Categories

The price is right

One of the axioms of hardware business is that prices fall over time. The consumer price index for personal computers and peripheral equipment from 1998 to 2014 is shown below:

CUUR0000SEEE01_Max_630_378

The price index suggests that prices for computers should be 54% of 2007 levels. Charles Arthur illustrated this on a global basis using a separate set of data.

The data shows that the weighted average selling price (ASP) of a PC has fallen from $614.60 in the first quarter of 2010 to just $544.30 in the third quarter of 2013, the most recent date for which data is available.

The result is a chronically low margin for computer manufacturers. As Charles points out, the average profit for a PC is less than the price of a coffee at Starbucks. LG and Sony’s exits from the market are symptomatic of the crisis. This is not a new phenomenon. There has been a long series of mergers, acquisitions and exits by incumbents.

Except of course for one incumbent.

The Mac, aged 30, seems to soldier on. Phil Schiller noted that of its original competitors, Apple is the only PC maker to still be in the market. One could imagine that this existence is marginal, or that the Mac managed to survive by giving up on unit volumes or pricing.

The following graph shows the revenue per unit for the Mac and its volumes.

Screen Shot 2014-02-20 at 2.59.43 PM

The Mac not only continues to preserve pricing but it also seems to grow volumes at a time of overall market decline. Going back to the consumer price index, the Mac in December 2007 was priced, on average, at $1539. In December 2014, the price was $1322, with $40 deferred.

So rather than being 54% of December 2007 prices, the Mac is almost at 90%.

You’ll note that along with the Mac I also illustrate the pricing of Apple’s other devices. Even with the iPod, the pricing has remained stubbornly consistent for over 7 years. Whether the volumes are falling, rising rapidly or remaining flat, Apple’s product pricing remains predictably consistent.

The point being that the violation of the axiomatic price erosion rule in PCs is not anomalous. It suggests something about the violation of the same rule in devices. It suggests that perhaps the company does not respond to the same market forces.

But we already know that. Jony Ive told us as much:

“We’re keenly aware that when we develop and make something and bring it to market that it really does speak to a set of values. And what preoccupies us is that sense of care, and what our products will not speak to is a schedule, what our products will not speak to is trying to respond to some corporate or competitive agenda. We’re very genuinely designing the best products that we can for people.”

The result is plain to see: Caring about the product means that it can be priced at a point which consumers care to pay.

Trouble is, judging by how Apple is valued, nobody believes that this is sustainable. Regardless of the evidence within Apple’s own history, it’s the exception, not the rule and the bet continues to be that they cannot continue to remain an exception.

Is Apple going to continue to repeal the laws that govern its industry, as it has for decades, or will it, as the market expects, abide by them?

  • Luis Alejandro Masanti

    quote:
    “The Mac, aged 30, seems to soldier on. Phil Schiller noted that of its original competitors, Apple is the only PC maker to still be in the market. ”

    Other than Ive’s comment —that is surely right— Apple is (almost) the only company that integrated hard&soft… and volume.
    I can remember Amiga having its OS, Sun/Solaris, and other intents (like Be). But neither one had volume.

    I think that to do Ive’s comment a reality, Apple had to follow Alan Kay’s advice: “Those who loves software, own the hardware.” (My words from the top of my mind.)

  • AhmadZainiChia

    I sure hope they continue being the exception. Worried if the 5C was a sign of them trying to ‘abide by the laws of the industry.’ What do you think?

    • StevenDrost

      Everyone is very down on the 5C, but I believe its optimizes their current and future strategy. They can’t sell phones made from the same materials, with the same features without cannibalizing their highend. The real test of the 5C will come in 18 months. Assuming that they keep it in production for 3 years, it could be the 350$ phone that everyone predicted, just late.

    • stefnagel

      Failing in little ways averts failing in the big ways. Apple would be failing strategically, if it did not test out growth edges.

    • Walt French

      I think the 5C was an attempt to compete head-on with Nokia: high quality, good camera, but knockabout, plastic construction to be the SUV stablemate to the iPhone jewelbox.

      To my eyes, the implosion of that segment is one of the more interesting features of the recent smartphone market. Nokia dumped a bunch of 520′s into the market and either got the tail end of it, or simply trashed it.

      (If I’m wrong, and the 5C was actually meant to capture China, then Apple is a lot stupider than I think and it owns the resultant low sales more.)

      • Boltar

        Seems pretty clear (especially I the face of rumors of persistent complaints from contract manufacturers about the difficulty of assembling the iPhone 5) that the 5C was about a manufacturing redesign to cut fab costs. Apple couldn’t have continued to make the 5 without substantially smaller margins than with th 5C.

        So I think it’s important to be specific in what you are comparing the choice to build the 5C with: discontinuing the 5 and offering only the 5S? Building a 5C with a metal case identical to the 5S? Continuing to sell the 5 without design changes? Or creating a clearly differentiated 2nd tier product?

      • Walt French

        My belief was that the 5C was meant to be a clearly-differentiated, but NOT 2nd-tier, product for more active, younger and/or less formal-identifying users.

        I believe it was meant to broaden the range of people Apple could appeal to strongly. I.e., it allowed Apple to make the 5S even more precious/jewel-like, which some love while others disdain…have a hard time relating to. Yes, a lower price would be part of that mix, but if you use my SUV analogy, you’ll note that many brands price the SUVs above their better sedans.

        Ideally, the 5C would’ve gone to users who didn’t previously buy at the 5S level of price. But realistically, Apple would’ve been happy for more users to have switched to the 5C, and anticipated as much. In any case, the assembly costs are a tiny fraction of the sales prices and much less than the price difference between the two models; fab costs must be quite secondary to producing the product that its customers want to buy. Which, unsurprisingly, is pretty much what Apple has said, repeatedly.

      • Sacto_Joe

        I tend to agree wih Boltar. Apple encountered a real problem with production of the aluminum-cased iPhone. As recently as last quarter we saw them run up against that limitation. The 4 and 4S were far more capable of growing production capacity. In effect, Apple got backed into a corner with the aluminum housing.

        I think Apple is encountering a similar problem with the iPad: The aluminum enclosure is resisting scaling up, production-wise, since iPads need to compete with iPhones for machine time.

        The plastic enclosure isn’t a bad idea, but it definitely needs to drop down to a lower price tier to truly be effective. Even there, it’s a question whether it isn’t wiser to create yet a fourth tier and keep the 4S around.

        I’d also create a second tier plastic iPad ASAP, maybe even mid-fiscal year. That will allow aluminum iPhone production to increase in the Fall.

        Longer term, perhaps Apple can return to the 4/4S approach, but with saphire front and back. Now THAT would be a real gem!

    • http://www.isophist.com/ Emilio Orione

      If you think apple’s phones as luxury goods you can understand the 5c fate.
      The old iPhone model is as luxury as the new one, it is only an older model the owner will change in due time, but the taste of the owner of an older model is the same as the owner of the new model, they only bought the iPhone in different times.
      The 5C is not the best model and you have bought is now that the 5S is available, so your taste for luxury is somewhat inferior. Buying a 5 today would not convey the same information about the owner than buying a 5C.

      • Sacto_Joe

        The flaw in this reasoning is in thinking that Apple is targeting the luxury market. Theyn aren’t, except incidentally: They are targeting the quality market. Huge difference.

        The 5C is a high quality device, irregardless of the purposefully created misperceptions being floated by Apple’s enemies. And over time, it will be seen as what it is; a lower priced yet still high quality entry device into the Apple ecosystem. Next year, the 5SC will have all the capability of the 5S at a substantially lower price. I expect it will sell like crazy.

      • Space Gorilla

        My teenage daughter had a choice between the 5S and the 5C, and chose the 5C. The 5C is more than good enough and she likes the look and feel of it more, and doesn’t care about the higher end features on the 5S.

  • http://twitter.com/matthewwanderer matthew

    “The result is plain to see: Caring about the product means….”

    In part it means building products that ultimately polarizes consumers and Wall Street. It means a pattern of growth that doesn’t follow the same pattern of its peers.

    Apple’s refusal – overt or otherwise – to cow-tow is received by the market as dumb luck when the graph spikes upwards or anti-capitalistic when the same graph flattens out briefly (see demands to sell low-market products in every category to “fix” the all of Apple’s supposed problems). The sure sign of iDoom occurs when the graph turns downward for a quarter. The Macintosh is the poster child here, with its track record of out selling PCs in 30 of 31 previous quarters.

    Meanwhile, Apple turns in a seemingly unattended masterclass quarter after quarter by shipping a increasing numbers of product driven by values wholly _different_ from its competition. Were Apple building cars or handbags (say Porsche or Hermes, for example) I assume the company would not be the target of so much skepticism. But my question after being an Apple customer since ’86 remains, why does Apple piss people off so much?

    • Space Gorilla

      Exactly. I think Apple pisses off the tech industry generally because most in the industry believe Apple is ‘doing it wrong’. And yet Apple is succeeding. How!? How can this be happening!?! Apple was supposed to be gone by now!!!!! It’s very upsetting to be wrong and not understand why. This is why we get a lot of magical thinking when it comes to explanations of Apple’s success, such as luck, trickery, dumb customers, marketing, fashion trends, elitism, and so on. Anything but admit that Apple has earned its success.

  • http://www.isophist.com/ Emilio Orione

    Luxury objects follow the same price pattern of apple’s products, their price remain the same.
    Apple has consumerized luxury.
    I can not see how that could not be sustainable, luxury items have a long history and great time is needed to change a brand perception together with a lot of wrong products that I can’t see apple doing.

    • StevenDrost

      Maybe, but the counter point the that argument is that a Blackberry was seen as a luxury item at one point.

