The Apple tax and what Apple could learn from it's own recent success.

[iPad 2]

The bulk of Apple's profits are made off of iPad, iPhone and iPod where Apple doesn't really charge a premium over the competition.

The Macbook Pros and iMacs account for only a small portion of Apple's overall profits. This is because they're just priced too high and not enough customers are willing to pay that premium.

The Apple tax on their computers and laptops is bothersome and the reason I'll never I can't justify buying one, and I think many consumers feel the same and thus opt for the competitors. It seems absolutely ridiculous that one can't get a laptop with a dedicated gpu from Apple unless I'm willing to plop down over $2000, when competiting laptops offer one in models priced under half that.

However, there really isn't an Apple tax on their iPhone/iPad/iPod. All three products cost the same as their closest competitors. The iPad is still cheaper than any other decent tablet on the market. And the pricing of the iPhone at $200 is pretty much right in line with the rest of the smartphone makers.

The iPad wouldn't be anywhere dominant if it was priced at $999 while all the compeitors were priced at $599. However, because Apple priced it a $499, it's accounting for 90% of all tablet sales, and this is translating to record profits. The same is true for the iPod and iPhone sales. In these areas, by not charging much of an Apple tax, Apple absolutely dominate the competitors and make up for the lower prices with volume.

Perhaps Apple should learn from that and lower the price on their computers to boost sales and profits. A Macbook Pro at $800 (more in line with it's competitors) would absolutely slaughter the rest of the laptop market.

On the higher end, Apple really needs to put a dedicated gpu in a laptop that is priced at around $1200 (again in line with competitors). Some customers are willing to pay the premium for apple computers, but many aren't. Gaining these sales would translate to much higher profits, due to volume. So why hasn't Apple learned from the success of the iPod/iPad/iPhone and dropped the Apple tax from their computers?

Do away with the premium, and the vast majority of people would opt for Apple over the competitors. The profits from the high volumes of sales of iPod, iPad and iPhone relative to the profit from the iMacs and MBPs is proof of that.

 

[Grouchy Bob]

If you think hardware alone and its cost drive this industry you are badly mistaken.

Sure, drop the MBP down to $800 and the Windows/PC World will fold.

LOL!

 

[McGiord]

It is a volume thing, and demand. See why the new iPad apps cost only $4.99, not because they cost that, but because the quantities that they will be selling allows them to price them like that and get the cha-ching that expects.
Better things in life are free. Your freedom to decide what computer to buy is priceless.

 

[Looon]

If you think hardware alone and its cost drive this industry you are badly mistaken.

Sure, drop the MBP down to $800 and the Windows/PC World will fold.

LOL!

Yeah I'm sure the other 92% of the market that apple doesn't control like zombies is just going to turn over night

 

[GuitarDTO]

I know its tough for a lot of people to understand. Supply and Demand. People are paying for their products at the prices they currently are listed, or they'd lower the prices. I assure you Apple isnt passing by any profit with too high of prices.

The same kind of stale argument gets thrown around on guitar message boards by all of the poor kids who cant afford a Gibson guitar.

 

[alust2013]

Their current business model is making them loads of money, so they see no reason to change it. If they did what you said, and say, increased their market share to 50% of the market, they would also have huge manufacturing troubles. They would have to match the combined output of Dell, HP, ASUS, Lenovo, Toshiba, Sony and others as one company. That would be extremely difficult and expensive, and their profit margins would drop. So actually they are making more money with the way it is.

 

[iPad 2]

If you think hardware alone and its cost drive this industry you are badly mistaken.

Sure, drop the MBP down to $800 and the Windows/PC World will fold.

LOL!

I don't understand your argument. You can install Windows, or Linux on a Mac if you want to.

I think you would be surprised by just how much the sales would go up if the MBP is priced more along the lines of competing laptops. This is why the iPad/iPhone/iPod are dominating.

Why not buy one when it's really not any more expensive than the competitors? Of course, when it comes to laptops and desktop, the competitors are significantly cheaper so not as many people are willing to pay that premium.

A barebones Macbook Pro for $799, and one with a dedicated gpu for a few hundred more would start pulling in over 80% or 90% of sales in no time.

 

[bobr1952]

Regardless of anyones feelings on this, Apples doesn't have to do anything as long as enough people buy their products.

 

[GuitarDTO]

I don't understand your argument. You can install Windows, or Linux on a Mac if you want to.

I think you would be surprised by just how much the sales would go up if the MBP is priced more along the lines of competing laptops. This is why the iPad/iPhone/iPod are dominating.

Why not buy one when it's really not any more expensive than the competitors? Of course, when it comes to laptops and desktop, the competitors are significantly cheaper so not as many people are willing to pay that premium.

A barebones Macbook Pro for $799, and one with a dedicated gpu for a few hundred more would start pulling in over 80% or 90% of sales in no time.

What are you not comprehending about this? Apple is a business. The goal of a business is to make money, not to dominate the market. Their current prices make them the most money, not dropping them down to $800.

