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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:
Last year I suggested that Apple could reach $100 billion for 2011. That was based on the addition of about $20 billion during 2010. Apple added $38 billion to reach $97.6 billion at the end of 2011.
The following chart shows the composition and scale of Apple’s cash holdings.
At the closing price, Apple’s market value is equivalent to 4.3 times the value of their cash.
Once upon a time there were some innovative farmers that developed a new hybrid crop that could satisfy the hunger of a growing population. This crop grew best in large farms which had to be situated far from where people lived. The food was so tasty and production could scale so quickly that it became necessary and possible to build a novel way to deliver this food to the population. The farmers built their own transportation network, which they called a “railway”.
This network of rail was itself very efficient and soon overtook the ability of restaurants and small shops to absorb the produce. In order to keep the pipeline of food filled, the farmers (now with their own railways) bought most restaurants and grocery stores. They transformed them into more efficient food retailers and the result was even more consumption and demand for the food.
To keep the population happy, the farmers constantly devised new food hybrids and new recipes for the restaurants. The food design process became a profession, even an art form. The farmers employed the best and most creative minds when it came to food. They created unique recipes that became instant hits and were widely consumed. They invented “star foods” and “blockbuster dishes”. The process of churning out these hits was so highly honed that farms became factories of ideas.
My thoughts were expressed 20 months ago in a private email.
I did not get a response.