Apple has developed a reputation as a premium brand with an elitist bent. The company wants to transcend that. Here's a look at whether it's working.
During the past year, Apple's ascent to becoming the world's largest technology company has raised a number of important questions about the current state of the tech world and its future trajectory. But, the most prescient question for 2011 is whether Apple has committed to moving beyond its stronghold as a premium technology brand to become a computing vendor for the masses.
There is new evidence that Apple is moving toward lower-priced products and prepaid wireless data (for its mobile products) in order to make Apple devices more affordable for more people and businesses. On Monday, Research Analyst Toni Sacconaghi published a research note (read the summary on Forbes) following a recent meeting with Apple COO Tim Cook and CFO Peter Oppenheimer. Sacconaghi reported that the Apple executives have plans to put Apple's mobile devices within the reach of a lot more buyers.
Here are some of the highlights of the report:
- Cook said Apple does not want its technologies to be "just for the rich"
- Apple is likely to develop a lower priced version of the iPhone, Cook indicated
- Cook said Apple was planning "clever things" to get the iPhone into the prepaid cellular market, including China where Apple is investing "huge energy" according to Cook
- Expanding to more global wireless carriers is a priority for Apple, according to Oppenheimer, who also noted that Apple has deals with 175 carriers today versus 550 for Research in Motion (BlackBerry)
- Apple is "not ceding any market" to its rivals in the mobile space, Cook declared
Apple prepares to unveil iPad 2 on March 2, 2011. Photo credit: James Martin | CNET
Those are strong words from two of Apple's most influential behind-the-scenes executives. However, there have been previous signs that Apple was moving beyond its established niche of well-heeled artisans, thinkers, and entrepreneurs, who have dominated the Mac ecosystem for two decades.
In fact, I don't think Apple ever intended to build a premium brand in the first place and I don't think the company has ever been totally comfortable being pigeonholed into that market. That's simply the group that bought into Apple's vision and was willing to pay a premium for it.
The original vision for the Mac
Don't forget that the Macintosh project started out with a very populist vision. Steve Jobs and his team wanted to build a computer that would be easy for the average person to set up and use and it would cost under a $1,000. Well, the Mac set a new standard for usability when it was unveiled in 1984 but it cost well over $1,000. It ended up being as expensive as most of the other computers on the market. The price tag plus the fact that it lacked software applications ultimately doomed the Mac to become a niche machine. Still, it's useful to remember that the Mac started out as the populist dream of an inexpensive computer for the masses.
The iPod was the first step
Fast forward a decade and half later when Apple unveiled its first iPod in the fall of 2001 and you see Apple once again debuting a product that was made for the masses, but the initial price tag was too high to become a mass market phenomenon. The first iPod cost $400, and Apple soon released a model with extra storage for $500. It was a very cool luxury product.
But, three years later, Apple released a smaller, cheaper model called the iPod Mini ($250) and sales began to really take off. Eventually, the iPod Mini was replaced by the iPod Nano and an even less expensive model called the iPod Shuffle. Apple went on to dominate the portable media market and sell over 300 million iPods worldwide by January 2011, expanding far beyond its original niche as a luxury gadget.
Take a look at MacBook Air competitors
While the iPod became a product for the masses, the Mac has remained the luxury car of the computer market. A 2009 NPD report suggested that Macs dominate 91% of the market for computers that cost $1,000 or more. While Macs continue to be priced at a premium today, the price disparity with Windows PCs is beginning to shrink, especially in some segments of the market.
For example, with Apple's MacBook Air, which the company holds up as the ultimate laptop for those who want maximum portability, the Apple system is not more expensive than its clones. I recently wrote a piece on Two great laptops for Windows users who have MacBook Air envy, and I discovered that the two best MacBook Air competitors that I could find — the Sony Vaio X1 and the Acer Timeline X — were both slightly more expensive than the 11-inch MacBook Air that I compared them to.
Of course, this is a premium segment of the laptop market where Apple has home field advantage, but it's interesting to note that Apple has priced its laptops very competitively here. There's no "Apple Tax" as we've seen in the past — at least for the MacBook Air.
It remains to be seen whether Apple will go after the market for average laptop buyers between $500-$1,000 — both consumers and business. I'm skeptical about whether we'll see that. I think it's more likely that Apple bets on a big chunk of that market switching to tablets and it tries to pick up those users there rather than selling them a cheaper version of a Mac.
In tablets, iPad is winning on price
The area where we can see Apple's aggressive new pricing strategy for wooing the masses is, of course, the tablet market. While tablet computers had been around for a decade before Apple launched the iPad in 2010, Apple made a simpler tablet with a multitouch interface and made it far less expensive than the other tablets. And, as I noted in my article The one big reason why iPad rivals can't compete on price, even the latest multitouch tablet clones are having a hard time matching its price tag.
In many ways, the iPad vision is the same vision that went into the first Macintosh — build a computer for the masses and make it cheap enough for the average person to afford — only this time Apple nailed the price tag. It also doesn't hurt that Apple has the most third party software for its platform this time, unlike the launch of the Mac. Nevertheless, the iPad's price tag is its greatest marketing asset.
In his report, Sacconaghi also recorded Cook saying that the tablet market would eventually become much larger than the PC market and Apple expected it to be intensively competitive since all of the PC and phone makers will take a shot at it. That's no surprise. But, it is a surprise that a year after the launch of the iPad, Apple still offers the tablet with the most reasonable price tag. That doesn't sound much like a luxury brand.
The big question then becomes whether people will associate extra value with Apple products because of the company's luxury brand reputation or if the masses will look at Apple and snub it as an elitist brand that doesn't apply to them. Naturally, the best way for Apple to control the conversation is to re-run the iPad play — make a great product and price it better than anyone else.