2006: Apple vs. Dell
There is a notion that Apple is doomed to become a software only company. There are valid reasons to think this may be the case, but the most oft cited, they won’t be able to compete with Dell on price might not be one of them. An examination of why people think that Dell machines will remain inherently cheaper is in order:
Economies of scale:
Like most people you have probably had the urge to produce ball bearings. Heck who doesn’t secretly desire to be a ball bearing magnate? The feeling usually abates when you realize just how incredibly expensive such a proposition would be. First you’d have to secure an iron mine, extract the ore, you’d be forced to smelt said ore and finally you would have to open a manufcturing facility to produce the ball bearings. In the end your first ball bearing would end costing you millions of dollars and no one will pay that kind of money for one ball bearing. Luckily, for those whom the ball bearing dream just won’t die, economies of scale kick in. See you can spread the initial cost among all the ball bearings you manufacture which means, over billions of ball bearings, each one gets very inexpensive. Many people think that because Dell produces so many more computers than Apple does they have a huge advantage in this area. That notion is mistaken. Apple computers will be nearly completely off the shelf assemblies. That removes much of the initial cost and manufacturing burden, once everything is standardized there are not a lot of tricks left to save money.
Dell will get larger price breaks from suppliers:
This is closely related to the aforementioned economies of scale. The idea being that companies would rather sell 10 million parts to a manufacturer for 5 bucks each than 1 million parts for ten dollars each. Which is true but mitigated by the fact that what component manufacturers really like to do is sell every component they make. The concept is simple, the longer the production the more efficient. Apple will have enough purchasing power, again using standard PC stuff, that they should get deals as favorable as Dell.
Apple Design Costs Money:
Few would argue that Apple puts out some of the most deliciously attractive computers in the business. This attention to aesthetics costs money. People who argue this forget that Dell also designs their computers. Sure they don’t make them as sexy as Apple’s offerings but the design is there. Either way the cost of developing a sexy box is not an appreciable contributor to the total cost, after all both Apple and Dell are spreading that cost over millions of computers.
Turns out Apple doesn’t really make computers anyway:
This is possibly the most telling reason why Apple can easily be competitive with Dell. Apple out sources all of their computer manufacturing. The general way this works is by shopping a design around to various manufacturers and getting a low bid, convincing yourself the low price doesn’t come at the hands of low quality and handing them a contract. While Apple may pale in size in comparison to Dell they are still one of the larger computer companies still in existence. That means that any of the Asian manufacturing concerns will be more than receptive to offers by Apple Computer.
Macs are already comparably priced to Dell machines:
You can’t tell it from the Mini but when you get into Apple’s other offerings, the eMac, the iMac and PowerMacs it turns out that Apple machines are competitively priced when matched against comparable Dells. The exercise is left to the reader (or you could read this) but most of the apparent savings are due to the fact that Apple only ships machines with dedicated video memory, FireWire etc. In short you can’t really get a stripped down Mac whereas Dell is more than happy to sell you a stripped down PC.
Reasons Macs will be more expensive than Dells
Apple loves profits:
Apple’s profit margins are enviable. There is no reason to think Apple will sacrifice future profits just to remain competitive with the offerings of Dell. They will find a way to spin the system so that it appears that Apple hardware remains, somehow, superior to the Dell machines. Couple this with the fact that Intel’s chips are more expensive than the PowerPC chips and you’ve got a recipe for pricey machines.
Macs are SUPPOSED to cost more:
In the end products and services are worth exactly what people will pay for them. Apple has positioned themselves as premium computer makers. If they suddenly started cranking out machines that were priced exactly like Dells the perception as a premium brand might be damaged.
Pretty soon it won’t matter:
Finally must consider the proposition that very soon the price of low-end computers just won’t be much of a factor. The venerable Windows XP Home Edition retails for $199 at CompUSA. For one hundred dollars more you can buy an entire computer. On the Mac side consider that if you purchased Tiger and iLife ‘05 your wallet would be $288 lighter. For only $211 more you can get the programs and a Mac Mini. As the trend continues the gap will close further so that in the future core system software purchases will have to be carefully weighed against an entire computer purchase.
