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The One Thing Apple Did Wrong this Year

Posted by J Powers at 2:17 AM on December 28, 2009

First of all, I know there are going to be people disagreeing on this, so let’s just say we’ll agree to disagree….

I have seen a few articles on the web talking about the 10 things that Apple has done right and the 10 things Apple has done wrong. While I look at some of the items on these lists, I agree with it for the most part. You can probably guess some of the things like Apple and AT&T, the Tablet rumors, not upgrading the Mac Pro, etc.

All in all, there is one thing that I think Apple should have done this year and didn’t really do. It’s something that was on Beta News top ten list of things they did right. But I disagree:

Apple did not lower the prices enough.

Back in June the gossip was that Apple was lowering prices on their Macbooks. Everyone was a flutter with a possibly “affordable” machine. But in the end, the reality was that the Intel Dual core laptop started at $999. If you wanted a more affordable Mac – The mini only costs $599.

Now if you compare that to a PC Laptop – 2.66 Dual core with 2 GB DDR3 memory and 250GB hard drive, you will find that price is at about $700. It is said that 30% of the macbook sale is profit. That is about $300 for the Apple name and OS. Apple is expected to have sold about 3 million new machines in this quarter alone, meaning $300 million in sales – or (if numbers stayed the same year round) $1.2 Billion.

Before we move forward – I realize that Apple has to answer to investors. Making profit is key, especially in this economy. However, this last year and a half has not been good to some. Most companies have tried to lower prices so people can buy more and re-stimulate the economy.

Apple didn’t do anything viable for the average consumer.

If they would have done the same thing as with the original Macintosh, then I would be more sympathetic to the cause. Basically, Apple – Back in 1985 – started a program to build, or even rebuild school computer rooms. I was lucky enough to go to a High school that had received 30 Macintosh Classics from this program.

But in this go-around they didn’t. They pretty much profited the money from the sales.

I am all for making a profit in any economy. PC manufacturers would always complain that the problem with building computers was they would only make a couple dollars from selling because the competition was so high. That is why companies made support plans – to make some extra cash on a sale.

My problem lies with the fact that a low end Macbook is not affordable to the average consumer. That is why Microsoft made the PC hunter commercials. A Mac for $1000 whereas a PC Notebook for $500. Yes, it might have a slightly slower processor to it, but will the average consumer actually notice a500 Mhz difference? We could also talk about how AMD processors would match the speed and keep the price low. But let’s not get into THAT argument.

Add to it Apple’s other interests, like iPhone sales, which are great. It costs them $179 to build a 16 GB model. Now while you are saying “That’s OK, I only paid $199 for the phone”, the reality is you didn’t. AT&T picked up the difference for the exclusivity. A $400 difference.

Here is how it works – AT&T pays Apple a monthly fee per phone on their system. So within 2 years, AT&T will pay Apple around $400 for your phone ($12-15 per month). Making Apple about $400 on your $179 iPhone ($600 in total). Of course, if you buy the phone outright, it will cost you $499.

Now we will talk stocks: This last week, Apple shares rose to $209 – the highest they’ve ever been. Why is that? No other reason than the fact that a rumor is going around about a Tablet that might be coming.

Really?

I could go on with numbers, but I think I made my point. Apple could have easily dropped a Macbook to $700, and a Macbook Pro to $900. They would have then sold Apple care for $70 a year and still made a tidy profit.

So the rumor of the Tablet is it will sell for $600. I would venture a guess to say it will be more $800 (if this rumor comes true). Why? Because Apple doesn’t want to “Cheapen” the computer experience for anyone. And they certainly don’t want to lighten the pocketbooks.

12 Comments

  1. From Paul Westbrook at 3:26 am on December 28, 2009

    I don’t see how this is “wrong” for Apple. They have every right to charge what ever they want for their products. And consumers will buy these products if they feel it is a fair price, and if not the consumers will buy from someone else. Obviously, from their sales figures, consumers thought that Apple’s prices were fair.

    Personally, I didn’t buy any Apple products this year, but instead bought from other manufacturers. But, that is a decision that every consumer can make themselves.

