The Truth about the “Apple Tax”
The most obvious way for Apple to increase its share of the computing pie, most aver, is to offer ever-cheaper computers. It makes perfect sense, assuming a somewhat elastic demand model cheaper Macs mean more sales. More sales, of course, means more market share. And Macs with 20% of the market gives, apparently, hard-core Mac users a warm and fuzzy feeling.
Apple, as many continually lament, just doesn’t sell low-end Macs. The mini is Apple’s cheapest offering but doesn’t come anywhere close to price parity with Dell’s lowest end offering. At this point the clever among us will argue that Apple can’t match Dell’s prices thanks to economies of scale, the zealosphere* will opine that Apple simply won’t offer a less-than-stellar computing experience, and the cynical will say that Apple will never settle for a profit margin that isn’t in the double digits.
The economies of scale argument proceeds thusly: Macs can’t be close to the prices of Dells because Apple’s purchasing power in the componentry arena just isn’t as big as Dell’s. To use a fictional (wildly exaggerated) example, imagine Apple buys 50 hard drives a year while Dell buys five hundred thousand hard drives. The supplier of said devices will sell the hard drives to Dell for a much lower price just because the volume is so much larger. Apple might be able to buy a hard drive for $50 each while Dell would be able to buy each hard drive for $10. It is simply more efficient for manufacturers to produce incredibly large volumes of devices for a single purchaser and the folks who buy the most get the best price.
There is undoubtedly some truth to the economy of scale argument, but it isn’t the sole motivator of Mac and PC price disparity. Apple doesn’t make computers anymore, sub-contracted factories do that. The sub contractors aren’t small companies and those guys are buying plenty of hard drives to get fantastic deals. For more evidence, see the MacBook. Sure, Apple saved a lot of money by not hiring an English major to come up with a better name but the product is very competitive with comparably equipped Dell offerings.
Next, we must disabuse ourselves of the notion that Apple simply refuses to offer users a less than stellar computing experience. On the surface, the argument seems unassailable, take a look at Apple computers and you see fairly capable machines across the entire line. When Steve Jobs said the mini would do the job for 90% of the Mac users out there he was only off by 9%, there are very few who wouldn’t find the mini more than adequate. You, of course, wouldn’t but you’re a computing pro who absolutely needs the power. Rest assured, you’re the exception. Most people spend most of their computing time on the ‘net or writing and the mini is more than adequate for those tasks. It might be worthwhile to note that there are plenty of Photoshop pros still muddling by with G4’s at work that are outperformed by the mini… not saying you fell for the marketing hype or anything.
Add to that the solid evidence that OS X runs at a nice clip on single proc Intel based equipment and you start to see that the specs aren’t really there to assure a quality user experience so much as they are there to let people know they aren’t buying yesterday’s technology at today’s prices.
The last argument to contend with, and dismiss, is the profit motive argument. Those that opine that Apple has some ingrained penchant for high profit margins are foolish. Apple exists to make money, ten billion computers out the door at $10 profit per box is just as appealing as selling one computer for one hundred billion dollars. Jonathan Ives and Steve Jobs may pay lip service to the idea of making the coolest stuff on the planet but that is just more marketing. Apple would rather make “profit” more than “cool” any day of the week, and rightly so.
All that leaves us wondering, if Apple could sell a much cheaper computer, and obviously, they could then why don’t they? Why is every computer saddled with Bluetooth and fancy processors when they aren’t, strictly speaking, needed? The answer is painfully simple, because Apple knows their market, and they know it better than you.
Apple’s market is the elite. Apple’s job is to separate their customers from as much cash as possible and they are doing a fantastic job. Apple will never sell computers to those shopping mostly on price because that market is interested in low price and compatibility. Sure, they want the cheapest computer possible, but faced with a choice between an identically specced Dell and Mac, they’ll take the Dell. The Dell runs windows without Boot Camp, the Dell can run software lifted from work, the Dell, for the average user, is the better choice. For more evidence that price doesn’t always win remember that Wal-Mart sells Linux based boxes that haven’t set the computing world aflame.
Apple understands all this, they know they can’t compete with Dell for people who don’t care about computers. Choosing a Mac is a conscious choice and most buyers don’t want to make a tough decision when buying a computer, they want the same thing everyone else has. That is the big market market, the mass of disinterested computer buyers, that Apple will likely never convince. These people don’t want to learn a new system, hell they don’t want to learn a system at all. They want a machine to gank music, work with their iPod and browse the net. Sure, a Mac will do all that but to realize that the consumer who have to bother learning about computers, something they don’t want to do.
