“The timing is perfect for Apple to cut Mac prices and dramatically to increase its market share. If Apple made that seemingly radical decision, the MacIntosh could easily move out of single digits of market share,” John Dodge writes for SmartPlanet.
MacDailyNews Take: That’s a strange Website name. Can a giant orbiting rock really be “smart?” Certainly, the majority of humans crawling all over it aren’t, based on their OS “choice,” to say nothing of the IQ bell curve among many other things.
Dodge continues, “Mac operating system share has steadily risen in 2009, topping out in October at 5.27 per cent to Microsoft Windows’ seemingly insurmountable 92.52 percent, according to market research firm Net Applications.”
MacDailyNews Take: Net Applications doesn’t measure market share, Mr. Dodge. It measures OS information reported by users browsers as they access NetApps’ network of some 40,000 sites worldwide. Market share is nothing but the number of units sold by a vendor divided by the total number of units sold regardless of whether they made money (Apple Macs) or not (“netbooks”). Dell has triple the market share of Apple, generates roughly 33% greater revenue, but makes just 1/3rd the profit. Tell us why Apple has to dramatically cut Mac prices and increase market share again?
Dodge continues, “There’s a problem and it’s one Apple can fix. Macs are too expensive.”
MacDailyNews Take: Says who? Only someone who doesn’t understand the differences between margins, profits, and market share.
Dodge continues, “There I was last Friday in the Apple store cooing over an elegant 15-inch MacBook Pro. But at $1,700, I could not pull the trigger.”
MacDailyNews Take: John, nobody cares if you’re too poor to afford a 15-inch MacBook Pro. Get the 13-inch model, or the MacBook, and/or a real job and stop your tedious whining.
Dodge continues, “Everything else was right except the price. I’m ready to switch from 20 plus years as a Windows user who has written about the technology longer than that and switch to a Mac… The Mac is the more intelligent choice… So as a buyer, I’m stuck in a PC notebook processor netherworld and being too cheap to shell out megabucks for a Mac, the clear winner on all levels but price. Pricecuts on the Mac would make it a much more appealing mainstream contender. Android, anyone?”
MacDailyNews Take: To illustrate the morbid stupidity: There I was last Friday in the BMW dealership cooing over an elegant BMW M5. But at $85,500, I could not pull the trigger. Everything else was right except the price. I’m ready to switch from 20 plus years as a Ford sufferer who has written about automobile technology longer than that and switch to a BMW… The BMW is the more intelligent choice… So as a buyer, I’m stuck in a Ford and being too cheap to shell out megabucks for a BMW, the clear winner on all levels but price. Pricecuts on the BMW would make it a much more appealing mainstream contender. Chevy, anyone?
Last quarter, Apple sold a record number of Macs. Apple currently owns 91% share of the $1,000+ computer market. If anything, Apple should consider raising Mac prices as selling record numbers of premium-prices products during “the worst economy since The Great Depression” probably indicates that Apple’s Mac prices are too low. Even without price increases, perhaps because articles written by illogical people don’t command much of a price, John can’t afford a Mac, so in order to appease him, Apple should cut their margins down to beleaguered Dell’s levels, so they can work markedly harder for significantly less revenue and soon start laying off people, closing plants, retail outlets and call centers, skimping on build-quality, and installing a bad copy of Mac OS X from a bloated, rudderless company headed by a clown who once got a very fortuitous dorm assignment.
Pure genius, John. SmartPlanet, indeed.
What may well be the stupidest article of the month, at least, already (not counting anything emitted by Rob Enderle) – give John the clicks, so maybe the poor bastard can eventually afford a reburb Mac, at least – can be found here.
Hey! Ford is the only American auto company turning a profit. Use GM for your analogy.
I bought a non-subsidised, pre-pay iPhone since after 18 months I will be ahead financially.
I bought two 13″ MBPs since after 3 years I will be ahead financially.
In this recession the wise purchase may be the more expensive one. Graph your real costs people (day one, yearly & final sale costs) when making these financial decisions.
But don’t buy on cost alone – it is the Mac apps that push me to the Mac as well as the savings.
Hey MDN, where’s the love for Ford? They’re the only US auto company that turned a profit this past quarter and they didn’t take a handout from the feds. Now, if only they can get the UAW to capitulate to their terms, then they could be even more profitable. That way, employment and compensation at Ford could be merit based.
Apple needs the margins it makes for a variety of reasons. To be able to stay on the cutting edge of design & quality of product, for one. Then there is the ability to purchase innovations when they might not be the ones to initially develop it on their own. Don’t forget, they now have all these wonderful stores you see in metro areas. They have to staff them, pay rent, pay utilities, and now cover healthcare expenses for all (including part-time) employees. Profit is a useful thing. It helps companies grow and hire even more people. Something needed in today’s economic climate.
