As mobile future looms, Apple milks iMac margins
Apple changed little on the new iMacs introduced Tuesday, including their pricing.
(Credit: Apple)Apple's long-awaited Mac desktop refresh Tuesday is evidence of the company's determination to preserve its margins in a category that's fast going out of style.
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Three Mac desktop categories were updated Tuesday, but only one really matters: the Mac Mini and Mac Pro aren't nearly as popular as the all-in-one iMac. Apple did improve the specifications of the iMac at the same price points, lowering the cost of acquiring a 24-inch version to $1,499. But it made few significant changes to a design that hasn't been updated since September 2007 and resisted calls to reduce the price of the iMac below $1,000, a psychological barrier that in troubled economic times could hurt Apple's sales, according to that line of reasoning.
In doing so, Apple is signaling that it cares more about margins than market share, at least when it comes to the iMac. After all, when people think about buying a new computer these days, they are shopping for a notebook, not a desktop.
Desktop sales are in freefall around the world; Gartner expects desktop shipments this year to decline 31 percent as the entire market for personal computers contracts by 11.9 percent. And Apple hasn't been immune to those trends. In the company's first fiscal quarter, Mac desktop sales were off 25 percent, which was actually steeper than the overall market decline during that period.
The interesting thing is that Apple doesn't seem to think price is the reason behind that decline. That's probably because Apple's customers are willing to pay slightly more for Mac desktops than they are for Mac notebooks, according to data from NPD Group. That is not the case in the Windows world.
The average selling price of a Mac desktop in the U.S. over the last six months was $1,503, while the average selling price of a Mac notebook was $1,493. Windows customers paid an average of $545 for their desktops over the last six months, while they paid $637 for their notebooks.
The reality is that regardless of price, desktop computers have fallen out of favor with the public, and Apple's pitch for the new iMacs--with a heavy emphasis on old-fashioned speeds and feeds--suggests that it no longer views the iMac as a product that is driving its growth, said Stephen Baker, vice president of industry analysis for NPD.
New Mac users are more likely to want notebooks, rather than desktops, because that's just how the overall computer buying patterns have shifted over the last five years, Baker said. There's a core group of Mac loyalists that might be faithful to the iMac, but new users intrigued by the Mac are far more likely to consider a MacBook than an iMac.
So, you give the older Mac fans what they want: faster iMacs with a more attainable 24-inch screen that could entice an upgrade from an aging 20-inch model. And by keeping the prices the same, you preserve profits that can be used to invest in other areas that are growing, such as notebooks and iPhones.
And those are the areas where Apple can choose more aggressive pricing strategies, said Baker. That may not come in the form of the oft-rumored Apple Netbook, but Apple has already shown a willingness to reduce MacBook prices, cutting the price of the entry-level MacBook below that $1,000 barrier to $999 in October.
Apple probably isn't going to get much more desktop market share: the category is crumbling, customers who buy solely on price aren't going to even consider Apple, and the iMac is no longer as unique a product as it was two or three years ago, when most major PC companies were still mostly selling bulky towers in the desktop category. So why lower the price, and therefore the profits? After all, once you lower prices in the computer industry, it's almost impossible to go back.
Tuesday's launch might be the beginning of the iMac's fade into the back corner of your local Apple retail store. It's arguably the computer that brought Apple back from the depths in the late 1990s, but 11 years later, mobile computing is the norm.
Tom Krazit writes about the ever-expanding world of Internet search, including Google, Yahoo, online advertising, and portals, as well as the evolution of mobile computing. He has written about traditional PC companies, chip manufacturers, and mobile computers, spending the last three years covering Apple. E-mail Tom. 
I agree
I think Apple is doing themselves a disservice by not augmenting their DT sales by offering another price point in their desktops to pro-users. Many "older" Mac users, as the article says, aren't looking at the iMac with any fondness. In fact, it's more of a poke in the eye than anything many of us wish to preserve. That's because many of us are professionals for which the iMac doesn't fit and only serves to push us into a higher priced workstation we don't need. "Older" Mac users have been waiting for Apple to offer a mid-range headless Mac for quite some time. A more powerful version of the mini that offers the performance of the iMac with the power of a non-dedicated graphics card topping out at no less than around 8 gigs of RAM and is only enough bigger than the mini as needs to be to accommodate those specs would have great appeal to the professional who sits at their desk all day and isn't roaming with their computer.
