Luxury goods come at a high price. By being remarkably superior to the competition, consumers are willing to pay a cost premium simply because they merit the price. Apple revels in this business model, etching out a powerful niche in the PC market against which rivals cannot yet hope to compete.
Most Mac users testify to a peerless computing experience. Spurning the headache that is Windows, they are more than happy to pay an expensive premium for a superior product.
Yet there is much more to the superiority of Apple computers than meets the eye. That the Mac experience merits its price is only one half of the Apple premium.
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The other half is unadvertised and often unthought of. It demands that users pay extra to help Apple uphold its market exclusivity, something vital in ensuring the superior Mac computing experience.
In this unusual and brilliant reversal, the Apple premium actually merits the product.
No one should buy a Mac unless they find both realities palatable.
Reality One: Product Merits Price
This post is not a piece of anti-Apple propaganda. Consumers are not mistaken to recognize the superior quality of Mac machines.
With little exception, Mac users say the computing experience more than justifies their investment. In a nutshell, the Apple experience is everything the PC is not. Macs promise to 'just work' out-of-the-box, retain its 'youth' over time, require little maintenance, and resist malicious attacks.
Many Mac users testify that, for the most part, these promises hold as advertised.
Deep down, no child hardened by the Microsoft age can be unmoved by such promises. For many, the Apple experience cures the persistent headache that is Windows. To them, Macs are not overpriced, but merit an expensive premium that is worth every penny.
It is hard to disagree with them. Besides, Macs are mad sexy.
Reality Two: Price Merits Product
In singing the Mac's praises, its secret ingredient to success is often overlooked: exclusivity in the PC market.
Mac computers are luxury products, occupying a tiny piece of the PC market pie. Yet, in the face of economic recession, Apple's high-rolling pricing strategy remains unchanged. Clearly the company is not interested in growing beyond the niche PC market where it dominates unchallenged.
This strategy may dumbfound economics students, but I suspect it is precisely what Apple wants.
In the PC world, a small market share translates into fewer external pressures. For one, it is a natural security shield against malicious software. It reduces the interest of third-party software developers, thereby minimizing end-user headaches and OS bloat. It also gives Apple more freedom to design and control its OS as it pleases.
In this view, a small market share is a matter of existential importance to ensuring the peerless Mac experience. It is perhaps why Apple must continue to charge high prices, even during an economic recession.
After all, why else would students buying an expensive Mac net them an iPod Touch freebie? Apple would try anything before a price drop.
That the high price of Macs puts a natural limit on the number of its adopters is no coincidence. The Apple premium, which some call the "Apple Tax," is what creates the exclusivity vital to the Mac's overall success.
Put another way, the Apple premium actually merits the product.
Analysis
These realities, I suspect, are not lost on Steve Jobs. From the shadows of irrelevance, he shrewdly observed Windows come of age, noting its myriad strengths and weaknesses. A man of his brilliance must see that Apple can simply price itself above the storm that mires Windows, provided that consumers are willing to pay the premium.
To Jobs and company's great credit, many people can't be happier to buy into Apple's vision of the PC world.
An astute friend of mine likened Macs to a serene country club vìs-a-vìs Windows to an overcrowded public park. The analogy cannot be more apt. Paying the Apple premium does not only get you a good computer, but also residence in a digital gated community.
Having been a prospective buyer, I went as far as to put back-of-the-envelope numbers to this theory. With the baseline 17" MacBook Pro costing $2,500, I certify that it is entirely possible to get a comparably spec-ed, coupon-free Windows machine for $1,500, probably less. In this scenario, the Apple premium is $1,000 in total, of which $500 gets you a superior OS, able first-party apps, and a damn sexy machine.
The other $500 of that premium, of course, is your ticket into the Apple country club.
Prospective buyers should be aware that, while apt, the fallacy in this analogy is self-evident.
On the one hand, parkland is a fixed space and cannot be scaled to fit more people. Competing against free but overcrowded public parks, the expensive country club is merited by intrinsic value, namely open space.
On the other hand, in the digital world, the concept of open space does not exist. Virtual scalability is the name of the game; whoever scales better, faster, more ingeniously, wins. Just ask Google, Microsoft, or Wikipedia, all "public parks" who merited their success by scaling its services to as many users as possible.
Yet this is exactly opposite of the Mac business model. By pricing its machines as luxury goods, Apple thrives on high profit margins while limiting its user base. Platform scalability—the traditional yardstick for innovation in software engineering—is rendered nearly meaningless by the Mac's market strategy.
There is nothing unusual about the luxury goods business model, except that it is being applied to the PC industry.
Steve Jobs laughs in the face of Windows' struggles because, in a "country club," economies of scale are irrelevant. Apple can and will continue to thumb its nose at the industry, provided that enough willing people pay the Apple premium to keep the Mac club exclusive.
Personally, this strategy feels like a cop out for a premier OS developer like Apple.
Still, no matter how one looks at it, Steve Jobs is the only man who can eat off Microsoft's table. At present, Apple's strategy is brilliantly successful. The quality experience and soaring popularity of the Mac brand all but ensures its persistence in the foreseeable future.
