Henry Blodget is no stranger to TMA. His link-baiting bust adorns the hallowed halls of Douchbag’s Row. But not all of Blodget’s work is horrible when it comes to Apple, which is a little unusual for writers who have settled into the Apple-bashing schtick to butter their bread. The reason is that in his own way, Blodget is a genius. People can’t truly attach themselves to uniformly bad behavior. If you’re going to be successful at being bad, you can’t be predictable. Take the case of a well-written villain like Jamie Lannister in HBO’s Game of Thrones. In one episode, he’s shagging his sister and knocking-off 11 year-olds, in another (without being too spoiler-y) he’s going on a search for a rival’s lost daughter. Fearless warrior; vile incestuous scoundrel. He’s complex. He does things that are absolutely loathsome and then displays a spark of humanity that momentarily endears you to him – until the next scene. Blodget will write something that makes you think he has a rational view of Apple, then the next piece will be about how Apple is failing because they cut $200 from the price of a laptop. Let’s take a look at Jamie’s latest work.
Only four months after launching a new laptop with a high-resolution “retina” screen, Apple has chopped $200 off the price.
Apple’s 13-inch “Retina” MacBook Pro will now sell for $1,499 instead of the $1,699 original price.
This is a small move, but it’s symptomatic of the broader challenges that Apple (AAPL) is facing.
It’s a small move, unprecedented in the history of the company. Oh wait – Apple lopped $200 off the price of the original iPhone in 2007. That was a 33% price reduction. Result? Apple fell into a spiral of commoditized despair from which it never recovered. Or started its ascent to absolute mobile electronics market dominance, a position it still occupies. One of those two. But don’t let me interrupt Henry as he tells us how a price correction is a symptom of a huge problem for the company.
The most likely reason for a price-cut so soon after launch is that the product wasn’t selling well at the original price. And with the 13-inch MacBook, this would not be a surprise: Reviewers were underwhelmed with the laptop when it was released, arguing that, at $1,699, it was not a good value. Based on the price cut, it appears that Apple laptop buyers agreed.
I swear I coined a term for this trick, but I can’t find it so I’m going to coin a new one: fecal cornerstone – it’s the use of a garbage premise to lend support to bad tech analysis. Blodget has no idea why Apple cut the price of its 13″ RMBP, and there’s not one reviewer who doesn’t write for Gizmodo that was underwhelmed. What I can tell you – backed by the kind of research that writers like Blodget can’t be bothered with – is how the 13″ Retina model lines up with the rest of Apple’s Pro line historically:
See what Apple did there? They corrected the price of the 13″ Retina to line up with the historic spread between it and the 15″ model. That’s all they did.
The price cut reveals that consumers won’t rush to buy the latest greatest Apple product just because Apple made it. The price-value tradeoff has to be reasonable. And in the case of the MacBook Pro, it apparently wasn’t.
At least he used the word “apparently”. When your living is made basing your word count on specious, unprovable claims, that’s restraint.
This problem — the price-value tradeoff — has become an issue for Apple far beyond laptops.
We have lift-off.
As smartphones become a commodity, Apple’s most important product line — theiPhone— is experiencing similar challenges. The explosive growth in the smartphone market in recent years has shifted to emerging markets, where price is a major factor in consumer decision-making. By not offering a cheapiPhonethat is affordable for consumers in these markets — $100–$200 without a contract or subsidy — Apple has missed out on much of this growth.
Done OK profit-wise though which, last time I checked my Finance 101 folder, is apparently some kind of important metric.
Meanwhile, the competition at the high end of the smartphone market, where Apple once dominated the field, has become much more intense. And Apple’s premium product — the iPhone 5 — is no longer considered by some to be the best product on the market. Unless Apple can firmly re-establish the iPhone’s superiority, which does not look likely to happen anytime soon, the company may face increasing pressure to improve the price-value proposition for this product, too. And that might be devastating for Apple’s profit margin, which is currently extraordinarily high for a hardware company (emphasis mine).
Unnamed important people think the iPhone 5 isn’t top of the market, and because these unnamed people have judged it inferior, this means that Apple can’t make superior phones anymore, at least “anytime soon”, so Apple will have to make products that eat into its profit margins. When you’re writing is potholed with this many conditionals, it’s known as “playing deep right field at the warning track”.
The same story is playing out in tablets.
The price-value tradeoff of some recent tablet entrants has reduced Apple’s dominance of this product category — a category that Apple invented and, a few years ago, had to itself. The price pressure in the tablet market, in which consumers can now get excellent tablets for much less than Apple is charging, will likely force Apple to continue to improve the price-value proposition of its iPads. And this, in turn, will also likely begin to eat into Apple’s profit margin.
Where are these products? Who makes them? Where are the numbers? Oh yea – we’re at the “2nd back-up example” part of a standard hit piece, because any sound argument needs 2 examples to cement it, regardless of how hilariously far out these examples spiral from the facts.
A few years ago, in phones and tablets, Apple was both the price leader and the product leader. Apple’s products were better than the competition’s, and they were cheaper.
Today, that is no longer the case.
And it probably means that Apple’s extraordinary profit margin will continue to decline.