping Apple’s posture in the K-12 market.

  2. Andrew says:

    And dropping the price of the Air constitutes a raging bargain!

    I bought the mid-level 11″ model for $1200 (slow processor, large SSD) and have never felt that I received so much for so little with a computer purchase before.

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