With that realization, we see why Apple doesn’t sell a truly minimal Mac. People who consider Macs are the same people who don’t consider Dell’s rock bottom model. They are the folks who are certain that they need much more than what the lowliest computer has to offer. These are the people who whine about the video card and amount of VRAM on an iMac. That complaint is about a computer that, until recently, wasn’t exactly able to play the latest games and has always come with a built in monitor. It’s much like complaining that your BMW 3 series doesn’t come with off-road tires.
All this said, Apple is not doing anything wrong, Apple is being smart. The company understands that it isn’t going to supplant Microsoft or Dell anytime soon. Once that realization is reached the path becomes clear, selling super cheap computers might move a few machines but wouldn’t maximize profit. The Mac mini, a product which Mac fans had been pining for since the introduction of the original iMac, wasn’t the smashing home run everyone in the Mac sphere was convinced was a near certainty. The secret to the Apple tax is this: Once people know enough to want a Mac, they know enough to think that they need something much better than a truly low-end option. Since they aren’t going to be buying the $299 Dell, why should Apple bother making an equivalent machine? The answer is that Apple shouldn’t, the company exists to rake in all the cash they can not to make your computing experience any less costly. You can call it the “Apple tax” but in the business world it is called “knowing your market” and it is smart business.
*a great descriptive term coined by Chris Howard
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good catch macglee, fixed it. Though I would like to take this moment to note that I am strongly against bothering equivalent machines. Equivalent machines are machines just like any other, don’t pick on equivalent machines
“For more evidence that price doesn’t always win remember that Wal-Mart sells Linux based boxes that haven’t set the computing world aflame.” - C.S.
Even if Wal*Mart prices these to $0 (it is almost there) it would have a hard time selling even to, as Chris Howard likes to say, the Wallys-What The of the world. Even the $99 laptop of MIT with so much potential use in the impoverished parts of the world will have a tough time making a dime.
Back to the Wal*Mart example, that Linux box is being marketed as a “family” PC but when potential customers ask if it runs PC software (which, by the way, are being displayed next to this affordable PC) they are disappointed accordingly.
Therefore, the “value proposition” that this Linux box and any others wanting to sell a very affordable PC has to be within the grasp of the consumer - and we know that is very subjective to each individual. What is good value to me may be too much for “Wally”. And what is “good enough” for Wally may be junk to me. To each its own, as the saying goes, is the perfect statement for all PC/Mac enthusiasts.
Otherwise, this is another good article worth digesting Chris. “Zealosphere” btw is a good coinage unlike “Apple Tax”. Sorry C.S. “Value Added Investment” would be more preferable since a Mac purchase will last you twice the PC Obsolescence Rate (coined by moa) of 2-3 years!!! Tell that average joe that he will need to buy another Dell in 2-3 years just to make it useable. You think I am kidding? Re-tread into the history of PCs powered by Windows and compare those with Macs. Many G3-powered boxes are still pretty-happily chugging along running Leopard, if not Tiger. Yes, many with CPU accelerators, but PCs can also be accelerated in this manner. Why older boxes are unable to run the latest XP games or app? Can you explain that to the average Joe, then justify such explanation?
Many G3-powered boxes are still pretty-happily chugging along running Leopard, if not Tiger.
I think you need to reconsider this sentence…
Can you explain that to the average Joe
Yes, RT, you can. But most people can’t, and for this hypothetical Average Joe, it doesn’t change the fact that macs are out of range of prices they’re willing to spend. Most people I know just don’t want to spend, & don’t feel they should be spending, more than about 700 GBP. Most would prefer to spend less - as little as possible - and frankly they coudln’t give half a rabid rat’s arse about quality if it works.
Who Joe is, exactly, is obviously open to interpretation though… The examples I’ve given are what I consider normal, budget computer users.
Great article. Price is not the be all and end all, and market share is not either. What should matter to those of us who like what Apple does is that Apple continues to be profitable and that the Mac continues to contribute to that profitability. Cheap Macs were possible during the inter-regnum, when Apple licensed their technology and Apple clones were produced. Apple figured out this was not the way…
” ‘Many G3-powered boxes are still pretty-happily chugging along running Leopard, if not Tiger.’
I think you need to reconsider this sentence…” -B.H.
Mr. Hall I do not need to reconsider that sentence since I am running Leopard on a circa 1998 (bondi blue) iMac, at that. No CPU accelerator just to prove the point. And my son is very much happy and uses that to run iTunes (latest) and Firefox (both latest editions) and runs a-okay. The only thing keeping me from installing Tiger is the DVD can’t be played on that iMac.
