Price competition

Apple’s products are often seen as being priced “at a premium”. This is mostly a matter of perception, but in certain categories Apple’s products are priced above the industry average (though probably still affordable to sufficiently large populations). As a result, when competitors launch lower-priced products there is a tendency to expect Apple to react and reduce its prices to compete.

This expectation was evident when AT&T had an exclusive on the iPhone. The assumption among many (expressed in comments here as well as elsewhere) was that a switch to multi-carrier distribution would result in a price reduction and consequently a reduction in margins.

It was evident in the iPod and the Mac businesses over the years as prices for competing products collapsed.

It is also evident with respect to the iPad where expectations are that the Kindle will cause a reduction in the iPad price (and presumably in the margin).

However, the data we have from Apple on their pricing shows no concessions to competitive price pressure. The following chart shows the historic prices that Apple was able to obtain for its main product lines:

Over the time span shown (six years) the Mac and iPod saw modest price erosion as would be expected from declines in component costs but there is little evidence that Apple altered fundamental price points (note that these values represent pricing to the channel not to consumers who pay for retail mark-up or discounting/subsidy/taxation).

Similarly, both the iPhone and iPad have held prices very consistently. There is some seasonality as products are launched and there were a few quarters where the original iPhone was priced differently, with operator service revenue sharing lowering the up-front price. But there is a consistency to these products that speaks of a strategy that avoids price-based competition.

In the latest quarter Apple launched a few new price points for the iPhone. With the 3GS and the iPhone 4 and 4S available, Apple had the closest it ever came to a phone portfolio. There was some anticipation that the 3GS price point ($375) would impact the average selling price. However Tim Cook stated that the 4S was the most popular product. Furthermore, the 4S introduced a higher capacity (64GB) which offered a new, higher price point.

As a result, the ASP for the iPhone actually increased to about $660 in Q4. During the launch quarter the iPhone ASP does tend to be higher but history shows that the variance is small. Gifting seasons also affect pricing where the mix shifts to lower priced variants as seen with the iPad and iPod, but again, these are not great changes and entirely due to mix shift. There is no discounting.

The evidence I see is that Apple does not change pricing but rather stakes out a specific price point as resonating with consumers given their positioning. They then doggedly stick to it. Competitors tend to exploit open price points or try to position with specs on the same spots Apple occupies. That’s not a game I observe being played by Apple.

  • Even the Mac price decline could represent a change in mix, with more consumers getting $1000-ish MacBookAirs or 20″ iMacs, versus the much pricier MacPros or MacBook Pros that was Apple’s core market years ago. Any data to support that?

    • Yes, the mix of portables has been increasing. I’ll post that data soon.

  • It’s interesting how with iPhones, they decided to keep the older models around at lower price points, and yet it still hasn’t impacted ASP since most customers opt for the newest (highest price) model. They don’t do that with Macs – barring occasional refurbs (which are only on a first come, first serve basis), you can’t buy earlier model Macs at lower prices direct from Apple.

    I wonder why that is. Is it just because traditionally, customers expect phones to be “free” (with a plan), and that’s Apple’s way of offering a “free” phone while making up the difference on the higher-end models?

    • Apple seems to have hit on this temporal product line strategy relatively recently, and if it is working well for them in iPhones (which the quarterly call comments suggest), I wouldn’t be surprised to see them repeat it in other product lines.  There should be a pretty low cost to keeping an existing product line running (as long as the components don’t hit end-of-life), and it lets them reach price-sensitive customers who might not buy at the price points the new models come in at.

      The danger is that it cannibalizes their higher-priced products, if the older products are “good enough”, but that’s a risk for them anyway, since if older models were always good enough, customers wouldn’t feel the need to update them as often — something we’ve seen happen with both PCs and automobiles during the recent recession. They’ve already paid off the costs for developing the product with the early adopters, and the prices of major components often come down with time as production matures and as economies of scale kick in. It almost seems like a no-brainer for them to do this, other than the threat of seeing serious cannibalization of higher-priced (and presumably more profitable) products. But Apple hasn’t shown much sign of fearing self-cannibalization these days.

      I note that temporal product line strategies are common in some other markets — publishing comes to mind immediately.

      • Billy Mac

        Apple always ensures there’s a good reason to upgrade, and those reasons keep gnawing at you, generation after generation, until you reach the tipping point and buy the newest one.  I find myself perceiving even more value in the new model BECAUSE the old one is completely functional, so I’m even more loyal and even more desiring of the new model.  My original iPad 1 and early 2008 17″ MacBook Pro are still in daily service, which is a major reason why I will be buying an iPad3, an 11″ MacBook Air and (hopefully) a 17″ MacBook Air the day they’re available.  I’m simply that much more convinced of the value proposition.

        The lower-end models are for those who are dipping their feet into the water before chancing a swim, and for gifts.  

        Also, consider that most markets don’t have phone subsidies, yet it’s still the higher end products (e.g. 64GB iPhone 4S) that are selling like hotcakes.

      • Anonymous

        Most market don’t have phone subsidies ? Which ones ? North America mostly does, Western Europe mostly does, that leaves Asia, Africa, South America and Eastern Europe that might not be “mainly subsidized” markets. I’m curious as to the proportion of phones sold subsidized vs not. iPhones in particular, and phones in general.

        France might be moving to less subsidies: a major ISP is moving into mobile service with a 20€ ($26) unlimited plan (unlimited voice, texts, 3GB data, some foreign landlines and even some foreign mobiles, and no restrictions on P2P, VOIP…), with a separate lease/purchase for the phone. This is an extremely good deal, with many legacy providers being at the 50-100€ level w/phone, so people may start noticing how expensive the phones are. Previously, “bring your own phone” plans meant a measly 5-10€ discount. I know my latest phone cost more than the last 5 PCs and 4 tablets I bought, which kinda bugs me. 

      • Anonymous

        There’s a difference between *keeping* an old product you already own longer because it still works OK for you, and actually *buying* a passé product.
        In the case of Apple, I see 2 issues with the “temporal product line” strategy
        – iDevices are at least partly a fashion product, and nobody wants to be last season. Especially teens, which are a big iDevice market.
        – the technology moves ahead quickly, so last year’s products are not only unfashionable, they’re also lacking in functionality. The iPhone 3GS doesn’t compare well, spec-wise to other phones at that price point. 

