Apple: Price skimming or legitimate luxury? Part 3

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

3) Devices work together: When you drop something you built into a new environment it often crashes pretty badly. A car that runs just fine around a test track might stall on real city streets, with their grinding stop, starts, and type A drivers. And once you get it running there, it might clog up with sand immediately if you take it to a desert (car batteries only last a year or two in hot climates too).

It’s the same thing with computer software. A web page that looks fine in Chrome might be a train wreck in Explorer (or vice versa), because the different browsers use slightly different rules for rendering the same code into visual images. The more different places you have to build something to work in, the harder it is, and the longer you spend finding and ironing out the new wrinkles. Building things for Apple you only have a handful of devices that need to work together and run the same software (let’s see, iPad, iPad mini, iPod, iPhone… that’s, what, 5?), and they’re all quite similar to each other.

Android apps, on the other hand, have to run on hundreds of different devices, made by dozens of manufacturers, with wildly varying levels of processing power, across hugely different screen sizes, shapes and resolutions, and with a gamut of different quirks and gremlins (edited to add: A new report shows almost 12,000 models of Android phones out now). Yet consumers expect anything written for Android to work just as flawlessly as Apple customers do. That is the sort of problem that keep engineering dollars flowing to antacid companies.

It’s not just apps, either. It’s easier for Apple than other people to sell you a computer that automagically connects to your TV and house speakers, so that you can browse, pipe shows, or play music through any of them using just the phone in your pocket. You plug it in, and it more or less “just works”. This has been one of Apple’s selling points since forever.

Is this advantage sustainable? On some level, yes. It’s baked into Apple’s business model that they only have a few different product lines, whereas the same is not true of their competitors.

On the other hand the rest of the world has been catching up. It used to be that every new piece of hardware you bought for your PC, from a mouse up, came with a CD of special software you had to install first. But these days you plug everything into a standard USB socket, and then the devices are pretty much plug ‘n play (or, as nerds used to call it in its earlier, less stable days, “plug ‘n pray”).

While it has to be harder writing apps for Android, people have nevertheless written hundreds of thousands of them, so the interface for building them must have been well put together. Google even does a little quiet quality control on occasion – recently they were caught ditching 60,000 apps that weren’t up to snuff, and/or violated copyright.

In fact, Apple’s failure to adopt a lot of these standardizations means that while you can just plug your PC into, say, a classroom projector, you can’t do the same with your AirBook without first buying (and carrying around) a special adaptor from Apple. Apple doesn’t even always play well with slightly older Apple. If you don’t keep paying Apple for updates to the operating system on your MacBook, for example, within 3 or 4 years basic functions on it stop working – the software that runs these functions demands to be updated to a version that is incompatible with your old OS (this happened to my spouse’s machine). Every so often Apple changes the power or adaptor cables it uses, so a new iPod won’t fit into your old stereo cradle without buying an adaptor. These are all problems you can solve by throwing money at, but, that makes Apple an even more expensive lifetime proposition to own.

There’s also an inherent marketing drawback to this “umbrella branding” strategy. By maintaining only a small number of products, you leave the field open to competitors to develop niche products that more closely fit different segments of consumers. Blackberry and the MS Surface, for instance respectively cater to business user’s needs for highly secure communications and native MS Office support in a way that iPads are unlikely to imitate. As the market matures further, there’s nothing to stop Samsung or Nokia developing phones and tablets more directly aimed at business people, or at little kids, or students, or people who see themselves as rugged trekers, or any number of other groups. The larger and more lucrative the market becomes, the more tempting this sort of targeted branding will become – especially if a lot of the changes don’t require overly expensive technology development. That might allow some of these other brands to start peeling away more users from the edges of Apple’s user base.

Bottom line: Apple’s strategy of marketing a small number of devices that can then be made to work very smoothly with each other is an enduring, but shrinking edge. The rest of the high tech industry has become increasingly good at standardizing various hardware and software features in ways that let even strangers play fairly well with each other, the practical edge that Apple holds shrinks slowly.


2 thoughts on “Apple: Price skimming or legitimate luxury? Part 3

  1. Fun stuff, Alex. I think you miss an interesting point — devices like the iPhone and iPad now no longer even need to talk to a computer — so who cares about playing nice? I’ve (happily) not had to plug my iPhone into a computer for a year, which on the one hand has made tossing aside OS X easier, but on the other hand makes it more likely that I might choose an iPhone again.

  2. I’ve never really plugged my Android phone into a computer either. If I want to send a picture or a music file or whatever, I upload it to Drop Box, or I attach it to an email.
    This actually supports my point if you think about it.Take email: It’s a standard system that isn’t maintained by Apple or by Samsung or by Google (they have their own front ends like gmail, but the actual protocol itself for sending a message is independent of any of them, so I can send a message from my gmail account to your university one without thinking twice about it).

    Apple tries to pull you into integrating all of your devices more closely than this. It wants you to use iTunes on your computer, and then to have that manage the music on your iPhone. But even here, there are now a ton of 3rd party music managing apps that do it better, and that will run equally well on a mac as on a PC.

    So then Apple tries to build the concept out further with things like AirPlay, that are supposed to wirelessly link not just your computer, but also any Apple media player in your house – be it a TV, BluRay player, stereo, whatever. That said, you can now pretty much do this with your Android phones too:

    Standardization is how you get a cacophony of bits and pieces made by different people to play well together. You make each device a black box that can do whatever it likes internally, but has a defined and public set of rules for how it can communicate and interact with anyone else who likes. Individual big manufacturers hate it, because they’d rather lock you into their own system (the life hacker article above says that X-Boxes don’t work well with this media-sharing system, because MS tries to use a proprietary format), but in mature markets the big players typically have to knuckle under and provide it in order to keep their sales up.

    To the extent that standardization successfully makes everything play so well with everything else that you don’t even notice the gaps, that erodes Apple’s original underlying advantage.

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