About 10 years ago Microsoft’s co-founder Bill Gates declared that hardware would be free. Semantics aside, prices for PCs, smartphones, and tablets are heading toward zero. How would free hardware affect Apple?
No. Free. Lunch.
There is little question that the cost of personal computing is going down– whether it be cloud services, traditional PCs, or devices from the post-PC era, smartphones and tablets.
How low can they go? Apple shocked the world with a $499 price tag on the original iPad in 2010, but today similar tablets can be had for half that.
In fact, I’ve seen Chromebooks priced at $199, and many cheaper knockoff tablets have similar price tags.
What’s going on? Was Bill Gates correct? Is hardware going to be free?
If usage statistics mean anything, most of the cheaper PCs and tablets spend more time gathering dust in closets and drawers than getting used, but my last trip to the UK found a number of branded PCs and tablets (Tesco in the UK, Walmart in the US) in the $200 range.
What’s wacky in this so-called free hardware model is the business model.
Where’s. The. Jack?
Both Google and Amazon sell hardware (smartphones and tablets for the former, a line of tablets for the latter) which are sold at near the cost of manufacturing; $100 to $200 less than Apple’s premium products.
Both Google and Amazon expect to make revenue, and eventually profits, on data gathering, advertising, and media sales. That business model has yet to show signs of success, but both companies have deep pockets and can afford to be patient.
Other retailers are buying and selling cheap Chinese made tablets with store brands which, with the right apps, helps to promote their business, and get users to buy from them online.
While the jury may be out on what success they’re having, what they are doing is creating a price expectation for personal computers, smartphones, and tablets that is lower than ever. Wouldn’t that signal bad news for Apple?
The Favorite Son
No. The math favors Apple. Among the purveyors of cheap PC notebooks (Chrome or Windows), plastic smartphones, and blister-pack tablets at Walmart, who makes money? Apparently just Apple, with some crumbs going to Samsung. The business model of promotion, advertising, data collection, and online media purchases– as espoused by Google and Amazon– has yet to bear enough fruit to count.
Hardware may be subsidized (or, more properly termed, financed) by advertising, by multi-year cellular contracts, but a sizable segment of the buying public prefers quality products that go beyond the throwaways offered by nameless Chinese makers. A Walmart or Tesco logo on a tablet does not make it a must have product for those with discriminating tastes.
Likewise, nearly free smartphones running Firefox OS or non-Google Play Android wrapped in a highly breakable plastic shell with a crummy screen isn’t what those in or striving for the middle class want. If Apple continues to wrap up the majority of the industry’s profits (whether PC, smartphone, or tablet), all other competitors must learn to live on leftovers and crumbs. That’s not a good long term strategy for business success.
It’s becoming more understandable why HP wanted to sell their PC business, why IBM did sell theirs, and why Asus, Acer, Dell, Toshiba, Sony as well as Motorola, HTC, BlackBerry and Nokia are suffering.
The math favors Apple.