Why Nobody Can Match the iPad’s Price

http://www.wired.com/gadgetlab/2011/02/ipad-price/

by gsivil • 15 years ago

133 108 15 years ago

yock• 15 years ago

Apple can sell the iPad for $500 because they have the iTunes store backing it. They know they don't need to make money on the sale of the device because the entire point of buying the device is to buy apps for it, and Apple as we all know gets a cut from every sale.

Other manufacturers don't have this working for them.

aneth• 15 years ago

Apple makes a lot of money on each device. Their margins are consistent with the rest of their product line.

http://www.computerworld.com/s/article/9150045/Apple_makes_2...

Samuel_Michon3• 15 years ago

"[Apple knows it doesn't] need to make money on the sale of the device because the entire point of buying the device is to buy apps for it,"

The opposite is true. Apple doesn't need to make money on software, because their hardware products have healthy profit margins. The iTunes Store breaks even, and it has done so for years. The same is true for the other software Apple sells.

Compared to competing products, Apple's software products are dirt cheap. Its office suite (iWork) is priced at $60 while Microsoft Office is priced at $280. Apple's photography software (Aperture) costs $80, Adobe's Lightroom costs $300. Apple's video editing suite (Final Cut) costs $1000, Avid's Media Composer costs $2300.

lurker19• 15 years ago

Do not ignore the fact that Apple's offerings are far less powerful, useful, and debugged than the competing software you listed.

Aperture requires a Mac Pro to run properly, which undermines the cost argument.

fuzzmeister2• 15 years ago

"Apple is the most vertically integrated company in the world."

I struggle to see how that statement could be true for a company that outsources all of its manufacturing.

flyt3• 15 years ago

Apple 'outsources' all of its marketing to TBWA\Chiat\Day but that doesn't affect the quality of the output, or their control over what gets produced.

Just because they don't own the tools doesn't mean that they aren't telling people exactly how to use them.

fuzzmeister2• 15 years ago

Of course. I'm simply saying it makes them less vertically integrated.

markszcz3• 15 years ago

The wording here is "most" There was an article written in 2006 saying "Designed By Apple in California. Made in a sweat-shop in China." (http://blogs.siliconvalley.com/gmsv/2006/06/designed_by_app....)

Architecturally wise they are vertically integreated with all their in house hardware and software but I dont think anyone can argue that their manufacturing practices dont help that statement.

iwwr5• 15 years ago

There used to be a time when Left-leaning people knew some history. Terrible as the worker conditions might have been at the dawn of the Industrial Age, they were a vast improvement compared to the past.

Equally so, unpleasant as Chinese factories may look to a Westerner, they are an improvement over the past. Have people actually asked those workers if they were willing to quit or had better prospects elsewhere?

markszcz3• 15 years ago

I feel a lot of other companies are riding the tablet wave. Why would motorola underprice the Xoom when possibly they could make a killing on selling the next "iPad" killer.

If its true that Apple is sitting on a pretty price margin on the iPad, then the Xoom, I feel, wouldent be to far off. If they had to they could lower the price to gain momentum but so far this is Motorolas first good tablet release and I dont think they will want to miss an opportunity to make a pretty penny on this.

netcan2• 15 years ago

I think the underlying assumption of this and other articles is that if they could, they should and would release a tablet at (at least) price parity. Therefore, since they aren't, the belief is that they can't profitably price under $500.

davidedicillo• 15 years ago

Apple locked down the 10" screens lcd market, why do you think samsung went with a 7"?

markszcz3• 15 years ago

Apple definetly holds a dominant hold on the 10" tablet market and the Samsung Tab took a stab at the market with their 7" and did ok. I feel Motorola is taking a brave stance here by trying to tackle the 10" market. As another comment in here points out, "wifi-only Xoom to be priced at $600" so there is competition when it comes to the "Nobody Can Match the iPad’s Price". (http://arstechnica.com/gadgets/news/2011/02/motorola-xoom-ta...)

