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  • Is Apple Ushering in an Era of Cheap Gear?

    March 2nd, 2011

    The oh-so-common perception is that Apple is the luxury consumer electronics company, and only the well heeled are able to buy their iconic gadgets. However, despite the global financial meltdown of recent years, the company continues to earn record revenues and profits. People can’t stay away from iPads, iPhones, Macs, and so on and so forth.

    Moreover, loads of news stories with a potential Apple angle are given Class-A treatment. Whether it’s the state of health of Steve Jobs, or whether or not a future iPad or iPhone will somehow be delayed, Apple can’t stay out of the headlines. You can’t say that about BMW, the luxury car maker with whom Apple is often compared.

    When it comes to pricing, I think Apple gets a bad rap. The iPod, for example, can be had for as little as $49. Yes, there are cheaper digital media players, but it’s not as if they can match Apple’s superb hardware and software integration. That’s surely worth a paying a tiny bit extra, even if your budget is challenged.

    But when it comes to Macs, the critics are probably right about high prices, though with certain qualifications. Yes, the Mac mini, at $699, might be pricey as tiny desktop computers go, but when you legitimately compare all of the hardware components, the operating system and the software bundle, suddenly a Mac doesn’t seem so costly. On the high end of the ledger, as I’ve said before, a Mac Pro workstation can often be priced lower than a Dell or HP minitower with a similar configuration.

    Certainly such publications as Consumer Reports subtly convey the “Mac is expensive” meme simply by comparing them with cheaper Windows PCs in their product reviews. CR is also clueless about operating system differences, and, in the case of the iPhone 4 and its alleged antenna deficiencies, downright wrong.

    But the most interesting recent development when it comes to Apple’s products was expressed in a statement from COO Tim Cook, in a meeting with an industry analyst. The telltale phrase is that Apple doesn’t want its products to be meant “just for the rich.”

    This statement comes ahead of the expected announcement of the iPad 2. Certainly the first iPad is already cheaper than competing tablet computers. In order to get the price of those other tablets to be somewhat lower than the iPad, you have to sign a data contract with a wireless carrier. So, in the end, you actually end up paying far more than you might have otherwise expected.

    I’ll avoid any comments about what Apple is going to introduce this week, so as not to risk having this column rendered obsolete within hours after it’s posted. Instead, I’ll consider the wider issue of Apple’s retail price policies.

    When the iPad was first announced, the media expected starting prices in the range of $799 to $999, but Apple promised they’d be aggressive, and they were. Within a few years, assuming the savings realized by economies of scale and the lower cost of parts, you might see a full-fledged iPad for $299 or even less. This is a mass market product, and Apple doesn’t want to put up obstacles that will prevent people from buying one.

    There is also that persistent rumor that a cheaper iPhone is in the works. Some have suggested smaller, although that might cause problems for developers accustomed to designing apps for a specific screen size, not to mention customers having to navigate across tinier touchscreens. On the other hand, don’t forget that Apple can still provide a 2009 iPhone 3GS, in the base 8GB configuration, for a subsidized price of $49. Using less-expensive, less-powerful components may make it possible to deliver different variations of the iPhone 5 to meet a variety of price points. Not that $199 is expensive as smartphones go, but when you’re competing against gear that may be provided free with the same two-year contract, it’s clear Apple has plenty of room to maneuver and push more iPhones out the door.

    One way to make products cheaper, without sacrificing quality or features, is to pay less for the raw materials. Apple has already announced the decision to spend $3.9 billion on certain unmentioned components. With tens of billions of dollars still in the bank, they can readily corner the market for a variety of parts, thus taking advantage of lower prices. Those savings can be passed on to you, the customer, without seriously hurting Apple’s historically high profit margins.

    I wouldn’t presume to guess just where Apple plans to take aggressive pricing. It’s very possible that, as Macs continue to grow ahead of the PC industry as a whole, your next Mac will also cost less. Maybe not this year, and certainly the new MacBook Pro family is no cheaper than last year’s model, but perhaps in the next year or two.

    Wouldn’t it be nice to see a $499 Mac mini all over again? And, according to published reports, Mac OS X Lion will, at the standard price (expected to be $129) include the Server version, which formerly sold for $499 all by itself. Don’t forget that Mac OS X, sans a bundled Server install, is already much less expensive than Windows, at least for end-users rather than OEMs who buy them by the millions. Take that Microsoft!



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