      • Walt French

        At one point a BlackBerry was surely the best communication tool for people who valued timely, secure communications, such as Wall Street types. Certainly many were acquired by wannabes who hoped to signal that they were in that elite set, but mostly, they were the right tool for the job.

        Usually when we say “luxury good,” we mean something that is inessential. That’s not the BB story.

      • handleym

        Which is why, in MY opinion, the worrying signs around Apple have nothing to do with what people usually natter about.
        They have to do with the persistent problems with iCloud (which appear to have been fixed, but it’s difficult to tell because so many developers were so burned) and Apple’s weak bench in machine learning.

        Apple can charge more because they are (more or less) the best tool for the job. That changes if what the competition is offering may not look as nice and may have a clumsier UI, BUT it has contextual computing nailed, can do real-time translation in your ear, can scan your emails to remind you of things you should have done (or should not have included in the mail), etc etc.

        Maps was a harbinger. Apple managed to recover from that (after some stumbling) but Maps is only the start. And maps shows the point. No matter how much you love your iPhone, if it didn’t have Maps (in any form — no app, not even a clumsy web interface) would that make you switch to Android? It probably would make me switch.

        Contextual computing (in all its many forms) is the next Maps. Now, Translate, Goggles, these are all fragments of what we will expect from our future devices, and in all of them Apple is weak to non-existent.

      • Walt French

        Apple may be weak to non-existent on many services, but of course many of them (today’s Exhibit A: WhatsApp) were developed on Apple devices and Apple has learned how to integrate them into their ecosystem rather nicely.

        I also like your Maps example. Surely Apple, even in its most full-of-BS moments, could not have thought that a function that Nokia bought for a few billion, could be duplicated with a couple dozen man-years and some 3rd-party data suppliers. More likely, in what was less than their most glorious hour, they predicted pretty near exactly what actually happened: users stayed with iPhones’ weaker offering long enough for the worst of the V1.0 kinks to get worked out. IOW, Maps is not the killer app for many users, while other measures of quality, privacy and support continue to favor Cupertino.

        Meanwhile, Apple’s obvious show of power didn’t go unnoticed in Mountain View; these days stock Android appears to bump up against fewer of the Apple-claimed UX features and Android’s rapid ascent worldwide has not been matched by its market share in the wealthiest markets where both Apple and Google derive the great bulk of their income.

      • http://www.isophist.com/ Emilio Orione

        Map was an operation made for developers more than end users.
        The end user map started weak and improved over time and now is good enough to compete with other solutions.
        if not for developers apple could have wait more to issue a solution already good enough instead of rushing out the first incomplete iteration.
        But developers needed the possibility to insert maps in their apps and with google maps they couldn’t do that anymore.
        Empowering developers it the secret for a first on iOS ecosystem and the ecosystem give the advantage of Apple’s devices against competitors.

    • Antti Vanhanen

      IMO Apple’s products are premium products, not luxury products.

      • Sacto_Joe

        Yes. Apple focuses on the highest quality, not the highest luxury. So many people miss this crucial difference.

      • http://info-tran.com/ Info Dave

        Some might say, the best value.

      • Sacto_Joe

        Premium products, quality products, high value products. I think we’re all talking about the same thing. But luxury products? I think of a luxury product as being, say, a mink-lined, gold-plated toilet. If Apple were making toilets, they’d be made to last and to do lots of useful things. If plating them gold or putting mink on the toilet seat helped them do that, I suppose they would. Otherwise not.

        Case in point: The gold-colored iPhone. A true luxury iPhone wouldn’t be colored gold, it’d be made out of gold, or at least gold-plated.

      • http://www.isophist.com/ Emilio Orione

        That’s not what luxury is about, it is a feeling more than a price, furthermore the iPhone ASP is double of samsung ASP, it does not have to be real gold to have an higher price point from the competitors so to be a luxury.

      • Kizedek

        Well, my feeling is that Android (and Windows) users appear to (believe they) have the luxuries of both time and ideals. I can’t afford either.

        My time is worth something: I can’t bother to manage the computer, nor deal with getting the best out of it; or imagine that I will want to make some kind of hobby of it at the end of the day.

        And I can’t be so idealistic that the mere idea of choosing one poor product simply because there are thousands of poor products to choose from on the same “open” or “customizable” platform should be any kind of incentive for me.

        Have some jobs to be done, weigh the up-front cost with time and TCO, and choose the best tool. Done. Quality + productivity = high-value. The only “luxury” involved is peace of mind.

        “Luxuries”: Peace of mind (underrated) vs. Time (non-existent) and Idealism (overrated).

      • http://www.isophist.com/ Emilio Orione

        As I have said above, luxury is not a matter of price, it is a feeling. From dictionary Luxury: a state of great confort and elegance.
        Usually it is associated or come with high price, but it is not mandatory, it is a feeling some objects, experiences, have and some have not.
        If the object is felt as a luxury price is maintained over time much more easily.

      • Kizedek

        OK. The post I commented on was one long sentence that was unclear to me, particularly with the “furthermore” clause.

      • Sacto_Joe

        The issue isn’t whether or not some people see Apple products as luxuries – some people see toilet paper as a luxury. The issue is what is the market Apple is aiming at? It’s not the luxury market; it’s the best computer solution market. Apple wants to make computers for and sell computers to people who want the best computer solution they can afford.

      • charly

        Apple has too often priorities style over substance for that to be believable. How often didn’t they use to little cooling because that would crimp their style or made their software less easy to use because it made it look cooler.

        Apple is a luxury brand

      • sorry

        “How often didn’t they use to little cooling because that would crimp their style or made their software less easy to use because it made it look cooler.”

        I have no idea what this sentence could possibly be trying to say. Sorry.

      • http://www.isophist.com/ Emilio Orione

        But aiming at best they also succeed in having the feeling of great experience and elegance usually associated with luxury in products made for a big market and not a niche, they have commoditized luxury and the ASP of their product stay high over time like no others (except luxury items of course).

      • http://www.isophist.com/ Emilio Orione

        From the dictionary
        Luxury: a state of great confort and elegance
        Premium: an amount to be paid …
        I don’t see Apple’s product as premium, that is an old song about the apple’s cost, a markup put on less valued products.
        It is not so. The 27″ iMac cost less than competitor’s equivalent solution, the iPad air is unmatched in price by competitors, even without considering TCO, and on and on.
        Apple management of the supply chain can deliver quality products at competitive price mostly unmatched by competitors, more so if you consider TCO.
        But Apple products are luxury items because the user experience is the one associated with luxury, they are elegant and comfortable and they convey the sense of owning something peculiar apart from other products.

      • Glaurung-Quena

        Premium vs luxury — actually it’s both, I think. Obviously Apple has created an air of brand cachet, of coolness about their products.

        At the same time, they are very careful to make all their products be premium machines with high end specifications. For instance, aside from special educational i3 imacs, they don’t make
        any computers with celeron, pentium, or i3 processors. IIRC, except for their smallest form factor machines, all of their computers are equipped with at least quad core processors. Likewise, they’ve
        transitioned away from putting SATA ssd’s in their machines in favor of
        PCIe ssds.

        I think a third strand to how they’ve kept the price of their computers from collapsing the way the rest of the industry has, is uniqueness — they don’t make generic computers. Instead of beige desktops, they make NUC-style nanocomputers, all-in-ones, and professional workstations, all of which command a price premium compared to regular tower desktops. The last few years they’ve been doubling down on the uniqueness aspect — their workstation used to *look* like a generic tower desktop, now it doesn’t. Their laptops used to be unique only if you did a comparison of specs, now they’ve transitioned them to be all about ultraportability, with your choice of extremely thin & light or slightly heavier but much more powerful with an ultra-high resolution display.

      • Jasper

        Actually, very few Apple machines have high cores counts. On the Mini, the Good is dual, Better is quad. On the MacBooks, Airs and 13″ Pros are dual, 15″ are quads. On the iMacs I think they’re all quad, not sure. iPads and iPhones are all dual core machines to the competition’s universally quad or even octa-core (marketing-eight, but still) offerings, and even moved to dual core relatively late.

    • Accent_Sweden

      Another point is that the price of luxury isn’t that high. If it only costs $1000 to own a luxury item like an Apple computer, then that’s not much of a price considering what you get from it. The relative price of owning an Apple product has gone down as the basic price has remained fairly steady, in part because of inflation and in part because people are willing to stretch to $1000 dollars for what they perceive as value. And even if they can’t afford that stretch, they can now buy a first class iPad for that price. It isn’t that much of a luxury in users’ day to day lives. It’s a reasonable price for what they get and they know they are getting the best. So why settle for a cheaper, less capable non-luxury version?

      • Sacto_Joe

        Yes. I bought my first Mac in 1984. The Mac plus a dot matrix printer cost me more than $3,000, and that was 1984 dollars. I got exactly two programs for that price, MacWrite and MacPaint. How many iPad Mini’s could I buy for the same amount in 2014 dollars? And how vastly more useful is an iPad Mini? And yet – that $3,000 was the best bargain I’ve ever made.

      • Space Gorilla

        I’m in the same boat, bought the first Mac that came out in 1984 along with a printer. In Canada that was closer to $5,000 as I remember it. Canadian dollar must have been low in the 80s. But I used that Mac until 1992. I still have it, sitting two feet away from me on my desk.

      • Kizedek

        Same here. Kinda wish I had bought 2000 shares of Apple instead. I think the shares have split three times since then.

  • stefnagel

    John Huenefeld, who wrote the book on book publishing, gave our little company his best advice first: “Do a great book and charge enough to do another great book.” Why would anyone want to do anything else, rhetorically speaking?

    • http://www.isophist.com/ Emilio Orione

      There is one small thing: doing great is really really hard.
      If you just look for greatness and copy it quickly, like samsung and google did, you can have a discrete chunk of money with a lot less effort.
      There will always be creators and copiers, I for one prefer to be a creator but money is the ultimate award not feeling.