minalecs• 15 years ago

I don't know why samsung went with a 7" vs 10" but it makes a huge difference. In comparison its like carrying around a big hardcover book vs a paperback book. Watching youtube and stuff on it is fine, I don't find a huge difference. The biggest difference I find it much easier to hold with one hand, and manipulate the screen with the other without having to place it on my lap or needing a stand, and hold it like a real pad should be held and to pass around.

drdaeman• 15 years ago

If I understand it right... (I probably don't) Aren't this sort of vertical restraints anti-competitive? Could someone please explain me how they locked competition and didn't hit any sort of antitrust laws?

drhodes• 15 years ago

From the mouth of the CEO of motorola, the wifi-only Xoom to be priced at $600, he announced Wednesday.

http://arstechnica.com/gadgets/news/2011/02/motorola-xoom-ta...

haribilalic• 15 years ago

That's still $100 more expensive than the cheapest WiFi iPad and only $29 cheaper than the cheapest WiFi + 3G iPad.

flyt3• 15 years ago

and it's competing with a product announced over a year ago, not the next generation of iPad due any day now.

jan_g• 15 years ago

Yes, but ipad is at least a generation behind hardware-wise. If I were to buy a tablet now, I'd rather pay $100 more for last generation hardware. The same as with PCs, mobile phones ... why pay premium price for old stuff?

wr1472• 15 years ago

I see no one mentions the NotionInk Adam, at $550 for the top end model (with a spec better than the ipad) I think it's a real contender. http://notionink.com

Disclaimer: I have one on order.

Edit: I'm also struggling to see how they are cornering the market by consuming all the components that are manufactured, rather I think it a combination of clever marketing & strong fanboy base.

gabrielroth2• 15 years ago

One factor that the author doesn't mention is Apple's success at lining up deals with component manufacturers. A couple years ago (before anyone had heard of the iPad) they locked in great prices on flash memory and LCD displays. They could do that because they were about to invent a huge market, and they knew it. Anyone trying to get into the tablet business in 2010 had to pay much, much more.

Steve Jobs and Johnny Ive are no slouches, but Tim Cook doesn't get enough credit for stuff like that.

danilocampos• 15 years ago

A hundred upvotes, really. Tim Cook turned Apple from a sloppy, cluttered mess to a perfectly tuned and calibrated machine. He designs business processes like Ive designs hardware enclosures. He's still at it, too, telling investors during the last earnings call that Apple once again snapped up a boatload of supply on an unnamed type of component.

I bet he'd be amazing at Starcraft, once he learned the ropes.

kevin_morrill• 15 years ago

Getting some pictures of him wiping out some Korean Starcraft nerds :)

jrbj• 15 years ago

I believe it. In Starcraft, Macro beats Micro.

easp• 15 years ago

I knew Apple was on to something again when, not long after Jobs retook Apple, their inventory on hand started to approach that of Dell. That was Cook's doing.

nika3• 15 years ago

This makes Time Cook my dream date. Seriously, and I hear he swings my way too.

There are many ways to innovate in business and technology and design get a lot of time in the spotlight.

Operations, especially of a very large enterprise, with thousands of suppliers which also demands highly precise manufacturing and quality control, while having operations spread around the globe, and a public awareness factor that makes it vulnerable to any "Watchdog" who wants to make news... running a less-than-30-days-inventory system is playing on the Nth level.

Can anyone name anybody who has done something like that? Amazon's distribution network is a lot easier, as they control all the infrastructure. Dell doesn't have the volume or quality requirements or focused product lineup (which reduces substitution- eg: if dell is out of a particular laptop model, they have others to substitute, apple doesn't have that luxury.)

It is no wonder Apple is doing long term contracts for supplies like this.

Some have accused them of cornering the market, but this is not like cornering the market on Silver (look up Hunt Brothers) -- as anyone with reasonable technology can make a substitute for electronics components which are fungible commodities for the most part.

This is just good management of a very sophisticated manufacturing network.

