Apple: Price skimming or legitimate luxury? Part 2

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

2) Intuitive usability: There’s no real question that the explosive success of Apple’s recent string of  pods, phones, and pads is largely down to this. Apple weren’t the first people to ever think of the idea of carrying music digitally, or having a touch screen phone, or a tablet computer. They weren’t even the first to invent the graphical user interface (GUI – i.e., clicking on icons and windows rather than typing in commands), or even the mouse (thanks Xerox Parc). But they were the first to make all of these things usable enough that people actually wanted to buy them.

Of course, Apple aren’t the only ones who can play this borrow-and-improve game. When Microsoft first copied Mac’s mouse and GUI, the story goes, Steve Jobs was so furious he summoned Bill Gates forthwith:

“You’re ripping us off!”, Steve shouted, raising his voice even higher. “I trusted you, and now you’re stealing from us!”

But Bill Gates just stood there coolly, looking Steve directly in the eye, before starting to speak in his squeaky voice.

“Well, Steve, I think there’s more than one way of looking at it. I think it’s more like we both had this rich neighbor named Xerox and I broke into his house to steal the TV set and found out that you had already stolen it.”

It took Microsoft a while to make something that was remotely as usable, but they got there in the end. And now Android is doing right back to iPhones what Steve jobs did to everyone else first, pinching the good ideas and making them their own.

But is Apple’s design acumen capable of sustaining this advantage – assuming no more revolutionary technological innovations?

The good news is that they did exactly that with PC’s for decades. While Mac and Windows substantially converged as they stole each other’s best ideas, Mac was still widely regarded as making the consistently better designed and easier to use machines, and this maintained them a solid base of fanatically devotees. The better news is that now they have an even bigger head start, and a lot more people hooked on their designs now than they ever used to.

The bad news is that for most of Apple’s existence their edge in design translated into a fan base, yes, but not a huge one – the new iPad boom has carried them from something like 5% of the world computer market up to 15 or 20%, depending how you count it. Excluding the iPad that currently puts them at a (still increased) share of about 10% of the rapidly shrinking PC market. Historically, then, Apple’s design genius kept them around as a large and respectable firm, but hardly a juggernaut.

The worse news is that they are now competing against design savvy firms like Google and Samsung rather than Microsoft. In fact, even the much maligned Microsoft is starting to figure things out too. Office 2013, while ugly as sin, has an interface that is unusually well thought out – even down to the little things like placing the buttons that open and close and delete emails right where your mouse tends to be just when you want to use them. That might not register much in the public imagination any time soon, but the tighter the gap narrows, the smaller an impact Apple will have.

Bottom line: Apple has a corporate culture of aesthetic expertise that other firms have historically found it hard to imitate, and that has given them a slim but sustained advantage for decades. Their recent breakout has taken them to sudden new heights, but everyone else is already starting to catch up, and they are facing competitors who are better at usability than Microsoft ever was. You have to like Apple’s odds of staying at the front of the pack, but not of outright dominating it the way they have the last few years. That’s my prediction, but we’ll see!


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