      • stefnagel

        I’ll stick with honest Abe.

  • Gary Brockie

    If Steve Jobs did manage to codify the culture that sustains Apple’s approach to product development, they will continue to have success.

    Some consumers are willing to pay more for a truly well designed, well made product. Apple is capturing this part of the markets they compete in. I don’t think that Apple’s culture would allow them to be effective competing only for market share based on price.

    “Success is a choice.” — Rick Pitino

  • http://www.cyclelogicpress.com Neil Anderson

    A computer’s average selling price would be even lower if Macs were removed from the mix.

    • charly

      IIRC average selling price of PC’s is lower than the cheapest Mac so you are more than right

  • Henry

    I assume the first graph is for a constant-quality computer (e.g., constant CPU). If so, then the curve for Mac would show a similar steeply decreasing pattern.

    It’s a great post regardless, but that first graph is a bit misleading.

    • Mark Jones

      I doubt the first graph is for a constant-quality computer. If it was, the curve would be much, much steeper. It’s much more likely to simply be total PC revenue divided by total PC units sold in the US.

      • Henry

        Your explanation would imply that PC prices (per unit) have fallen over 95% since 1998, and that PCs today cost about $25. That obviously doesn’t make sense.

        My understanding is BLS uses constant quality, and CPI calculations are based on constant quality.

        This would be easy enough to look up on the BLS website for someone who cares enough to look it up.

      • Walt French

        Pretty easy to visit, yes. But the actual description is complicated.

        So here’s a very crude SWAG: a 1998 IBM announcement has a 233 MHz Pentium II “priced at just $1,099” and featuring “16 MB of SDRAM, and a 2.5 GB hard drive.” That machine would of course be unsalable today; today’s top-of-the-line MacBookPro might have 16GB (1000X) of memory and 1TB (400X) of much faster SSD storage, with maybe 50X the CPU throughput. Call it maybe 80X overall versus the nearly $4000 for the BTO being 4X the price, and you get pretty close to a price index 5% (4X/80X) of the 1998 cost for similar performance.

        (Imperfect, in that the MacBook includes a first-class display, which the IBM did not, the keyboard is NOT 50X better, GPUs, yada yada.)

      • handleym

        Henry is essentially correct. The first graph, while interesting, detracts from the rest of the post by confusing the issue.

        It IS true that the price of computing (and related issues like data storage,communication, even printing) have fallen astonishingly, and continue to fall, but that is an orthogonal issue to the fact that the PC market has become commoditized.

        If you’re going to link the two, I think you have to spell out the link, because it’s not quite obvious. Perhaps the fact that computing is not just so cheap, but that most of us have all the compute we need is the link — ten years ago many of us were willing to pay the extra costs of the high end model (of any brand) because it delivered value we needed; now most consumers don’t care whether their laptop has a dual core i3 or a quad-core AMD — either way they know it’s good enough, so just look at the price.

        The real story here is commodification, not the lower price of digital items.
        Airline tickets in the US, for example, are a commodity and have been subject to the same dynamic.

        Autos represent the path that might have been — superficially a commodity, but the companies involved have done enough around various more-or-less intangible issues (branding, image, differentiation that may be superficial but is not completely worthless).

        PCs might have gone down this path (as a simple example charging a little more for crapware free, sticker free PC, or “we’re the one-and-only laptop company that sells you a trackpad that isn’t complete crap”) but none of them did. I’m not sure why. Maybe business sales were not receptive to the idea? Maybe MS and Intel between them had too much ability to force certain (in retrospect stupid) ideas like “you only get sticker money if you put the stickers on EVERY PC you ship”. Maybe the problem is that, pretty much from the day the 386 shipped, the PC vendors (like airlines, but not as mych like auto manufacturers) really WERE just what we think of them as today — engineering-free, IP-free assemblers with no value-add whatsoever, undeserving of any profit because they don’t do anything of real value? (That’s what happens when you have someone else doing all the hard parts…)

        Relevance to today?
        ARM, Qualcomm, Broadcomm and Google are doing all the hard parts… HTC, Nokia, etc are doing very little that provide value customers care about. Samsung has managed to be king of this particular commodity, but with a very tenuous grip, and with little evidence that THEY can provide additional value customers are willing to pay for. (Samsung does some parts of the hard stuff — eg the IC manufacturing — internally, which gives them some advantage, but until they have their own OS or their CPU design they’re still basically in the commodity game.)

        I see no reason why Acer selling a me-too tablet, or Lenovo selling some weird Android+Windows hybrid is going to change any of this dynamic. They’re all still selling commodity products with NOTHING about them that makes a customer willing to pay 10% more.

      • Walt French

        As I note above, the BLS attempts to measure the cost of consumer computers and peripherals in the index, to report the relative cost of home computing over time, for a fixed quality level.

        They track maybe hundreds of attributes and attempt to bridge them at three different quality levels, working with models that change every few months (while old models stay on sale at higher prices, obscuring actual cuts). Yes, complicated. At least they don’t use the “hedonic” approach that would drown in the mess of data.

        Your notes about the industry are interesting. Maybe 5 years ago, many believed that Intel had the CPU wars won, thanks to the billions of expense to fab at the next smaller geometry. The huge volumes in smartphones, which weren’t as performance sensitive, did the classic disruption thing, and now Intel finds itself competing with firms that have been able to finance their own expertise with high volumes of cheap parts.

        And I’ll pile on a gratuitous shot at Samsung: not only do they need a differentiator; it needs to be perceived as more attractive. With Android OS costs trending pretty close to $0.00, we’re talking software features that Samsung has pretty spectacularly failed at impressing with.

      • http://info-tran.com/ Info Dave

        “With Android OS costs trending pretty close to $0.00…”

        Except for the extortion payments being made to Microsoft to avoid a patent infringement lawsuit. :-)

      • Walt French

        Oh, OK, the OS for a phone might be $10 per unit for a few more years until the curtain drops on the patents’ 17–20 year lives.

        My impression is that the strongest patents that Microsoft has asserted are already over a decade old. Doesn’t look like a growth industry for Microsoft. Nor would an alternative be a source of competitive differentiation, since the MS patents are very fundamental to OS’s.

        Which was the point that the economic incentive to an alternative is near zero. As Google says, they’ve leveled the playing field, albeit leaving Apple some premium UX features.

      • http://info-tran.com/ Info Dave

        My impression is that this is nothing more than saber rattling on the part of Microsoft, in a legal sense. So far, Samsung is the only company that may gain by going to war. And so far, Samsung has declined to rattle.

        This was a desperate move on Microsoft’s part, that so far, has paid off.

        p.s. I agree with everything you said.

      • Walt French

        Most patents are licensed but when there’s a sharp shift in participants, it takes a while for the pecking order to get r-established. So when the iPhone showed up on the scene, we saw headlines about Nokia v Apple, etc.; those have faded.

        Google and the Android partnership companies remain in the headlines, in part because those companies compete in nations with strong Intellectual Property regimes (the US and EU, especially), but also in weak-IP-rule countries such as India and China. You can’t compete well if you lack features in the strong nations (where most of the ASP and profit is) and you can’t compete in the weak-IP nations (where the volume is) if you’re paying $40 more per handset for IP. These are existential issues so the fight goes on.

        Regards Microsoft, Motorola is the sole Android® partner that has NOT seen the logic of settling with Microsoft; others went the licensing route. Especially inasmuch as Lenovo is a (the?) major Windows OEM, I imagine the Moto settlement will come soon enough, too.

      • http://www.laugh-eat.com/ kyron

        not extortion if it’s true, and the court agreed.

      • Walt French

        Mark Jones, aside from the contribution of peripherals, what you doubt is pretty much exactly what the BLS documents.

        http://www.bls.gov/cpi/cpifaccomp.htm

        Quality and Adjusting for Quality Changes

        The quality for personal computers is associated with the attributes of the components that are used to build it. Attributes such as the speed of the CPU (central processing unit), the amount of RAM (random access memory), and the hard drive storage capacity are a few such attributes.

        May I suggest / request: next time something looks wrong, take a quick look for facts to back you up?

  • http://ValuingDisruption.com/ Bill Esbenshade

    Great post! Is making me rethink whether Apple needs to sell a more affordable version of the iPhone (a la Christensen). Apple seems to be making a deliberate choice to avoid the “loser’s game” of price driven competition, which often seems like the net outcome of following Christensen’s advice to the letter.

    It reminds me of the following quote from Benjamin Graham: “You can get in way more trouble with a good idea than a bad idea, because you forget the good idea has limits.” Apple’s first priority is making great products that consumers value. They can make these products affordable without following the low end herd and diving into blood red competitive waters. From a long term strategic standpoint, it makes little sense for Apple to copy the behavior of its competitors, as your post demonstrates.

    A company’s goal should be a unique strategy that other companies can’t match — herd-like behavior is contrary to the goal of a unique, hard to match strategy in which priorities, processes, and resources fit well together (a la Christensen and Michael Porter).

    If Apple is going to grow, then it’s going to be through new products like the “health maintenance” watch you mentioned in one of your recent podcasts. These kind of complementary products enhance Apple’s bundling strategy, and will drive sales growth in existing products like the iPhone (just like the iPhone has helped drive growth in Mac sales).

    • Sacto_Joe

      “If Apple is going to grow, then it’s going to be through new products…”

      The other point to recall is that Apple isn’t interested in growing itself for the sake of growth. I personally suspect that to be the real reason the market isn’t giving AAPL the valuation it deserves. If a company isn’t perceived to be interested in huge ROI’s, then it’s stock is punished.