Dude deserves and Oscar in Operations!

regularfry• 15 years ago

I'd be tempted to say that automotive just-in-time processes are, if anything, more impressive in terms of the industry integration. There you'll have hundreds of suppliers coordinating so that custom builds roll off the production line in an arbitrary order, with no more stock in hand than there are builds in the system for the next shift or so. I've seen it at work at BMW, and it is frankly terrifying to consider what the supplier contract terms must be like; if any one of them has a screwup as simple as packing their parts onto a transport in the wrong order, it has major cost implications.

wazoox• 15 years ago

At one point this operational oomph was Dell's strongest point with which they crushed the competition. Until everybody imitated them, which they couldn't prevent because they were in the totally commoditized PC market anyway.

buro9• 15 years ago

I know this is going to burn my karma, but having watched the personality cult of Jobs grow to dominance, and now observing the mantle being handed over to Cook in a way that the cult appears just to have adapted to follow the new leader... it's a very disturbing sight.

Apple are a great company for sure, but I'm extremely uneasy reading things that make any individual such an icon, let alone with Apple where it's happened before.

Tim does appear to be a strong leader and sound COO, but please can we let this personality cult dissipate and not just replace the head that is worshipped. It's weird.

nochiel4• 15 years ago

"I'm extremely uneasy reading things that make any individual such an icon...Please can we let this personality cult dissipate..."

Personality cults are much more important than you realise. The post-modernist approach seems to be to downplay the significance of individual visionaries in favour of diffuse accolades attributed to the group or larger corpus. It's nonsense.

Shakespeare was an individual (not a nebulous, anonymous, amorphous collective) of unique literary gifts. Jobs is a design and technological wizard who single-handedly righted the ship. Tim Cook is a process engineering and business operations mastermind of the like that has never been seen since Carnegie. Ives' industrial design methodologies will blaze the path for decades to come.

ZeroGravitas6• 15 years ago

So is it buying in bulk or planning ahead that make Tim Cook the greatest COO in history? Because neither seem particularly amazing to me. Is it just the fact that the sums of money involved are quite large? Or is it the subtle undertones of sticking it to the competition so they can't compete fairly that makes this story (and the ones about patents) resonate so strongly with Apple fans?

apl2• 15 years ago

It's both, as a matter of fact, and judging from the struggling competition neither is particularly easy. When discussing Cook's qualities and Apple's refined processes, there isn't much fanboy-ism involved.

They're simply really, really good at it.

cma• 15 years ago

Isn't 10" the standard netbook display size? Maybe not in the same aspect ratio as the ipad, but no one appears to be trying to stick with the ipad's aspect ratio anyway.

mindblink• 15 years ago

Exactly, it's a combination of betting big on market vision and component supplier management, and not as much about vertical integration. Case in point, "Apple secures 60% of global touch panel capacity, causing tight supply". Tight supply constrains iPad competitors price position with component suppliers.

http://www.digitimes.com/news/a20110216PD219.html

netcan2• 15 years ago

"That’s (Apple stores) advantageous, because if the iPad were primarily sold at third-party retail stores, a big chunk of profit would go to those retailers, Hiner reasons."

"Designing in-house means Apple doesn’t have to pay licensing fees to third parties to use their intellectual property. For instance, the A4 chip"

This is silly. Software development, retail, chip design etc. all cost money. Apple isn't just taking Bets Buy's cut, it's taking its risk and its costs. Same for chips, software, etc. Actually it's more risky and costly in many ways. If the chip turned out to be good but not ideal for iPads they're not going to go find a different market for it. Apple stores aren't free to cash in on whatever popular high margin non-Apple widget people are buying this season.

Vertically integrating obviously works well for Apple, but saying that Apple is able to sell iPads @ $500 because of it is missing the point. You now just have to explain what makes apple good at retail, software, chip design, etc.

wisty• 15 years ago

iOS development was already paid for by the iPhone and iPod teams, as was chip design.

And the App store and iTunes are a benefit, not a cost.