        The iPhone 3 doesn’t seem to be a hit even for “free” (with a contract).

      • jawbroken

        Even if it is true that the 3GS isn’t a hit (and that’s not clear from available data at all), that doesn’t mean it doesn’t serve a useful purpose. Perhaps looking for a cheap phone, seeing a 3GS then seeing a 4 or 4S for a couple hundred dollars more helps people rationalise spending the extra upfront.

      • qka

        Earlier this month, one of the market tracking companies listed the top selling mobile phone models. The top three were:

        #1 iPhone 4S
        #2 iPhone 4
        #3 iPhone 3 GS

        Much was made of this report in the pro-Apple blogosphere as how iOS is beating Android. (That’s a whole other topic for discussion)

      • “- iDevices are at least partly a fashion product, and nobody wants to be last season. Especially teens, which are a big iDevice market.”

        This is a tired claim that I see no evidence of being true.

        Isn’t it rather strange that the “fashion” phone (or tablet, or laptop, or desktop) gets its appearance updated every two (or three or six) years, while the “functional” phone/tablet/laptop sold by competing vendors gets its appearance updated every three months? You tell me which of those is being sold based on “fashion”.

      • Anonymous

        It’s something I observed:
        – iDevices are cute, even at the cost of functionality (small screen) or durability (glass)
        – at least last year and before, an iDevice was what the in crowd bought. My adolescent and totally non-technical niece insisted on getting an iPhone, and turned her nose up at my HD2, with no clue about each device’s specs, capability, software… Just that an iPhone was the thing to have, same as such-and-such brand of shoes, bags, clothes… according to her peers.
        – fashion doesn’t have to be transient. Handbags, scarves, jewellery… are fashion items that don’t evolve much. “Nobody ever got fired for bying IBM” has morphed into “nobody ever got mocked for buying an iPhone”. Apple is like the Gucci of personal electronics.

        EDIT And I forgot, the other products change more quickly because instead of being on a marketing schedule, they’re on a technical one: availability of new CPUs (Tegra3, Krait, the TI one…), Android 4. Plus the 1st gen Android tablets were rushed out as an opportunistic move to ride on the coattails on the iPad; the 2nd gen is a badly needed tweak.

    • Anonymous

      They actually did that a few times. They kept the old-style iMac and the polycarbonate MacBook around for a long time in order to serve low end customers, especially the education market.
      I don’t think they’re doing it right now, but they definitely used that strategy on Macs before.

      • Anonymous

        It’s not quite the same. The plastic MacBook got new guts several times, right after the MacBook Pros got new guts, and the eMac was a whole new computer, it was not a CRT iMac. The iPhone 3GS you can buy today is the same exact one from a few years ago, except for variations in the storage size.

      • Perhaps, more than anything else, this is a realization of the facts that

        (a) phones, even less than PCs, don’t sell on specs.

        (b) there is a range of usages of a phone.For some users, a phone with a nice contacts list and a usable messaging client is, honestly, all they want and expect from their phone. Many of us were quite happy with the 3GS when we owned it — it was a whole lot better than the iPhone 1 we had been using before. 

        In the case of the computer market, I think the primary difference is that the ” don’t need as much power” market is currently served by hand-me-downs and eBay/Craigslist, so there’s no point in Apple working hard to try to serve it. 

        One interesting alternative take would be to claim that this is not true outside the west, that there IS a large market in India, China, Vietnam, Eastern Europe, etc, which would be very happy to be able to run Mac software on last year’s macs at 70% of the price of this year’s macs. Do we, in fact, even know that this is not the case? Do we know that the models sold in China are exactly the same models sold in the US, and that they update at the same time?

    • Tatil

      As a user of a 6 year old iMac at home, I often wondered about this myself. I felt I would rather save some money by buying the previous model Macbook Pro, but usually it is not an option. 

      It does not seem like iPhone 3GS is selling all that well. I thought there would be a pyramid of buyers, more at lower prices than those at the more premium end. Apple’s pattern is quite different. iPhone 3GS may be missing some features that customers of entry level models are looking for. Maybe, it is falling into a gap between the high volume low price and lower volume premium model regions. It is also possible that Apple is not very successful in getting 3GS into retailers where the more price conscious consumers often shop. I am not sure what to make of it. I don’t know if Apple would take the lesson that keeping a lower priced older Mac version is not worth the effort or that it is an easy way to make a modest amount of additional profits, as the older versions do not seem to be cannibalizing the demand for the up to date models. 

      • jawbroken

        I guess not selling that well is relative given the reports that it outsells every non-Apple smartphone in various markets.

      • Tatil

        I am sure it is a good earner for Apple. I just meant fewer sales than my “the cheaper gadget sells more units” expectation. iPhone4S sells more, much more, than the much cheaper 3GS. 

      • jawbroken

        I don’t really think that’s a good expectation or rule of thumb since there are so many circumstances where it doesn’t hold.

      • It would be interesting, but nigh impossible I imagine, to see how the resale market of used Apple products compares to the bargain price tech market. Maybe a comparison of resale value of previous generation products would be more doable. I’ve bought all my macs (and cars, home) used and will probably continue to do so until I’m pushed across the barrier (disposable income, value/dollar?) between me and new big ticket products. That could be a while though as I still buy most of my clothes used. The $1 sweater sale at the thrift store was a boon for my closet.

      • It would be interesting, but nigh impossible I imagine, to see how the resale market of used Apple products compares to the bargain price tech market. Maybe a comparison of resale value of previous generation products would be more doable. I’ve bought all my macs (and cars, home) used and will probably continue to do so until I’m pushed across the barrier (disposable income, value/dollar?) between me and new big ticket products. That could be a while though as I still buy most of my clothes used. The $1 sweater sale at the thrift store was a boon for my closet.

      • Anonymous

        If you want an old Mac, they are on eBay. There is a thriving used Mac market because it is easy for anyone to refurbish a Mac with the latest software.

        Apple can’t keep making the computer from 4-6 years ago because it would be MORE expensive than the newer model. They can’t get 4 year old PC chips and parts. They can’t stock a decade of spare parts for warranty service so that they can still service a 2007 MacBook you buy today under AppleCare in 2014.

