Apple's Secret Weapon To Influence Industry Pricing

Hugh Pickens writes "Nick Wingfield writes in the NY Times that Apple's present pricing strategy is a big change from the 1990s, when consumers regarded Apple as a producer of overpriced tech baubles, unable to compete effectively with its Macintosh family of computers against the far cheaper Windows PCs. Now within the premium product categories where Apple is most at home, comparable devices often do no better than match or slightly undercut Apple's prices. 'They're not cheap, but I don't think they're viewed as high-priced anymore,' says Stewart Alsop. Winfield writes that Apple uses its growing manufacturing scale and logistics prowess to deliver Apple products at far more aggressive prices, which in turn gives it more power to influence pricing industrywide, and one of Apple's pricing secrets has been it's willingness to tap into its huge war chest — $82 billion in cash and marketable securities last quarter — to take big gambles by locking up supplies of parts for years."

Screen size/resolution lock?

[Hadlock]

to take big gambles by locking up supplies of parts for years

I've heard that the reason you see so few 9.5" "ipad size" tablet displays is that Apple bought up the entire stock. This is also why the iPad 2 had the same resolution as the ipad 1, and why the Android tablets are mostly stuck at 7". Can anyone confirm/deny this? Or explain that better. My knowledge of LCD manufacturing plants and capability is minimal, to say the least.

Tablets aren't actually useful, though.

[Anonymous Coward]

The whole tablet phenomenon is a fad. It was basically created via media hype, and the willingness of many of Apple's customers to buy just about anything with an Apple logo on it.

Despite millions upon millions being sold, very few people actually use tablets. Once the novelty wears off, it becomes obvious that they aren't practical at all. They take the worst of smart phones, without any of the benefits, and combine it with the worst of netbooks, without any of the benefits. Sure, the tablets look interesting, but after you buy one and try to use it you find that you're better off using your smart phone or your netbook. That's why despite so many being sold, it's extremely rare to see anyone actually using one.

The fact that there's basically no real demand for tablets is exactly why no other company besides Apple has been able to produce a successful competitor. There are many other tablets out there that are technically equivalent or superior to Apple's tablets, but nobody wants to use them, leading to situations like the one with HP where they liquidated their stock an unprofitable prices.

Contrast this to the uptake of useful devices like PCs, laptops, netbooks, PDAs and smart phones. People actually wanted to use these, so we quickly saw many viable devices from many vendors appear. Since the demand was authentic, these devices have had staying power. This just isn't the case with tablets. The tablet fad will likely be over by the summer of 2012, if not completely by early 2013.

can these posts be proofread, please?

[Lazy Jones]

as a non-native speaker, I find it painful to read "it's" instead of "its" in almost every /. post ...

Re:supply chain dynamics

[MichaelKristopeitBro]

Incidentally, how well are Macs selling these days? Has Apple gained marketshare @ the expense of PCs?

Every quarter for about six years now IIRC.

Re:I'm having trouble

[Dunbal]

Samsung doesn't have a religious following, nor people camping out in tents to buy products on release day AFAIK. Of course you are going to sell your product near (but slightly under) the major competitor's price, that's only common sense. Why throw away the chance at extra profit? Of course what would be really cool is a 3rd company coming along and selling a similar product for half. That would blow both of them out of the water, and force a price war - like happened in the PC market. I remember the $5000 PC. The price is now 20% of what it used to be, despite inflation.

If I read your point further, you are saying that Apple should be forced to build their phones in the US.

I never said they should be forced to do anything. I said they probably could make them in the US. What gets me is that most consumers think they are "buying American" when they buy Apple, when in actual fact there is not much here in America apart from some offices in Cupertino and pimply teenagers at Apple stores. What I don't get is that Japan - with incredibly high labor costs and costs of living - manages to continue to be a manufacturer. As does Germany. Yet the US seems to be completely incapable of doing this. At one point buy the damned robots and upgrade your plants, you know?

Re:True for tablets, not computers

[DJRumpy]

Agreed. The 27" display in the higher end iMac is probably one of the best that I've owned. One of the first LED's that I can only increase the brightness about half way or it feels like it's burning my corneas ;)

Not only that, but these are manufacturer's we are talking about, not 'parts' places. It never ceases to amaze me that the technical folks here on slashdot can be so 'dumb' about basic economics. When a vendor sells you a PC, it has more costs to consider than just selling your a card, or a cooling tower, or a PC case., or a power supply. They have entire infrastructures to support, service contracts to maintain, advertising, facilities for stocking, vendor contracts, end user support, etc. Any geek who's built his own PC knows you can build for cheaper than you can buy a whole unit most of the time, yet they always hold this up as some sort of ding to Apple while ignoring what they already know to be the same for HP, Sony, Alienware, etc.

