There was a discussion on the Communities Dominate Brands blog, Baron95 (don’t know his/her real name) and Tomi Ahonen were discussing Apple. It was obvious that there were a couple of things about Apple that they were missing, so I’m writing this as an explanation.
Apple, the Premium Computer Company
Apple is generally considered a company that produces premium products. They are also considered to be too expensive to gain major market share in the computer industry.
The first sentence is correct. The second sentence isn’t.
Apple does build really nice computers. But they have competitors who build computers to specifications that are nearly the same, and are priced at about the same level. Let’s take the Lenovo 14″ screen ThinkPad T440s Laptop – Lenovo’s U.S.A. site lists it at $1,457.06 (including 3 year Anti-virus and Internet security package) while a MacBook Pro 13″ screen model with the same memory (8 gigs) sells for $1,299.00 (the MacBook doesn’t require the Internet Security or Anti-Virus software). Both computers have 128 Gigabyte SSD storage, and 2.6 Ghz Intel Core processors.
The two computers aren’t the same, but they are close enough. And the Apple MacBook Pro is less expensive. Wonder how that happened?
Simple – Apple’s pricing isn’t as crazy as most people claim. That’s one of the reasons that Apple holds a big slice of the premium computer market.
What are Apple’s Aims?
That we don’t know. The company is secretive to a fault. Or you could say that they are consistently ‘on message’ telling you only what Marketing wants you to know.
But there are things that Apple has to tell you. If they want you to buy. Like pricing. Let’s look at the cheapest MacBooks that Apple has sold historically (all prices are in American dollars).
MacBook “Core Duo” 1.83 13″ – May 2006 – $1,099.00
MacBook “Core 2 Duo” 1.83 13″ – November 2006 – $1,099.00
MacBook “Core 2 Duo” 2.0 13″ – May 2007 – $1,099.00
MacBook “Core 2 Duo” 2.0 13″ – November 2007 – $1,099.00
MacBook “Core 2 Duo” 2.1 13″ – February 2008 – $1,099.00
MacBook “Core 2 Duo” 2.0 13″ – January 2009 – $999.00
MacBook “Core 2 Duo” 2.13 13″ – May 2009 – $999.00
MacBook “Core 2 Duo” 2.26 13″ – October 2009 – $999.00
MacBook “Core 2 Duo” 2.4 13″ – May 2010 – $999.00
At which point the cheapest model changes to the MacBook Air
MacBook Air “Core 2 Duo” 1.4 11″ – October 2010 – $999.00
MacBook Air “Core i5″ 1.6 11” – July 2011 – $999.00
MacBook Air “Core i5″ 1.7 11” – June 2013 – $999.00
MacBook Air “Core i5″ 1.3 11” – June 2013 – $999.00
MacBook Air “Core i5″ 1.4 11″ – April 2014 – $899.00
If we take the original price of Apple’s cheapest laptop, and apply inflation to it, the price in 2014 should have been $1,290.54. Instead the price dropped. If you take today’s price and convert it to 2006 dollars, you get $765.57.
For the purposes of my demonstration I’ve picked the least expensive laptop computer that you could buy if you walked into an American Apple store. Yes, I know there are differences. The original MacBook had a 13″ screen, and the MacBook Air has an 11″ screen. If you insist on the same screen size, a MacBook Air with a 13” screen sells for $999.00 currently, which is still cheaper than the 2006 MacBook even before inflation is taken into account.
The iPad – is it a Computer?
In 2010 Apple shook up the world with a new product, the iPad. There’s been a lot of discussion as to whether or not an iPad should be considered a computer, which I am going to ignore because I want to finish writing the article this year. What if we assume it is a computer? The cheapest Apple computer which you can use while flying, or on the bus, from 2010 onward becomes an iPad!
If you think I’m being ridiculous, tell me why Personal Computer sales (with the exception of Macs) are dropping. Tell me. Show me some numbers. In my opinion a lot of people have decided not to replace their desktop/laptop, and instead of bought a tablet of some sort for general use. For most uses which don’t require a lot of keyboard usage, a tablet is superior to a desktop/laptop.