        Intel is not dedicating fab capacity to old chips. And old hardware drives up the cost of warranty software development. There is a point of diminishing returns.

        In phones, the computer is on one chip, and ARM chips are fanned forever because they start out in a high-end smartphone and end up a few years later in routers and TV’s

      • Anonymous

        If you want an old Mac, they are on eBay. There is a thriving used Mac market because it is easy for anyone to refurbish a Mac with the latest software.

        Apple can’t keep making the computer from 4-6 years ago because it would be MORE expensive than the newer model. They can’t get 4 year old PC chips and parts. They can’t stock a decade of spare parts for warranty service so that they can still service a 2007 MacBook you buy today under AppleCare in 2014.

        Intel is not dedicating fab capacity to old chips. And old hardware drives up the cost of warranty software development. There is a point of diminishing returns.

        In phones, the computer is on one chip, and ARM chips are fanned forever because they start out in a high-end smartphone and end up a few years later in routers and TV’s

      • Tatil

        No need to take it to the extremes of 4-6 years. Just the previous model would suffice. Selling Feb 2011 model now, after less than 12 months of its release, in addition to the October 2011 model is not that difficult. Of course, the cost difference between the components of the two Macbooks may not be as much as it is between 3GS and 4S, so Apple may not be able to use them to differentiate their sale prices much without lowering its margins.  

      • You often CAN buy the previous model from Apple. Go to the Refurb section of the Apple store. 
        I bought my Mac Mini (to be used as a HTPC, and it’s done the job admirably) that way about two years ago.

  • I strongly suspect this behavior is due to Apple eschewing the classical focus on market share (and an intent to dominate/de-facto-monopolize the market as a profit strategy), and instead concentrating on customer experience, with the business goal being reliable repeat business and thus the maintenance of profitable price points via customer perception of overall value.

    An example of a very different industry in the US that embraces this philosophy, as I read it, is the chain restaurant industry (as opposed to the fast-food industry). Judging from personal experience with a variety of chains, many of them seem to adopt oversized meals as a tactic for increasing their perceived value-for-money tradeoff in the customer’s mind. This lets them sell at a higher price point (more profitable for them due, I assume, to the economics of the cost of cooking versus the cost of ingredients). The customer often winds up taking home the extra food, and overall sees a reasonable value.  Like Apple, they face competition from low-priced competitors (the fast-food companies), but can differentiate on both quality and perceived value (better dining experience, better food, quantity for value).

    Not a perfect comparison, but it seems relevant, at least… it suggests that there are markets that split into tiers where players aren’t doomed to irrelevance by low-price-driven/high-market-share competitors, as many Apple doomsayers seem to believe is true for iOS vs, Android.

  • Phil Swenson

    Good analysis Horace.  But don’t you think the subsidy model is propping up Apple’s ability to charge so much for an iPhone?  Isn’t this high price point dictated largely by the subsidy markets damaging iPhone market share in countries that don’t typically have a subsidy model?

    What happens in the US if the subsidy model starts to fade?  It seems obvious that Apple wouldn’t be able to charge $600+ for iPhones if they didn’t have subsidies…..

    You should be able to offer a better analysis than I, as I’m in the US.  I know in Europe it is less pervasive.  

    • jawbroken

      Not sure why that’s obvious. In a lot of countries you can buy unlocked iPhones and get more reasonable monthly costs for phone plans. In Australia an unlocked iPhone sells for $800-$1000 ($850-$1,060 in USD) but with new, affordable off-contract plans coming in it will be cheaper for me to purchase one outright and be on a $15-$30 a month plan than it would to be on a contract and pay anywhere from $60-$130 a month and an upfront handset fee.

      • Rudolf Charel

        Which is exactly what I did in the Netherlands and for the same reasons.

      • Phil Swenson

        We know Apple makes a serious profit margin on the iPhone 4s.  Probably an average of somewhere between $300-$400.  So they could sell it much cheaper than they do.

        Competitors that don’t try to get such a large profit margin will sell equivalent phones for much less than the iPhone.

        When I say “it’s obvious”, I mean in the US.  IMO people are not going to shell out $600 for a phone.  They are used to free – $300.

        And in Europe, I’m guessing that in markets where phones aren’t subsidized android does better against the iPhone than in markets where it is. But I haven’t seen any data.

      • Wesley Hsu

        People in the US are used to “free-$300 but no choice of carrier.” I suspect many would pay 600-700 for freedom of carriers+ lower monthly data plans, like we do in Asia. 

        Regardless of whether the weird anti-consumer mobile industry in the US lives or dies, Apple will do well. Their brand has value, unlike the carriers who are generally loathed.

        I don’t have data either, but in non-subsidized Thailand iPhone surely seems more ubiquitous than Android. Both are subject to hefty import taxes, so maybe prices get relatively equalized. 

      • Wesley Hsu

        Sorry what I meant was hefty taxes make all smartphones very expensive to average Thais, so those who buy one tend to go for boutique value, ie iPhone. Anecdotal observation.

    • Anonymous

      Only a minority of iPhones are sold subsidized. Most are bought outright for between $500 and $700 by the consumer. You don’t have to wonder if people will pay that much for an iPhone. Most iPhone users paid that much.

      The key thing to understand is that although the consumer in Europe may pay $600 for their iPhone, they then go on to pay $40 per month for the cell service. In the US, we may pay $200 for an iPhone, but then we pay $80 per month for the cell service. And the cell networks in the US could not suck more than they do, because there are 4 incomplete networks instead of 1 complete government-funded network that carriers rent time on.

      I don’t see why the subsidy model would “fade” in the US. However, if it did, I think that would be great for Apple and terrible for their competitors because I think iPhone users would still buy iPhones for $600 as long as their monthly bill went down appropriately, but I doubt you will see people enthusiastically dropping $500 for a generic phone. The higher the price goes, the more the brand matters. The more the brand matters, the better Apple does. If you pay $600 for a phone, you want AppleCare on that, you want Genius Bar, you want to swap your dead phone for a live one at the drop of a hat.

      • jawbroken

        Is there a figure available for the proportion of iPhones that are sold subsidised? A lot of people are saying it is a minority but I’ve never seen that data, personally.

      • There is no data that I’ve ever seen published.

