Apple Continues to Upset the High Price Myth

August 4th, 2011

For years, Apple has been credited (or blamed) for charging premium prices for their products. In many cases, the critics were right, but only until you actually compared the hardware and software with the competition. Suddenly, the prices ended up being highly competitive.

The situation changed considerably with the arrival of the iPad. Apple continues to contract for huge supplies of components up front. This means lower prices. In addition, by creating their own custom chip and battery designs, they also save money. So high profit margins are retained, but the iPad is less expensive than it might otherwise be. Remember that early projections had the original iPad selling for up to $1,000. You all know how that prediction fared.

Meanwhile, the competition has struggled to keep up. At first, you could only get seven-inch tablets at anything close to what an iPad costs. These days, prices for larger screen models are comparable, but the companies who build those devices aren’t making near as much as Apple on each unit sold. And it’s clear they aren’t selling many. It remains an iPad market, not a tablet market, even though some industry pundits, and even Consumer Reports, want you to believe otherwise, if not now, maybe next year or the year after.

Certainly, the subsidized price (with a carrier contract) of an iPhone is pretty much on a par with the subsidized price of Android OS competitors with similar hardware specs. Some hope that Apple might offer a cheaper model, but right now, that cheaper model appears to be the previous version, which may be the most expedient approach. AT&T continues to sell as many copies of the iPhone 3GS as any individual Android OS product. Yes, Android has a higher overall market share, but that share is spread across a number of manufacturers and dozens and dozens of models. Besides, owner satisfaction ratings among owners of Android gear aren’t as high as the iPhone and iPad.

Another area where Apple has managed to confound the price critics is the MacBook Air, which remains a hot seller. So-called thin and light note-books that are roughly similarly configured tend to cost as much or more than the $999-$1,599 price points for the four standard MacBook Air configurations. Intel’s new “Ultrabook” reference design is intended to integrate components in a fashion similar to what Apple has done in order to reduce size and weight, not to mention power efficiency. But it doesn’t appear at this early stage that the prices will be any lower. The first Ultrabook products are not due until 2012, perhaps in time for Apple to refresh the MacBook Air yet again with faster processors and other enhancements. And maybe more aggressive pricing if they can leverage the improved economies of scale.

As to the rest of the Mac lineup, since Apple never played in the cheap PC sandbox, they continue to look expensive. You can buy an entry-level Windows note-book for $700 or so, but look at what you’re getting. The inevitable comparison of hardware and bundled software tells a different story. Mac versus PC prices suddenly don’t seem so far apart, and the Mac platform continues to outpace the sales growth of Windows PCs. With a worldwide market share of an estimated 5.1%, Apple has lots of room to grow, although the iPad has clearly reduced some of those growth possibilities.

Apple is also going after software companies who charge an arm and a leg for their products, with low pricing on apps and OS X. I really wonder whether Microsoft is going to attempt to compete with Lion’s $29.99 asking price for the online version; the physical USB thumb drive will cost $69 when it arrives later this month.

If you’ve priced the upgrades lately, you’ll see you pay many times that for the top-of-the-line version of Windows 7, and there’s no indication Windows 8 will be priced more reasonably. Remember that the price of the Windows license is part of what you pay for a Windows PC. This may be yet another reason that will keep the PC makers from being competitive in Ultrabooks without, of course, accepting minuscule profits.

Sure, Microsoft wants to integrate some of Windows Phone 7 with Windows 8, but they also mistakenly believe that a tablet is just another PC that runs Windows and Office. That’s the same wrong-headed approach they’ve taken for years now with little payback. The market said no. Apple used the iOS, custom-made for mobile gear, on the iPad, and the rest is history.

And history is something Microsoft has trouble understanding. That is likely another reason why they continue to dump billions of dollars into online services and other initiatives without evidence that profits will come soon or ever. Then again, the Bing search service appears to have potential, if Microsoft can stop hemorrhaging cash to keep it going.

In the end, I don’t think all those new Apple customers believe the products are overpriced.

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6 Responses to “Apple Continues to Upset the High Price Myth”

  1. City Dog says:

    So, here’s the deal. Our old 14″ iBook G4 is getting pretty long in the tooth. To replace it means the following: For a screen large enough to sooth our aging eyes, we should get the 15″ MBP as there is no longer a 14″ product. The iBook has a very nice matte screen, and we really don’t want to have to fight that high-gloss screen all day. The matte screen is an extra cost option on the MBP. I just hope that the higher resolution of the matte screen option — which sounds desirable but actually translates out to SMALLER type, SMALLER images, and so on — will still be comfortable to us. (At least my mini allows me to use any monitor I want … but it’s not a laptop.) So the comparable replacement, a 15″ MBP with a matte screen will set us back fifty bucks short of two grand! I call that high-priced.

