Apple is repeating the same mistake with Android smart phones and tablets that it did with Microsoft Windows and personal computers. That seems to be the view of many tech pundits today. Yet another analyst has a cure for Apple’s future woes. Cheaper stuff for emerging markets.
Cheap iPhone, Cheap iPad, Cheap Mac
It’s all the rage these days to describe what Apple should be doing, and lowering prices or shipping less expensive products in the mainstay of the critical crowd.
Tiernan Ray writes about Ben Reitzes in Barron’s who worries that Apple may not be able to compete with Google’s Android devices in new, emerging markets.
Ostensibly, Apple needs to hook customers into the ecosystem early to ensure the company’s long term prosperity. Translation: Produce a cheaper iPhone to compete with low cost products by Samsung and China’s ZTE.
This isn’t a new idea. Cheap anything by Apple dates back to the late 1980s when the company decided people would and should pay a premium for the Mac.
Does it make sense for Apple, which has nearly three times the gross margins on iPhone and iPad as second place Samsung, to introduce a low-priced iPhone and iPad simply because customers in emerging markets cannot afford expensive products?
For many customers in developing markets, simply accessing internet, email and an app store may be enough to stimulate a purchase. We believe Apple could offer a scaled down version of the iPhone at a low price point in order to capture the initial smartphone purchase from customers upgrading from feature phones – pushing new consumers into the Apple ecosystem earlier.
That seems plausible, right? I’m not sure what Apple could do to an iPhone or iPad to make it much less expensive, cost less, and have less functionality, but lower prices mean higher market share.
Wait a minute. Are there examples of other companies with premium products that have introduced low price products just for emerging markets? And what are those emerging markets, anyway?
Does Mercedes have a less expensive car for the African continent, India, or parts of Asia that have customers who can’t afford the real thing?
Does General Electric make a less expensive engine for airplanes for newly emerging markets in Africa, India, South America, or Asia? Let me use the emerging market of China as an example.
There are plenty of iPhone competitors in China. The Chinese with money prefer the iPhone and it’s selling like crazy. Why? Not only is the iPhone more functional, more capable, and more durable than cheap smart phone knockoffs, it– like Rolex, Mercedes, and other premium products– is a status symbol.
Without question Apple could reduce prices, or simply manufacture and sell lower priced and less capable iPhones, iPads, and Macs. What would Apple gain? More customers. What would Apple lose? That list is arguable.
Profit margins would shrink. Lower priced products often mean lower quality, so some of Apple’s product brand and cachet would be diminished. Yes, you can buy cheaper tablets (Amazon, Google, Samsung), but are they better tablets? Are they as durable? Do they do as much?
Worse, all those smart phone makers, sans Samsung, are losing money hand over fist, even in the prosperous, mature markets of North America, Europe, and Asia. Who would Apple compete against at the low end?
What’s the benefit to Apple of a cheaper iPhone, iPad, or Mac (as in, lower quality, less functionality)?