    • The iPhone is completely designed around the market it serves. If there were no subsidies there would not be the same so-called iPhone product. In fact, this is why the iPhone is not yet addressing pre-paid markets. Apple needs a completely new product to serve those markets. If I were them I would launch a new product and possibly even a new brand for prepaid.

  • Canucker

    Remarkable similarity between iPad and iPhone ASPs. Must drive the competitors nuts. Also suggests people are tending towards lower RAM iPads. A consequence of iCloud?

    • Anonymous

      No, not iCloud. Netflix. People buy iPads with 16GB or 32GB and are happy with them because they stream video from Netflix rather than putting it on the device.

      iCloud can be used in some ways to lower your local storage requirements, but only if the user goes out of their way to do that. By default, your storage requirements will go UP with iCloud because the 1 gigabyte of documents on your iPad is copied over to your iPhone and vice versa, so that you’re using up 2 gigabytes on both devices instead of 1.

  • Luis Masanti

    I’m with Horace in the “set a price point and stick with it” model for Apple.
    But –maybe– in reality, the prices –even not changing– represente more value.
    The iPad 2 cost the same that the iPad… but it has more power, cameras, etc.
    The same for the iPhone line: each year, the price is the same, the power/capacities go up.
    With the iPod, during the first 5-7 years, it was the same. Only after that, the price was reduced for the same power.

    One interesting move was done with the iPhone 4S/4/3GS as different price points, in which the price to produce each of the older model has go down (and original design and R&D has been already paid).

    Anyway, there is no way that Apple will lower prices to compete.

    • Anonymous

      i don’t know about that. Tim Cook comes from retail. I think the very first move that differed from Steve was the existence of previous generation stuff like the 3GS and 4.

      • Anonymous

        Tim Cook does not come from retail. He came to Apple from Compaq, where he also worked in Operations.

        Also, the previous generation product still being sold alongside the current generation product started with iPhone 3G continuing to be sold alongside iPhone 3GS, which was in mid-2009, more than 2 years before Mr. Jobs resigned.

    • Anonymous

      Yes: the price of the product is a signal to the buyer, representing the worth of the product.

  • Martin

    Correct. This strategy around specific price points first emerged with the introduction of the iMac. Apple basically has always taken a ‘consumer value’ model – one where monetary inflation slowly increases value/dollar for the consumer against fixed retail prices and where decreasing component prices allows Apple to deliver more and more with each generation. In this environment, decreasing retail prices becomes long- term unsustainable as eventually they will prove inadequate to meet fixed and labor, etc costs that will be driven higher by inflation. I think it’s clear that PC vendors keep bumping into this reality.

  • Ian Ollmann

    Such behavior would be expected for a product that is supply constrained.

    • gbonzo

      Mac and iPod are surely not “supply constrained”.

    • Doji

      I agree, days Ago I asked Horace why apple is not addressing the issue of lower price points for their lead products-iPhone,iPad-specially now that android plateform is a real treat and almost disrupted Apple to fill the void.

      As you stated Apple did a good job with iPod to fill those lower price points and maintained their market leadership. Horace view is that Apple will eventually address this issue with a combo strategy of service and product though we don’t know what form it will take

  • Brant Arthur

    Would be interesting to look at profit margins at the same time (I assume that data is harder to obtain). Starting with the iPod, it’s clear that Apple began introducing products that covered the range of price points instead of reducing the price of their main product to appeal to those at the lower end (avoiding commoditization and holding onto profit margins). 

    • I maintain margin estimates. The margins have held or increased slightly over time. Overall margins are at an all-time high for the company.

      • Exactly and with 100 billion in the bank there is no strategic advantage to add to this chest. Look what happened when they priced the iPad. 2012 will be a very interesting year.

  • Anonymous

    It should be born in mind that when a consumer electronic price remains flat for a number of years, this usually means a price decline in real terms.

    Firstly there is the effects of inflation.

    Secondly, all the products in the chart have been very significantly upgraded over the years in terms of components and performance – Moore’s law etc.

    However, despite reducing prices in real terms, Apple has maintained industry leading margins. 

    Part of this competitiveness is that, as volumes grow and Apple invests more in its supply chain manufacturers, Apple has lower input costs than almost any competitor.

    This advantage has been especially significant, for example, with the iPad  where competitors have found it difficult to compete on price!

    • If you compare Macs vs. average PC pricing and iPhones vs. average phone pricing (using Nokia for example as a proxy as they report both smart and non-smart ASP every quarter) you would observe far more consistency for Apple.
      I will publish phone ASP analysis for all major phone vendors.

  • Anonymous

    Apple’s computing devices are all priced at roughly $1 per day.

    iOS devices have a 2 year lifespan, which is 730 days, so if you pay about $730 for your iOS device that is about $1 per day. The actual iOS ASP is a little less at about $650. Macs have a 3 year lifespan, which is 1095 days, so if you pay about $1095 for your Mac that is about $1 per day. The actual Mac ASP is a little higher at $1300.

    • javbw

      Because they have a slightly longer expected life span, historically. Mac Laptops have about a 4+ life span. Even the late 2006 and 2007 MacBooks are a useful laptop currently. The 3GS is still supported with iOS 5, and my mistreated one is still working, and the original iPhone was just retired, still working – it finally was not able to do the Job it was hired to do. My late 2008 MBP (selling for $2300 usd) was “future proofed” by having a good GPU (a defining factor for most macs) – enabling it to keep doing it’s job now into its 3rd year, I will be replacing it – and giving it to one of the kids where I expect it to live on until 2014 or so.

      I think the average age of Macs is depressed by the growth, but doing repair work for 10 years tells me that the CPU change of 2006 was more of a factor in retiring macs – older power PC units simply were not able to do the job they were originally hired to do – and not able to find a home – when an intel model easily still can.

    • That deserves a tweet.

    • Dave Marcoot

      My Power Mac G4 from 2003 is still going strong. Granted it has 2 CPUs and max our ram. Macs have always had a longer life span than PCs. Where do you get your 3 year life span  from?

      • Anonymous

        I suggest that JohnDoey meant life span as a top-tier product. I still use my 2001 PowerBook G4 occasionally, but only when my kids have every other Mac busy. It works, but it’s not a great experience (except for the screen, that thing is still a beauty;-) It fits pretty well for me to think that a Mac loses its edge in 3 years (or at least that’s the argument I use with my wife!-)

  • No surprise on higher ASP for iPhones for long time readers.