My Conclusion
There is nothing wrong or evil about the Mac business model, or with paying the Apple premium to perpetuate it. Beyond question, Mac computers merit the price premium. Be aware, however, that the premium you pay is also meriting the product.
By paying the Apple premium, YOU erect the walls around the Mac gated community, making it serene and desirable. Apple only pours the foundation, and decorates walls better than anyone.
That Apple users have paid many hundreds extra to help Apple maintain its market exclusivity is not my idea of an honorable business model. It should be the producer's responsibility, not the consumers'.
In a sense, Apple passes the true cost of innovation on to the consumers, and it will do so until a worthy competitor emerges.
If you find this reality palatable, then by all means, buy a Mac. You won't be disappointed. Though bear in mind: in the amoral marketplace, you can feel a winner and yet be a loser all the same, both consumer and producer alike.
Most Mac users testify to a peerless computing experience. Spurning the headache that is Windows, they are more than happy to pay an expensive premium for a superior product.
Yet there is much more to the superiority of Apple computers than meets the eye. That the Mac experience merits its price is only one half of the Apple premium.
-----
The other half is unadvertised and often unthought of. It demands that users pay extra to help Apple uphold its market exclusivity, something vital in ensuring the superior Mac computing experience.
In this unusual and brilliant reversal, the Apple premium actually merits the product.
No one should buy a Mac unless they find both realities palatable.
Reality One: Product Merits Price
This post is not a piece of anti-Apple propaganda. Consumers are not mistaken to recognize the superior quality of Mac machines.
With little exception, Mac users say the computing experience more than justifies their investment. In a nutshell, the Apple experience is everything the PC is not. Macs promise to 'just work' out-of-the-box, retain its 'youth' over time, require little maintenance, and resist malicious attacks.
Many Mac users testify that, for the most part, these promises hold as advertised.
Deep down, no child hardened by the Microsoft age can be unmoved by such promises. For many, the Apple experience cures the persistent headache that is Windows. To them, Macs are not overpriced, but merit an expensive premium that is worth every penny.
It is hard to disagree with them. Besides, Macs are mad sexy.
Reality Two: Price Merits Product
In singing the Mac's praises, its secret ingredient to success is often overlooked: exclusivity in the PC market.
Mac computers are luxury products, occupying a tiny piece of the PC market pie. Yet, in the face of economic recession, Apple's high-rolling pricing strategy remains unchanged. Clearly the company is not interested in growing beyond the niche PC market where it dominates unchallenged.
This strategy may dumbfound economics students, but I suspect it is precisely what Apple wants.
In the PC world, a small market share translates into fewer external pressures. For one, it is a natural security shield against malicious software. It reduces the interest of third-party software developers, thereby minimizing end-user headaches and OS bloat. It also gives Apple more freedom to design and control its OS as it pleases.
In this view, a small market share is a matter of existential importance to ensuring the peerless Mac experience. It is perhaps why Apple must continue to charge high prices, even during an economic recession.
After all, why else would students buying an expensive Mac net them an iPod Touch freebie? Apple would try anything before a price drop.
That the high price of Macs puts a natural limit on the number of its adopters is no coincidence. The Apple premium, which some call the "Apple Tax," is what creates the exclusivity vital to the Mac's overall success.
Put another way, the Apple premium actually merits the product.
Analysis
These realities, I suspect, are not lost on Steve Jobs. From the shadows of irrelevance, he shrewdly observed Windows come of age, noting its myriad strengths and weaknesses. A man of his brilliance must see that Apple can simply price itself above the storm that mires Windows, provided that consumers are willing to pay the premium.
To Jobs and company's great credit, many people can't be happier to buy into Apple's vision of the PC world.
An astute friend of mine likened Macs to a serene country club vìs-a-vìs Windows to an overcrowded public park. The analogy cannot be more apt. Paying the Apple premium does not only get you a good computer, but also residence in a digital gated community.
Having been a prospective buyer, I went as far as to put back-of-the-envelope numbers to this theory. With the baseline 17" MacBook Pro costing $2,500, I certify that it is entirely possible to get a comparably spec-ed, coupon-free Windows machine for $1,500, probably less. In this scenario, the Apple premium is $1,000 in total, of which $500 gets you a superior OS, able first-party apps, and a damn sexy machine.
The other $500 of that premium, of course, is your ticket into the Apple country club.
Prospective buyers should be aware that, while apt, the fallacy in this analogy is self-evident.
On the one hand, parkland is a fixed space and cannot be scaled to fit more people. Competing against free but overcrowded public parks, the expensive country club is merited by intrinsic value, namely open space.
On the other hand, in the digital world, the concept of open space does not exist. Virtual scalability is the name of the game; whoever scales better, faster, more ingeniously, wins. Just ask Google, Microsoft, or Wikipedia, all "public parks" who merited their success by scaling its services to as many users as possible.