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I think it is a fallacy to think that Apple will use “off the shelf” components. Apple is usually the first computer company to do something and being the first often results in higher costs. Imagine trying to build the first G4 iMac out of off-the-shelf components. It couldn’t be done. I hope that just because they are moving to the x86 platform that Apple will stop innovating. Innovation invlolves a lot more thatn making pretty computers. New technology is always going to carry a higher cost. It’s only after Apple has been doing something for a while that companies like Dell come in and start incorporating the technologies into their systems after all the manufacturers have gotten all of the set up costs from Apple. Then they are cheaper. Anyone remember when Apple was the only company with 802.11b wireless? Remember how much it cost to get a base station when you were the first to buy one? Sure, now it’s a lot cheaper, even in a Mac and there’s even newer, faster versions that cost 30% less than the old slow stuff did when it was new. But I think we all look to Apple to always find us the next New Thing to make the computing experience more fun. If that stops just because of a platform switch then Apple becomes just another computer maker with another option for the OS. Like Linux. I doubt that could happen, but I still don’t want to think about it.
Apple can be -15 more expensive than the equivalent Dell because
1. Dell can’t run OSX
2. Apple will always have the more svelte design
Dell is a model of efficiency and marketing strategy. They make crappy (high defective rates) computers but they make them cheap and they advertise like crazy in PC mags so that they never get slammed. Very clever Michael Dell.
Dell will be Dell and Apple will be Apple. I’d never buy a Dell though.
If Dell were the Ford Motor Company and HP were Chevrolet, then Apple is more like BMW. While the first two are in obvious direct competition with one another, the latter can exist outside the main fray simply by offering what is either perceived to be, or actually is, a better product for a slightly different market. All 3 companies might product a V6 engine, or in this case a Pentium-based architecture, but that doesn’t mean that consumers will ever ‘see’ them as equals - and this is to Apple’s advantage. By remaining one step ahead (sometimes two) in innovation, and by sticking to the idea that your thousand bucks should actually give you something new and different, Apple can easily implement the Intel CPU line without losing any steam.
Consumers buy Dell because of cost and name recognition alone. They buy HP for those same reasons plus they are readily available at thousands of retailers. The average Apple consumer buys a Mac because they are either already a Mac-fanatic or they want something new and better from a personal computer. This simple division of the marketplace will always exist, just look at all the people out there building their own PC’s - if games weren’t an issue then half of these people would simple buy that “something different” just to avoid buying a Dell.
I have three Dell PC’s in my house right now, an Inspiron 700 laptop (brand new with Centrino! technology) that’s so horribly slow it’s almost unusable, an XPS Gen 5 (also brand new) that I’ve owned for a month and has been returned twice - only to still not work, and a cheap workhorse 4700 that cost $500. Of these three computers, yes, the cheap 4700 is the only one I have been satisfied with. My XPS Gen 5 totalled $4500 direct from Dell and has yet to run for a week straight. Though it was hardly ‘cheap’, that $4500 got me cheap junk.. It has a nice shiney ATI X850XT, 4GB of RAM, Intel Dual Core, and enough HD space to choke a horse - but frankly, I’m finding now that the $4500 I spent bought me poorly assembled, and poorly made, crap. Now, Apple can make a machine composed of all of these same parts and will I personally ever view it as being even close to the same thing? Well, no - but I’m a little more well versed than Joe Consumer. But what one look at both my XPS and my new iMac G5 *will* do head to head is demonstrate just how much quality one can get for half the price. The iMac is elegant and sleek, the XPS is a big plastic pig with a drive bay door that won’t close.
Apple needs only to get more and more shoppers in the Apple store. If a software-only Apple were in the future, these are awfully big stores just to stock OS X boxes. Why isn’t there a Dell store? Simple. No one buys mediocrity if they can see it and touch it before purchase.
I think the fact that Apple hardware is ONLY 10% more than Wintel boxes is a credit to good design - Apple boxes would be astronomical in price if not for very savvy design engineers and product design processes.