    Reminds me of an earlier post
    I think it applies for all product lines for most except those on really tight budget.

    For macs, I have come across people who opted for a higher spec-ed model just to future proof their purchase; hoping to get a bit more mileage out of the product.

  • Anonymous

    The ASP being stable while cheaper models are being “introduced” (rather, older models are being kept at cheaper price points) is a sign that those cheaper models are not selling. Apple is having problems breaking out of the premium markets, into the more value-oriented ones, at least in the phone market. The jury’s still out in the tablet market, and Apple’s not even trying in the PC market.
    I think the situation is similar to what happened in the early Windows PC market: IBM and Compaq were working at nice margin levels, but there were plenty of other players willing to work at lower margins levels. Looking at the other phones available at the free to $300 points, the iPhone 3 is not a enticing product, unless you really reallly want iTunes, or are an Apple-only household.

    • jawbroken

      If these devices are having so much trouble selling then how do you explain reports that the iPhone 4S, iPhone 4 and iPhone 3G outsold every non-Apple smartphone model in the US?

      • jawbroken

        Apologies, that should say 3GS.

      • Anonymous

        each iDevice is competing against a large stable of other phones, so rankings don’t have much importance. It’s share that counts. vs 10 opponents, an iPhone could be first with a 10% share, and all the other ones combined getting 90% share…

      • jawbroken

        Sure, obviously, but if the iPhone 3GS is having trouble then I guess by your definition every single other smarthphone is also having trouble selling, considering they sold less units.

      • Anonymous

        I equate “trouble” with falling or unsatisfactory share, and don’t really know whose share is raising or falling.

        Also, rather than individual devices, it makes more sense to look at a seller’s whole stable of products. Or even OS by OS, depending on what you’re looking for. Samsung for example is making a deliberate choice to blanket the market with a lot of different models, lowering each product’s sales, but they do seem to be rising their overall share nicely. At the extreme, we don’t count white and black iPhone sales separately ^^

      • jawbroken

        This comment is really confusing to me because you’re the one that broke out the iPhone 3GS and suggested it wasn’t selling, despite evidence to the contrary. Now you appear to be arguing against your own initial point.

      • Anonymous

        I’m thinking by market segments, mainly price ranges.

      • jawbroken

        Yeah, and the 3GS must have been the top seller in whatever category you put it in.

        There could be lots of reasons for the ASP to stay stable even if the 3GS sold well (people buying unlocked phones at a premium straight from Apple, the introduction of a higher-priced 64GB iPhone) so I don’t think there’s enough evidence to support your conclusion.

      • Tatil

        Last quarter 3 iPhone models reportedly sold more than all Samsung smartphones combined worldwide. (Samsung does not give an exact number for its smartphone sales, so that is a bit of an estimate.) On Verizon, they sold more than all Android phones combined. I am pretty sure if you count black and white iPhones separately, they would still outsell any other smartphone model. 

        There are a lot of ways to make your phone look better based on a feature matrix. How all of those features work together is the product. I remember Motorola introducing an Android phone with dual cameras weeks before iPhone 4, but they did not bother adding an app that could actually use those cameras a la FaceTime. Then, there is the quality of each feature. I had a friend who used to routinely turn off Bluetooth on his Samsung phone, so that the battery would not run out before he came back home. My iPhone 3GS somehow never required such babysitting. On paper they both had Bluetooth. Even now, the image quality of FaceTime is better than Skype when I use it with my parents, but they could both have video chat in a feature list. My wife just switched from a Blackberry, now her voice sounds much more clear somehow. I don’t know why that happened, but on a feature matrix, iPhone4 and Blackberry whatever has the check box filled for voice calls. Then, of course, there is service. Not getting a run around between Verizon and LG on why I am unable to download my photos to my PC is a valuable peace of mind. 

        When a company makes 40 different phones, there simply are not enough time and resources to make sure all of the hardware components work smoothly together or the interaction between OS and hardware is impeccable on all models. They cannot even get to updating the OS to the latest Android in many models. 

      • Anonymous

        That’s very true, what’s important is features, and some are more important than others to certain people. For example, My parents are on a Wintel PC, so Facetime video quality is a non-issue in my case. My old HTC HD2 couldn’t really use bluetooth indeed if I wanted to make it a full day of listening to music (I’m too lazy to carry a spare battery, I could have though). Then again, I dropped it several times and only mildly scratched the screen, my brother’s wife’s iPhone 4 shattered on first drop.

        Indeed, there’s a support issue when making tens of different phones. I personally think Samsung should just tweak the exterior (S, M, L and XL, keyboard or not) and maybe secondary characteristics (RAM, frequencies…), but reuse platforms as much as possible, as in the car industry.

      • unhinged

        With respect, what’s important is not “features” but TASKS. If there is a feature on a product I cannot use or do not have a task for, it is irrelevant.

      • It COULD be but it isn’t. Have you been under a rock the past few days? Essentially Apple phone sales in the US exceed all competitors combined. 

    • Kizedek

      All the evidence (37 million phones, highest selling sinlge models ever) points otherwise: Apple has no problem “breaking out of the premium markets into more value-oriented ones”.

      What does that even mean? That when you buy something at a price-point that Apple doesn’t serve, you automatically get more value for your money? Hardly.

      Horace points out a common misperception, that Apple products are priced at a premium, simply because competitors offer “comparable” or “better” products for less. You certainly seem to be buying into that misperception.

      But, as any Apple-only household can tell you (or just about any satisfied iPhone or iPad customer of the hundreds of millions): the value is there all right.

      Many contributors to this value are cited: ecosystem, UI, UX, service, support, software, etc.

      I’ll just quickly mention software (OS):
      It seems Google is happy to try and commoditize software and try to convince the consumer that it has no value. MS, on the other hand, wants to convince you that software is everything and that the hardware has no value. Google is happy to treat software as a “hobby”, and MS is happy to treat hardware as a “hobby”. Ultimately, neither stands by the complete product (a marriage of hardware and software) that the consumer holds in his hand.

