By Joe Wilcox, Betanews
I've been awfully hard on Apple's iPad, criticalness that I really should consider, for a surprising reason. With iPad, Apple took the approach that I recommended nearly a year ago. Microsoft's current, catchy PC operating system marketing campaign ends with some consumer asserting: "Windows 7 was my idea." Perhaps I should claim that "Apple iPad was my idea." ;-)
Some background: In early 2009, as the economy sucked growth from the PC market, netebook sales surged and Windows OEMs slashed prices, there were many calls by Wall Street analysts and pundits for Apple to release a netbook and to slash Mac prices. I opposed both ideas in several blog posts. I've called netbooks a menace, because they suck margins out of the PC market without offering much value to the computer manufacturer or netbook buyer. Meanwhile, Mac price cuts made no sense to me, even as more analysts called for them. Apple has established a premium brand that price cuts would jeopardize, all while reducing margins and offering little other business benefit. Apple had long priced against itself rather than against Windows PCs, which has been a successful strategy. Why change it?
To me, the call for an Apple netbook and for lower prices made sense in a different way: Rather than move Macs and their prices down, Apple should move iPhone/iPod touch up in price and size -- that's what I recommended in several blog posts to be excerpted in a few paragraphs. The idea: For Apple to fill the middle pricing gap -- between $399 iPhone and $999 Macbook -- with an iPhone OS-based device that also provided access to App Store.
That's what Apple is doing with iPad, which price ranges from $499 to $829. Apple now offers portable computers -- and that's how I classify iPhone, iPod touch and iPad along with Macs -- ranging from $99 to $2,499. From a pricing strategy perspective, iPad is a brilliant product, because it fills the gap between between iPhone/iPod touch and Macbook without price cuts or risk to the Mac's premium brand status. Microsoft and its Windows PC partners should be very concerned about this pricing development, but more on that topic after a few excerpts from past blog posts.
iPhone/iPod touch as the Better Netbook
In March 2009, at Apple Watch, I posted: "Apple, Don't Buy into Netbook Hype." I wrote:
From branding, logistics, pricing and market differentiating perspectives, a bulked-up iPhone or iPod touch makes more sense than a Mac netbook [e.g., mini-notebok, as analysts refer to it]. That's what Apple should do, and the existing netbook market shows the way. Mini-notebooks aren't just small and cheap, they're subsidized by carriers, just like smartphones. The carrier model, with 3G data plans, is already in place. Apple should push it upmarket from iPhone and even iPod touch rather than take MacBook down market...
Suddenly, the differences between smartphones and multitouch mini-notebooks could blur really fast. Apple will have to work harder to differentiate iPhone and iPod from carrier-subsidized touchscreen mini-notebook/smartphone hybrids running Windows 7. Apple's biggest asset is the App Store, which would be helluva enticing if made available on a mini-notebook/smartphone hybrid...
Apple is better positioned to extend the smartphone/portable media player market upwards, rather than pull the notebook market downwards. Marketing 101, guys: People will spend more for perceived value. If you offer them more for a lower price, they'll forever resist paying more. Upsell is almost always better than downsell. So, Apple shouldn't buy into netbook hype. Apple should redefine it.
What I suggested is exactly what Apple is doing with iPad. Not that I can really lay claim to the idea. It's cheeky for me to take credit, but product development takes awhile. Surely someone at Apple was working on something like iPad long before I blogged the above paragraphs.
A month later, in another Apple Watch post looking at Mac retail sales, I strongly recommended against Mac price cuts analysts had recommended to better compete with netbooks:
If I were running Apple, I would resist the temptation to cut prices. As I explained a few paragraphs ago, Apple is performing pretty well compared with Apple a year ago. The company is better off losing market share to protect fundamentals. Market share declines will have people like me wagging accusing fingers that Apple will go down. So what? It's better for Apple to sell fewer Macs for much more than a few more Macs for much less.
In December 2009 Betanews post, "10 things Apple did right in 2009," I praised Apple's strategy of cutting prices at the high-end, while resisting lower entry prices below $999:
While Windows PC competitors slashed computer prices -- and so their margins and profits -- Apple held above-$1,000 pricing firm for iMac, Macbook Pro and Mac Pro. The higher pricing surely didn't seem to hurt Mac sales, which were strong all year. Meanwhile, low-cost netbooks sapped Windows PC margins and profits. Apple did right by lowering prices at the high end, which simply opened up more sales over $1,000, where Apple has more than 90-percent revenue share for computers sold at U.S. retail, according to NPD.
The Brilliance that is iPad
My blog posts sometimes seem quite contradictory. For a month, I've been nothing less than brutally hard on Apple's tablet. Two reasons for seeming contradictions: 1) I sometimes purposely write provocative posts to incite debate. 2) I keep an open mind, looking at tech products and their supporting business strategies from different viewpoints -- meaning my opinion changes. Yesterday, I offered up "12 reasons why I won't buy an Apple iPad." On that my post, my position remains firm. But iPad means something else when examined from a different viewpoint, which is what today's post is about. I'm not the iPad's target market, and that's where lies the product's brilliance.
During Wednesday's iPad launch keynote, Apple CEO Steve Jobs spoke about iPad fitting between smartphone and laptop. Geeks haven't reacted well to this; iPad is a compromise device, in terms of functionality overlap with the smartphone below and laptop above -- while replacing neither. But geeks aren't the target market, either (we share that in common). Jobs is first and foremost a marketer. From a marketing perspective -- looking at Apple computing products as a range of features and prices -- iPad fills a gaping hole in the Mac product line between the aforementioned $399 and $999.
Suddenly, the cheapest, functional Mac portable is $499, or half what it was on Monday. Consumers who wanted a Mac but couldn't afford one can get one for under 500 bucks. The average consumer doesn't care about the operating system, whether iPhone OS 3.2 or Snow Leopard. Mac wannabes will care more about what the device can do for them. Apple has packed most of the basic, most appealing functions of the Mac portable -- including iWork -- into iPad. The pundits evaluating iPad as an ebook reader first should look at the device as ebook reader second or third -- or even last. The iPad is a portable Mac first, which is the real emphasis behind the device's Website (Give it a real look).
On Wednesday, I blogged that "Apple's iPad does absolutely nothing to advance the tablet category." I was wrong. Apple instead did what I recommended about the netbook category: "Redefine it." The iPad is a netbook -- the cheapest Mac portable (discounting iPhone and iPod touch, of course) -- and it only costs $499. From that perspective, iPad is a brilliantly conceived device and one sure to eventually have mass-market appeal.
My cranky, geek iPad sniping aside (in previous blog posts), Apple is rightly thinking about the mass market and how to offer a Mac across all price points and range of features. It's brilliant marketing that looks at the totality of what Apple should offer customers rather than to simply respond to competing products, strategies or pricing. Apple's marketing brilliance here is something I should praise, whether or not it was my idea. ;-)
Copyright Betanews, Inc. 2010
