Henry Blodget: Apple Is Blowing It With High Priced iPhones

  • November 15, 2013

Here we have another seemingly rational and well written piece by longtime Apple critic Henry Bloget – Come On, Apple Fans, It’s Time To Admit That The Company Is Blowing It (now, that’s what you call a “click bait” title)

Henry Blodget:

Apple fans have developed excuses for Apple’s lagging sales. The most popular is that Apple is a “premium” gadget maker, not a hoi polloi gadget maker, and it only wants to sell its phones (and tablets) to people who can afford to pony up for them. Apple, in other words, is like BMW, not Ford.

There are two big problems with this analogy. First, unlike cars, smartphones are a “platform market” — third parties build products and services that run on top of smartphones — and in platform markets, market share is a huge competitive advantage. Second, in emerging markets, which is where most of the growth in smartphones and tablets now is, there just aren’t that many people who want to buy BMWs when many very high-quality gadgets are available for much lower prices.

The actual reason that Apple’s gadget sales are now so badly underperforming the market is that Apple no longer sells products at price points that appeal to the growth segment of the market.

Apple fans can keep telling themselves that this is just fine, that Apple doesn’t want or need to sell gadgets to earthlings of more average wealth, but what these fans need to recognize is that this is effectively a major change in Apple’s pricing strategy.

In the first few years after the iPhone and iPad launched, Apple led the market not just in product quality but in product price. The iPhone and iPad were not just way better than the competition, they also cost the same or less.

The reality here is that Apple is definitely selling products that are price competitive. What Apple is NOT doing – is selling products at cost price and making junk products for the sake of meeting a particular price.

Henry Blodget at one point appears to get this:

The simple answer is NOT for Apple to make low-end gadgets that it considers crappy. It is for Apple to use its phenomenal profitability as a competitive weapon. Specifically, the answer is for Apple to sell some of its gadgets -— not the latest, greatest ones, but some — at prices that are highly competitive with local alternatives.

But then he “lost the plot” again with this line:

Now that Apple has “forked” its iPhone product line into the 5S and 5C, for example, it could sell the 5C at a sharply lower price point. Instead, Apple is still charging almost as much for the 5C as the 5S. (Yes, Apple is selling the iPhone 4 at a significantly lower price than the 5s, but this phone is now old, weak, and small.)

With iPhone 4S, Apple is definitely catering for the price conscious consumer, despite Blodget’s attempts to suggest otherwise.

I believe Ben Thompson summed it up best here:

No one – probably including Apple – is quite sure exactly what the elasticity will be for the iPhone. See, the demand curve is usually, well, curved. It’s not as simple as I’ve presented it. Same with elasticity – it changes depending what price point you are at. While Apple could go lower cost, there is a very high likelihood they would, like the first example above, make less money than they could otherwise. It makes a lot more sense to gradually move down the demand curve and build out your knowledge of the market.

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Posted by | Posted at November 15, 2013 19:01 | Tags: , , ,
Storm is a technology enthusiast, who resides in the UK. He enjoys reading and writing about technology.

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