However I agree, there are other reasons - their outsourcing of components has a very good reputation.

hessenwolf2• 15 years ago

There is a bit of a contradiction. It cannot be both great that Apple doesn't outsource its retailing and great that Apple outsources its components production. Economically, it should buy from the cheapest and most efficient source all it requires. If best buy are more efficient retailers, then Apple should use them; but I think there are some advertising advantages to their stores.

elgy• 15 years ago

bad

cosmicray• 15 years ago

> Apple has partnered with a few retail chains such as Best Buy and Walmart, but those stores always seem to get a small number of units in stock. Hiner rationalizes that the true purpose of these partnerships is probably to help spread the marketing message, not so much to sell iPads.

The display unit at WalMart is behind plexiglass. If you want to touch it, someone with a key has to open the cover. I'm glad to see current Apple products at WalMart, but the actual sales experience is significantly less than going to an Apple store, or to BB.

IMHO, the real secret behind the iPad's price is supply chain management and very astute inventory control. Idle inventory can really wreck your bottom line.

antimatter15• 15 years ago

I guess it's also a problem with Android. When the iPad is sold for the low price, they're aiming for market share. This in turn, attracts developers which attract consumers where apple makes a nice 30%. But if Motorola competed for a low price, it wouldn't necessarily secure a future as it only furthers the Android platform, which any vendor can build on top of. Thus it doesn't make sense for any Android tablet vendors to play loss-leader, while it does for Apple to.

staunch• 15 years ago

> "Designing in-house means Apple doesn’t have to pay licensing fees to third parties to use their intellectual property. For instance, the A4 chip"

Isn't the A4 an ARM + PowerVR and doesn't Apple pay design licenses on both those?

flyt3• 15 years ago

yes, and they pay Samsung to make them too

ZeroGravitas6• 15 years ago

It's not just manufacturing, Samsung co-designed them too (with the company that Apple later bought, which apparently retro-actively made this chip a great example of how Apple does everything "in-house").

Samuel_Michon3• 15 years ago

More than just licensing the tech, Apple buys the companies who make it. Apple owns Intrinsity, which designed the A4 processor. Apple also owns P.A. Semi, which contributed to the A4 SoC. Apple partially (10%) owns Imagination Technologies, the makers of PowerVR.

masklinn• 15 years ago

> Apple owns Intrinsity, which designed the A4 processor.

That's a pretty long shot. Intrinsity clearly improved the A4, but overall A4 is a very standard Cortex A8 SoC.

> Apple also owns P.A. Semi, which contributed to the A4 SoC.

I have not seen any analysis or information pointing to actual PA Semi input in A4. Where Intrinsity is well known for improvements to existing designs (power-wise, mostly), PA Semi is generally credited with brand new and unique design, which the A4 isn't. I also understand most of PA Semi left after its acquisition.

runinit• 15 years ago

The Notion Ink Adam is cheaper...

Notion Ink Adam with LCD & WiFi (no 3G) - $375 USD Notion Ink Adam with LCD, WiFi & 3G - $425 USD

Notion Ink Adam with Pixel Qi display & WiFi (no 3G) - $499USD Notion Ink Adam with Pixel Qi display, WiFi & 3G - $549 USD

jodrellblank• 15 years ago

The iPad is available to purchase.

edtechdev3• 15 years ago

This article didn't get the prices right (which is suprising since that was the sole point of the article), and it got the history exactly backward.

The main shock people had about the ipad was how expensive it was priced ($500-$750). They weren't 'surprised' at how low it was priced. And to Apple's credit, we now know that even at that price it would sell well, and also we know that this price is actually not so unreasonable or inflated as we thought, because other major manufacturers making comparable quality tablet products are also in that price range (except for the nook color, notion ink adam, archos 101 and 70, or several no-name tablets).

Also, the xoom is $600 compared to the old ipad's price of $500. If you want to compare the $800 xoom with 3g (and 4g), compare it with the $750 ipad with 3g. So the prices are not so different.