 

[Hellhammer]

Stop comparing MBP to a cheap plastic PC box. There are premium PCs like HP Envy that aren't much cheaper than MBPs are. There are smartphones and tablets for less than 300$ but they don't fight in the same series as iPhone and iPad. They may have similar horsepower but things like screen and case material are something way different and worse. Same applies to MBPs.

FYI, the components of an iPhone cost something like 70$ if I recall correctly. Still Apple sells it for 499£/599€ (US price isn't valid as you need to make a contract which costs hundreds).

 

[iPad 2]

I know its tough for a lot of people to understand. Supply and Demand. People are paying for their products at the prices they currently are listed, or they'd lower the prices. I assure you Apple isnt passing by any profit with too high of prices.

Nonsense. Some customers are willing to pay the premium, but many aren't.

Do away with the premium, and the vast majority of people would opt for Apple over the competitors. The sales of the iPod, iPad and iPhone relative to the competition is proof of that.

The iPad wouldn't be anywhere dominant if it was priced at $999 while all the compeitors were priced at $599. However, because Apple priced it a $499, it's accounting for 90% of all tablet sales. The same is true for the iPod and iPhone sales.

 

[akhbhaat]

The Apple Tax--at least as it applies to the Macs--is grossly overstated.

Apple's profit margins on the iPhone are estimated to be in the vicinity of 60%. Their margins on the MacBook Pro line are closer to 20-25% (the MBA is reportedly the most profitable, with margins around 30-35%--this due largely to favorable volume contracts Apple has with various flash memory suppliers). Apple wouldn't make any money on an $800 MacBook Pro (in fact, they might even lose money), assuming you mean it to be equipped anything like the current base model. Meanwhile, the end cost to US consumers on the phones appears to be lower than it is because we purchase subsidized phones that are tied into a long term contract with a particular wireless carrier.

While Apple's margins on the Macs are probably higher than almost every other computer manufacturer, they still aren't particularly excessive (especially in light of what they're making on the phones). People love to lament the hardware you get for the money, without understanding that the internal hardware is actually very cheap to produce, which is why Dell and whoever can churn out $500 or $600 laptops with decent internals. You need to take a closer look at the competition's products: yeah, you're getting equal internal hardware for significantly less money, but you're also getting some of the cheapest enclosures, screens, keyboards and the like that are out there.

 

[iPad 2]

What are you not comprehending about this? Apple is a business. The goal of a business is to make money, not to dominate the market. Their current prices make them the most money, not dropping them down to $800.

Then why is it that the bulk of the profits are made off of iPad, iPhone and iPod where they don't really charge a premium over the competition.

The Macbook Pros and iMacs account for only a small portion of Apple's overall profits. They're just priced too high and not enough customers are willing to pay that premium.

 

[GuitarDTO]

Nonsense. Some customers are willing to pay the premium, but many aren't.

Do away with the premium, and the vast majority of people would opt for Apple over the competitors. The sales of the iPod, iPad and iPhone relative to the competition is proof of that.

The iPad wouldn't be anywhere dominant if it was priced at $999 while all the compeitors were priced at $599. However, because Apple priced it a $499, it's accounting for 90% of all tablet sales. The same is true for the iPod and iPhone sales.

What is nonsense? The general principle of economics that drives every single industry/business? Go to school kid. A Macbook costs a lot more to make than an iPod.

 

[GuitarDTO]

Then why is it that the bulk of the profits are made off of iPad, iPhone and iPod where they don't really charge a premium over the competition.

The Macbook Pros and iMacs account for only a small portion of Apple's overall profits. They're just priced too high and not enough customers are willing to pay that premium.

Supply and demand doesnt care about the product. It doesnt matter if its an iPod, Macbook, a piece of garbage.....the goal is to price the object appropriately to maximize profits. Comparing how much the macbook pros bring in versus an iPod is like comparing car sales/profits to the profits for cat toys.

 

[Hellhammer]

Then why is it that the bulk of the profits are made off of iPad, iPhone and iPod where they don't really charge a premium over the competition.

Because the competitors have high profits as well.

 

[GuitarDTO]

Here you go TS. There are folks at Apple a lot smarter than you or I who have the company aligned to maximize profits.

http://www.investopedia.com/university/economics/economics3.asp

 

[iPad 2]

Supply and demand doesnt care about the product. It doesnt matter if its an iPod, Macbook, a piece of garbage.....the goal is to price the object appropriately to maximize profits. Comparing how much the macbook pros bring in versus an iPod is like comparing car sales/profits to the profits for cat toys.

That's what I'm saying.

And it's clear that Apple could maximize profits by lowering pricing and increasing volume.

This is what they did with iOS devices. They priced them inline with competitors and reaped massive profits in return. These profits absolutely trounce MBP and iMac profits, because too many customers are opting not to pay the premium apple is charging in these sectors. That translates to much higher lost revenue that they gain from the premium they charge right now.

Drop the prices, and they would maximize profits.

 

[brentsg]

You are a genius. You should definitely send Apple an e-mail with this novel concept. I'm sure they've never considered it.

 

[elpmas]

The bulk of Apple's profits are made off of iPad, iPhone and iPod where Apple doesn't really charge a premium over the competition.

