Daring Fireball: Apple's Pricing Advantage

I've had this argument far too many times.<p>Specifically regarding the iPad vie put several theories forward regarding the 7" vs 10" tablets:<p>1. Apple has tied up the world supply of 10" capacitative touch screens. That's not far-fetched;<p>2. Price: as per Gruber's argument;<p>3. Fear: no one wants to directly compete with the iPad so they're seeking some form of differentiation. Nikon did this with DSLRs and Canon. It wasn't necessarily fear but Nikon DSLRs weren't positioned directly against Canon equivalents: they were in between; or<p>4. Volume: to Apple's credit they bet big on a market with very little evidence. To the victor the spoils. The rest are much more sheepish hoping something sticks before going all in. This is much like the "shotgun marketing" vie mentioned previously.<p>I'm reminded of a scene from "How I Met Your Mother" several years ago. Barney made a video resume. His argument was that Corporate America wants someone who looks like a bold risk-taker but does risk anything because taking risks gets you fired.<p>There's a lot of true in that and the response to the iPad can be construed as a collective aversion to risk by all the people involved.<p>Once more all this highlights the importance and strategic advantage of having a committed product guy at the helm of a tech company.

Another factor here is that mobile devices are all a tier or two down from personal computers in terms of the raw number of dollars. Seems like a 15% premium is something people will consider paying if it only amounts to $30, but might not if it's $300.<p>This was especially true in the early days of the PC revolution. The Mac 128K sold for $2495 at the time, which is more than $5000 in today's dollars[1]. I can't find any good stats on what a typical PC cost at the time, but let's say it was half that. That's a HUGE difference; a mortgage payment (or more than one!) and not something many individuals or businesses are going to pay, even for substantially better quality.<p>Other factors:<p>* No amount of speed was enough. People bought computers to, well, <i>compute</i> things, and there were real limits users experienced because of slow processors. This is no longer true for most uses. Faster speeds are nice to have, but it's no longer true that 20% faster number crunching is a huge win for many people.<p>* With such expensive kit, businesses were understandably reluctant to commit to any platform that didn't let them multiple-source parts and perform repairs. Backups were expensive or non-existent. By contrast, a defective mobile device is simply exchanged or written off.<p>* In 1984, worldwide PC shipments totaled 6.3M units. Commodity parts were the only way to achieve any kind of economy of scale, not to mention the benefits of competition. 20 years later, it was 177M. [2] At that level, even a minority player can get the same economy of scale that the entire PC industry enjoyed a decade earlier.<p>Anyway. Nobody knows how this will all shake out. But the spectacular success of the modular PC market doesn't mean it's the inevitable outcome.<p>[1] <a href="http://bit.ly/9P293K" rel="nofollow">http://bit.ly/9P293K</a><p>[2] <a href="http://bit.ly/a9XLJF" rel="nofollow">http://bit.ly/a9XLJF</a>

I think a related part of Apple's pricing advantage comes from the fact that they are good at taking technologies developed for the iPhone and using it in other places instead of reinventing the wheel for every product.<p>The iPod touch, Apple TV, and iPad are all variously stripped, screenless, and scaled versions of the iPhone. They share the same processor and underlying OS. This allows Apple to not just sell a lot of stuff, but to sell a lot of the exact <i>same</i> stuff. So not only are their marginal costs lower from buying in bulk, their fixed costs of research and development are lower, too.<p>Could an iPad's cost $499 or an Apple TV $99 if they didn't sell the iPhone? Probably not, and definitely not if they wanted to keep the kind of margins they command right now.

<i>First, Apple is the world’s leading volume buyer of a precious, expensive component: flash storage. They get better prices and priority availability from suppliers.</i><p>Do they get better prices than Samsung? Because Samsung is who designs and makes the flash memory. (Also, Wikipedia seems to say that Sony buys more than Apple.)

Lucky for Apple's competitors they have Android, otherwise they'd really be up a creek.<p>With the hardware volume purchasing advantage combined with the many-year head start they have on the OS, it will be surprising to me if any competitor obtains a 10% market share in the iPad or iPod Touch markets.

First of all, I priced this at work out of curiosity when buying some Mac Pros and some Macbook Pros. You can get a PC with the same hardware specs as a Mac Pro for about half the cost. You can also get a PC with the same specs for about the same cost if you get one of the gamer brands, but just a Dell or HP Quad core machine is far cheaper than a Mac Pro, assuming all things that can be compared on an apples to apples basis are the same.<p>In notebooks the price disparity is not quite as large, but it's still large. You'll get about the same notebook for $800 that you'd get for $1,200 from Apple. Also, stuff like RAM upgrades and SSDs cost far more for the same thing. Again though, you could find comparable Windows units for about the same prices, or at least close, if you went with higher end notebook brands.<p>Second, in phones the price disparity is still large because of Apple's deal with AT&#38;T. They're getting not only the $600 unsubsidized prices, but some extra fee as well taken from the contract. You might argue that AT&#38;T is paying that, not you, but your bill may be higher as a result, or you may be on AT&#38;T rather than Verizon since VZW wouldn't agree to that, etc.<p>Even in tablets, competitors definitely can match the iPad's prices. The Nook is $250. I of more tablets costed below the iPad than above.

I've noticed this even with normal laptops at the smaller end. If you're looking for a 15" laptop, you can find a lot cheaper PCs than the $1,799 MacBook Pro. But if you're looking for a 13" laptop with roughly equivalent processing power and weight, it's hard to find a PC laptop much cheaper than the $1,099 MacBook or $1,199 MacBook Pro. Some are considerably more, because while Apple prices the 13" at the bottom of their range, a lot of PC manufacturers price the "ultraportables" as a premium item.

