What Apple Laptop Pricing Means to Windows OEMs
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News Analysis. The much hullabalooed MacBook and MacBook price cuts didn't come yesterday. That's good for Microsoft and its Windows partners, right? |
Maybe, maybe not. There is still too much uncertainty about how the slowing economy will affect holiday 2008. Early signs aren't good, but there is still the U.S. presidential election between now and Black Friday, which traditionally kicks off the holiday buying season. New leadership could greatly calm fearful consumers and investors.
Not that the stock market offers any confidence. The Dow lost 733 points today, pulling down most major tech stocks, including Microsoft, whose share price closed at $22.66, down 5.98 percent. Stocks fell on government reports that consumer spending declined 1.2 percent in September. Honestly, these financial analysts need to get out of their Excel spreadsheets and into the shopping malls. People are spending money.
Apple sure isn't panicking. Rather than wildly cut prices, as was predicted, Apple chose to stay the course through stormy economic seas—and plow ahead, even. For now, the entry-level price for new MacBooks is higher than their predecessors, while MacBook Pros cost the same as before.
Don't Panic
Windows OEMs should follow Apple's lead. Now is not the time to set off fire sales. Pricing panic now is sure to cost in margins and profits later on. By keeping firm, and even raising prices, Apple bets on a good holiday 2008 while leaving plenty of legroom for lowering prices if necessary. I would encourage Windows OEMs to do likewise. Slow October and early November sales can be recovered in December. It's easy to panic with a short holiday selling season ahead. Black Friday is Nov. 28 this year. Panicky price cuts will be costly later.
Microsoft is running its "I'm a PC" commercials every night and taking localized versions to other markets. Microsoft's $300 million marketing campaign is air cover for holiday PC sales. Seriously, Windows OEMs, make the right use of Microsoft's marketing and don't devalue your computers with bloody price cuts. Don't give in to economic fear.
Apple's pricing strategy is brilliant, if for no other reason than its riskiness. I didn't know these creative types had such guts. The new aluminum MacBooks will sell for $1,299 and $1,599, putting them way above average retail notebook selling prices. According to NPD, during summer, Windows notebook ASPs were $694, compared with $1,471 for Mac laptops. Apple sells high in a market predominately buying low.
I expect Apple ASPs and margins to dramatically fall during the fourth quarter, as the new MacBook cannibalizes sales of the MacBook Pro, which sells for $1,999 or $2,499.
But Apple's notebook ASPs will fall as sales of MacBook against MacBook Pro. Apple chose to lower prices against itself by making the new $1,299 MacBook nearly feature equivalent to the older $1,999 MacBook Pro. Apple lowered the cost of entry to pro-features rather than price comparably to lower-cost Windows notebooks. Sure, Apple now offers a $999 MacBook, but it's an older model made available to placate all those people clamoring for massive price cuts.
For some Windows OEMs, Apple has done them a huge favor. Two people told me today that had Apple introduced a $900 laptop yesterday, they already would have placed orders. One person is still considering the $1,299 MacBook. The other plans on a Windows notebook. The point: Apple almost certainly could have picked up share faster against Windows portables. But there would have been a hefty cost to the brand and no option to later lower prices if holiday 2008 is a sales bust.
PC OEMs have enough trouble pricing against each other. Lower-priced MacBooks would have exacerbated their problems. Instead, Apple has priced itself out of the worst crossfire. Unfortunately, economic fears will likely lead to pricing panic and a nasty Windows notebook price war in December.
Consumers will be looking for good deals during the holiday buying season, as they usually do. Economic fear will be greater than consumers' pricing expectations, I predict. To repeat: Many Windows OEMs should consider following Apple down the path of holding pricing firm now in reserve for price cuts later on.
Is the Higher Price Right?
Apple has engaged a risky strategy. The company is betting that classy, new industrial design, trendsetting features like LED backlit displays and better graphics chips will pull in people willing to spend at least $1,299. I know lots of people who wouldn't buy either the white or black MacBook that would easily pick up the aluminum successor. Industrial design—that the laptop looks as good as the MacBook Pro—is the benefit; they'll spend $1,299 or even $1,599 to look $1,999 good.