Another thing, if you can’t afford 2K now, buy the next least expensive model or finance it. Or wait to get a previous generation model when a newer model is possibly released a year from now.
@kevt:
Hold on: VAT in the UK is 15%- take that off and the actual price of that MacBook is $1,130- so it’s only $130 more (not so bad if you consider shipping and having to provide a UK keyboard [which Apple sells fewer of, so the cost to manufacture is higher) and the “translation” of all the documents and meeting any UK requirements, etc. etc. In the U.S., most people will pay about 7-8% sales tax (about half the U.K. tax), but the price difference still isn’t so bad (and you can’t hold Apple responsible for the U.K’s tax structure)…
That said, Apple’s prices around the world ARE too high. In Israel, for example, the 21.5″ iMac sells for $1,580 WITHOUT VAT (U.S. price is $1200 before sales tax). So that’s almost $400 more (or about 30% higher). The 27″ iMac i5 is almost $2,600 w/o VAT or $600 more than in the U.S. (again, about 30% higher).
Businesses get the VAT back- so I suggest everyone who lives in a country which has a VAT system (as opposed to a sales tax system), just open a company (just kidding- but it is true that businesses don’t pay VAT).
Apple makes 45% of their profit overseas (or, put another way, they make about 55% of their profit in the U.S.), but the U.S. does not account for 55% of all computers sold. They make less outside the U.S. because they sell less outside the U.S.- the competition is simply killing them on price (for a comparison, HP makes about 25% of their sales in the U.S.- because they are a truly international company and price their non-U.S. products competitively).
I’ve been a Mac user since 1998 and for years the price differential was about $200 more than a PC of equal specs. When you consider the lack of need for security software and IT services it levels out very quickly in the Mac user’s favor.
But that was yesterday.
Today a similarly equipped 17″ laptop can be had for a full $1000 less than Apple offers with their MacBook Pro, and that large differential is seriously challenging my devotion to the platform. It seems Apple now thinks I’ll pay BMW prices for their image alone. I won’t. My Macs are now 3-5 years old and may be my last.
To the guy looking to replace his G3, you just answered your own question, I dare you to show me someone running a 286 or 386 of the same era NOT.
Now seeing as you are retired you may not think you have long enough to live to get your moneys worth fair enough, buy a referb or used MacBook it will serve you better than the Windows PC and still feel lightning fast compared to that G3.
In October of 2001, Auto makers began financing vehicles at zero percent “for a limited time,” in order to spur the economy after 9/11 scared many people out of the market.
In the short term, the strategy worked. Sales skyrocketed, and their exectutives all gave each other high-fives while wheelbarrowing their fat bonuses to the bank.
But while doing so, they also created the unintended side effect of conditioning their demographic.
Sales fell again, and they had to bring it back. Then came zero financing, on top of rebates, rather than one or the other. Eventually this stopped working and they gave the world employee pricing. When that wore off, there was employee pricing plus, which included all of the above.
Lease rates were also brought down to record lows, while residual values were unjustifiably high.
Fast forward to now, and they are in financial crisis!
Some are in bankruptcy, while others are trimming their brands. Several makers no longer even offer manufacturer-backed leasing!
There’s a point to all of this. The point is, that once you give consumers your profit margin, they will demand it forever.
You don’t fix something that isn’t broken, and the answer to life’s problems are rarely found by simply throwing money at them.
But hey, what do I know? Don’t take my word for it. Ask someone with a career in the car business. Oh wait, that’s me.
sorry but this guy is full of it. they just upgraded the imacs and minis and in some cases also dropped the prices. plus the software you get ain’t trialware. AND on top of that, what you pay for Apple Care and One to One is no where near the cost to provide the services. so some of that extra cost is picked up by the computer. not that shocking really. and most folks would say it is worth it.
If you were Apple, would you rather sell the “best” to people who appreciate the “best” and who are the most satisfied, and the most loyal customers? (And have the best profitability, tons of cash, and be insulated from recessions?)
Or would you rather go for market share and be the cheapest “just like everyone else? Would you like to have to make your software and hardware backwards compatible with everyones cheap hardware and crapware? Would you like to have to please the dummies and computer-illiterates who buy on price, and whine while bombarding your customer service with nutty complaints?
Sorry. I prefer to save until I can have the BMW, enjoy the most pleasure and productivity during ownership, and appreciate my wisdom in achieving the “best” at the lowest total cost of ownership.
The real point is, if you can’t afford a Mac, you buy Windows. Of course you could spend four-thousand dollars on PC but at the end of the day Windows will eventually marginalize the entire experience.
I used my previous G5 Mac for seven years before recently buying one of the new iMacs. Tell me again how expensive Macs are. There is a lot more than just the upfront sticker price that factors into the cost of owning a computer. It is long past time to start ignoring the people who are penny-wise and pound-foolish.