      So, if software has any “value” at all (and it should if it works and makes your life easier), then where do we appreciate this value? In a product that is developed from the ground up with both hardware and software in mind. Apparently, this type of product unreasonably carries some kind of “premium”. Personally, I don’t see it.

      • Anonymous

        “competitors offer “comparable” or “better” products for less.” That’s the definition of premium ?

        Software and services do have value. Apple’s just don’t have more value than others’. Android and iOS are arguably at par UI/OS-wise (with some differences depending on what you prefer; I like being able to drag’n drop to/from my phone a lot ^^), so are their appstores and ecosystem (with the sore point of there being no French Scrabble app for my mom on Android !).

        I’m not saying the premium is unreasonable. I’m saying it’s there for other reasons. It’s certainly not a hardware one (neither specs nor reliability), and probably not a software one either. Service I don’t know. Design/fashion is my guess.

        The “designed from the ground up as an integrated platform is better” is a canard that needs to be backed up by proof of real benefits. Otherwise the Mac would have obliterated the Wintel PC.

      • Kizedek

        Uh, it (or rather the iOS version of OS X) IS obliterating the wintel world. That’s the point of many of these articles. But it is certainly, as you might point out, not obliteraring it in terms of marketshare (yet) — so how IS it gaining? In terms of value, surely?

        MS belatedly, *still* doesn’t know exactly what to do with its offerings on alternative platforms like ARM. Thus the Wintel world is in crisis. Did you not hear that Apple just sold 60 million iOS and OS X devices in one quarter, despite ramping up a new product and not having enough of everything to sell?

        Apple obviously does have some real benefit to offer, otherwise it wouldn’t be making the inroads to the enterprise that it is, Windows wouldn’t be declining in sales, and MS would have something tangible to offer already without needing to promise something vague at the end of this year. Sure, when MS and Intel get their acts together, all the OEMs in the world combined will sell far more products overall than Apple; but Apple did just sell more iPads than HP sold PCs.

        I don’t have to *prove* that there are real benefits in an integrated product, any more than you have to *prove* that your savings of a couple of hundred bucks up front is not going to be out-weighed by any “inconveniences” or issues with your choice over the next two years. I can point to how much my time and productivity is “worth”, and you can point to how your alternative will pose no inconvenience for you whatsover over the life of your product, so we are both happy.

        However, the fact that many, many people worldwide find the integrated product a serious value proposition is testified to by the sales, the customer satisfaction ratings, and in the new jobs people are finding for iPads to do (for example, Android tablets have not been sanctioned for pilots to use as charts, and IT depts still have concerns about Android security). Another proof of utility that adds value is found in the download rates of new iOS and OS X updates. For you to chalk it all up to fashion is disingenuous — switchers to Apple generally don’t switch back and surely it is not because they are all under a collective delusion.

      • Anonymous

        The comparison was to way back during pre-Gassée Mac vs Wintel. Integrated vs cobbled together. Cobbled won.

        Also, if you think integrated is superior per se, you mean Bada, Symbian, … are equal to iOS and superior to Android ? that’s bunk !

      • Kizedek

        Obviously, that is a separate discussion — but bringing up current sales supports my contention, while brining up the early days does not really support yours…

        I think there is “value” in the extra cost for Apple products. Obviously, you don’t — or, not enough to justify your purchase, which is the same thing as saying the extra value isn’t justified at all.

        You put the premium down to “design/fashion”. I don’t. If I were to explain the value I find in it, I might point to the integrated nature of the product, hence my discussion. Others might point to something else, like quality, support, TCO, ecosystem, but a lot of it comes down to the integrated nature of Apple’s businesses.

        I have contended that there is value in Apple products today, and that, given sales figures, millions of other people think so too, despite being faced with a similar purchasing choice as yours.

        You contend that you can get the job done with your deal choices for less. Therefore, “paying less” becomes your value proposition.

        However, just because Apple may not have been in such a favourable position economically 20 years ago does not mean that those paying more, either then or now, got less value (though I am certainly willing to say there is much more value now, due to internet, open standards, MS exchange license, cloud computing, component supply, etc.). Nor is the situation 20 years ago really relevant to whether integrated or modular is better, per se (monopoly came into it).

        Then, people got the integrated Apple computer because it was superior and did offer better value for money — in *certain* situations: such as graphics, typography, DTP, music production, etc. It just did certain jobs provably better.

        Now, of course, there is a much longer and growing list of things that Apple’s integrated products with iOS/OS X just does better — lots of real world, everyday things that everyone wants to do! (In my view, this is due to Apple’s integrated approach with its products and of course their DNA as a company — execution, etc.). This provides their products with a lot of value in the eyes of a lot of people (and no I don’t hold the same thing true for Bad or Symbian — where’s the complementary desktop OS, hardware quality, attention to detail, support, service, design…?).

      • Anonymous

        “Therefore, “paying less” becomes your value proposition.”

        Nope. the value proposition is :
        services rendered  / price payed.

        what you pay is an integral part of any value proposition (that’s the “value” part of it). What I’m saying is
        1- my current Android gizmos allow me to do a bit more than I could do with Apple stuff,
        2- for  third to a quarter of the cost.
        3- I do look less good doing it ^^

      • Kizedek

        Sure, I understand.

        What I am trying to get at is that the value proposition on the Apple side goes beyond design/fashion. You seemed to be wondering what it could possibly be, as you apparently saw no attraction or value in it for you. I merely offered an explanation.

        Actually, I think you may subconsciously be getting at it with your number three: “I do look less good doing it.”

        To me this isn’t about looking “cool”, this is about having a good tool that is going to perform reliably and consistently in all situations where ever I am. I am not afraid that I’ll pull it out and flub up a demo or keynote because I know it is going to do what I expect of it when I expect it to. I am constantly finding new uses for it, too, which add tremendous value to things that used to be a pain.

        The consistency, smoothness, reliability, UI, desktop class OS, with native apps, attention to detail, etc. gives me the value I am willing to pay for (and a lot of that is down to the integrated apprach).