Apple is embarking on a higher pricing strategy for many reasons, but two stand out: continued market share gains against Windows PCs and the sorry state of Windows Vista.. Based on preliminary third-quarter PC shipment data released yesterday by Gartner, Apple's U.S. market share is 9.5 percent, for 29.7 percent year-over-year growth.
During yesterday's Mac notebook launch event, Chief Operating Officer Tim Cook identified six reasons for Apple's success:
- Better computers
- Better software
- Compatibility
- Windows Vista
- Marketing
- Retail stores
I want to call out the last four reasons, which are more important to Microsoft and its partners. On compatibility, Tim spoke about Apple's Boot Camp, which lets people run Windows on a Mac. I've long said that Boot Camp answers the "What if?" question. What if I need Windows for something? "It's removing the fear, just like an insurance policy does, whether you use it or not," he said.
This is important because most people who own a PC have Windows. Their personal and professional computing lives almost certainly revolve around Windows. A move to the Mac means the psychological letting go of something known for something not.
People are looking for something new. They know Windows. The problem with low-cost laptops: They're priced for a commodity market, when first-, second- or even third-PC buyers are looking for something more. They bought a Model T and now want a Coupe de Ville. They'll pay more, assuming, of course, the teetering economy doesn't clean out the bank account. It's those people whom Apple expects to spend at least $1,299 on a new Mac laptop.
Windows Vista should be that most obvious choice. But it's not different enough from Windows XP in functionality and too different when it comes to hardware requirements or nagging security prompts. Vista's bad rap is no secret.
Vista Opens Doors
"I think everyone agrees that Leopard is far ahead of Vista," Tim asserted yesterday. I can't disagree with that. "You may wonder why Vista is on the rails," he continued. "I think it's fair to say that Vista hasn't lived up to everything that Microsoft hoped it would. And consequently, it's opened doors for a lot of people to consider switching to the Mac. This has given us the opportunity, and Apple has been the beneficiary of this."
Apple capitalized on Vista weaknesses through the "Get a Mac" TV commercials. "The Mac-PC has really struck a chord with so many switchers," Tim said. "They tell a story, and people listen."
But they also give people another place to go shopping for a computer—the Apple Store. The company operates 247 stores in eight countries, which serve about 400,000 shoppers each day. "Fifty percent of the Macintoshes they sell are to people who are new to the Mac," Tim said.
Combined, the four items—actually all six—allow Apple to offer a buying experience that is different from purchasing Windows PCs. It's this difference, including higher pricing, Apple will seek to capitalize on during holiday 2008.
PC OEMs could benefit from adopting some of Apple's tactics, even with products already cued up for holiday 2008. OEMs can't get much away from Windows Vista and wouldn't gain much from improving compatibility with Macs. Marketing and retail can be better managed, however. Microsoft already offers great marketing air cover in a way that combats "Get a Mac" commercials. It's not enough. Some OEMs may think they can cut back advertising spending because of the slowing economy and Microsoft's marketing. That's wrong thinking, I say. Cutbacks would cause OEMs to bleed.
The conventional wisdom is this: When economic times are tough, advertise less. It makes more sense, I say, to spend more—at least for big brands. Companies like Dell and HP need to keep brand awareness high so that when people do spend it will be for their products. Brand awareness could make huge sales differences during a shorter holiday buy experience, too. I would be stunned speechless if Apple cut back ad spending during the holidays.
Problem: OEMs have limited control over the retail buying experience. Sony is the only major OEM with retail stores. Circuit City is teetering and Best Buy has bigger sales concerns than computers: There are signs that HDTV sales are dramatically slowing with the economy. I think that OEMs can shore up some of their weaknesses through good, aggressive marketing and by placing more company sales staff in retail stores.
[Please send your tips or rumors to watchtips at live.com.]
Comments (17)
Joe says;
"News Analysis. The much hullabalooed MacBook and MacBook price cuts didn't come yesterday. That's good for Microsoft and its Windows partners, right?"