  2. From Dan at 8:15 am on December 28, 2009

    It might not be entirely worth it but with a Mac purchase you get great customer support at the Genius bar of any Apple store for free.

  3. From Steve W at 8:51 am on December 28, 2009

    The #1 reason people buy Apple products is that they “notice the difference”. Why should Apple design and price a product for people that won’t actually notice the difference?

  4. From Al at 9:30 am on December 28, 2009

    Apple makes a profit selling computers. OMFG! Perhaps that’s how they get the money for the R&D required to create new things like iPods, iPhones and mythical iSlates.

    Most PC assemblers do not make a profit on their PC business. HP’s profit comes from it’s printer and precision instrument devisions. Acer makes a few dollars selling very cheap netbooks. Dell is just scraping by trying to sell phones in Brazil and China. No company, except Microsoft, makes real money on cheap computer sales.

    The first thing PC assemblers cut in tough times is their R&D budget. Apple does the opposite by increasing their R&D budget.

    Apple does not want to make high volume, low profit devices. Apple makes less than 3% of the world’s cell phones. Nokia makes 43% of the worlds cell phones. Apple’s profit from the iPhone last fiscal year was significantly greater than Nokia’s profit from all of it’s cell phone sales during the same time period.

    Apple is not making any mistakes at all. Ask any Apple shareholder.

  5. From Al at 10:28 am on December 28, 2009

    Perhaps I should have used the car analogy. BMW makes very good, technically advanced automobiles at a premium price and a very good profit. Kia makes adequate cars at a very low price and a fair profit due to cheap, off-shore labor. Saturn used to make adequate cars at a very low price and at a loss. We all know what is happening to Saturn. Which of the three would you like to drive? Which of the two cheap cars would you like to be left owning at this point in time?

    Apple designs and closely supervises the manufacture of the cases, motherboards and even some of the chips used in their products. They are also one of the last assemblers to be still building some of their computers in North America. They even write the OS software for all of their devices. Major PC assemblers contract out everything including design. They all get their OS from third parties.

    Apple makes unique products at a premium. You do get what you pay for.

    As for your PC equivalent to today’s $999 MacBook, I hope you are comparing equivalent LED screens, CPUs, graphics cards, RAM, HDs, included software, OS, et cetera. You can find an equivalent PC for most Mac models and the equivalent PC is usually within +/- $150 with the Mac usually cheaper, especially at the high end.

  6. From Yacko at 10:44 am on December 28, 2009

    “That is about $300 for the Apple name and OS”

    You’re living on that drug called myth. If, if, there is a premium. it’s well worth it, no viruses, no cpu-hogging virus protection, no crapware, no garish stickers. And in fact, the iLife software provided is very useful. Garageband alone is a hoot.

    As to lowering prices, why should they? Apple sells less than 10% of the market and gets about 50% of the money. The question you should ask yourself is how these no-esteem PC makers manage to convince you to spend money on their dirt cheap dirt? What personality flaw are they tapping into? It’s a sad, sad co-dependent situation that can only crash and burn for both the consumers and manufacturers. Chasing the majority of the market and getting less than half the aggregate gross is a death spiral.

  7. From Bill Burkholder at 11:27 am on December 28, 2009

    Price is not a reason to buy an Apple product. It never is, never has been, and I would argue, never should be.

    Lest you call me a snob for saying that, I’ll disagree in advance. I studied economics, though, and have worked in marketing at one point in my career. So, I can say with pretty good certainty that there is ALWAYS room at the top of any market for a company like Apple. They make products that work well, work easily, look good, last a very long time (in general), and perform better than most or all of the competition. That’s why they command high prices. I’ve used their stuff for 26 years, and it all rates at least a B+ on my scale. Most other electronics companies get a C.

    There is nothing wrong with selling something that people want to pay for. If you can’t pay the price, that’s tough! Give up Starbucks or some other guilty pleasure and save up for it.