Look at prosumer audio products. Undoubtedly better in quality and fit and finish. But it comes so at usually over 200% of component cost. Most (such as Yamaha, Sony ,or Bose) use “off the shelf” components, but box it in a nice exterior.
Both the physical design and brand elevates the cost to consumers.
I am happy that Apple usually decides not to gouge us just with premium brand pricing. I will always be happy to buy things like the Powerbook Aluminum when it is clearly the gold standard - at only 10-15% increase. Heck, buy it online and you’ll save half that in taxes alone.
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I am afraid to say you are largly out and out wrong on a lot of the points.
Anecdotal point: I priced out a Dell machine and an Apple machine for my parents - the Dell came out consistently, feature by feature, $200 cheaper than an iMac.
Anything you could possibly think of was comprable - video card, lcd, blah blah. Even if I priced the RAM and printer for the Mac elsewhere (a whole other topic). The myth is no myth: wintel is cheaper than macs - as any econ/finance person will tell you the economy of scale has never been wrong. Why beat a dead horse?
Apple couldn’t compete with the “clones” a number of years ago. What makes you think they would be able to compete with Dell who is undoubtedly far more masterful at the art of optimizing their cost per unit of product?
“Apple couldn’t compete with the clones” LOL that’s a good one. Every clone was using a motherboard chiefly designed by Apple and on OS that was wholly designed by Apple. All they had to do was stick the hardware in a cheap case (which they did) and undercut Apple’s margins.
For the life of me I cannot figure out how college educated executives working for Apple at that time could create such a debacle. Apple’s not Microsoft. They depend on hardware sales and software sales to fund R&D. Clones basically sat at the table and ate for free without bringing any food. I smile everytime I think about their demise.
In the end products and services are worth exactly what people will pay for them. Apple has positioned themselves as premium computer makers.
This is why Macs will never be as inexpensive as Dells as long as Jobs runs the show. It is now and always has been his philosophy to charge a premium for what he considers a premium product. As you mentioned, Intel chips cost more than PPC chips, but Macs still cost more. Moving to Intel won’t suddenly make Macs less expensive because the cost of the Mac has never had anything to do with the cost of the components inside of it.
Back in the old days when you couldn’t get a Mac for 500 bucks I think the price point argument had some validity.
But with the creation of the Mac Mini Apple has shown it is serious about killing the price-point argument once and for all. Now, we could all argue endlessly about whether the $500 Mac mini (sans keyboard and mouse) is as good as a $500 Dell (sans beautiful design and OS X) but the point is the price argument is a dead one.
Beeblebrox, you are right to say that part of the price point of Mac’s is due to Apple elevated the price. But to say that the Mac has never had anything to do with the cost of the components inside it is, I think, a little overboard. Back in the day when the price difference between a Mac and a PC was a 1000 you could argue that, but those days are over.
I also think people are underestimating the momentous shift that has occurred within Apple. Months ago the number of pundits saying that the Intel switch would never happen was large. And they were wrong.
What’s to say that Apple won’t compete with Dell….or, even better, license OS X to Dell?
I’m gonna have to disagree with the editor on his point - the Mac mini price at $500 means that $50+/- means a whole heckovalot. Not to the maker but to the consumer. It means that the consumer becomes hyper-sensitive at those prices.
It means that Applecare at $300 dollars is out of the question. Where Dell offers similiar coverage for over half the price.
It means that the spec sheet is pored over, feature-by-feature. If money becomes time, then the cheaper a unit is - the more time spent in making sure the dollars are put to good use.
The mini is not considered a cheap box to buy. It is considered a great mid-market computer to add to your middle-class household that likes iPhoto a lot. Apple as a company is not competing for the lower-class market like Dell is.
If and when they do - then licensing and clones and everything else will be on the table. And when that is - it also means that Apple is in enough markets to make it work. Like tv, games, film, digital distribution, pvr, music, etc. to make it compelling for users to have an All-Apple environment.
Applecare for a Mini is $149. Which seems odd, I mean the mini is likely no more reliable than a G5 yet the support cost is so much lower. Must be shipping.