      What’s interesting with Apple is that, because of its ability to make lateral, disruptive moves, it can in fact engender huge boosts in growth, thus continually surprising the market. But it must always be remembered that such growth spurts are in effect a secondary reaction, and never Apple’s primary focus.

      • Accent_Sweden

        While I like and agree with much of what you say, I think we have to accept that the growth spurt of the iPhone is not a secondary reaction. Everything that grows off that could be argued to be secondary reactions. The iPhone was the gateway drug to most non-Apple users, before that the iPod. The secondary reactions are seen in the additional Macs, MacBook, AppleTVs and so on sold. The iPad is somewhere in between. Established Apple customers jumped on it but it is bringing even more new people onboard.

      • Sacto_Joe

        Every new product becomes a “gateway” to the rest of Apple’s products, I agree. But I think you’re missing my point. None of these products was developed with the original intent of acquiring growth or creating a growth spurt. They were developed to please people, period. “We’re very genuinely designing the best products that we can for people.” That is simply not good enough for the Market. They want growth. They view the “worth” of a company in terms of worth to shareholders, and more specifically worth to shareholders NOW.

      • http://ValuingDisruption.com/ Bill Esbenshade

        Michael Porter has some great writings to the effect that companies shouldn’t trade away a unique, highly profitable strategic approach in the pursuit of growth, since by doing so they give up the strategic advantages that led to the company’s original and ongoing success.

        Porter says this happens slowly, over time, leading to more and more industry homogeneity and direct competition. In this scenario, companies in an industry end up competing based solely on operational effectiveness, leading to price wars and declining margins. The point is that companies should preserve their unique strategies and pursue organic, sustainable growth.

      • Sacto_Joe

        “Yet Apple has a trailing PE of 13.” Apple has low growth prospects as things presently stand, and this is a market fixated with ROI. Here’s what I said on Braeburn Group recently:

        “Today’s Market is beguiled by huge ROI’s. If a stock doesn’t appear to be able to provide it, the Market isn’t interested…[but] the Market, when it becomes irrational, loses the ability to separate wheat from chaff. Huge bets are placed on the chaff, forcing it up out of all reason. Meanwhile, boring old wheat languishes, because there’s no perception of a [potential] large ROI there.

        That’s all fine and dandy, until the chaff gets blown away in the wind of reality, and only the wheat remains…Between two and three months from now, we’re going to see the wind of reality again make itself known, with more chaff getting blown away. Those who have either been nimble or have invested in wheat will be vindicated.”

        I should have added “or lucky”, because that’s the real driver of today’s irrational market; the chance that you’ll get lucky, beat the odds, and strike it rich….

    • Walt French

      “If Apple is going to grow, then it’s going to be through new products…”

      Bring ‘em on!

      But let’s first remember that Apple’s past success is all about not being the first kid on the block with a music player or computerphone or tablet; that success came from recognizing a set of customers with identifiable needs, and selling a product that those customers found good enough that they didn’t need to bother putting the pieces together to make a superior solution.

      The 5C, for instance, could have been such a product, a more knockabout stablemate for young/hip consumers in wealthy markets, to complement the 5S jewelry. Nobody seems to think the 5C was a new product, however… just a day-late, dollar-short variant on a 6-year-old line. I don’t see how it could ever have competed against the no-IP, 2G devices in India and other low-income, IP-lite nations, so doubt that it was ever so intended. More likely, in another year or two the C line, with perhaps another $100 or $200 savings against the top of the line, could look pretty good against whatever Samsung fields in the price range. It may yet be such a product.

      PS: in the next few months, Google is rumored to perform a substantial revamp to the low-level mechanism that Android uses to run programs, and while I expect there’ll be backward compatibility, the best performance and features could require notably different hardware and drivers that will tax the weaker OHA partners. Raising the bar on support could be helpful for its partners countering the open-source Android-like firms and could even change the relationship between fully-licensed Android® and the open-source. This could significantly shift the economics in countries that now find older-version Android phones good enough.

      • http://ValuingDisruption.com/ Bill Esbenshade

        Thanks for response Walt! It made me think of one other relevant point. While I do believe Apple can grow and deepen its strategic advantage through new integrated devices, Porter notes that the pursuit of global growth is a great way for a company to continue growing in a sustainable way without sacrificing a unique strategy. Apple is pursuing this exact strategy, pushing its devices and iTunes/App Store ecosystem all over the world. And unlike Google, Facebook, etc., Apple is only making acquisitions that enhance its integrated hardware/software products (e.g., AuthenTec, the GT Global sapphire deal, the recently announced TestFlight deal, etc.). Apple is using acquisitions to deepen its strategy of hard to match, integrated hardware/software products.

        Contrast these acquisitions with the almost incoherent, defensive, and market share dominance based acquisitions of Facebook and Google. If you don’t have a unique, hard to match strategy, just buy up everything and go for market share dominance (hoping you don’t end up in a futile, whack a mole effort involving endless acquisitions of small, overpriced, but potentially threatening competitors).

    • http://www.asymco.com Horace Dediu

      The problem with a strategy that simply states that “low end is good” is that it does not account for the size of that market. I’m not sure that having on the order of a billion customers can qualify someone as being “high end” and thus doomed to disruption simply because those billion users are at the top of income brackets. Disruption theory is more than a simple dichotomy of “high” and “low”. It defines the vertical scale as the basis of competition, not simply on the basis of price or arbitrary performance.

      • http://ValuingDisruption.com/ Bill Esbenshade

        Thanks for response Horace, and for the outstanding work! It seems like where you are on that vertical scale depends, to a large degree, on the distinctiveness of your strategy. Apple’s at the high end because it has a unique, hard to duplicate strategy that leads to highly differentiated products. Android and AOSP phones are at the low end because they don’t have a unique strategy, so they’re subject to direct industry rivalry, price driven competition, and/or exorbitant advertising expenses (a la Michael Porter). It’s interesting that a notable exception to this brutal price-cutting may be Xiaomi, precisely because it does have a unique strategy that no one else is following.

    • bluger

      “Apple seems to be making a deliberate choice to avoid the “loser’s game” of price driven competition”

      Apple is getting away with what they can get away with, and they will do so until they can’t any more. And they are where they are largely because of the lie that are subsidized smartphone plans.

      It is actually remarkable seeing people celebrate what is in effect greed at enormous scales. I’m a believer that greed is, effectively, good (Gekko), however to see people celebrate as if they are party to it is simply bizarre.

      Apple could sell every one of their products for 1/2 the price and every employee would be paid just as well. The company would be healthy and robust. Etc. But they don’t because they don’t have to — you’ll pay the price regardless, probably lying to yourself about what it costs.

      • netmargin

        “Apple could sell every one of their products for 1/2 the price and every employee would be paid just as well.”

        They obviously couldn’t because their net margin is not 50%. Unless you mean until their cash ran out, in which case they could easily give away every one of their products, by the same argument.

      • bluger

        Apple’s margin on both the iPad and iPhone is greater than 50%. Their corporate margin drops as a result of other less lucrative ventures, such as the desktop and laptop lines — very profitable compared to say Dell, but more traditional compared to the incredible profits of the iPhone/iPad.

      • netmargin

        You don’t really understand what gross margin is at all, do you.

      • bluger

        Ah the ol’ innuendo reply. So clever but completely vacuous.

      • netmargin

        They could not sell the current iPhones solely at half price without losing money, because even if the gross margin is > 50%, the net margin isn’t, even with all the other businesses somehow spun off. And the gross margin of the iPad, as irrelevant as it is, is not 50% at all. Is that clear, or will you continue being insulting?

      • Marcus Mendez

        Agreed, apple is i think ethically greedy at least for the most part (labor conditions notwithstanding as well as community stakeholder value ), ie they make a premium product that people want, but are likely being short sighted in the short term…only time will tell, and that could be 5 years from now.

      • http://www.laugh-eat.com/ kyron

        “that could be five years from now”

        people with your position been saying that for decades. you realize that, right?

  • http://www.BarnesFamily.com/ davebarnes

    Semi log version of the chart would provide better insight.

    • insight

      Greater insight into what, specifically, and why?

      • Walt French

        The CPI chart above clearly shows that prices are way down. What it doesn’t show is the rate at which (the BLS believes) the price has fallen. It makes it look like—falsely implies despite our brains’ attempts to counter what our eyes clearly see—almost all the drop happened before 2002. This although we know performance per dollar continues to improve and that the ability to do more per dollar is hugely important in recent trends, especially smartphones.

        The BLS conveniently allows users to select log scales; see http://research.stlouisfed.org/fred2/graph/?chart_type=line&s1id=CUUR0000SEEE01&log_scales=Left
        (Below the chart, you can pop down the “Graph” menu and also choose features such as a larger size.) This chart plainly shows the quick decline in prices in the earlier years (up to -35% per year early on!) and the reaccelerating of declines since 2010, but still only in the range of -7% – -10%. I got those numbers from the data download option, but they are visible in the log chart, which they are NOT in the linear chart.

        BTW, the BLS page on the computer CPI shows how heroically they struggle to find what consumers are paying for a given level of quality, when quality is so sharply improving. And it’s important to note that the index displayed is for computers and peripherals that consumers spend their dollars on; printers, CD readers and the like all are all somehow included.

        The linear scale chart appears (to me) to emphasize only the single fact of computers’ price reductions over the last 15 years, with the caveat I gave above. That’s hardly news. The log scale shows the drop, plus makes visible:
        • over the range, prices have dropped to about 5% of their early value
        • rapid declines early; recent declines at only 1/3 the earlier rate
        • a pause around 2010, perhaps from reduced capex in the 2009 timeframe.
        • specific declines are easier to pick off: in the last 7 years prices have dropped by about half; in the prior 5 years they’d dropped about the same amount.

