Apple: Price skimming or legitimate luxury? Part 1

Side note: This blog officially made it to La Decima before Real Madrid. That’s10 posts for me, and only 9 European Championships for them. So glad I don’t have to fire myself.

I have a couple of colleagues at work who think Apple are price skimming on their phones. What they mean is that they aren’t producing new innovations that keep their product ahead of competitors, and instead of recognizing that, and dropping their prices to compete directly, they are hanging on as long as possible to higher price to skim extra money out of their still-loyal customers.

Is this true? Is Apple cashing in, or are they just charging more money for a consistently premium quality product, like BMW and Calvin Klein have been successfully doing for years? Which is to say, are Apple’s big marketing advantages sustainable? I present my take on what Apple’s advantages are, and in a series of posts I will talk about them one at a time:

Apple’s advantages:

  1. First mover with technological innovations
  2. It just works a) intuitive usability
  3. It just works b) devices work together
  4. Higher build quality
  5. Brand image

1) First mover: Apple originally had near 100% of the smart phone market by essentially having the first (good) smart phone…. And they made the smartphone market a pretty big one by making the iPhone so… good. They did the same thing for the iPod, the iPad, and the MacBook Air. That’s really quite the string of innovative market shaking first-of-kind products. These have to have been the single most identifiable steps that catapulted them from being a largish company to arguably the biggest in the world (depending how you measure it).

The bajillion dollar question if whether it’s Sustainable? If I had inside info on this I wouldn’t be posting it here, I’d be speculating the answer on Wall Street. That said, on the one hand you don’t want bet against a streak, but on the other hand, how many new ideas like that can there possibly be? And is Google muscling in on this mantle with their upcoming Glass, and rumoured watch?

This, BTW, is where the laws of punditry require me to say “and can they do it without Steve Jobs?”. But without underselling his brilliance or charm, Steve Jobs oversaw Apple for several decades, and he only really had that string of market-shaking products in one of them, so it’s not like his very presence was automagic innovation dynamite.

Apple’s latest announcements are that they are going to make iTunes into a streaming music service that more or less does exactly what Spotify already does (to stem the bleeding presumably, more than to win new customers), and they just:

unveiled the latest update to its iPhone operating system which features new icons, new typfaces, new applications, multi-tasking for all apps and improved searchability. Tim Cook, Apple’s chief executive, described the revamp as “the biggest change to iOS since the original iPhone was introduced”.

Nifty? Perhaps. Re-revolutionary? That’s a pretty tall order.

There are an ongoing few factors that work in Apple’s favour here though:

They have ungodly amounts of money stored up, which lets them act almost as their own bank to finance new innovations and production methods. Also, because they sell such enormous quantities of each item that they make, they end up being the single biggest customer for the pretty much all the relevant parts. If you are a company in China that makes, say, extremely high quality video displays, and Apple rolls up asking for a run of them for a new device, then you drop everything, and focus all your production on Apple. If there are scarce resources that go into making anything, then Apple has the inside track to corner it, and nobody else really stands a chance.

The bottom line is that when and if Apple are able to come up with a brilliant new technology, they are likely to be able to beat everyone else to market quite handily.

Bottom line: It doesn’t seem like a good idea to count on Apple continuing to rock the market with breakthrough innovations year after year, but if anyone can do it they have a number of advantages in trying to get their first. Is it sustainable? Somewhat. Probably.

Full disclosure: I’m a PC guy, married to a Mac girl, who partly wrote this on an iPad.

Advertisements

2 thoughts on “Apple: Price skimming or legitimate luxury? Part 1

  1. Pingback: Apple: Price skimming or legitimate luxury? Part 2 |

  2. Pingback: Apple: Price skimming or legitimate luxury? Part 3 |

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s