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  • 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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