Here’s the iPad pricing.
iPad Wi-Fi (Original/1st Gen) 16GB – January 2010 – $499.00
iPad 2 (Wi-Fi Only) 16GB – March 2011 – $499.00
iPad 3rd Gen (Wi-Fi Only) 16GB – March 2012 – $499.00
iPad 4th Gen (Wi-Fi Only) 16GB – October 2012 – $499.00
iPad Air (Wi-Fi Only) 16GB – October 2013 – $499.00
iPad Air 2 (Wi-Fi Only) 16GB – October 2014 – $499.00
Note that I ignored the iPad Mini, as in my opinion the seven inch screen is too small for a lot of things, though it makes a great eReader.
Why are you Throwing These Numbers Around?
The computer industry has for years been involved in a race to the bottom. You can now pick up a laptop in your local big box store for under $300.00. It will be a cheap piece of junk, made up of plastic fantastic, but it will work. Sort of.
Assume you are going to keep it for three years – you need to add another $100.00 to the price to cover Internet Security and Anti-Virus (unless you install Linux or BSD on it). That knocks the price up to $400.00, at which point for a lot of needs an iPad might be a better solution. Sure, it doesn’t have a keyboard, but how much do you use your keyboard anyway? I’m a writer, and I only use the keyboard about 1/4 of the time, the rest of the time I use my iPad. And yes, I know that the 16GB of storage is practically nothing. I’m constantly running into storage issues with my 32GB iPad, but I’m a messy user 🙂
When Steve Jobs came back to Apple in the Next acquisition, he simplified the product line, replaced the operating system with a more modern one, and introduced lower cost models. Apple has continued to produce models with even lower costs.
Remember I said Apple wasn’t take part in the race to the bottom? I lied. They are taking part, but they are doing so on their terms, slowly and carefully.
In the most recent quarterly report, Apple reported having sold a record number of Macs, at 5.5 million, and 21.4 million iPads. That’s fantastic numbers. The numbers are also sustainable. Apple can produce these numbers easily.
What would happen if Apple (much to their surprise) landed 50% of the 2015 Personal Computer market? It would be a disaster. Apple just couldn’t produce that many machines.
Apple has several times had production issues. During the Christmas 2013 rush, Apple lost sales because the company wasn’t able to produce enough Macs. During the original iPad introduction, deliveries were delayed by an inability to produce enough product. The same happened with the iPhone 5S.
Apple doesn’t like having too much product in the supply chain, nor do they like having too little.
But by slowly lowering prices, Apple is gaining market share, and doing so at a measured pace which their supply chain can match. Back when Steve Jobs was alive he stated that Apple had managed to take 20% of the U.S. Personal Computer market. What if they managed to hit 30% by the end of 2016? Imagine the pressure that would put on Microsoft, Dell, Lenovo, HP, etc.
Is this Apple’s Secret Plan?
I have no idea is Apple is attempting to gain 100% share of the personal computer market. No idea at all. But while an attempt to gain 100% share of the PC market may not be in Apple’s plans, effectively the firm is making the correct moves to do just that. If this is what the company plans to do, there are signs that the plan could accelerate.
There are a variety of expensive components in any computer. Like the Solid State Disc Drive. Prices for Solid State Disc Drives are coming down.
Apple has worked exclusively with Intel for Central Processing Units since 2006. What if Apple talked to Advanced Micro Devices, and got a better deal? That would allow Apple to lower prices further.
What if Apple decided to dump the X86/AMD64 processors completely, and decided to use ARM processors in computers? They already use ARM processors in the iPad, iTouch, and iPhone, processors that Apple designs using ARM technology as a base, and IOS is based on Mac OSX so porting the operating system wouldn’t necessarily be that hard. Apple also has experience in providing executable file wrappers, which allowed a program compiled for one processor to run on another (see Rosetta). Moving to ARM chips would cut processor costs, battery costs, and mother board costs.
This is not meant to be a complete list. There are other things that Apple could do to reduce prices, and by selling a lower costing computer, take a larger share of the market, while maintaining the historical quality levels.
Or they could just keep on letting the price slide slowly downwards…
But there are past actions by the company from which we can infer that this is planned, not accidental.
Apple has a history of producing low priced, but high quality product, and gaining monopoly levels of market share. Consider the iPod line, most especially the iPod Nano and iPod Shuffle. There’s no reason that the company can’t produce low priced computers and gain monopoly levels in that market too.
Sunday February 1, 2015
PS: At some point someone is going to point out that Apple doesn’t produce servers. There is no reason for Apple to get into the server market, and plenty of reasons to stay away from it. If enough people are interested, I’ll cover that in another article.