I couldn’t help myself. I posted the following comment on the blog:
You state that Apple should cut prices by 25% and predict that would increase Apple’s market share.
So, Apple lowers prices and more people buy Macs – Win/Win, right?
Not a win at all – here’s why.
Let’s work with the 15-inch MacBook Pro you were cooing over. It sells for $1700, if Apple cut the price by 25% it would now sell for $1275 – GREAT.
Great for who? Let’s assume that Apple has a 30% profit margin on their laptops (should be pretty accurate).
Apple sells MacBook Pro for $1700 and gets $510 of gross profit but if Apple sells the same MacBook Pro at the price you suggest, $1275, they only get $85 of gross profit. Yikes! $85 of gross profit means Apple’s new gross profit margin is 6.7% What do you think think that would do to Apple’s stock.
Many would point out that Apple would make it up in volume! Reality check time. Apple would have to sell 6 lower priced MacBook Pros to get the same profit that they now get by selling just one. Does anyone think Apple will sell 6x as many Macs if they lower the price by 25%. I don’t.
Sure, Apple could increase their margins in other ways:
outsource their tech support
start building stores with cheaper materials
stop providing healthcare to its’ employees
start selling space for crapware on their computers
stop providing free Genius Bar appointments
lower the build quality and/or feature sets in their computers
start charging for iLife
spend less on R&D;advertise less
I’m sure none of those won’t reduce the overall satisfaction customers have with the New Apple!!
Big picture time. If Apple is doing it wrong then tell us who is doing it right. Specifically, which PC manufacturer would you point Apple towards to emulate?
You either need to decide that you want to spend less (and get less) with a PC or make an investment and buy an Apple. Either way is fine.
Your suggestion of reducing prices by 25% would start an Apple death spiral. I highly recommend that Apple does not take your business advice.
@JoeSmoe,
This isn’t healthcare we’re talking about. You don’t NEED any kind of computer. Apple doesn’t exist to make sure everyone gets a superior computer experience regardless of their income level. Apple exists to maximize shareholder returns.
Thus the question is, given elasticity of preference demand, at what price does Apple maximize profits on its Macs?
I think Apple has this pretty well figured out.
Nonsense … the folks that buy based on price will always buy the cheapest product available. For them, companies like Dell are more than willing to bend over and sell products at low profit margins. That’s why their support is lackluster, not to mention the quality of their products. Apple knows who their consumers are… people that are willing to pay a higher price for a premium product. Steve said it best … “ We don’t make junk ”. Let’s not start now.
Macs are worth the extra cost to those that choose to buy them. Even if Apple drastically reduced prices, the anti-Mac whiners would still find something else to complain about.
While Apple (doing just fine business-wise) doesn’t need to aggressively take steps to increase Mac market-share, there would be a potential benefit in doing so that is rarely mentioned. As installed base increases, so does developer interest. There are still websites that are Mac-unfriendly, and specialized applications that only run well (or at all) on Windows. If world-wide market-share could approach a significant threshold (perhaps 20%), I’ll bet even the die-hard holdouts would consider to investing the resources to properly support the Mac.
This would certainly benefit current Mac owners and create virtuous cycle of additional applications increasing the Mac’s attractiveness to potential switchers.
I suspect though that Apple is in no hurry. We may have to wait for Mac market-share growth to stall before they resort to price cutting.
“Today a similarly equipped 17″ laptop can be had for a full $1000 less than Apple offers with their MacBook Pro, and that large differential is seriously challenging my devotion to the platform.”
I call BS..Show me spec for spec, show me.
The timing is perfect for John Dodge to cut his salary 25%; and to cut his hair too.
“If Apple made that seemingly radical decision, the MacIntosh could easily move out of single digits of market share,”
How easily can smartplanetass prove it?
Apple is doing just fine. It has defined, and is dominating many ‘sweet spots’ in many spaces and the cry-babies don’t like it (Tall Poppy Syndrome me thinks).
Do note that Dodge turned this into a personal matter by citing his internal dilemma over spending $1,700. Therefore, I have to consider him for who he is: a journalist considering an investment for his vocation and NOT one who is considering the interest of the reader. His intent being to bias the reader against buying Apple based on his misinformed perception of an investment decision.
Don’t know about tax in the States, but a journalist in most other parts of the World can buy the tools for their professional requirements, reclaim the VAT or GST (or other indirect sales taxes) AND have the remaining cost written off against their tax bill either as a business expenses within that year or amortised over two or three years. This is normally applicable whether the journalist is a freelancer (where the tax write off would be in the journalist’s own company) or works for a media company (where the tax write off would be in the company that employs the journalist and provides the tools). Funnily enough, this is how cars, like my old 5 series, are also off-set against tax.