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Sounds like good news for MS and their OEM partners to me. Had Apple cut prices or come out with a $800 laptop, Microsoft would have been under even more pressure from OEM's and consumers to cut the price of Windows. But while MS is backslapping themselves, consider that the recession is not over, but just starting, and Apple maybe under pressure soon, to make those price cuts. This and still Apple continue to bleed desktop market share from MS.
But here is some really bad news for Microsoft, its OEM partners, and all of us;
Gartner cuts 2009 IT spending forecast
http://www.channelregister.co.uk/2008/10/14/gartner_slashes_2009_it_spending_forecast/
Quote; "Hardware will take the biggest hit, said Gartner, with overall sales dipping four per cent next year. Tech spending in North America will climb a meagre 0.5 per cent compared to a previous forecast of 5.3 per cent growth, according to Gartner."
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Consider that MS is making most of its money off hardware (new computers) by the MS Tax (windows) and MS Office. Expect revenue to fall for MS.
Posted by chips b malroy | October 15, 2008 7:31 PM
I think the Mac will be coming down in price, and soon, but whilst sales are good at the current prices, who can blame them for keeping them stable?
Whilst Ive had no experience with their systems, I consider the pricing strategy a little prohibitive to the "average" user. Macs are seen as trendy,indi,fashionable etc (with, from all reports , a tasty OS that performs as expected) I personally would welcome a price drop, as it makes another alternative more available to the average user.
It is already proved that another company can smash MS out the way with an innovative/stylish product.
Look at the Xbox 360, it had a good while to build up a fanbase (which it did) only to be destroyed by WII and the global hunger for Nintendo's system. Before anyone says that Nintendo was a big player prior, remember that the two previous consoles were not the mega success that they were supposed to be: the N64 didnt have the storage capacity to provide the multimedia in games that the PSX fans enjoyed, and the Gamecube did not have the specs to keep up with the PS2 or the original Xbox.
As much as I hate to say it (being an Linux fan), I dont believe Linux would ever smash Windows off the top spot. Linux has, and always will appeal to those who enjoy learning a system, and "like to get their hands dirty" whilst doing so (although some distros are a good happy medium allowing both the new user and more experienced veteran to get involved)
What I believe will happen is that Apple will further erode MS's stranglehold on the home user. If Mac is able to grab the PC gamer, I believe it will have cemented itself as the market leader.
There will always be a place for Linux, and maybe the users who dont want the nannying of Mac systems nor the lock in bloat of Windows, will go down the Linux route. If Linux was to continue getting a foothold on mainstream business, and Mac was to corner the general "average" home user, then that would push the MS product to 3rd place.
Just my opinion.
Posted by Goblin | October 15, 2008 8:30 PM
Recession worries? Go open source to cut costs
http://www.networkworld.com/news/2008/101508-recession-worries-go-open-source.html
Quote; "With the world economy in shambles many businesses are already battening down the hatches expecting rough seas ahead. IT budgets will shrink along with all other budgets, and maybe even more than other budgets. After all, companies still need to advertise and pay their workforce, but they may be able to do without new servers or software for a while. And that is where open source software vendors can help keep the ship sailing. (Also read, Five Cheap (or Free) Software Programs You Can Afford During a Financial Crisis.)
These days you have many open source products that are just as feature rich, reliable, useful, and usable as their closed source counterparts. And some would argue that they're even better than their closed source counterparts. There are lots of examples in this space. This article is being written in the newly released Open Office 3 word processor, which is just as powerful as the Microsoft Office suite. And that's true in pretty much every sector of software. Need a virtual machine? VirtualBox to the rescue. Need a content management system? Check out WebGUI. Need a desktop replacement for Windows? Check out Ubuntu. Need a customer relationship management system? Try SugarCRM. And this list goes on and on and on. (Interested in Linux? Also read, Seven Financial Reasons to Use Linux in the Enterprise and Making the Case for Linux Distros in the Business.)"