        Maybe the things you can see in the log chart aren’t helpful, but I’d think anybody who cares about the chart would want the extras I can see, and I invite responses as to what facts are both important today and more visible, in the linear chart.

      • ptmmac

        The Manufacturers may finally be getting a break in price drops because Moore’s Law is no longer ruling the roost.

        The factor not included in the data is the lack of increase in processor speeds since those are limited by frequency. If you were graphing the quality of the transistor per dollar, rather than the price per “machine” you would have seen a very different story. Customers are no longer buying machines that offer a compelling improvement in processing speed. A 4 year old computer today is now more analogous to a 4 year old TV rather than a 4 year old computer from 1999. The power envelope is the limiting factor not the geometry that drove the earlier heyday of Moore’s Law. One result of this is low powered devices were not limited by the same problems and actually were able to ramp frequency while computer’s could not. A cell phone now offers much of the functionality of a $400 computer. Sales of traditional computer’s will continue to drop because the product turnover is dropping, and there is more competition from other kinds of devices. Dropping demand for computer’s definitely means there is less investment money to pay for the next processor node.

        What I am curious about is why has the obvious slow down in increases of computer speeds been so ignored by the press? There has been more technology innovation than in the 90’s, but we have seen less growth in productivity. Perhaps if we could name the problem, the solution would get more attention. Two types of processors have continued to improve while CPU’s of average PC’s have stagnated. One is the graphics processor because of it’s ability to harness more improvement from running multiple cores, and the other is the low power computing devices. Area’s economic productivity have followed in the wake of each of these two exceptions. Petroleum exploration has benefited from the ability to find oil that was not practical to extract because this is processed with multicore machines with large graphics processors. Cell phones are another growth area with smart phones leading the way towards new business innovation. Apple’s big bet on ARM makes much more sense if we look at what happened to the 5th generation PowerPC chip and how it failed to match the growth in processor speeds that Intel was producing.

      • Walt French

        I don’t buy a couple of your points.

        First, the tech press has been on the speed/power tradeoff at least since maybe 2009, when it was obvious that a huge market for smartphones existed, that Chipzilla was ill-equipped to serve.

        Second, you need to be careful about measuring a chip purely by clock speed. Jobs that can exploit multiple cores well (and of challenging uses, that’s about all of ‘em) get big advantages from multi-core solutions, even with clock-speed untouched. And within a given core, architectural improvements mean some tasks that formerly took 8 clock cycles might now process in 6, or a given core can have more operations in flight in parallel. Realistic workload metrics capture this.

        What you ARE seeing is that consumer functions don’t need the superchips to be able to work very well. I occasionally note less-than-zippy response on this 4-year-old laptop, but realistically I doubt it costs me a minute a day. Maybe when I get my whizbang analytical method going against some test files, then I’ll spring for a more capable device.

        Oh, a PS: I refuted your assertion as if it meant a steady increase in clock speed, but as I’m sure you know, “Moore’s Law” says that “the number of transistors on integrated circuits doubles approximately every two years.” The R² of that rule (even in the more challenging log-log form) is VERY high, at least on the 1971-2011 data at Wikipedia.

      • Marcus Mendez

        Interesting, i will say this, apple’s bet on arm might just be a waste of r&d dollars and big boost to bob mansfield’s ego. Or put another way, apples bet on arm doesn’t have to be so big. I mean, if apple were to buy a foundry , arguable they kind of are, but the history is they haven’t, then i get why you need your own cpu design teams. But armh by default is a cpu designer. In other words, why not use qualcom or generic arm design. If Armh is commoditizing the cpu, why bother with that level of design integration. It’s arguable it’s a differentiator. The phones can’t last more than a day on battery power, and the processing is done in the cloud. Speaking of cloud, apple sucks here, and there getting taken to school by google.

      • Walt French

        @ptmmac:disqus wrote, “The factor not included in the data is the lack of increase in processor speeds since those are limited by frequency.”

        This is just a terribly cramped understanding of processors and also a misstatement of the BLS data shown here.

        I could not find detailed BLS methodology, but the agency describes its attempts to measure “performance,” not simply a single attribute such as speed. This would be expected to (and, I think, does) account for the many architectural feature enhancements in a CPU. For example, bus speeds for communicating to memory, larger amounts of on-die, high-speed cache memory, smarter handling of the two different paths that can happen every time an IF condition is tested, the number of simultaneous instructions handled in each core, and many, many more. (I think those are the most relevant.)

        As an example, the current MacBookPro, with a 2.6GHz i7 CPU, delivers about 3X the throughput as this 4-year-old MacBookPro, which has a 2.66GHz i7CPU (as measured by GeekBench). You’ll see (roughly) similar performance in desktop chips (a 17″ MBP, with a big battery, isn’t very power-constrained), and in servers, which are likewise very sensitive to time lags accessing memory, lags in switching between processes etc.

        The speed shown by this artificial benchmark has a real-world impact. When I have many pages loaded in Safari, my computer now can hang for a second or two when switching between them. That’s new with Mavericks, because the OS now compresses windows that are out of sight, in order to keep more of them in memory. The tradeoff allows me to keep MORE windows open, but the performance suffers because the compress/expand logic expects a faster CPU.

        Of course, a personal computer is MUCH more than just the CPU, and the index measures personal purchases that include monitors, disk drives, networking gear and more. Those other items have NOT increased performance at 30%/year, so today’s index is dropping at a slower rate. Processor improvements are ALSO increasingly difficult to come by; Intel has obviously been smart enough to go for the lowest-hanging fruit in making their processors more attractive at a given price and heat budget.

        Most desktop machines don’t really need much CPU so if you look at what people buy, it looks like Intel is slowing down much more. But the BLS even attempts to accommodate that, tracking budget, midrange and hi-performance definitions of PCs.

        As I originally noted, the price/performance declines have slowed down — and my original point, that of showing the index on a log scale, actually shows that improvements have come a bit slower. (See the chart!) But they have not hit a brick wall, as using just clock speed falsely implies.

        I think this answers your question: the easy-to-see clock speed is fine for comparisons within a single architecture, but wildly misleading across time; analysts who follow the industry know this and steer journalists from drawing bad conclusions. We should do the same.

      • insight

        Oh, is that what “the chart” meant, when there’s several in the article.

      • Walt French

        Semilog charts are ideal for understanding rates of change, almost imperative when there are are a couple of orders of magnitude in play. They’re inferior for understanding the absolute (rather than relative) magnitudes of two or more items at selected points in time, as the last two charts do.

        A price index has no absolute value — the BLS arbitrarily picks a date where the value is 100 and shows the relative change from there, , so the absolute magnitude is really without interest.

  • poke

    Shared values are the foundation of loyalty. The Mac community proved resilient even in tough times and the community of Mac developers, although small, proved to be invaluable to iOS because of its shared values. “Community” gets talked about a lot with regard to products nowadays, but how many of those communities have shared values and how many are merely groups of customers? Having a product in common isn’t enough; that product has to embody values shared by the business and the customer.

    What I think is most important to see, though, is that other companies communicate their values with their customers too, it’s just that those values constitute a cold-hearted utilitarianism. They establish a contract with their customers: “we do x, y and z – it says it right here on the box – and if you can find someone else who does x, y and z for a cheaper price, go to them.” The relationship is fickle from the start, because it’s defined that way from the start. What sort of relationship does market research imply? Or focus groups? Or A/B testing? What sort of relationship do business and marketing books full of the psychology of manipulation imply?

    This is what Apple understands and Jony Ive articulates so well. Most analysts don’t understand it because they share the utilitarian values of a Microsoft or a Samsung. In fact, I wonder if this story is less the triumph of Apple and more the failure of business theory, because that whole edifice has been constructed on the wrong moral philosophy.

    • Sacto_Joe

      As you so cogently point out, the rules only work for those that abide by them. Therefore, to answer Horace’s question, Apple prefers to ignore the rules, concentrate exclusively on the customer, and make a ton of money.

      • Johan Du Toit

        Apple doesn’t ignore the rules, people are just looking at the wrong rules and thus inferring the wrong conclusions about Apple. Apple doesn’t sell a homogenous product, and isn’t in the hardware business, it’s in the tech ecosystem business.

      • http://www.laugh-eat.com/ kyron

        nope. they built the ecosystem to sell more hardware. you couldn’t be any more wrong.

  • JohnDoey

    The key thing is that Apple products continue to enable the user to do more with them with less work, and continue to pay for themselves in a short amount of time.

    If Apple had not brought CoreAudio and CoreMIDI to iOS and enabled real multitrack audio and music in GarageBand and thousands of 3rd party apps, then I might think my current iPhone was expensive. But instead, this $700 phone replaced over $1000 of dedicated music and audio gear, and the iPhone setup (with Apogee audio hardware) is faster and has much more storage and much longer battery life and is much smaller and lighter.

    The same happened with photo and video and art tools for many users.

    Samsung, on the other hand, has re-skinned a bunch of baby Java phone apps that are barely better than Web apps. I can’t make a $400 Sansung device pay for itself, let alone a $700 one.

  • Space Gorilla

    The Mac survived (and has thrived) by aligning with its customers needs and jobs-to-be-done. It’s a bit confusing why so many people don’t understand what Apple is doing. Make something great that your customers love and sell it for a profit. It ain’t rocket science.

  • Canucknuk

    “Judging by how Apple is valued…”

    It seems that investors cannot get over the low valuation of AAPL recently when it could not be simpler. When Apple stock was shooting for the moon it had incredible year over year growth, things got frothy as they are wont to do in that situation. As soon as the market quite correctly sensed things were leveling off, as they must, the price dropped and has been range bound according to its growth prospects. Yes, the PE ratio is low but in line with the likes of, dare I say it, Microsoft, who the market perceives to have similar prospects. Apple fans seem to be having a lot of trouble coming to terms with the fact that the party is over until Apple can show that it can move the needle on growth. I have faith that they can do that but we’ll have to take a deep breath until we see the next shiny object. It’s a logical outcome and I think the manipulation angle is way overblown. It’s just the growth outlook people, no need to complicate things.