I do doubt these early G3s are still running workhorse apps (Photoshop, Lightwave, Maya?) but they still should run fine with light-duty tasks as letter compositions and link hopping on the web and yes, iPod/iTunes still work (albeit slower).
I have another DVD-enabled G3 running Tiger at my biz running my Filemaker Server 7. No Prob there. Happy as a clam. My G4 “lamp” iMac is just peachy with Tiger at home.
My point in my original post was: Macs have an inherent “value proposition” in that, although they may have 10-30% markup on similarly spec’d PC counterpart, I can count on my Mac purchase to wither obsolescence better than if I buy a topped-out Dell XPS or Sony VAIOs. This “value proposition” or as I have described, “Value Added Investment” is hard for an average Joe to quantify, if not impossible. Joe Average does not does not imagine that far in the future. He is only interested in now, holding his $1000 tax refund check eyeing the end-cap display at his favorite electronics joint.
Now, I am not saying old PCs are completely obsolete. They are just happily running Win Me or prior. Many 5 year old PCs I maintain can no longer support XP due mainly to memory limitations not CPU incompatibility, but obsolete as far as XP is concerned. Will your current rig run Vista as advertised? Maybe, but how practical? Who knows.
That is the point I was making. You can buy cheaply into the PC side now and rest assured, your investment will be deemed obsolete by none other than Microsoft in the next evolution of their OS - God knows when that will be!
“Most people I know just don’t want to spend, & don’t feel they should be spending, more than about 700 GBP. Most would prefer to spend less - as little as possible - and frankly they coudln’t give half a rabid rat’s arse about quality if it works.” -B.H.
Yeah, most people with a finite income are scrimps when it comes to a choice such as a PC in the den, one in the living room, library, etc. I do know that a majority of those “scrimps” do have a sense of decor and most are aware of Mac’s flair of style - especially those Friday night get-togethers? They become a center-piece of many conversations and discussions, like this one. I do doubt having a Dell (even an XPS or Alienware) in the den will evoke a similarly heated conversations. Another angle to consider that the iMac minis are packed with a good size “value proposition” to the twenty- and thirty-something crowds.
Mac Drivers Wanted - No Invitations Needed.
Ooops, I meant Panther not Leopard. Too many cats in my head. What next Bobcat? Bengal? Anyway, I apologize Mr. Hall, didn’t know what angle you were coming from.
I do know that a majority of those “scrimps” do have a sense of decor and most are aware of Mac’s flair of style - especially those Friday night get-togethers? They become a center-piece of many conversations and discussions, like this one. I do doubt having a Dell (even an XPS or Alienware) in the den will evoke a similarly heated conversations.
Wow. You literally invent a fantasy hypothetical scenario, and then poopoo real Dells and the competition for not fairing as well as the Mac—in YOUR made-up fantasy. And this is supposed to make a point of some kind?
First of all, a Friday night get-together in which a computer of any kind is the center-piece of many conversations is a sad, sad get-together. I suppose this could be a Mac-group of some kind, but that’s kind of a self-selecting demographic and doesn’t really prove anything except that Mac fans prefer Macs.
Second, the “value proposition” argument likewise fails the “grounded in any sort of reality” test. A 3-year-old Dell can run XP as well as a 3-year-old Mac can run Tiger or Panther or whatever. The reason is because those systems were made for those OS’s. The difference, if any, is that there is a much wider range of hardware on the PC-side, and it’s consequently easier to find examples of inadequate hardware. Hell, you could build a system today that wouldn’t cut the mustard with XP, as well as one that would ace it. You can’t build a Mac system at all.
And my current system, which is 3 years old, has already passed the Vista test.
Well, Beeb get ready to upgrade that 3 year old white box PC of yours even if you passed the minimum 1 GHz, 1 GB, 256MB VRAM DirectX 10-capable GPU, and such because that is the bare minimum. You will need more than that fella to run 15k+ processes that Vista will need to run comfortably. XP typically runs 5k+ processes at the most. Imagine having to need 3x more powerful rig to have the same feel. How much would that cost?
If only that PC box had the same “value proposition” as a Mac. You will be enjoying Vista just as well as the newest PC rig. It will probably run it in a castrated mode - no Aero Glass, no sweet eye candies, just XP SP3-like. So being able to run Vista does not mean getting the full user-feel of actually RUNNING Vista at full potential. And that will cost you a whole lot more than a grand partner. How about a couple of G’s or why not just buy an Alienware, XPS, or Falcon while you’re at it, Beeb.
Yes, you will never be able to DIY a Mac since it will never be a commodity as the PC while Steve and the gang is at the helm. But Mac afficionados will never build their own white-box Mac. That would be like building your dream 3-series BMW from a mail-order kit. No, not even the kind of Mac that Mac users would even dream of.
