Apple, go cheap or go home: Time to dump the elitist strategy

Posted by Carmi Levy

Analyst Opinion - Saying Microsoft’s Steve Ballmer is prone to hyperbole is like saying deep fried bacon strips do little to encourage a heart-healthy lifestyle. We all know it’s obvious, so we’re hardly surprised when we read the headlines.

So when Mr. Ballmer made headlines in March when he said computer buyers paid a so-called $500 “Apple Tax” just to get the storied logo on a new machine, most of us took it in stride. We’re used to him pushing our buttons. And while subsequent investigation proved him largely wrong - comparably configured Apple and Windows machines are typically priced almost identically – it once again ignited the long-simmering debate over Apple’s relative absence from the low end of the market.

If all you can afford is a few hundred bucks for a machine, you’re not buying anything with an Apple logo. This may not have been a big deal a year ago, but as more Americans lose their jobs or hover on the edge of unemployment, cheap tech is suddenly all the rage. To wit, Apple’s Mac sales dropped 16% last quarter just as netbooks came out of nowhere to become the only bright spot in an industry decimated by collapsing demand.

Price-conscious vendors like Acer and Asus have quickly established themselves as major forces in consumer tech. With little hope of economic recovery any time soon, vendors with lower-end offerings could pick up more than just mindshare.  The Hyundaification of the PC market is upon us.

For all the seismic change in consumer buying behavior, no one seems to have shared the news with Apple. While rumors of low-end Macs continue to swirl, the company has denied its current offerings are overpriced. No wonder: Apple’s margins actually increased last quarter, and any move downmarket will erode those numbers in a heartbeat. Apple has always succeeded by avoiding the commoditization game, and it assumes that same strategy will continue to work in 2009.

It won’t.

While Apple continues to squeeze more profit out of every box it sells, long-term success will have less to do with actually selling boxes. Apple may have bought itself some time by killing Mac clones in 1997, but sooner or later, owning the hardware will cease to be a competitive differentiator. These days, the ecosystem’s the thing, and Apple can buck industry trends for only so long. At some point, it needs to shift its focus away from maximizing Mac margins toward maximizing the potential of the Mac environment.

Lower-end Macs would accelerate the platform’s growth rate and encourage even more developers to join in on the OS X party. As Microsoft struggles with maintaining its OS dominance in the face of a growing shift toward a Web services-driven future, a huge vacuum opens up at the bottom of the market. Google may get all the headlines as the only vendor capable of delivering such services, but at some point you need a robust, inexpensive, developer-friendly machine to attract the masses. If not netbook-cheap, then cheaper than we’ve seen thus far.

As the drumbeats build in advance of Apple’s Worldwide Developers Conference scheduled for next month, it’s becoming increasingly clear that lower-priced hardware will radically alter the company’s future.

Carmi Levy is a Canadian technology analyst and journalist covered with scars from his years leading IT help desks and managing software development projects for big bad insurance companies. He comments extensively in a wide range of media, and works closely with clients to help them leverage technology and social media tools and processes to drive their business.