Tuesday, September 6, 2011 at 12:09 pm.
The new Apple: The best gadgets, but also the best prices
This isn’t a brand-new phenomenon, but it’s worth repeating and re-emphasizing: What makes Apple so successful today — and so threatening to its competitors — isn’t just its design and engineering capabilities. It’s the fact that Apple is beating its rivals on price, too, something that once seemed inconceivable.
Important: While Steve Jobs (deservingly) gets most of the credit for Apple’s recent success, Apple’s pricing power seems to be largely Tim Cook’s work. Cook wrangled Apple’s supply chain into arguably the best in the business. This now provides Apple with components its rivals don’t have (like the iPhone 4 retina display) and prices its competitors can’t painlessly beat. And it’s another thing to appreciate now that Cook is Apple’s CEO.
The best example of Apple’s current price advantage is the iPad. Its $500 entry point has caused all sorts of trouble for competing tablet makers, even now, more than 1.5 years after it was first announced. It’s not just that Apple is building a more beautiful, more capable device — it’s that Apple is selling it at a price that others can’t easily match. Those that beat Apple on price are either forced to provide a far inferior product or take a loss.
Amazon, for instance, is expected to initially sell its new tablet at a loss to draw attention. RIM may have to take a loss on its BlackBerry PlayBook to increase sales. HP didn’t sell any TouchPads until it had a fire sale.
Apple, meanwhile, is selling millions of iPads per month and making a profit. This allows it to commoditize other products and services — such as content and messaging — that its competitors are hoping to make a profit from, further increasing Apple’s advantage.
Apple’s pricing power is affecting the PC market, too. Over the weekend, John Gruber linked to a Guardian news piece at Daring Fireball about a new, thin Toshiba notebook that is trying to achieve the same effect as Apple’s popular MacBook Air. In the article, the Guardian’s David Meyer quotes Nomura analyst Richard Windsor:
…Windsor said in a briefing a week ago that Apple, whose MacBook Air laptop may be said to have spurred on the category, would be very difficult to compete with, given the control it has over its supply lines.
“Here the magic price seems to be $1,000, but it appears that the PC makers are really struggling to make this price point and still preserve a modicum of profit for themselves,” Windsor said.
Gruber’s commentary on the piece was: “PCs are too expensive.” That is, of course, a play on the phrase that people used for years to slam Apple: “Macs are too expensive.”
As a Mac user in the early- to mid-90s, pricing was always the trump card that Windows PC owners held. Even after they got over the fact that Macs could not run their games or support their peripherals, or learned to understand the “Megahertz myth,” there was always the “it’s just too expensive!” excuse to avoid buying a Mac.
That slowly started changing when Steve Jobs came back to Apple, and really took hold in the middle of last decade, with the release of Apple’s white iBook and later, the MacBook.
Around 2008, however, things seemed to be moving in the opposite direction. PC makers started selling low-power, low-cost “netbooks” for dirt cheap — a few hundred dollars. Meanwhile, Apple’s new MacBook Air — the cutting edge of computer design — was very expensive, starting at $1,799.
But two years later, after building up an amazingly profitable iPhone business, Apple flipped back, and now still commands a pricing advantage in key areas. The iPad — the personal computer of the future — debuted at $499. And the new MacBook Air — which became the must-buy laptop — launched at $999. Apple, once a victim of the pricing game, is now able to exploit it, while still recording record profits.
The next move to watch: How Apple prices this year’s iPhones, due out sometime in the next month or so.
While Apple has a solid grip on the high end of the smartphone market, most of the world still can’t afford an iPhone. It’s important for Apple to reach those people, however, to get them onboard the iOS platform. Apple’s inexpensive iPhone 3GS has been a big hit in the U.S., even now, two years after its launch. Now let’s see if Apple has a lower-cost iPhone solution for the world.
Related: Apple: The next chapter