Yet this is exactly opposite of the Mac business model. By pricing its machines as luxury goods, Apple thrives on high profit margins while limiting its user base. Platform scalability—the traditional yardstick for innovation in software engineering—is rendered nearly meaningless by the Mac's market strategy.
There is nothing unusual about the luxury goods business model, except that it is being applied to the PC industry.
Steve Jobs laughs in the face of Windows' struggles because, in a "country club," economies of scale are irrelevant. Apple can and will continue to thumb its nose at the industry, provided that enough willing people pay the Apple premium to keep the Mac club exclusive.
Personally, this strategy feels like a cop out for a premier OS developer like Apple.
Still, no matter how one looks at it, Steve Jobs is the only man who can eat off Microsoft's table. At present, Apple's strategy is brilliantly successful. The quality experience and soaring popularity of the Mac brand all but ensures its persistence in the foreseeable future.
My Conclusion
There is nothing wrong or evil about the Mac business model, or with paying the Apple premium to perpetuate it. Beyond question, Mac computers merit the price premium. Be aware, however, that the premium you pay is also meriting the product.
By paying the Apple premium, YOU erect the walls around the Mac gated community, making it serene and desirable. Apple only pours the foundation, and decorates walls better than anyone.
That Apple users have paid many hundreds extra to help Apple maintain its market exclusivity is not my idea of an honorable business model. It should be the producer's responsibility, not the consumers'.
In a sense, Apple passes the true cost of innovation on to the consumers, and it will do so until a worthy competitor emerges.
If you find this reality palatable, then by all means, buy a Mac. You won't be disappointed. Though bear in mind: in the amoral marketplace, you can feel a winner and yet be a loser all the same, both consumer and producer alike.
Logging you in...
atanas entchev · 822 weeks ago
Drew · 822 weeks ago
In desktop sales, however, the "luxury" Mac markets itself on the basis of simplicity and reliability. The basic functionality users are looking for can best be obtained from Apple, the luxury provider. The performance gamer, whose wants far exceed those of the average user, must turn to cheaper Microsoft PCs.
So it seems we have three important traits here: basic needs, performance, and exclusivity. Luxury cars, and almost all other "luxury" items I can think of, market on the basis of performance and exclusivity. Macs, on the other hand, market on the basis of basic needs and exclusivity.
So in this way, Apple has been able to cater to two opposite sides of the market at the same time: those who value exclusivity and fashion, and those who value reliability and simplicity. The key is that the premium is high enough for the exclusive, and low enough that the simple are willing to pay it just for simplicity.
However, I don't know how long this strategy can last. I'd be interested to see how their business model survives once the desktop computing market stops being a horrible, miserable failure.
Dave C · 822 weeks ago
atanas entchev · 822 weeks ago
http://www.wired.com/gadgetlab/2009/06/macbook-pr...
atanas entchev · 822 weeks ago
http://news.cnet.com/8301-1009_3-10263002-83.html...
MFackenthal · 822 weeks ago
Bravo! Another well stated, bipartisan blog post. I have two thoughts ...
1. While it is true that the mere purchase of a mac buys into the apple premium, I would say there are two types of mac owners. There are those who are overtly proud of their macs and talk openly and fairly often about them. There are those who have one but rarely talk about the fact that they have one. Those who talk often about their macs are the founders of the "country club". This is just another statement of observation.
2. Apple quietly suggests that their customers mark themselves as part of the club by sending every mac owner a sticker (or a set of stickers) with the apple logo to put where-ever the owner sees fit.
I wish Apple luck if Microsoft finds answers to those issues that often lead buyers away from a Microsoft computer.
~Megan~
ps. You might find The Outliers by Malcolm Gladwell an interesting (and fairly easy) read. It talks specifically to how Steve Jobs and Bill Gates came into their respective places in computer history.
MFackenthal · 822 weeks ago
Chris Hansen · 822 weeks ago
For me, the Mac OS is like a hooker. She's visually pleasing, satisfies you and requires you to keep shelling your money out. Eventually, you'll grow tired of that relationship and decide that you're ready to grow up, and accept the fact that you need something more long-term i.e. PC's which on the other hand represent this long and steady relationship (and for corporations, it even represents a marriage - almost like a binding contract between businesses and the windows OS). Then of course, you can cheat on your her with that slim, slender chick that's flexible in ways that you couldn't even imagine (i.e. Linux).
milesian 35p · 821 weeks ago
I think your comments will show up on your FB news feed too. Great way to show off all your hard work here ^_~
Oh and FYI, I also just reversed the comment sorting such that the latest comments go on top.
Brian · 821 weeks ago
Apple's ease of use also stems from their decision to aim mainly for the somewhat computer literate home user / creatives. Apple doesn't try to accommodate power users (one button mouse! WTF?!) or gamers (little to no BIOS tweaking). Very few people run Apple for servers or embedded devices.
The other issue the hurts windows is its popularity. Malware writers will focus on the most popular OS. As a result, windows users have to contend with all that badness, virus scanners, and frequent software updates. All those software updates can lead to head-aches for applications that interoperate.