      • CowardTheAnonymous

        Can you get gizmos like that for music creation on Android?? What is price?
        Akai: SynthStation, SynthStation25, SynthStation49Alesis: iO Dock, DM Dock, Amp Dock
        Apogee: Apogee JAM
        Image Line: FL Studio Mobile
        PreSonus: StudioLive Remote, QMix
        Propellerhead Software: ReBirth for iPad and iPhone
        Fostex: AR–4i
        Novation: Automap
        Steinberg: Cubase iC
        Tascam: TASCAM Portastudio for iPad
        WaveMachine Labs: Auria

      • Anonymous

        As an example of value comparison:

        1- I just got a Motorola Xoom (the first version) for 260€ ($350), with a media dock (HDMI+loudspeakers+charger) and carrying case. An iPad  would have cost me 680€ ($900) bare, for arguably lower specs (no USB, no SD, no clue if HDMI out is even an option on iPads), let alone with a dock, a case, and the gaggle of required proprietary cables and adapters.

        2- I just got a Galaxy Note too. Same remarks: cost me 500€ ($650), a similar iPhone would have been 850€ ($1100). Again, hardware specs are superior (big gorgeous screen, stylus, ports, removable SD card and battery, less fragile…)

        Software-wise, both do what I need: classic games, web, email, ebooks, audiobooks, automatic free wifi roaming on my ISP’s numerous wifi APs, and music/videos, with dlna too. That’s with either built-in or free software on the Android side, don’t know about costs on the Apple side.

        OS and UI-wise, they’re OK, not sure what could be better, though I’m sure engineers and designers will dream up new stuff eventually.

        The one thing is, they don’t look as nice, which my 18yo niece immediately pointed out. I’m really at a loss to find anything else in favor of iDevices. More peripherals via the port maybe, but that’s at the cost of standard I/O ?

      • I’m sorry. You bought a Xoom AND a Note? WHY?

        Maybe that’s the difference between you and us. We buy one device which we expect to do a job well. You seem to buy them because they’re “cheap” and “have good specs”.

        I bought my iPad to read technical PDFs. It does that job magnificently — far better than any other tablet. I will buy an iPad3 (assuming it has a higher res screen) the day it is released because it will perform better the job I want it to perform. 

        How about you? What is your Xoom doing that your Note is not? What are either doing that makes you happy? If you’re buying stamps based on their colors, you can hardly criticize those of us who are buying stamps based on their ability to get a letter from here to there.

      • Anonymous

        The Xoom is a regular 10″ tablet, the Note is a very big 5.3″ phone (still fits in my shirt and pants pockets, which was my litmus test for a phone)

        from GP: “Software-wise, both do what I need: classic games, web, email, ebooks, audiobooks, automatic free wifi roaming on my ISP’s numerous wifi APs, and music/videos, with dlna too…”. The Xoom just has a bigger (10″) screen, which is more comfortable to watch videos at home. I do almost all the rest on the Note, which has a big (5.3″) and gorgeous (SuperAMOLED, 1280×800) screen.

        I can’t think of anything else I’d be doing with a 3 to 4 times more expensive iPad and iPhone, but others might have more advanced uses than me.

        No clue how the numerous PDF viewers on Android compare to the iPad’s. If that’s your sole use, you might want to try out Samsung’s rumored upcoming 11.6″ tablet with a small bezel (no bigger than a 10″ overall) and very high resolution (retina-like, or better).

      • CowardTheAnonymous

        Following are selected, most famous and best apps/hardware music creation products for iOS:
        Akai: SynthStation, SynthStation25, SynthStation49Alesis: iO Dock, DM Dock, Amp DockApogee: Apogee JAMImage Line: FL Studio MobilePreSonus: StudioLive Remote, QMixPropellerhead Software: ReBirth for iPad and iPhoneFostex: AR–4iNovation: AutomapSteinberg: Cubase iCTascam: TASCAM Portastudio for iPadWaveMachine Labs: Auria

        They help me do with nice hardware and software.

    • This is a straw man: “having problems breaking out of the premium markets, into the more value-oriented ones, at least in the phone market.”

      1. How are you defining the so-called value-oriented market for phones?

      2. The iPhone 3 is not an enticing product? Tell that to the millions of new 3GS owners each quarter! Apple is still making a two generations old phone and millions are taking it up.

      3. Apple is selling ~35 million phones each quarter. Nobody wants it and everyone is worried about being Apple-only. 

  • Davel

    I am always surprised that Apple is able to keep their relatively high price points and by the recent qtr increasing margins.

    With the advent of the ultra book I wonder if they will eat into the Air or expand the market.

    By the way congratulations on your 1q predictions.

    Also I have not posted much lately because as I have stated before your comment section is blocked by work. I can read the articles but not the comments.

    • “With the advent of the ultra book I wonder if they will eat into the Air or expand the market.”

      They might start eating into the Air when an ultrabook ships that matches the quality of the Air at its price. The general consensus at CES, from all those that weren’t rabid ideologues, is that that hasn’t happened yet. 
      By the time it does happen, Win8 will be shipping. We all have our own opinions about just how that will change the computing experience; but it will change the game to a sufficient extent that I suspect it’s not worth trying to predict too much beyond that release.

  • Reistiago

    “There’s a basic principle about consumer electronics: it gets more powerful all the time and it gets cheaper all the time. that’s true of all types of consumer electronics.”-Trip Hawkins
    we’ve seen margins expansions because costs get cheaper over time, but sales prices didn’t…

  • Alan

    A possible slogan for aymco: Come for the posts, stay for the comments.

  • Anonymous

    Sounds like a pretty rock solid plan to me dude. Wow.

  • Neil G

    This is not mostly due to perception; there is a big markup. Consider the Sager laptop I just bough for $1,400 (USD). I got a 2.8 GHz core i-7, 8 GB or RAM, 7200 RPM HDD, 15.6″ 1920 x 1080 screen with matte finish, HDMI, USB 3.0, Blue-Ray drive, fingerprint reader, nVidia graphics gard, and Killer Networks wirelessN card. 
    A 15″ MacBook Pro with 2.4 GHz core 1-7 STARTS at $2,199 with basic hardware. If you upgrade tit to 2.5 GHz processor, 8 GB RAM, 7200 RPM HDD, and matte finish screen it’s $2,849!  

    As you can see, the MacBook pro is $800 more and has LESS features (no fingerprint reader, no blue-ray, slower processor).

    I’ll admit that Mac products are usually slicker looking than their PC counterparts, but that’s a hello of a premium to pay for something shinier. 