    On the other hand, I can replace the 14″ iBook with a 14″ matte screen Lenovo — not exactly a throw-away item — for about half that amount. And Windows 7 is not so shabby. (I used MS products for twenty years, with very few problems, thank you; and Macs for the past seven, also with few problems. So I’m not as leery of Windows as some might be.) I would, however, lose the “cool” factor. But this Lenovo is not exactly “an entry-level Windows notebook.” It’s a well-made product — with a MUCH better keyboard, to boot. (Shocking, to the faithful, but there actually are other manufacturers who make good products.)

    I just don’t get the argument that Apple has upset the high-price myth. Sure, the iPad starts at $500. So what? It’s not a laptop, and doesn’t compete with a laptop. I need a laptop, not a tablet. And as for the Windows tax, the per-unit cost to OEMs is quite low, probably about the same as the $29 for Lion, and nothing near the stand-alone list price. Macs ARE overpriced. You can argue until you’re blue in the face that all the “lickable” goodness of OS X (which is soon to be taken out back and shot, incidentally) is worth every penny of the premium, an argument I would challenge. Regardless, that’s meaningless to most sensible Americans (both of us, I guess) who care to budget their money rationally. Which further means that Macs are, as they have always been, a product for the affluent minority — and those who are willing to overextend themselves to appear to be affluent (and hip, and cool, and …). I’m not arguing that Macs are bad products. They’re good products. But there’s a high initiaiton fee to be a member of that club. I think that Apple has just priced me out of that club.

    • @City Dog, Thanks for the comments, but you’re missing a few things. When you compare Mac versus PC pricing, you have to compare all the components and the value of bundled software. That tiny OEM price for Windows 7 is for the consumer version, somewhat feature restricted compared to the full-featured edition that usually costs $100 extra on the customization chart.

      As to the iPad 2, at $500, it’s priced the same or less than competing tablets with similar hardware/display specs.

      Also, you seem to forget that you can change the screen resolution on a Mac (Displays preference panel) or zoom to make text larger.



    • Karl says:

      @City Dog,

      I’m in agreement with Gene, plus I never really thought Macs were overpriced. They always brought a lot of value to the table. There are cheaper PCs that’s for sure. But Apple has been pretty good (at least since SJ returned) of mixing components to give buyers value.

      I think it comes from the whole widget approach. I assume that they can take some liberties that other PC companies can’t with hardware and software.

      Anyway… whatever they are doing, it must be working for them.

  2. max March says:

    @City Dog, you haven’t bought a new computer since the G4 ibook , and you think ANYONE cares what your preferences are? thats a 7-9 year old machine. BEST OF LUCK to you running a PC for 7-9 years. enjoy the antivirus-shuffle every few days/weeks too.

    the worst thing about windoze (sic) is YOU work for the machine- antivirus, DONT CLICK THAT, defrag, remove spyware, windoze updates, etc.
    mac works for you. open your notebook, springs to life, even with 20 apps hibernating, do your work, close the notebook.

    as i said best of luck to you. if you havent lived in that world for 7 years (I’ll assume your ibook is a 2005 model?) you should live there a few weeks, THEN come back and tell us how great it is.

    I’ve seen you (not ‘you’, but a thousand yous) do the same, and buy another mac while ‘regifting’ the new pc to someone who doesnt know better.

  3. Steve says:

    @City Dog:

    You compare the 14″ Lenovo with the 15″ MacBook pro and come to the conclusion that Macs are over priced because the Mac costs more. The problem here is that you make it seem as if the size of the screen (ignoring quality) and the OS are the only difference. In short, your biggest complaint is that Apple doesn’t ship crappy products that happen to hit the price point you’re looking for.

    Apple is a premium brand that will not ship a truly lousy product. Cost and value are two different things. What’s funny is that you claim to know about Macs, at least enough to determine whether the OS advantage is worth additional value or not. Yet, you’re using an old PowerPC based machine that is now several generations behind the current Mac OS. In short, you’re not in a position to make such a comparison. This would be like comparing Lion to Windows XP. Sure it’s better, but the comparison is against Windows 7 (incidentally, Lion is still better).

    • @Steve, Let me add that CR takes this approach, setting up artificial personal computer categories usually based on screen size. The display is only one parameter on a notebook or all-in-one. The quality of the screen, graphics hardware, CPU, etc. have to be included as well. Otherwise, the comparisons are fated to fail.


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