    • Kizedek

      “…the market quite correctly sensed…”

      Unless “the market” doesn’t quite know what senses are the correct ones to apply or listen to. “Leveling off” and “growth prospects” seem to relate to perceived marketshare prospects — as though once Android has hold of a piece, that’s it, game over for Apple. Nah.

      What “Apple fans seem to be having a lot of trouble coming to terms with” is not that “the party is over” — on the contrary, it is just beginning. Rather, what they have trouble coming to terms with is how others believe Mobile will play out anything like desktop. And since it is already a very different situation in so many ways, I think it is the pundits and Android fans who have trouble coming to terms with how different it all is this time round — where the values are, what the synergies are, etc..

      Facebook just paid 16B +3B stock for Whatsapp! So, Apple maps and Siri haven’t quite lived up to expectations yet? Does anyone realize what Apple could do with anything if it threw 16B at it?

      • rational2

        Apple has the money, so what’s stopping it from “doing something” with it?

      • Kizedek

        No idea. But I certainly don’t think they are out of ideas or up against the wall, waiting for some epiphany to drop out of the sky — which is what many seem to believe. At the same time, they aren’t going to drop 12B on a large acquisition and sell it for a loss the following year.

      • bluger

        “Does anyone realize what Apple could do with anything if it threw 16B at it?”

        For what it’s worth, this is exactly the argument people used as Microsoft started to stall. Indeed, the same argument was used when RIM had a fat bank account and people started pointing out coming troubles.

        “They have lots of money, therefore success is assured.”

        Does anyone think Apple isn’t trying? That they aren’t beating their heads trying to make a wearable or home entertainment solution that will be the next trillion dollar product? Of course they are. This plateau has been obvious for years, and here we are, talking about it, instead of talking about how Apple busted open yet another market.

        Apple might do great things, or they might not. But having a big bank account in no way guarantees anything.

      • funnyjoke

        “This plateau has been obvious for years”

        Haha, good joke.

    • Space Gorilla

      “until we see the next shiny object” That right there is why many people (analysts included) don’t understand Apple. If you really think all Apple is doing is making shiny objects, I can’t take you seriously.

    • manipulation

      Where do you see an argument for “manipulation”? Everything written on this site broadly agrees with you and you appear to be arguing against points nobody made.

    • obarthelemy

      The concept of luxury in the IT market in recent. Even early Macs were not so much luxury items as hardware+software UFOs. The fact that Apple are alone in that niche doesn’t help legitimatizing it either (is that a word ? It is in French but the English version looks weird).
      I’m guessing Wall Street will catch on once the iPhone situation is stabilized (having a product at 50% market share in some markets, and at 10% in other similar markets rises questions), and if/when another or two luxury suppliers (Microsoft ? Nah, they’ll lose their nerve and go for volume) pop up.

      • charly

        So lets predict the luxury brands in 4 years.

        My guess is Blackberry, Sailfish & Meizu. None sells phones iphone priced phones now.

    • http://loewald.com/ Tonio Loewald

      When has Apple’s valuation been “frothy”? Was it when their P/E ratio was 10:1? 14:1? Because I don’t think it’s been higher than that.

      Contrast this with Google, a company in a market which has had serial “golden boys” (Yahoo, Altavista, Lycos, Excite) each of which has been trampled under and destroyed with little advance warning which is priced as though it’s a sure thing.

    • Alex

      ” until Apple can show that it can move the needle on growth.”
      That should never be the final objective for Apple.

    • Merckel

      “Things got frothy…” and “Yes, the PE ratio is low…” Irreconcilable.

      The P/E was (Sept 2012) and is (today) low.

  • alj_disc

    I find this article premises misleading.

    What the first chart shows is the result of a commoditized market, where prices are falling sharply to residual value, and once there stabilize.

    but aggregating PC and peripherals is mixing bananas (x and oranges

    • Walt French

      “…the first chart shows is the result of a commoditized market, where prices are falling sharply to residual value, and once there stabilize.”
      During the last 16 years, PCs have been utterly driven by the Wintel consortium, both of which grew an already-huge market share. That’s the antithesis of commoditization (where all sellers offer an utterly undifferentiated product). Pretty clearly, the mother board’s support chips, memory chips, disk drives and other components also came from extremely competitive, but leapfrogging firms. Finally, the nameplate is not a commodity either, as customers latch onto brands for signals about quality and value, too.

      Net-net: no, consumers still actively choose brand and features in PCs.

      “Apple being a premium brand don’t participate in the race to the bottom, but what really surprises me is that no PC maker (Sony tried with Vaio line) was able to at least step in the range between the bottom feeders and Apple.”

      Half of selling PCs is selling thru what Jobs called “orifices” at Enterprises—the IT mavens (a phrase that had to have been calculated to insult). Especially in early years, a lot of home purchasers used PCs in their day jobs and worked with similar hardware at home. Sony, which at the checkbox level had undifferentiated products and higher prices, was disadvantaged.

      One of the early comments I heard from Cook was that Apple acted as a Systems Integrator with its products, whereas buying components off the shelf explicitly requires that expertise by the buyer, and even a lot of the “will this printer work with this version of Windows on this hardware” questions required expertise/access that most individuals don’t have—and that Sony, as a niche player, imposed more angst on their customers. I agree that the Sony hardware was always beautiful, but there were always the nagging questions about compatibility, availability of replacement parts, etc. Quality of a consumer product is a lot more than a well-built, attractive design.

      • obarthelemy

        The funny thing, a lot of that angst applies to Apple hardware too. Getting software, peripherals/drivers, and hardware upgrades is a delicate proposition, when not borderline superhuman (the tutorials on upgrading some iMacs’ HDDs are downright frightening, I’d rather change a screen on a phone ^^

      • http://www.laugh-eat.com/ kyron

        normal consumers (of the iMac) never, ever upgrade its HDD. that just isn’t something that would even enter the minds of normal non techies.

      • Marcus Mendez

        yes, you confirmed you’re iq level.

    • DoctorMemory

      Arguably Lenovo/IBM does just that. The ThinkPad series has a vastly different asthetic than the MacBooks, but it has an asthetic, and there are people who like it.

  • Marcus Mendez

    This a silly argument. On average the market isn’t wrong, so unless apple creates/buys new categories then their margins will deteriorate . That said when the market is wrong, it can be by a lot. The market doesn’t know what it doesn’t know, so they can’t really price unseen innovation, but right now they don’t seem to be overly impressed with Cooke. Cooke and jobs were dynamite. Cooke and Ive are still to be determined, but so far we’ve seen a lot of petty politics and continued evolution of successful products( a few I own ). The reality to me are macs like iPhones are a niche and very profitable market.
    To me pc video cards are sort of similar. Nvda has been able to carve out a niche out of a market that most people don’t care about. Frankly , if there is one lesson apple has taught is that you don’t always need the most market share, just the most profitable. Further, consumers aren’t stupid at the High end and they won’t buy crap. On average apples products have higher costing components, artisan like craftsmanship, at a bargain price( relatively) that tempts most even if they can’t afford or justify it. Cooke gets this and the data you show is consequence not a predictor or cause .

    • Alex

      “On average the market isn’t wrong, so unless apple creates/buys new categories then their margins will deteriorate”
      Why? Have their margins deteriorated so much on the Mac? They could still be a very profitable company from the Mac only.

      • Marcus Mendez

        The market doesn’t care about current margins, but future margins. But there isn’t one number right. This is not something that gets proven by some thesis on stock valuation. One big debate is really growth vs value, can apple continue to grow the top line. Any way i think as a user of apple products, which I am, and i think this is particularly important given that at the end of the day, we/ i am the target market, at what point do i believe that i’ve got the ultimate phone. That maybe i don’t even want a phone at all. What if someone else creates this future or if the market just stagnates and all these things are just commoditized pieces of glass and silicon. Why will apple be able to keep their margins/sales in such a future? This is the future that google is trying to create and it is an eminent threat to apple as the premium device (bauble ) maker in the world.

      • http://www.laugh-eat.com/ kyron

        again, the sort of commodization you’re describing happened to the PC market yet Mac survived. iPod too. happening now with iPhone. this is a pattern…they are doing something others are not.

        your hypotheticals are pointless. apple has shown that they can continue to operate this way in the face of competition.

      • Marcus Mendez

        that i am talking about? That’s just the point, i am not talking about it, the market is. Why do you think carl icahn thinks the stock is undervalued, and not trading at google multiples. You sound like an apple fan boy. Apple is priced like company that has like zero growth, perhaps declining growth, just milking to the cow. good luck with your opinions.

      • http://www.laugh-eat.com/ kyron

        your mom sounds like an apple fanboy.

        see what I did there?

      • Marcus Mendez

        DUK energy PE 16.50 , 2014 PE EST 15.65
        AAPL PE 13.13, 2014 PE 12.24
        fine so there is growth there, but why does apple have a lower pe than a utility company paying a 4.3% dividend yield.
        On the other hand, google has a PE of 33 , 2014 estiamte of 22.86

      • Marcus Mendez

        actually i can answer my own questions ,but looking at market data is a skill most people lack, but please go and buy your next iphone or better , yet go read a book and start reading market data atnd stop being a yuppie like most people.

      • http://www.laugh-eat.com/ kyron

        “go read a book … atnd stop being a yuppie like most people”

        stop being a Young Urban Professional (yuppy)? like most people? I have no idea what you’re trying to say. I’m assuming English isn’t your native tongue.