Cadsby3• 15 years ago

I disagree. I remember much of the Tech press predicating a $1000 price point and being rather surprised at the existence of a low end model at $499. It was only the cross section of nerds that really dislike Apple that called it expensive and panned it as a crippled piece of junk. (Engadet had to shut down their commenting system for a few days due to all the vitriol)

Also, I think you're missing the point on pricing. It really hurts Motorola that there isn't a low end model at $499, because there are a lot of non-technical users for whom 16GB is perfectly adequate. We don't have direct data AFAIK, but I'm willing to bet the low end iPad is Apple's best selling model by far.

SoftwareMaven• 15 years ago

I completely agree with you. There was a collective jaw drop when Steve put the $499 slide up. The lowest the rumor mill had gotten was $800 leading up to that point.

edtechdev3• 15 years ago

No, most people thought the ipad at $500-$750 was overpriced at the time. They thought it would be comparable to the prices of netbooks ($300 range). And I defended the price knowing now what we know (other android tablets are expensive too). But as this first article indicates, the main reason why people AREN'T buying the ipad is because they think it is overpriced still, along with the apps:

http://www.thinq.co.uk/2010/12/7/apples-ipad-faces-pricing-c... http://www.bnet.com/blog/new-media/note-to-magazine-industry... http://www.businessinsider.com/john-squires-ipad-is-big-and-... http://darrenbeckett.com/20100129_Does_the_iPad_Cost_Too_Muc... http://tamebay.com/2010/05/is-the-ipad-too-expensive-as-a-to... Search for ipad too expensive or ipad over-priced and you'll see tons of examples. Again though, my argument was that we thought it was overpriced when it was announced a year ago. I think now we can see that it wasn't so bad or unreasonable a price.

And by the way your response below indicates you are against even a hint of criticism of the ipad, even though I'm not criticizing it at all in either of my responses. Don't know why I bother feeding trolls though.

martythemaniak2• 15 years ago

Somehow, having a crapload more hardware hasn't entered the author's analysis anywhere. Why would you expect 1GB of RAM to cost the same as 256mb?

I can't believe people are buying this tripe. I'm willing to put down $20 that by the holidays, you'll see cheaper android tablets (same specs, not this bullshit), any takers?

nika3• 15 years ago

I don't see what will change between now and christmas. Many of the android tablets are vaporware at this point so there is nothing to stop them from advertising that they'll be cheaper... yet they seem to be more expensive for the most part.

martythemaniak2• 15 years ago

Well, you should go ahead and take my money then - I wasn't kidding about the bet.

What will change? First of all, the Xoom isn't spec-comparable to the iPad and second, other manufacturers will start shipping their tablets, bringing prices down.

antirez• 15 years ago

Unless you are able to create a superior experience for the final customer, how much hardware you have is not relevant...

nazgulnarsil3• 15 years ago

nook color is $250 (sold at a loss, but available nontheless) xoom is $600 Archos 70 and 101 are $300 notion ink is $425

I call shenaningans

gtech• 15 years ago

This. I call bullshit as well, apple didn't invent a new market; they used fantastic marketing and took advantage of a gigantic fanboy base.

ZeroGravitas6• 15 years ago

Facts don't matter. This is a new article of faith for Apple fans. Some Apple commentators still think that all Android phones cost the same as the iPhone because of Apple's magical supply chain. In reality, the competitors are delivering more raw hardware, at a lower price than Apple, mostly via building from generic, mass-produced, commodity parts. Clearly the same is true in tablets.

Ironically Apple's true advantage, that it can deliver a better end-user experience per unit of hardware power, by clever holistic hardware/software/product/ecosystem design is pretty much the opposite of this new theory, and Apple increasingly finds itself in a tech arms race that it doesn't want to be in. It wouldn't surpise me if Apple conceded the high-end hardware in both tablets and phones this year to better pad its margins on devices that are expensive yet middling in raw power, instead focussing on user experience issues like battery life.

nhangen3• 15 years ago

Are you really comparing a Nook to the iPad?

nazgulnarsil3• 15 years ago

features that someone never uses aren't really a selling point.

gnaffle• 15 years ago

When I read about the component shortages of 10" displays, I couldn't help but think about Steve Jobs rant last year about tablet sizes. He went on about how Apple had thought a lot about tablet screen sizes, and that you needed a 10" screen to get a decent experience. The companies deciding on a 7" screen had made the wrong choice.