“Value Proposition” as I have stated only matters to people who actually considers the “what ifs” when they are at Fry’s Electronics or Best Buy contemplating to buy that right home computer, and not impulse buyers making a move on a Wal*Mart price drops.
It will probably run it in a castrated mode - no Aero Glass, no sweet eye candies, just XP SP3-like.
You mean like the way my Mac Mini disables such features in Tiger despite being less than half the age of my PC?
If you’re going to compare running the OS at “full potential,” then compare Apples to apples. Your anecdotal G3 can’t run the CURRENT Mac OS, let alone future ones, neither can my year+ old Mac mini. And it remains to be seen what features of Leopard will be disabled for the older PPC architecture.
But Mac afficionados will never build their own white-box Mac.
That’s because Mac afficianados tend to be chumps who like to fork over their money without question to Jobs. They invoke lame-ass “value proposition” comparisons short on facts or reality, and fantacize about Friday night get-togethers in which the Mac is the center-piece of conversation.
Ladies and Gents, Beeblebrox+iMac mini=THE strangest bedfellows in Cybersphere. Since I coined that one I have to define it. A Cybersphere is a hypothetical nirvana where all the zealots, cynics, hypocrites, the Beebs, the Wallys, and the Joes, all co-mingle and coexists. They may not mingle peacefully but coexists nonetheless.
Say, Beeb, what was your “value proposition” when you hurriedly tucked that small box out of the Apple Store in Hollywood? What was in your mind that day??? Were you out of your f*&%kin mind? You of all people in the cybersphere, who hates every breath out of Steve Jobs, who swears at everything Apple comes up with, why did you even walk into an Apple Store? If that’s not the case, why did you even venture into the online Apple store? Or perhaps, saw a one-time special at Costco selling the much fabled Mac-minis?
What was your “value proposition” for “fork"ing your hard-earned dollars that day. Was it because in some infinitesimal way you wanted to be in the “other force” of Cybersphere. To be with those good folks who spends their time actually enjoying their computer and internet sessions and not squashing bugs or worrying IF they are catching one?
I can smell your kind and I will be happy to entertain you in this debate because I am a sworn hardware agnostic with preference for flair and style, hence my Mac preference inside my home. The white-boxes I have built are very powerful Xeon-based but I relegated them in my garage where they belong stylistically and figuratively.
Beeb I’ve tried to say it before but it’s evidently bounced off so I’ll try once more: while your aspirations of being the über-debunker of all Macly Hypocrisy are noble, you have to understand that admiring the mac aesthetic isn’t actually a crime against humanity, nor can you really justify slagging off the set of mac users who would rather have products from apple that are well engineered from the ground up, just because you want to run the software (that you applaud, when it’s convenient, for its superiority) on your own custom-built hardware. You know as well as everyone else does that not everyone who doesn’t want to build their system isn’t a chump.
And I just don’t get this thing where you dismiss someone’s argument purely on the basis that it contains an imaginary situation. For instance what Infidel’s hypothetical above clearly conveys is that macs can be a talking point because they are stylish and unusually innovative in design (iMac, Mac Mini). And yet you pretend to be unable to discern said message, rather than addressing it, which is the very epitomy of disingenuous.
Why be belligerent in a way that is so counterproductive to any kind of constructive discussion?
*is a chump.
heah hear…
You of all people in the cybersphere, who hates every breath out of Steve Jobs, who swears at everything Apple comes up with, why did you even walk into an Apple Store?
See here’s the thing. It’s possible to like Macs while still living in the real world. I like Macs, but I don’t worship at the altar of Steve Jobs, I don’t treat Apple talking points as facts, and I don’t chuck away cognitive reasoning in order to arrive at the foregone conclusion that everything Apple does is the way it’s supposed to be.
And since my failure to soak myself in the Apple kool-aid MUST mean that I hate every breath out of Steve Jobs, then I don’t see how you’d be happy to engage me in a “debate” since this is about as far away from a debate as one can get.
And I just don’t get this thing where you dismiss someone’s argument purely on the basis that it contains an imaginary situation.
Are you serious? RI’s creates an imaginary party in which the Mac is the center piece of many conversations, and then RI turns around and criticizes Dell because you don’t see that happening with their computers. Umm…huh?
Let me give you an equally valid hypothetical. A Friday-night get-together in which a Dell is the center-piece of many conversations. You wouldn’t see that happening with a Mac. THEREFORE, the Dell is of superior asthetics and design.
Is that what really constitutes a point around here?