      • http://www.swift2.blogspot.com Swift2

        Yes, “market wisdom” is generally nonsense. Traders trade beans. They don’t actually make anything. And they love to think they’re wise. People buy the computers they want. They will pay what they think it’s worth, whether it’s a Mac or an iThing, Apple keeps an existing device the same price over the years, and add RAM or SSDs and other new features to keep the price from falling. And they enter new fields and have a record of huge hits to pick up a major jump.

      • Alex

        Exactly. He is basing his reasoning on hypothesis without proof, ignoring the evidence of what’s happened in the past.

      • Alex

        I have to tell you it’s really hard to read your comment as its structure is kinda special.

        Anyway, if what’s important is the future, there is no indication that the Mac will deteriorate that much. It hasn’t in the past few years, and there is nothing major that’s coming that might change that. Wearables certainly aren’t going to disrupt it.

        So again, if you say that we don’t know what the future holds, the most reasonable thing to expect is that Apple’s margins won’t deteriorate, not the contrary, unless you have evidence that it might.

      • Marcus Mendez

        I hear your point. The question is this perhaps. Is the iPhone the iPod? nothing last forever. The valuations imply it is. Let me give you another example, I for one got upset years ago that i paid for text separate than data on my at&t phone plan. I thought about things like ting.com and I eventually switched to tmobile, partly because i was just tired of being had and partly because tmobile was providing a credible alternative for my usage habits. Mind you I had at&t since the first iPhone. This business is worth billions to the major telcos, at least in the US. Now it is interesting that with iMessage apple attacked this high margin business from telecom companies like at&t by providing a free alternative, but only if I both users are on apple devices. Let’s also not forget that the original plans on the iPhone supposedly had envisaged a future without the wireless telecoms. Fast forward to last week and FB buys whatsapp (texting for free essentially ) for 16b and people can’t understand the valuation. In other words, users didn’t really want to pay for something they can get for essentially free or that they were double paying for (text is data or the world is data ). I argue that all technology evolves to commodity more or less and the margins will erode. We’re just not be able to tell right away where the substation effect is going to come from. Another personal story is I have close and young member of my family ( a millennial ) and texting is far more important than voice as a medium of communication. In what’s app it seems fb bought a telecom co for cheap. If your telecom wireless provider, you ought to wonder at what point will people eventually stop paying for text. It was the golden goose that they milked for too long.

      • Marcus Mendez

        i will add that i am not addressing the apple mac business, i think the hardware sells well for reasons i stated earlier, but take a look at the http://macperformanceguide.com. Lloyd chambers does a pretty good job of pointing out crucial technical areas where apple keeps dropping the ball. I am photographer when it suits me, and i have about a terabyte of photos that i think i would like to manage and edit on the new mac pro, which is exceptional hardware, barring the storage limitation, but Lloyd has been making the case for some time that apple is dropping the ball on osx. At some point if the core is rotting the bottom line will fall out.

      • storage

        That whole site seems to just be screeds. Get external storage.

    • Greg ZX

      “On average the market isn’t wrong, so unless apple creates/buys new categories then their margins will deteriorate .”

      Your logic doesn’t follow. Just because the market isn’t wrong ON AVERAGE, doesn’t mean it is correct for all companies all the time. Apple is not an average company.

      • Marcus Mendez

        I am confused as to what you are objecting to, but you’re missing the my main point it seems. Yes, like the cliche from sam savage’s book, ( the flaw of averages ), plans made on average on average fail, i am not actually trying to make a qualitative statement on apple based on an average. And if i did, which average did I use for you to disagree with? An average is a number by definition and I gave no numbers…I did not say that apple is not exceptional or that they are not profitable above the norm, or that Cooke/Jobs have found a clever and obvious way to make them insane amounts of profits partially thru global wage arbitrage. What i am saying is that in generally, I respect the market, and more times than not, it is right. If they are right, what does it really say about apples future or their enthusiasm on unreleased products. I am also from the Munger side when it comes to predicting the future prospects of a company. That is management matters, and that there is a lack of buy in by the market on Tum Cooke as the future of apple. These are my opinions, take it for what it’s worth.

      • http://www.laugh-eat.com/ kyron

        “take it for what it’s worth” – which is not much. record quarter last. as it has been for years. they seem to be doing pretty ok.

      • aardman

        What do you mean by the market being right or wrong? How do you even know that the market is right or wrong? Are you saying that the average, because it is the average, is necessarily right? You realize that the market can be wrong all the time and yet on average it is right, don’t you? And that presupposes we have some way of knowing what is right. I think what you mean is the market gets it right once it is able to look backwards, but that’s not exactly the critical perspective, right? It’s looking ahead where all the interesting action is.

    • the Ugly Truth

      huh?

      if the market isn’t wrong…why doesn’t the market know what it doesn’t know?

    • aardman

      I wouldn’t exactly characterize the iPhone as a ‘niche’ product.

  • http://www.appleoutsider.de/ AppleOutsider.de – Sebastian P

    Horace, you can’t label the “Mac Volume” with “millions of units” while having descriptor numbers on the y-axis like this. Right now that graph gives the number of macs in Q4/2013 as 50,000 millions of units. That would be 50,000,000,000 Macs.

    Even if you take the y-axis description in the European sense of the comma, it would still be 50 million Macs.

    If I’m not wrong you want to depict millions (as you described it). The correct way would be to label it “Mac Volume (hundreds of units)” since 100 times 50,000 is 5 million.

    Oh and as always: nothings you write here considers earnings. I mean it’s neat that a Mac is three times as expensive as a regular PC but that says nothing about the earnings per Unit. I mean we all THINK we know how much the Chinese makers of those cheap PCs make, but do we REALLY know? No we don’t. Our gut feelings tell us that Apple earns more per Mac than a maker of regular PCs but then again Apple’s share prices are dictated by gut feelings as well so… ah whatever…

    It’s just curious that you keep banging the “revenue” drum like crazy when in the end what counts is earnings. And you don’t talk about earnings. At all. All the time.

    Yet every time Amazon is criticized here and elsewhere, you chide them for not being profitable.

    But uh, look at those revenues! HUGE! REVENUES!

    But again, whatever. I mean 91 comments and not one noticed that labeling error. It’s as if all your readers care about is numbers. You kind of have to question the way people read your site if you ask me. To be honest to me it feels like watching people watch Fox News or something. They want something to be true and there are graphs so hey – awesome. My preconceived notion is affirmed so everything I just read is awesome.

    I mean the sheer fact alone that the “30 year old mac” was also there in 97 when the company nearly went bust… ah whatever. Everything’s awesome so Macs are awesome.

    Awesome.

    • cheng

      Sebastian I think you need a break from picking at errors in Horace’s graphs that aren’t there and drawing incorrect conclusions from them. May I suggest a beer?

      • http://www.appleoutsider.de/ AppleOutsider.de – Sebastian P

        5000 Million = 5,000,000,000

        Understand now why I deleted it?

        You guys are basically blind to the most obvious things. It’s useless to criticize here it’s like telling… ah forget it.

      • cheng

        everyone else seems to be satisfied with the graph, i think you might be the only one who misunderstood it.

      • http://www.appleoutsider.de/ AppleOutsider.de – Sebastian P

        Yeah, technicalities be damned, right?

        Just let me add this tidbit: what did the Mac cost in 1997? Round about before the company went bellyup? And what was the profit margin back then?

        Commenting here feels like running into a church. I know – you guys all understand. And if something’s off, you’ll just fill in the blanks.

      • cheng

        If there’s a technicality that is bothering you, take it up directly with Horace instead of posting it here and adding sarcastic statements that have little to do with the topic.

        As for running into a “church,” you have your own blog right? Why don’t you post your own analysis instead of pointless statements like “it’s useless to criticise”? I’m sure you’ll find enough people that will agree with you there, since people here just don’t get it.

      • http://www.appleoutsider.de/ AppleOutsider.de – Sebastian P

        Couple of points

        1) I think Horace read what I wrote and then deleted so he knows it
        2) if you’d read my blog you’d know your remarks regarding that are moot
        3) if you think that the price of a Mac then and now doesn’t have anything to do with the topic then *drumroll* THERE YOU GO. Exactly what I was getting at. There’s no way anyone who’s reading Asymco is going to spend any time actually thinking about critically comments because
        10 Horace is right
        20 goto 10

        That’s why I deleted my comment. You’re not going to even try to think about my statement about the price of Macs back then and now. How hard was that to get anyway? Macs have been priced at a 2 to 2.5 ratio to regular PCs back when Apple was close to going bust and they are priced the same way today. How that is NOT pertaining to the friggin blog post is beyond me.

        The differene between then and now is not that the price is actually right but that just like Breitling watches or Porsche 911s, Apple Macs have ALWAYS been priced like this and always will be priced like this because Apple is selling a brand and that brand needs to have the feeling of being something higher class. That’s not a criticism of Apple but to me it’s a given. Saying that today the “price is right” to me is… I don’t even know what it is… it feels like looking at data and desperately trying to find a narrative for a blog post and then hammering the data into the right form so people can look at it and go “Wow, he’s right”.

        It’s like going to church or to a card reader in the way that you already know what you want to here and lo and behold here you get it. Exactly what you want – the feeling that the product is priced right because look at the data – people are buying in droves.

        To me, the price ISN’T what the data reflects. That is my whole point. To me, the data reflects the changes in the company in that FINALLY after decades of putting mediocre products for the price on the market, with OS X and Laptops with an insane running time (battery life), FINALLY the products fit the bill of these prices. “Caring about the product” also isn’t a factor to me. I just don’t see the data fitting ANYTHING of what Horace wrote but hey, that’s just me actually thinking about the topic at hand.