The point being that it is more efficient to spend company dollars on legitimate tools like these where the cost can be offset against tax, than personal dollars from which tax has already been deducted.
So in light of the above, remind me, just what is Dodge’s dilema?
I am speculating but may I suggest that perhaps his real dilema is about whether or not he should eradicate his ignorance about tax matters before making ANY future investment decisions. And in doing so, he may find (subject to the tax regime in place in his country/state), the numbers are far more palatable…
Or at the least, read Rich Dad, Poor Dad to get his head around this concept or perhaps even talk to his tax accountant… Actually, those of you who have businesses would be well advised to do the same.
For me, my 2007 MBP, collection of LaCies, Bose speakers, software, printer, scanner, camera and other assorted kit collectively comprise my ‘Capitalist Tool’ that earn me my keep. And I will NOT compromise on the quality of these tools when it comes to brining in the dollars! Keynote rocks!
As an aside, this tax issue is one reason why I am always banging on about how Apple should get serious about targeting enterprise from a business development perspective. Yes, I know all about the product-end (e.g., Xserve, the new Mac Mini Server, Exchange integration etc) but I hear nothing about a sales division in Apple tasked exclusively with making major in-roads into the enterprise market. A counterpart to the retail division that has done such an excellent job of creating Apple Stores across the World.
SMEs are just right for the taking. Right now! There are pent-up investment dollars awaiting the outcome of the reporting season that will be used to kick-start businesses world-wide. And there are lots of businesses feeling the pain of living with Windows on old PCs… And the Windows 7 vs Mac OSX is looking like it may be going Apple’s way.
We need a ‘switchers’ campaign targeting business that are being held hostage by their own ignorance (or by that of their insecure CTOs and CIOs) and are hence not well-informed enough to walk into an Apple Store to initiate a sales dialogue…
There are cheaper Mac alternatives. My last new Mac was purchased in 1991. Then A clone in 97. Factory refurbished in 2004. And eBay Mac Pro in 2008.
Another BONEHEAD that doesn’t have a clue what Apple’s business model is. They all think it should be the same as everyone else’s business model – world domination, whatever it costs.
Just imagine what would happen if Mac price gone down. Swamp of tousands of people will visit apple retail store each day and get at least one Mac. I truly love this article! Thanks for speak out, bro!
According to Michael Porter, the guru on strategy:
Strategy is the creation of a unique and valuable position, involving a different set of activities from those of competitors.
It requires the making of trade-offs in competing, in choosing what to do and what not to do.
It also involves creating “fit” among a company’s activities.
Apple has achieved this:
For the first point, Apple created and markets the whole ‘widget’.
For the second point, it has decided that one of the things it will not do is drop to a lower price point with a netbook product because competitors are in that space lacerating each other over diminishing margins.
And for the third point there is the Apple eco-system of products and services that seamlessly integrate in a valuable and meaningful manner for the enlightened.
As for the cry-babies who have a problem with that, they have a range of options: Walk away – stop beating yourself up with envy; save up for any Mac; or get a tax write-off on a new one through your employer or business; or buy a factory refurbished Mac; or check out eBay for second-hand one to suit your pocket; or beg one off Mom for Christmas!
Otherwise, they should follow the advice of this slick and “compromise” (on their ‘egocentric wants’). Your choice…
Apple is not there to serve every person in the World! Just their chosen customers.
Johnny Boy has it backwards. When you buy a PC, you’re actually making a down payment. Once you take it home and unbox it, it’ll continue costing you in the form of tech support, anti-virus software, and lost productivity. Then, thanks to their shorter service lives, you’ll have to buy a new one relatively sooner and start the process all over again.
When you buy a Mac, that’s it. You’re all done shelling out money for it. It isn’t going to continue costing you once you take it home and unbox it. You won’t be too busy on the phone with techsupport, dealing with viruses, and perpetually fixing it to be productive. Having a longer service life, you won’t be forced to replace it as soon as you would a PC.
The harsh reality(well, harsh for some people…) is that Macs are less expensive than PCs. And people actually understand that, which is why Mac sales are “defying logic” to grow under this recession instead of shrink.
As for cutting Mac prices by 25%, the point of a business is to make profit, not to chase after marketshare. If you want to see how well the marketshare obsession works out in the end, take a look at Microsoft or Dell.
I just bought a 4 year old Ford with 50,000 miles on it for my daughter.
It is a maxed out Freestyle, and it rides incredibly good.
http://www.edmunds.com/ford/freestyle/review.html
I also just bought the fifth used Mac for one of my kids/stepkids, not counting mine (bought new) nor my girlfriends G4 iMac (that she chose for its cool looks).
If it lasts, it is worth it.
That’s my analogy.