  8. From Rama Sod at 11:53 am on December 28, 2009

    One thing that none of the posters nor the original poster have acknowledged is that Apple uses the upper end of the each CPU category, ensuring that virtualization works as advertised.
    This is not true of most sub-$1000 notebooks.
    Also, Apple modifies or special orders all of their components and standardizes them across the entire entire hardware version/revision, which quite frankly is why the closest non-Apple computers cost at least as much as the Apple version.
    This all discounts any comments about custom built/non-mass produced computer, since you can always a few bits here and there by doing it yourself.

  9. From John Knights at 12:48 pm on December 28, 2009

    Apple have expertly tapped their target market and the profits they generate are as a result of very careful tweaking – Apple never make huge knee-jerk decisions. Everything is controlled, measured, understood.

    Sure they could probably slash the price of some of their products but an obvious consequence would be for supplies to rapidly dry up. They could never increase production quickly enough to cope with the true demand for their product (once the price factor has been taken away).

    Do Apple users really want to compete with Windows for numbers? Personally I’d rather not and that’s not being a snob, that is realising that the mac is the machine I want for myself and everybody owning one would not improve my personal enjoyment but may bring unexpected problems.

    Windows people pay Windows money for Windows software on compatible hardware. They are happy with that, and so am I.

  10. From GNC-2009-12-29 #539 I make a Startling Announcement! - Geek News Central at 1:24 am on December 29, 2009

    [...] you care? Yes NYC you can order a iPod now! eReaders coming out of our ears! USB 3.0 Sata Adapter! Did Apple Screw Up? This one will make you puke! iMac 27 Inch FAIL? Top 10 iPhone Apps? What were Yours? Meebo? Murdoch [...]

  11. From Joe at 6:10 am on December 29, 2009

    Sorry, but your argument is full of holes. Let’s start here:
    “Now if you compare that to a PC Laptop – 2.66 Dual core with 2 GB DDR3 memory and 250GB hard drive, you will find that price is at about $700. It is said that 30% of the macbook sale is profit. That is about $300 for the Apple name and OS.”

    First, you’re not talking about the same hardware. Apple’s hardware reliability is unexcelled. Yes, you can buy a cheap computer with similar specs for less than a Mac. That doesn’t mean you’re buying the same thing.

    Let’s look at it this way. I can buy a Ford Focus for under $20 K. I can also buy a BMW 3 series for something over $30 K. They both have 4 wheels, 4 doors, seat 4, and have one steering wheel. Does that mean they’re the same? Obviously not. Why are people so unable to see that there’s more to computers than the specs?

    Beyond that, you don’t even have your facts right. Apple’s GROSS MARGIN is around 30%, not their profit. On a $1 K sale, they have about $300 in margin. However, from that gross margin, they have to pay for R&D, marketing, support, warranty, administrative overhead, taxes, etc, etc, etc. The profit is much, much smaller, probably closer to 10%.

    Your suggestion that they could drop the price of a MacBook to $700 and still made a tidy profit is just plain absurd. Since they’re at roughly 30% gross margins, if they dropped the MacBook to $700, they’d have ZERO margin to start with – and still have to pay all of the above overhead costs which means they’d lose money on every unit sold.

    Let’s start with their real profit – 10%. If they lowered the MacBook only 5% ($50), they’d lose half of their net profit. That means that they’d have to double sales to break even. Do you really think a 5% price cut would allow them to double sales? Even if you use the gross margin number and assume that incremental sales have no overhead involved with them, a 10% price cut would need to add 50% to sales volume to pay for itself.

    Please learn something about business before making a fool of yourself. You can be sure that Apple understands their finances infinitely better than you do and that they’ve considered a range of different price points before choosing the ones they did.

  12. From Rob Blatt at 4:32 pm on December 29, 2009

    I would argue that keeping the iPhone 3G on the market once they started selling the 3GS is something that’s good for the average consumer. Regardless of how much the phone cost AT&T and how much it costs over a two year period, keeping a low end model available benefits the average consumer. The argument against this is that you have a two year contract, but if you buy a phone without a subsidy, you pay the same monthly fee anyway. If you don’t plan on changing companies (and that is something the average consumer doesn’t think about regularly), the only difference is the price of the phone, and I’ll take a cheaper one please.

    Of course, I’m an Apple fanboy and was looking for a hole in your argument. And you baited me anyway.