    • Lazarus

      Have you ever owned a mac?

    • how is Sagers customer service? 10 bucks says the build quality is lacking and you experience a problem in 18 months and get no love the manufacturer. You can ALWAYS find something cheaper, but people only focus on purchase price, an not TCO.

      • Businesses are moving toward treating computing as a service. Consumers will move eventually move in that direction as well.

    • Alan

      That Sager is about 7 pounds and an inch and half thick…that’s the design and construction difference, not the shininess.

    • Anonymous

      This may not apply to you but the MBP has an important feature that the Sager will never have. You can create iPhone/iPad apps on the MBP as well as Mac apps. This is because in addition to supporting Windows and Linux, a MBP supports Mac OS X. For many of us that is game over.

    • The Sager is a pound heavier, 3/4 inch thicker, and has no focus on battery life. The MacBook has a slightly bigger battery, and lower power demands than the Sager. Plus, no Thunderbolt. I’ll keep the MacBook Pro.

      One other thing: raw horsepower isn’t the only measure of a computer these days. We’ve moved past that. Battery life and processor speed are at odds, for example. Same with RAM (the DIMMs draw power). Not everyone needs the raw horsepower. Some of us need the laptop to work on a cross country flight or all day at a conference…

      Dismissing those considered design tradeoffs (and the design quality that goes into maximizing battery life, minimizing weight, etc. as “shininess” is hardly a serious analysis.

    • Remember that specs don’t necessarily reflect real-world performance….

      In particular, CPU clock speeds in laptops are often misleading, because the processors back off the clock based on internal temperature. I doubt very many laptop CPUs actually run at rated speed under heavy loads. This is just as true for Apple as anyone else, in fact. Absolute performance may have more to do with the machine’s ability to cool itself than with the CPU clock speed….

      There are many possible bottlenecks in modern machines, both in software and hardware, and machine performance will tend to be gated by the slowest of them.

      I have no idea whether your machine is actually faster than the Macbook Pro or not, but it’s not necessarily a given, just based on raw specs. Even benchmarks aren’t particularly useful, at least raw CPU speed ones, since designers often optimize the machine for specific common benchmarks.

      Ultimately, the specs don’t matter as much as whether the machine meets your needs, and does it fast enough to suit you. Also, different people perceive lifecycle costs very differently. I tend to value my own time highly, and don’t want to spend time tweaking or fighting my machine. Some people see use of their own personal time as relatively low value, and thus tend to focus more on up-front hardware costs as drivers. Others just like to fiddle with machines because they enjoy it (I was in that camp, long ago.) All of these are valid price-performance viewpoints, which will produce different buying decisions.

    • Are the screen’s equivalent? 
      Are the batteries equivalent?
      Are the keyboards and trackpads equivalent?

      Apple spends money on what it believes will materially improve the experience for MOST of its users. Their success shows they appear to be correct in these choices. 
      If you think BR and a fingerprint reader are a more important part of the computing experience than a good screen, a good battery and a good keyboard, that’s your choice — but Apple, most of Apple’s customers, and I, all disagree with you.

  • I recently bought a Russian nuclear warhead (PAL deactivated) with a 20.6 kiloton yield for $1.2M USD.
    The equivalent Apple warhead has a lower yield and costs more.

    • Kizedek

      But, I’ll bet you could hit your target within 3 meters with the Apple one.

  • berult

    A price structure ought to ‘brand’ a product in full complementarity with its intrinsic value. To a consistent and constantly evolving user experience corresponds a consistent and constantly evolving, in real terms, price structure. In Apple’s case, that’s how and why in the end things work; a dimensional consistency reinforces the other.

    A 4S represents cutting edge Apple tech in the consumer’s mind with the secular ‘cutting-edge’ corresponding price tag. The 3GS and the 4 are trickled-down subsets spawned as luring entry points to a ‘premium through-and-through’ smart platform. Subsets …they are organically meant to be, …’sub sets’ one could and would never show them to be, for in-phase branding ‘atunes’ the scaling to the platform’s highest octave, the truth-wringing interval of the highest signal-to-noise ratio.

    Samsung’s product port-folio defines itself bottom-up, price and quality wise, swept as it is by top-down ‘corporatocratic’ idiosyncrasies. Apple’s refines itself top-down …by bottom-up, hardly reproducible, practico-idealistic methodology. The coupling of price points to consumers; the coupling of consumer to its evolving needs …price with non sequitur causality. One sells consumers to its products and prices atonally; the other sells needs to its customers and prices inconspicuously.

  • JonathanU

    Actually, given ASPs have stayed virtually stable since inception, in real terms the price of Apple products have been dropping with inflation.  A 3-4% fall in real terms year in year out is nothing to sniff at.  5 years worth of that and you’re looking at a good 15% reduction in the price of an iphone, ipod or imac.

    Food for thought perhaps.

    • Over the really long term, Apple’s desktop ASPs have tended to stay fairly stable, with a long-term downward trend. I can remember back in the Apple II and early Mac days, their pricing for good systems (not the low-end base unit) ran around US$2500-3000 — that’s what I planned to spend each time i upgraded. The modern equivalent price point has moved down to around $1500, and of course there’s been a lot of inflation over that period as well, so the actual disparity is larger.

      But the general “hold the price point and improve the product to match it” seems to have been around as a corporate philosophy even in the early days of Apple.

  • jukka

    Horace, do you expect Apple to keep iPAD 2 at lower price point when(ever) iPAD 3 is announced?  I.e. have lower price tier to somewhat compete with Kindle Fires, etc.

    If yes, how low could they go with the price point?

    • Given the data above, the only way that iPad 2 will drop in price is if it sells alongside an iPad 3 which will go up in price. I only expect that the average price of the iPad will remain steady.

  • Masterwoo

    I think Windows 7 phones are excellent compared to iPhone 4s.. Nokia Lumia is awesome from Nokia… You can check the same at

  • Pingback: Why The iPhone’s Average Selling Price Increased Despite The “Free” iPhone 3GS | EMKWAN - GEEK LIFESTYLE REVIEWS AND VIEWS - EMKWAN PROJECT™()

  • Pingback: How much does it cost to manufacture an iPhone? | asymco()

  • Pingback: Apple gets $30 for every dollar they pay their workers | gunsirit tech()