Apple's Mystery Product Revealed
News Analysis. Three months ago, Apple hinted at a margin-sucking product transition. Many Apple observers assumed there was a mystery product. There is, and it's so mysterious that most people missed it yesterday. |
Click here to see a video of the new aluminum MacBook
The mystery started during Apple's 2008 fiscal third-quarter conference call, where Chief Financial Officer Peter Oppenheimer said that Apple's margins would drop from about 34 percent to 30 percent in 2009 because of a future product transition.
In the days that followed, financial analysts and other Apple observers speculated about Apple's mystery product. Some financial analysts assumed that Peter insinuated price cuts would be coming.
Everybody was wrong. The entry-level cost for the new MacBook is higher than its predecessor, while MacBook Pro costs the same as before. The aluminum MacBook starts at $1,299, compared with $1,099 for its predecessor, while the high-end model gets a $100 price hike. Apple chose to keep the two MacBook Pro models at $1,999 and $2,499.
The misguided speculation and Apple's notebook pricing are intimately connected. The aluminum MacBook is the mystery product that could sap Apple margins. While everyone looked for something new and cheaper, Apple revamped something old and raised its price. I'll explain the pricing significance in a few paragraphs.
Apple has made some surprising product and pricing decisions with the new notebooks. For starters: similarities. Other than screen and physical size, the new MacBook and MacBook Pro look very similar. Yesterday, one of my editors tagged all the MacBook family blogs and photo slide show as MacBook Pro. The point: The differences, other than size and weight, are subtle. In the past, Apple differentiated in appearance and performance. No longer.
New MacBook Pro looks similar to the new MacBook
MacBook is Apple's best-selling computer in a category that accounts for the largest chunk of quarterly revenues. Specs aren't that different for 13.3-inch and 15.4-inch Mac laptops. Something else: Major, new features are the same across the entire product line. Apple isn't using newfangled doodads to differentiate MacBook and MacBook Pro, as it has done in the past.
Yesterday, during the notebook launch event, Apple CEO Steve Jobs claimed that the $1,299 MacBook has features comparable to the retiring $1,999 MacBook Pro. Ignoring the different screen sizes, the comparison is reasonable enough. That's a "35 percent lower-entry price," Steve asserted. So, from Apple's perspective, the real cost for a pro-class notebook is $700 less today than it was on Monday.
The point: Apple chose to price against itself rather than the entire laptop market. There's something both arrogant and pragmatic to the reasoning. Apple isn't the only notebook maker, but it is the only one selling Macs.
Appearance matters. There are many people who couldn't afford a MacBook Pro who wouldn't buy a white or black MacBook. They can now get the Pro look for $700 less. Apple should open up the market for MacBook Pro wannabes that will be satisfied with aluminum MacBook.
Apple's pricing strategy is brilliant, if for no other reason than its riskiness. I didn't know these creative types had such guts. While popular convention had Apple lowering pricing against the Windows notebook market, the company lowered prices against itself. Apple chose to stay the course through stormy economic seas, rather than cut prices, as so many people speculated.
If Apple's product positioning and sales strategy succeeds, MacBook sales will go up at the cost of MacBook Pro sales. MacBook will cannibalize sales from MacBook Pro. From that perspective, Apple did lower prices, just not the way many people expected, by:
- Making the consumer and pro notebook lines more alike
- Putting the hottest new features in both laptop families
- Boosting MacBook performance into MacBook Pro class
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 the summer, Windows notebook ASPs were $694, compared with $1,471 for Mac laptops. I predict that Mac notebook ASPs will drop and, presumably, margins, too, if MacBook sales go up at the cost of MacBook Pro. At some point soon, I should crunch some numbers on the potential impact on ASPs and margins.
Cannibalization risks and higher product costs make sense of Apple's decision to raise the entry-level price of the aluminum MacBook by $200 compared with its predecessor.
The mystery is solved.
[Please send your tips or rumors to watchtips at live.com.]
Related Posts:
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- How Apple Raised MacBook Prices, Apple Watch, Oct. 14, 2008
- Live from Apple's Notebook Launch, Apple Watch, Oct. 14, 2008
- What Apple's Notebooks Must Be, Apple Watch, Oct. 13, 2008
- It's Official: New Notebooks on Oct. 14, Apple Watch, Oct. 9, 2008
- Is Brick the Next Cube?, Apple Watch, Oct. 5, 2008
- Mac Laptop Retail Share: 35% Measured in Dollars, Apple Watch, Sept. 26, 2008
- Apple Demands a High Price to Be Cool, Apple Watch, Sept. 26, 2008
- Putting Mac Selling Prices in Context, Apple Watch, Aug. 8, 2008
- Vista PCs: These Prices Are Insane!, Microsoft Watch, Aug. 5, 2008
- Should You Pay Twice as Much for a Mac?, Apple Watch, Aug. 5, 2008
- Can Price Cuts Get Apple 10% Share, Apple Watch, July 23, 2008
Comments (1)
Spot on analysis.
Apple made the MacBook a kind of MacBook Pro "lite".
The depressed economy isn't just about spending less, it's also about perceived value. For potential Mac buyers, many are going to see the new MacBook as a "pro" machine at a "consumer" price and snap it up. At least, that's Apple's gamble.
Posted by Tom | October 15, 2008 6:50 PM