The Latest Apple Tax Debate

June 15th, 2017

I’m often amazed how polarizing the issue of Apple’s pricing policies can become. The conventional wisdom is usually that anything with an Apple label on it is overpriced. It has to be, considering the company takes huge profits from sales. So where are the cheap iPhones, iPads, and Macs?

And how dare Apple consider charging an exorbitant $349 for the forthcoming AirPod? Did Apple executives succumb to the “greed is good” mantra from the 1987 movie, “Wall Street?”

As is usual in such cases, the truth is not a black and white issue, but one immersed in shades of gray.

So, yes, Apple earns high profits from most of the product categories in which it plays. But is that necessarily a bad thing? Are customers overpaying because Apple wants to report high margins in its quarterly financials? Or are they getting fair value for a fair price?

Take the iPhone. Apple has traditionally earned over 90% of the profits in the industry. Most of the rest goes to Samsung, meaning that many companies barely earn any profit from the gear they sell, even if the quantities are in the tens of millions.

Apple sells high-end smartphones. Even though Samsung sells the cheap stuff, the flagship Galaxy S8 and the S8+ are in the same price tiers as iPhones. Does that make all these handsets expensive, or is it just, as I said, charging fair prices for such gear?

It’s hard to argue the Apple Watch, since there are few direct competitors, those with mostly similar features. But anyone who says the Apple Watch, with its current sales numbers, is a failure, has to explain why the Amazon Echo, which sells in far fewer numbers, is a rousing success.

But the most intensive pricing argument has been about the Mac. It’s never ending. How can Apple possibly charge $999 for its cheapest notebook, the MacBook Air, while you can get a perfectly serviceable Windows notebook for hundreds of dollars less? How does Apple have the temerity to ask $4,999 for the forthcoming iMac Pro? And that’s for the entry-level model.

Indeed, some speculate that a fully decked out iMac Pro will probably cost upwards of $17,000!

Overpriced? Not exactly. During its keynote, Apple claimed that rival PC hardware, with similar specs, cost over $7,000. Some people went ahead and assembled do-it-yourself configurations, and ended up with prices in the $4,999 range, give or take a few hundred dollars.

Understand that these configurations are based on separates, a computer and a standalone 5K display. They also use current parts, not the ones that will be in the iMac Pro, since they may not even be out yet. So actual pricing is, at best, a guess. But I’ll assume new parts will be priced in the same range, or higher, than current chips. I’m not sure about the AMD Radeon Pro Vega graphics chips that Apple uses, since there is no price set for a PC version yet. The Vega family includes high-end gaming GPUs, so they won’t come cheap.

The other argument is that Apple charges too much for extra RAM, bigger SSDs and other enhancements, but when you compare its pricing to mainstream PC makers, the differences are not significant. Unless Apple pulls a fast one, however, you should be able to use third-party ECC error-correcting RAM on the iMac Pro, and thus save hundreds of dollars on high-end configurations. But since nothing else can be easily removed, you’ll have to put up with Apple’s price choices. But it would be nice if the SSDs can be swapped out too.

To be fair, the upgrade scheme can only be based on the regular 27-inch iMac at this point. That means it’ll get a low repairability score from iFixit unless Apple believes pros would prefer more control over upgrades in exchange for the higher prices they’ll pay. It’s not impossible to do.

What this appears to indicate is that, at the very least, Apple isn’t overcharging for the iMac Pro, or at least doesn’t seem to be. I expect you’ll be able to reach a similar conclusion when the Mac Pro arrives, presumably next year.

When it comes to regular Apple gear, the iMac is perfectly compatible for its price point. Just consider the price of a standalone 5K display and you’ll see what I mean.

You can make a more compelling argument about Mac notebooks. But even then, the Mac either has features that aren’t duplicated on a PC — such as the MacBook Pro’s Touch Bar — or are at least priced in roughly the same range as similarly outfitted PCs.

But remember that the purchase price of a computer isn’t just what you pay at the store. There’s also the cost of upkeep, how much it requires for baby sitting and repairs over its useful life. According to IBM, which has bought tens of thousands of Macs for its employees, the cost of ownership is hundreds of dollars less. That’s where the rubber meets the road.

The other issue seldom considered is productivity, and how it compares between macOS and Windows. I suppose if you’re just using the same or similar apps, and not dealing with too many system functions beyond opening, saving and printing, there’s not a huge amount of difference. At least until the Windows PC misbehaves, and that still appears to happen more often than with Macs. But don’t take my word for it. Pay heed, instead, to the cost-of-ownership factor as reported by IBM.

| Print This Article Print This Article

One Response to “The Latest Apple Tax Debate”

  1. dfs says:

    Yes. everybody who purchases an Apple product, hardware or software, pays what might be called an “Apple tax.” It’s always been that way and always will be. The reason is that every Apple product is to one degree or another the product of in-house R&D. It’s possible, indeed it must be easy, for some competitor to collect a bunch of off-the-shelf components, add somebody else’s OS under a licensing arrangement, assemble all this stuff in a case and slap his own name on the finished product. It should be obvious that the cost of doing business this way is a lot less than doing it the Apple way, in which to one degree or another Apple is obliged to pioneer its own technologies, and it should be equally obvious that Apple is going to pass this cost on to its customers. Case in point: we usually think that Apple has moved to a policy of distributing new versions of its operating systems for free. But this is an optical illusion, the cost of these upgrades is factored into the cost of the devices that run them. Apple just chooses to extract its pound of flesh in an invisible and therefore painless way. But don’t get the
    mistaken idea that Apple is a charitable organization. This extra tier of R&D costs is an important reason why the competition can always undersell Apple. But of course you get what you pay for.

Leave Your Comment