Posted by chips b malroy | October 15, 2008 9:58 PM
While I think the gain in Apple marketshare is interesting, I thought the "Wow" data point was that Apple is getting $1 out of every $3 being spent on computers.
How much is Microsoft getting out of every $3?
Posted by Chip | October 15, 2008 11:28 PM
Chip:
I think Apple is getting $1 out of every $3 spent on RETAIL. If you include enterprise sales, I think Microsoft is still very solid.
Posted by Greg | October 16, 2008 12:28 AM
Apple cutting the price of their laptop to $999, will increase sales. Mac has about 10% market share now and it will climb much higher. They still need to cut prices further.
However, a full feature PC laptop that has 160 GB hard drive, 1 or 2 GB RAM and DVD/CD Drives can be had for under $500 and even under $400 every now and then thus making the PC laptop a still better deal.....Wipe Vista off of it and install Ubuntu which has the newest and most up to date operating system.
And for those who don't want to jump off of Windows entirely, they can join a growing number of Windows users who dual boot with Linux, thus having the luxury of two operating systems on one laptop.
Apple is growing by leaps and bounds..but the PC is still the better deal...for now.
Posted by Ralph | October 16, 2008 1:20 AM
So, no Apple netbook? They're cutting themselves off from the fastest-growing segment of the PC marketplace:
http://www.eweek.com/c/a/Desktops-and-Notebooks/IDC-LowCost-Notebooks-Helped-Worldwide-PC-Market-Grow-in-Q3/?kc=rss
Posted by Lawrence D'Oliveiro | October 16, 2008 4:16 AM
@Ralph
I think you hit on some very valid points.
In my opinion, the average user when making a purchase will look at the Mac as a little bit of risk, its a high price and its a machine they are not familiar with.
They then look at a PC, Vista pre-installed and less that £400. This to them would be "safer" and why MS will still get the sale.
The nice thing about the MAC though is that the ipod has almost become the household name for any mp3 player (almost like the word google is now the generic word for an internet search.) I believe its the product image and recognition that now makes Mac appear less of a unknown risk to the average user.
@Chips
I am really pleased you mentioned Ubuntu, after having tried and used many distros I had to settle on one for the home. I had to consider my wife, who is at the opposite end of the computing spectrum to myself and she simply wants to sit down in front of the PC and surf, without any worries. Ubuntu was that distro.
BTW Chips, if you didnt already know and you fancy a laugh. Check out the distrowatch banned Ubuntu - The Satanic Edition, I installed it on a friends lads computer (hes a heavy metal fan) and he thinks its the best thing ever. Further proof I think that the average user can be suckered into purchasing MS products because of fancy visuals and asthetics.
Posted by Goblin | October 16, 2008 4:19 AM
Steve Jobs does not care about market share or beating any competitor on number of sales. He is mainly concerned with making beautiful consumer products that just work. I am sure that if he had the choice between 50% market share of OSX and a MacBook without and creases or joins, he would take the latter. Its only because of the pesky shareholders that he worries about the market and profits at all.
I am really looking forward to the next iPhone made in Aluminium, and am considering a MacBook. An iPhone Air would be awesome!
Posted by billybob | October 16, 2008 7:04 AM
"Two people told me today that had Apple introduced a $900 laptop yesterday, they already would have placed orders. One person is still considering the $1,299 MacBook."
This is the ideal situation, the people want it but cannot afford it but will still pay. It creates a market where there are haves and have nots, the have nots are always wanting to be haves.
If they go for a cheap windows laptop then they will always regret it. I am in the same boat, about 2 years ago I was going to buy a MacBook but I thought it was too expensive and went for a Sony Viao. What a bad decision, the Viao is a heavy, clunky, creaky, slow POS with cheap components. I wish I went for a MBP instead. Next time I will not be so frugal. At least now I can get MBP features in a smaller MB.
Posted by billybob | October 16, 2008 7:13 AM
Windows OEMs already offer both high-end and low-end machines, so they don't have to change their strategy.