        Oh and another angle would be that people are buying Macs because they never would’ve thought about getting one if not for their iOS devices but what do I know. Something Gruber said three years ago.

        But hey colorful graph is colorful. So data. Much impress.

      • incomprehensible

        Why did you delete your post and then continue to defend it, leaving this whole comment thread completely incomprehensible?

      • http://www.appleoutsider.de/ AppleOutsider.de – Sebastian P

        I didn’t wanted to be derided. Or trolled. Or whatever. I thought Horace
        gets the notification about my gripes with the post and that would be
        that.

        Apparently cheng read what I wrote in the first three minutes it was online and chose to comment.

        Most of it is now in the answers to cheng, the “5000 Million = 5,000,000,000″ bit is about the graph which has the number of Macs as “millions of units”. With the vertical axis being labeled “thousands of units” and the graph showing the number of Macs sold being between 1,000 and 5,000 following graph labeling conventions this would mean there were up to 5,000 “millions of units” sold and 5,000 millions is 5,000,000 * 5,000 and that’s 5,000,000,000

        Anyway, don’t bother with this thread anymore, I said my piece and it’s ok to ignore it now.

  • Johan Du Toit

    Sigh. The premise of this article and these graphs is completely wrong. You state that hardware prices fall over time. This is a misinterpretation of the law of commoditisation. It is also a complete misinterpretation of Apple’s business model: Apple isn’t just a hardware manufacturer. The iOS and OSX ecosystems are Apple’s products, not hardware. Apple is the only company on earth that sells these clearly differentiated products while the rest sell hardware. They are thus alone in their market, commoditisation does not apply and your data is moot. Apple does not sell a homogenous product and thus they are more akin to a monopoly when it comes to market forces. Furthermore, looking at a graph about the averages in the hardware market while discussing Apple is misguided at best. We all know Apple doesn’t sell average products they sell premium products. Therefore if you DO insist on comparing them to this market, you should compare them to the premium segment of the market only. I don’t have the data on hand, but I’m sure if you compare them to only Alienware or only Samsung’s flagship devices the graphs will match up more closely. I really feel you should make sure you understand the fundamentals of market laws better if you plan on writing articles about market trends. These concepts are explained well in University level Economics classes worldwide.

    • azazello

      Replacing ‘Sigh’ with ‘IMHO’ in your post would _genuinely_ benefit the inherent tension between its insolent professorial tone and well-concealed agreement with Horace’s point.

      • Johan Du Toit

        Yes I have to admit, the tone was condescending and mean and I apologise for that, I was having a really really bad day when I wrote it and I am generally frustrated with the quality of journalism that gets regarded as authority pieces on market behaviour and especially how it applies to Apple. I still stand by my arguments though and stated them a bit more succinctly and less emotionally on one of my new comments above.

    • Space Gorilla

      I have to assume you haven’t read many posts on Asymco. Do so, then come back.

      • Johan Du Toit

        No I haven’t and after reading this I’m not to keen on reading any further. Care to give me a spoiler on what I’d find?

      • Space Gorilla

        If I understand you correctly, you’d find yourself in agreement with much of what is written on Asymco. Some articles are based on conventional analysis in order to show how Apple ‘breaks the mold’. Most here understand that, excepting the regular trolls (charly, obarthelmy, and others). You seem to be misinterpreting one article, stomping your feet, and walking out of the room in a huff.

    • http://www.laugh-eat.com/ kyron

      that word, monopoly. I do not think it means what you think it means.

      • Johan Du Toit

        I know exactly what monopoly means thank you. It describes a company that is alone in it’s market, thus has near full control over pricing. Do you know what it means?

    • http://www.laugh-eat.com/ kyron

      you have it backwards — apple’s ecosystem exists to enable selling more hardware. the hardware is not a side effect of the ecosystem.

      • Johan Du Toit

        All the evidence in this post points to me having it exactly right. The hardware is the gateway into the ecosystem, the ecosystem is the product. Thus Apple is not selling a commodity, thus explaining all the market behaviour surrounding their products, thus proving that Apple is not some magical force that causes everyone to go nuts and all economic theories and rules to fly out the window.

        Ockham’s razor applies.

    • kart_125cc

      True – it would be like trying to glean something by trying to draw comparisons between any luxury brand and trying to draw similarities with their “common folk” equivalents. For example, brands like Coach and Gucci swim in their own markets because they target a different segment of the buying public than their “common folk” counterparts. So trying to draw similarities consumer trends between them is comparing apples and oranges – they aren’t necessarily competing for the same consumers. And we know for example, that luxury brands are NOT following the same market trends as “common folk brands” as luxury brands are doing quite well because the wealthy are doing quite well, unlike the “common folk” space.

      So kyron you have it backwards – it’s not about Apple’s business strategy (ecosystem or hardware) its about the _product_ people are buying. And in the case of Apple, it IS the ecosystem that that Apple has produced that people are buying into. That is people aren’t buying just the hardware, they’re buying into the whole Apple ecosystem. And that’s a different type market than people who just buy a piece of PC hardware. And where the product and market is “the Apple ecosystem” that is distinct from PC hardware, then yes Apple is a monopolist in that market. If you want to buy into the Apple ecosystem as a product, there’s only one game in town and that’s Apple. If you want to buy in the PC market there are a number of players to choose from.

    • Walt French

      @johan Du Toit wrote, “Sigh… You state that hardware prices fall over time. This is a misinterpretation of the law of commoditisation.”

      Well, of course, commoditization doesn’t just happen because of time; it is caused by producers seeing an opportunity to gain business by producing an undifferentiated commodity. But especially in a business with rapidly-changing tech, businesses have to learn how to produce the new state-of-the-art products, design them, and ramp up production. All that takes time, so commoditization happens over time.

      Or maybe I’m misinterpreting what you call the “law of commoditisation.” — Google dished up articles about commodities law and “how to keep your law practice from being commoditized” so please feel to express what this law represents if NOT the notion that disruptive changes are eventually suffused through an industry.

      So no wonder you’re exasperated that we don’t get it: you’ve skipped the point you think we should understand.

      • Johan Du Toit

        I am referring to commoditisation. You can take the law part out if it bothers you. Commoditisation almost always happens over time and not instantly, yes, but I’m a bit confused as to your point?

        To put my point a bit more succinctly and without all the snarkiness: 1) New markets tend to become commodity markets over time, that does not mean Apple is competing in this commoditised hardware market by default. 2) Apple alone sells their ecosystem. The market behaviour proves that customers believe this is a clearly differentiated product alone in its own market 3) Thus all the market behaviour around Apple products is completely normal and not breaking any rules or universal laws, as Apple should be analysed as a Monopolistic company not as a company competing in a commoditised market.

      • Space Gorilla

        You really should just take some time to read other articles on Asymco.

  • aardman

    I’m a little disappointed with Mr. Dediu’s analysis here; he rarely makes glaring omissions of the sort he commits here. The Windows PC as a whole remains more profitable than the PC manufacturers’ numbers belie. It’s just that the profits are siphoned off by Microsoft. Yes prices of Windows PCs have been on a steep downward trend but this is mostly from the vicious, cutthroat competition among the hardware manufacturers. What is the trend on the price of Windows itself?

    We should also note that Apple fends off downward price pressure by ramping up hardware specs. e.g. Instead of cutting prices, they’ll raise the RAM or storage, or shift from HDs to SSDs.

    • Kizedek

      I thought that was rather the point of the article.

    • Walt French

      But you’re actually missing the point WORSE by claiming the Microsoft tax leaves the profitability comparable.

      IF Microsoft gets $80 per OEM Windows license (and IIRC the number might be half that) and IF they’re still in the stratospheric 90%+ gross margin, then that’s $72 per device — tops.

      In contrast, we see the Mac at around $1250 ASP, with Horace’s estimate of 26% gross margin, yielding $325 per device.

      Microsoft may be capturing all the PC profitability, and at its huge 90%+ share of the desktop, that’s a huge business. But on a per-unit basis, the PC yields less than a quarter of the profitability.

      I’m not sure why you think it relevant that Macs regularly get spec upgrades. You simply can’t buy, because nobody bothers to build, a desktop machine with leading-edge specs from 2004. A simple glance at the weekend ads from Best Buy shows i5 or i7 processors, multi-GB RAM, etc., that was too expensive a few years back, but that customers now find worth the modest extra expense.

      • charly

        The price of an average Windows PC is something like $600 so Windows gross profit alone is 13% of the price of a PC. Add the higher gross profit of components and there is not so much difference between gross profit of a Mac and a PC

      • Walt French

        Now I think you’re deeply into Apples & oranges. Gross profit of components? To the extent that they are very similar for a given level of quality, there should be no reason to add those to one platform but not another.

        The story still stands: 13% of a $600 PC is a quarter of 26% of a $1250 Mac. Add in the little gross margin at the manufacturers, and it’s still a lopsided contrast.

      • charly

        Nvidia makes more money on their chips sold to PC makes than to Apple. Especially the mom&pop operations are much more profitable for Nvidia than Apple.

        ps. According to the Guardian article PC ASP was $544 though by looking at only the top 5
        Mac ASP was $1200 but they include more often a screen

      • charly

        According to the article this post belongs to the average price of a PC is even less at $544 though that is probably due to it including Acer/Asus who’s PC’s are mostly sold in the low end while not including the boutique high end PC sells.

    • Seekoei

      “What is the trend on the price of Windows itself?” — What, like the 70% drop in OEM price they announced yesterday?

      • sub

        * For computers that sell for sub $250

      • charly

        Remove the dvd, shift from HDD to SSD, be low on RAM and go Atom add the end of XP and you will see a lot of desktops (Or should i say minitops) around April/May priced sub $250