The Macbook Pros and iMacs account for only a small portion of Apple's overall profits. This is because they're just priced too high and not enough customers are willing to pay that premium.

The Apple tax on their computers and laptops is bothersome and the reason I'll never I can't justify buying one, and I think many consumers feel the same and thus opt for the competitors. It seems absolutely ridiculous that one can't get a laptop with a dedicated gpu from Apple unless I'm willing to plop down over $2000, when competiting laptops offer one in models priced under half that.

However, there really isn't an Apple tax on their iPhone/iPad/iPod. All three products cost the same as their closest competitors. The iPad is still cheaper than any other decent tablet on the market. And the pricing of the iPhone at $200 is pretty much right in line with the rest of the smartphone makers.

The iPad wouldn't be anywhere dominant if it was priced at $999 while all the compeitors were priced at $599. However, because Apple priced it a $499, it's accounting for 90% of all tablet sales, and this is translating to record profits. The same is true for the iPod and iPhone sales. In these areas, by not charging much of an Apple tax, Apple absolutely dominate the competitors and make up for the lower prices with volume.

Perhaps Apple should learn from that and lower the price on their computers to boost sales and profits. A Macbook Pro at $800 (more in line with it's competitors) would absolutely slaughter the rest of the laptop market.

On the higher end, Apple really needs to put a dedicated gpu in a laptop that is priced at around $1200 (again in line with competitors). Some customers are willing to pay the premium for apple computers, but many aren't. Gaining these sales would translate to much higher profits, due to volume. So why hasn't Apple learned from the success of the iPod/iPad/iPhone and dropped the Apple tax from their computers?

Do away with the premium, and the vast majority of people would opt for Apple over the competitors. The profits from the high volumes of sales of iPod, iPad and iPhone relative to the profit from the iMacs and MBPs is proof of that.

Why don't you go buy a low end mbp and use it for 1 1/2 week then decide is its worth pay g for it. If you're not satisfy then return it. Theres not restocking fee.
Apple wouldn't lower their price, why you say? Because more people are willing to pay Apple's premium price and they know it too. So why change something if people are willing to adapt to it?

 

[iPad 2]

What is nonsense? The general principle of economics that drives every single industry/business? Go to school kid. A Macbook costs a lot more to make than an iPod.

Any reasonable guess would put it's costs around $400 or so, about $250 more than the iPod costs to make.

You don't seem to understand the basic principle of volume. Sometimes, the best way to maximize profits is to lower prices and increase in sales volume.

Apple is in such a position with the MBP and iMac.

The iPad wouldn't be anywhere near as dominant or as profitable if it was priced at $999 while all the compeitors were priced at $599. However, because Apple priced it a $499, it's accounting for 90% of all tablet sales, and this is translating to record profits. The same is true for the iPod and iPhone sales. In these areas, by not charging much of an Apple tax, Apple absolutely dominate the competitors and make up for the lower prices with volume.

Apple could easily do the same in the computer sector and maximize profits.

Instead Apple is charging $1200 for a product their competitors sell for a $699. It would be akin to them pricing the entry level iPad at $1000 when the competitors sell them for $499. The iPad wouldn't be turning in anywhere near the same profits then.

 

[Hellhammer]

And it's clear that Apple could maximize profits by lowering pricing and increasing volume.

I bet a company that makes billions of profits each quarter knows more about this than you do

Apple has showed no interest to join the pricing battle that is going on in the PC world. There are too many OEMs delivering too similar products which means that price is the only thing they can fight about.

This sounds like ranting from someone who wants a Mac but can't afford one...

 

[iPad 2]

I bet a company that makes billions of profits each quarter knows more about this than you do

Oh right, because Apple never miscalculates or mishandles the market.

The Mac G4 Cube, the Lisa, the Newton, the Powerbook Duo, the Pippin and the Apple TV all would like a word with you.

 

[smithrh]

Been there, done that, have the scars

All I can tell you, iPad 2, is that I've worked for a company that went all-out with the same strategy that you're espousing.

We went from a Fortune 100 company to not even being in the Fortune 500 in a pretty quick hurry.

It's not all good. I don't disagree with everything you've said, but you need to know that there can be disaster ahead with this sort of approach.

 

[Hellhammer]

The iPad wouldn't be anywhere near as dominant or as profitable if it was priced at $999 while all the compeitors were priced at $599. However, because Apple priced it a $499, it's accounting for 90% of all tablet sales, and this is translating to record profits. The same is true for the iPod and iPhone sales. In these areas, by not charging much of an Apple tax, Apple absolutely dominate the competitors and make up for the lower prices with volume.

Price isn't the only factor. Apple was one of the first ones to release a tablet for the masses. Laptops, on the other hand, have been available and popular for years. It's much easier to take over an empty market than a market that has already been fulfilled.

If Apple cut their profits in half, they would have to sell twice as many machines to gain as much money. Since most people already have a computer, it's not as easy to increase the sold units by 100%. Apple has been selling more and more Macs each quarter, even with the Apple tax.