In their review of the new MacBook Pro 15-inch, PC Magazine points out:
"...if you're looking for a longer list of features, the HP HDX16t has higher screen resolutions, Blu-Ray drives, HDMI-Out, an E-SATA port, and more USB ports - and its cheaper, too."
That's the kind of thing that Windows OEMs should be advertising - more available features.
BTW, the Mac's worldwide market share is still stuck in neutral. In both Gartner's and IDC's latest figures, Apple/Mac is still in the Others category, behind at least five other companies.
Posted by JohnJ | October 16, 2008 10:43 AM
JohnJ, and many others, are making amateurish errors when it comes to advertising. Perhaps THE basic tenet of advertising has been stated as: "sell the sizzle, not the steak." In more specific terms, focus on BENEFITS, not FEATURES.
That is EXACTLY what Apple has been doing in their advertising. When was the last time you saw Apple give a long list of features as part of their advertising? They talk about "just working," not the size of the hard disk. They talk about software that does exactly what you need, not Blu-Ray drives, HDMI-Outs and E-SATA ports.
So you have a total lack of understanding of advertising. Further, you have this fantasy about the value of a growing market share. What good is a growing market share if you're not making any money? Apple, now the 3rd largest seller of laptops in the U.S., is making enormous profits. Why lower prices and decrease profits in order to increase sales numbers? That would be incredibly stupid.
Posted by Don | October 16, 2008 12:04 PM
OK, who are you and where is John?
This has to be one of the best articles regarding Apple from a PC guy I have ever read. Smart man not to buy into the short term thinking Apple has to lower prices to appease the mindless analysts. What happens when the economy recovers? Are they suppose to raise prices in response? I never hear anyone calling for that to happen.
My only caveat is that I don't think margins will be squeezed by Macbooks cannibalizing Macbook Pros. And does it really matter, when an increase in sales will grow revenue and earnings? Margins are only a small part of the equation. And I haven't even mentioned Economies of Scale.
Posted by Sean | October 16, 2008 1:25 PM
Where is Joe, not John. Sorry. :o)
Posted by Sean | October 16, 2008 1:26 PM
Good article. I am not a current Mac user, but I really find the Mac-PC commericials funny to say the least. The 'I'm a PC' commercials are better than the Bill&Jerry show, but still quite lame. Apple does have a better overall product and they used Vista's weakness to their own advantage.
Posted by JM | October 16, 2008 4:55 PM
Some good comments here by many. Apple wants to make the most profits they can. If that means keeping the price up they will. As long as they can keep selling out what they can produce, there is no reason to cut the price.
However, that may change with the recession, and they (Apple) may be forced into a price reduction at some point. Even Microsoft maybe forced by some of the OEM's to cut the price it charges for OEM Windows. Both are too high.
It stands to reason, if you are selling a laptop PC with Windows Vista Home Premium on it, for $500, that the OEM could offer some of those units without Windows for $400, and sell more of them, during a recession, when money will be tight. $100 or 20% could be the difference between a sale or not for them OEM's. Which is where Linux will come in.
While Apple cutting laptop prices will drastically effect OEM's with Windows preinstalled, there is one thing that may be even a better problem for Microsoft. The Apple vs Pystar case. You can bet if Apple is forced somehow to open up Mac OS X and let other OEM's use it, this will be a short term problem for Microsoft.
Posted by chips b malroy | October 16, 2008 9:06 PM
Apple keeps investors happy. This is why, despite a small market share, their market cap has been larger than Dell's.
The long-awaited "halo effect" of iPods and iPhones, predicted for several years now, seems to have materialized in 2008, as domestic Mac market share approaches, and sometimes cracks, double digits (depending on which source you want to believe). Macs will never be the dominant PC because they don't build throwaway commodity boxes, and have no need to "race to the bottom". They build an integrated, stable, compelling user experience from the ground up, and one pays a premium for that experience, like driving a Lexus as opposed to a Chevy Cavalier.
I don't expect Mac market share to get much past low double digits, but Apple has proven that's more than sufficient to keep the company profitable and developers onboard, which is all that really matters anyway.
Posted by Thomas | October 21, 2008 10:36 AM