Buying individual parts from some piece mail online vendor like TigerDirect will never compare to a manufacturer's prices. They are two entirely different supply models. The still persistent claims that Macs are 2X and 3X more expensive than other offerings are just as ludicrous. Spend any time on HP, or IBM, or Sony's site and price out models and they generally come out to about the same price. In general they have a relatively level playing field in the PC market, and their prices reflect that. Factor in the OS costs, which are always extra, and the generally poor quality (read: plastic) crap that some of these folks shovel out and they are simply not worth it. It was a different game was the Desktop was king. Now with toss-away laptops, the game has changed, and buying cheap just isn't cost effective if it breaks in 1-3 years. I went through 2 HP's, 2 Sony's, and a Compaq (pre-HP takeover) with none of them lasting more than 3 years. The first Apple laptop I bought 4 years ago is still in perfect working condition, although I did wear out the power cord @ year 3 ($59 bucks). The sony's both ended up with broken USB ports and one had a power connector failure on the board side. The HP hinges broke, and the Compaq just failed outright (motherboard failure). That's the primary reason I switched and took a chance on Apple 4 years ago and I haven't regretted it.

Regarding tablet/phone market, that is another animal entirely. We know that Apple leverages it's extensive buying power to sew up vendors for goods like touch screens, batteries, memory, processors, etc. Buy in bulk, get em cheap, and get long term contracts. These do give Apple a price advantage. In the end, Apple is able to offer very good quality hardware for prices others are finding hard to match. The tablet wars are a good example of this, where each has tried to match or beat the price of an iPad and failed since their product was considered comparable, but at a similar price, or even priced higher. Given those choices, people went with name recognition and word of mouth, and frankly Apple has good brand recognition among non-technical folk.

Re:Tablets aren't actually useful, though.

[rocketPack]

I concur with what you're saying, and I have a couple of points to add:

• Manufacturer support for a given form factor is a huge decision-making factor! Nobody wants to buy into a platform and see it dropped the next month. I would argue that Netbooks were the fad, NOT tablets. I never felt like Netbooks were here to stay, but I get the impression that the current generation of tablets are.
• I believe that one reason people jump on any given bandwagon the moment that Apple gets on is related to my first point. Apple doesn't commit to designing and selling one-off products for short runs. They don't "test" the waters, they jump in head first. If they hit the bottom (MacBook Air) then they cut their losses and move on (iPad), but I think people feel something along the lines of: "OK, Apple is investing in this [form factor/technology/concept], so if I buy one too - whether or not it's Apple's - it won't be obsolete next week." Look at the iPod. Not the first MP3 player by a long shot. But since the iPod, almost every MP3 player has attempted to replicate the form factor and functionality. I know people with 5+ year old iPods. They still work, they still use them, and they still LOOK relevant in today's world. They are to the '00s and '10s what Sony was to the '80s and '90s.
• If the iPad, Kindle Fire, Nook Tablet, Motorola Xoom, etc. are apples [no pun intended], then things like the HP Elitebook, Acer Iconica, etc. are oranges. For that matter, Netbooks are bananas. There is NO appropriate, fair, or accurate comparison.
• Is an iPad wonderful for running the numbers on your latest contract and conducting a cost/benefit analysis? No, it's horrible. Is a Kindle Fire the best place to code your latest FPS? God awful is what it is (for that). What a more wonderful place to relax and enjoy some casual computing than in an environment where it's completely impractical (if not impossible) to be distracted by work? I think people are trying to tell computer manufacturers: we get it, computers can do a lot, but I don't want every device I own to be capable of doing any computing task! I want work-life separation.

I feel like I've made my point, though I could go on. In the interest of full disclosure, I don't own a tablet (by any definition, or a Netbook). I have used them, I have talked to people who live with them every day. They don't work for me and what I do.

Re:Secret weapon?

[bennomatic]

Don't forget their other secret weapon: design products that people want to buy, with a focus on the consumer rather than channel partners who tend to make short-sighted decisions which hurt everyone in the chain.

Re:Tablets aren't actually useful, though.

[Taty'sEyes]

I thought this too, until I spent some time in the airport people watching. I was flying to Ukraine and I sat next to a gaggle of older women (late 40's, early 50's) and two of them had ipads. The other four women could not stop commenting on how they had to have one because these other two where able to show their photos and emails from their beaus, and maps and information relating to the company this woman's son was considering an offer from. And then photos of him and his awards and newspaper articles about how well his school was doing in football.

Watching that interaction completely changed my mind about the lifespan and usefulness of tablets. I still don't own one, but now I understand their market.