There are many who who don't need the Mac Pro and don't want and Apple monitor (or any monitor) built into to their CPU with higher priced lap-top innards. It would allow Apple to offer a little more affordable product (no monitor, economically produced form factor) that would appeal to pros on a budget they've ignored for quite some time and probably wouldn't require much decrease in profit margin (hovering around 30% is pretty outrageous as it is). The economy is much different than the one of the late 90's and early to mid 2000s when the iMac arrived and rose to be Apple's bread and butter desktop. The days of conspicuous consumption and desire trumping frugality will be on hold for at least a couple of years to come, probably more. At some point, Apple will have to bite the bullet and trade some of their higher profit margins for higher volumes or risk becoming a seller of white elephants that nobody can afford or want.
This also means that there is a (majority) of the market who do not see the value, and are not willing to pay more for the Mac experience.
The business results speaks for themselves: Dell has revenues of $61b, a resulting profit margin of 4.80% and market cap of $16b (a quarter of its revenue). Apple has revenues of $32b, a resulting profit margin of 14.8% and market cap of $79b (2 and a half times revenues).
So, for PC companies like Dell, who selected a commodity business approach, there is nowhere to go but down when its market tanks. Apple will be affected by the general downturn, but, they have something the commodity PC makers do not have - lot of cash to drive innovation and a loyal customer base with a very high switching cost.
I think there can be no discussion on who has the best business strategy.
Furthermore, since Apple's sales have fallen faster than the industry overall (ie. Apple's marketshare has started to go into decline) I think that we can reasonably argue whether Apple's long term future is so great. As the economy continues to decline customers ability to buy Apple's current offerings will further go into decline. Many economists predict that we won't see any positive numbers on jobs for at least 6 months. People without a lot of money are more likely to be interested in netbooks and other budget computers.
It is much easier to maintain dominance in a market than it is to break into a market. The major players dominating the netbook market (eg. ASUS, Acer, etc.) are going to probably weather the recession better than Apple who for all we know doesn't even have a low budget laptop on the drawing board.
I'd go as far as to say that if apple's eula is defeated, a lot of people will cross over to these great machines.
i do music plus a some video & have a 2yr. old MacBook for my "real" job & mobile computing, along w/ an iPod Touch, a 4.5 yr. old G5 PowerMac for my heavy lifting w/ FCS2 & Digital Performer & a 3 yr. old 17" Intel iMac for my home media center/server.
i think the new mini looks great, if it had been around when i bought the Intel iMac it's what i probably would have gotten. it took a while to make it what it should be for a media center/server computer, but it looks like it was worth the wait-time it took for it to be.
my local Apple store is as crowded as it ever was, if not more so. seems Apple is be doing something right.
The stores are always crowed. That doesn't mean anyone is actually buying anything! The Bose's store is always packed too and so is the Franklin Mint store. Window shopping is a big thing with stores like Bose, Franklin Mint, and Apple.
Sure, offer the entry level Mac mini with the integrated graphics but then give us another option using the same graphics as the top of the line iMac. I don't care about extra PCI slots, memory slots or Drive bays, etc. but at least give us desktop drives which are cheaper, faster AND bigger.
You can already buy a refurb iMac on the Apple store with better memory, hard drive and video card for only $50 more than the $800 Mac mini. The mini really needs to be cheaper or at least more customizable.
You can always count on Apple to have computers with fewer features than the competition.
I think that you are overstating the issues of profile 2.0 on Blu-ray. Profile 1.0 players can still play the feature film on a BD-LIve disc. No new Blu-ray profiles have been introduced in over a year so the standard seems pretty firm for right now. Furthermore, while higher capacity have been demoed at CES amongst other places there doesn't seem to be much industry interest at this point in the development of Blu-ray discs beyond dual layer.
Since any drive Apple would ship would support every Blu-ray disc on the market and for the forseeable future I don't think it is too early to offer it as an option. Particularly on the Mac Mini the exclusion of a BD-ROM drive as an option hurts it as a media center PC. If customers are willing to pay $250 to add the drive why would Apple refuse to take their money?
Furthermore, by your same rationale Apple shouldn't have included DVD burners with any of their computers before dual format DVD drives came out, but they did. It isn't like Apple has waited for the rest of the industry for other new standards (eg. Displayport, 802.11N, LED panels, etc.)