I believe that the price advantage comes not insignificantly from the market side of reselling software, apps, music and video and taking a not insignificant slice of the sale of those items.<p>If you remove the market from the equation Apple's bottom line isn't as impressive, in fact the rise of Apple in recent years is coupled to the rise of their market place.<p>So strong is their domination over music distribution that I'm starting to think that when an investigation starts against Apple that the target should be to split Apple into two companies; one for hardware (and OS) and one for the markets. Only then will Apple operate on a level playing field with regards to other hardware manufacturers, as it is the advantage of the market that enables them to subsidise the price of hardware, and as they have grown dominant in hardware (especially in music players) they should be treated as a monopoly of that market and competition encouraged (by just levelling that playing field slightly).<p>I realise that these views aren't in line with the opinion of the vast majority of people I speak to, especially online and in circles who use Apple gear. But this is long term speculation stuff, the "What-if"... years ago I speculated how dominant itunes could be and it mostly has come to pass and is still increasing (25% of all US music, 69% of digital music as of mid-2009).

I see daring fireball has never heard of archos.<p><a href="http://www.engadget.com/2010/08/31/archos-unleashes-five-five-new-android-froyo-tablets-we-go-h/" rel="nofollow">http://www.engadget.com/2010/08/31/archos-unleashes-five-fiv...</a>

When I purchased my Apple machines I also took into account the cost of the tools I would be using the operating system.<p>Macbook Pro + Xcode + Mac OS X<p>vs<p>Lenovo or Dell upper end model + Visual Studio + Windows 7<p>Visual Studio adds a considerable amount to the final cost, but I'm also willing to put down a fair amount more for having Mac OS X.

The T-mobile Vibrant (aka Galaxy S) is $499 off-contract from T-mobile, with 16 GiB of internal storage. You can call them and unlock it for free immediately. This is slightly different from the quoted $600 with 8 GiB internal. /pedantry

Apple priced iPad very aggressively. No question about this. This is a brand new product category and Apple wanted to own it, and priced it that competitors find hard to compete. In fact, Jobs had warned about this, saying margins with iPad will be lower (i.e. no Apple tax). It was on the strength of this comment that I bought an iPad, something I would not normally do. In contrast, all the Windows tablet systems are still priced in the 3k mark.

The 2nd paragraph: "Now, even putting quality aside, competitors can’t match Apple’s prices."<p>Does not jive with the prices mentioned later:<p>Apple Ipad - $599/$699 for the 16/32 GB models<p>Samsung Galaxy S - $594<p>HTC A8181 Desire - $527<p>I don't know what the author's definition of "match" is, but seems to me Android tablet makers have matched prices quite well. *Edit: fixed my formatting

iPad aside, the tablet form factor has been tried and failed before. The original 7" EEE, which retailed for $400 bore a whole new 'netbook' segment. That was a multi-million dollar gamble which ultimately paid off. Give the previous failures of tablets, that no one is stepping up to the plate to try again at that price, even given Apple's success (hey, they're Apple) isn't surprising.

It's a bit disappointing when "the world" and "USA" are used interchangeably. The US market is fairly small. Things are quite different in other places.

The Android vs. iOS marketshare race is one in which iOS is hobbled because of iOS's exclusivity. When the iPhone 4 hits Verizon next year, $199 Android phones will take a massive hit in demand and they will quickly be dropped in price to spur demand.<p>Apple has dropped it's prices to compete before. It'll be really interesting if Apple drops the price of the iPhone below the top of the line Android phones.

This puts a hole in the "Apple is more expensive" claim (which I've believed to be false for years)

While it is true that Android phones haven't been able to undercut iPhones by much, the argument doesn't hold up for tablets and iPods because these markets haven't really been entered by the Android manufacturers yet. The Samsung Galaxy tablet is at the forefront but the real wave of Android tablets is months away waiting for the release of Gingerbread. Expect a lot of announcements around CES time. As for the iPod market, Android has a lot of catching up to do with it's media software so that will probably be a bit further out.

Apple cheap - hmm, not sure I buy that.<p>Why does an iPhone cost more than an iPod Touch, a standard 2G phone and a 3G USB dongle? That's all the hardware is.<p>Why does an iPad with a 10 inch screen cost twice as much as a netbook with a 10 inch screen and a keyboard?<p>Apple may have found some good niches to milk for cash with some attractively designed products, but cheap they most definitely ain't.

Does he even read the things he links to? The amazon page of the HTC desire says 499$, that is not "just under 600$". Why do people link to this fan-boy all the time?

Gruber, they're not competing on price.

apple tax is no more in price of the device, as those are cheap for apple now.<p>Apple tax today is control!<p>While mobiles are moving farther from the locked-in model (i get my phones unlocked for some 5 yrs, and before that, used to unlock them) apple is moving computers to it.<p>An apple store on the desktop, with DRMed software, is a full circle to mainframe in computer history.<p>Heck! the iphone, with subsided price along with mandatory monthly bills and approved catalog of software and only one choice of network is already as close the main frame as you can get!<p>It would be interesting to compare the at&#38;t iphone contract with a 70's IBM mainframe lease one. anybody has one around? :)

Yup, Apple's factories have the suicide rate to prove all that goes into their products.

tl;dr version: Apple has the volume advantage because it buys a huge amount of flash memory, displays, etc. that it can make products at price points other vendors can't compete with without cutting corners.