What is the harm in Apple offering Blu-ray drives as an option?
Ask them.
However, anybody that has owned a Mac knows the value proposition in purchasing a Mac is the great software which comes with it.
This point is very hard to appreciate for those who have neither owned or used a Mac for any length of time. I seriously think such people cannot perceive that there exists something more compelling than a Windows PC on the market.
Market share is not important to Apple. What is important is making a good profit and delivering suitable returns to its shareholders.
Bingo. They are out to make as much money off us poor people in a down economy as they can. Why would anyone want to support a company doing that again?
"...delivering suitable returns to its shareholders."
Which they have closed secret meetings with no internet or communication devices allowed. Sign up for a cloak and dagger company who's out to make a 15% profit on me in this horrible economy. Yes sir can I have another?
"They are out to make as much money off us poor people in a down economy as they can."
Umm, no. They are not targeting poor people. They are targeting upper middle class professionals who can afford and appreciate their products. Are you going to whine that you can't afford a BMW or a McMansion next?
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You are speaking about perceptions? Actually, this point becomes more and more important to those of us who have always used Macs and are finding the price of sticking to our beloved OS harder and harder to swallow as Apple reduces our choice of machines on which to run it down to a scant few. Currently, the ONLY thing Apple has to offer me regarding a computer that suits my needs is the OS itself. As it is, I'm pretty much forced towards the pro which I cant' afford. This means I will be waiting for quite sometime to buy a new machine even though the one I have is pushing 5 years old. Apple is "cannibalizing" sales of new machines by inducing existing customers to stick with their old machines longer than they want due to Apple's stubborn adherence to the trend of limiting choices at exorbitant profit margins. It becomes ever more difficult for the customer to accept both of these conditions at each point in their purchasing cycle, especially in the current economy.
I seriously think Apple should acknowledge that in the face of a failing economy and shifting needs of the consumer, there exists something more compelling than how wonderful the Mac OS, as wonderful as it is, which it truly is, that influences the market. That will always be price. The willingness of the consumer to pay a premium for "top shelf quality" will always be driven by the state of the economy and the purchasers ability to buy said items. At some point, economic realities outweigh perceived desirability. When one of the richest men in the world is now worth roughly half of what he was just a few months ago and each new month's release of unemployment numbers is the release of a new record high in generations, I think it's fair to say many of us, including the Mac faithful are starting to redefine our concept of affordability and quality. Aside from the weather, there is hardly anything more subject to change on this planet than perception.
Mac not MAC
1. Click the Start menu button on the Windows taskbar.
2. Click 'Run...' on this menu.
3. Type 'cmd' in the text box that appears. A command prompt window launches on the desktop.
4. In this command window, type 'ipconfig /all'. Details are shown for each of the computer's network adapters. Computers installed with VPN software or emulation software will possess one or more virtual adapters.
5. The 'IP Address' field states the current IP address for that network adapter.
6. The 'Physical Address' field states the MAC address for that adapter.
Or if you are on a Mac
1. Open "About this Mac" under the Apple icon in the upper left
2. Click on "More Info..."
3. Select "Network" and read the MAC address
1.) Click on Device Mgr
2.) Click on Network - MAC address is displayed for device in use
This is an inaccurate statement for one simple reason. At anywhere near the same price point you get a much more powerful machine with a desktop computer than a laptop. This is true on both platforms. The closest desktop Mac to a MacBook in terms of specs is the Mac mini, not an iMac.
As someone who covers Apple on a daily basis we expect more from you than simply quoting back the inaccurate statements of others.
http://marketshare.hitslink.com/report.aspx?qprid=9&qpcustom=Mac
http://marketshare.hitslink.com/report.aspx?qprid=11&qpcustom=Windows+Vista
Priceless = )
Windows 7 will still be 'Windows' regardless...and Snow Leopard will run circles around it.
Take a coarse already. ENOUGH ! Ya know?
- by Lethal_Lottery March 21, 2009 6:07 PM PDT
- The only think keeping me and a lot of the gaming community from embracing the imac is grahpics. its still to expensive for what you get. The attempts on apples part are nice, but still a slap in the face. We need a gtx 260. Also I am not really a fan of the new imac design i actually liked the unique plastic white ones. I hate the black 2 tone color scheme on the new ones. the glass screen looks really good though.
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