It now seems like he was just mocking the competition about being unable to ship a similar price competitive tablet.

eik3_de• 15 years ago

> Designing in-house means Apple doesn’t have to pay licensing fees to third parties to use their intellectual property. For instance, the A4 chip inside the iPad is based on technology developed and owned by Apple (not Intel, AMD or Nvidia). The operating system is Apple’s own, not something licensed from Microsoft or Google.

Apple doesn't/didn't pay licensing fees to ARM or PowerVR for the A4 components?

What exactly do you have to pay to Google to "license" Android?

It seems like the author doesn't quite know what he's talking about.

Athtar• 15 years ago

>What exactly do you have to pay to Google to "license" Android?

For one thing, all of Google's core applications - Gmail, Maps, Search, Google Voice, Googles, etc. Same thing with the Marketplace too. All the handset manufacturers have to pay Google to include those apps on their handsets.

fxj• 15 years ago

archos101 $300, 10 inch screen, 1024x600, android 2.2, usb host and client. of course, not a us company ;-)

etaty• 15 years ago

They should thank Foxconn! http://news.google.com/news/search?aq=0&pz=1&cf=all&...

scdc2• 15 years ago

What if Apple is selling iPads at/below cost in a bid for marketshare? I could see Jobs et al guessing this would be a big market, and choosing to sell (especially the entry model) at/below cost. Reminds me of the Jobs' perspective on why the the Mac stalled in the 1980s, "when they should have gone for market share, they went for profits." (<a href="http://www.newsweek.com/2004/02/01/ok-mac-make-a-wish.html&#...). This time he's going for market share.

scdc2• 15 years ago

Botched the link, sorry: http://www.newsweek.com/2004/02/01/ok-mac-make-a-wish.html

nhangen3• 15 years ago

As far as I'm concerned, I'm not sure this is about price. Yes, I have the $499 Wi-Fi iPad, but I bought it over the Kindle, Nook, and Galaxy because it's a perfect blend of technology and efficiency.

The Galaxy feels like a clunker, and the Nook isn't versatile.

I don't believe the iPad can replace a decent netbook or macbook for working on the road, but it works great for doing what it's supposed to do.

The reason the competition can't get it right is because they're trying to compete by adding more junk that we don't need. They do the same with phones too. Loading more memory or faster processors isn't what works for me - what works for me is a lightweight device that works.

I rarely use my iPad, but I wouldn't sell it because it serves a great purpose, which is as a tweener. The competition is trying to turn their tablets into souped up netbooks with touch screens, and that's why they are failing.

krschultz2• 15 years ago

The Kindle is not a tablet though. That's not dismissing the Kindle (I own one of the big sized Kindle's and I lvoe it), Amazon explicitedly has set out to make an e-book reader, not a tablet.

The Nook is closer, but it still isn't comparable to an iPad.

krschultz2• 15 years ago

The most ironic part of the iPad (and now Android) tablet explosion is that hard Bill Gates had been pushing tablets for years at Microsoft. And now Microsoft doesn't even have a dog in the fight.

lallysingh• 15 years ago

Bill was too early, didn't want to do the necessary UI work, and didn't have the hardware team to push the hardware standards up. I remember people trying to use windows tablets. They were full-on laptops running an extended version of windows, with a few apps and a handwriting recognizer slapped on top. They were heavy, confusing to use, and not terribly finger-friendly.

They've got good reason to stay out of this one. iOS came from Apple's phone OS (esp. in terms of UI). Until Windows Mobile starts getting some traction, MS is better off staying out of the fight. You can always commoditize your opponent later.

teyc• 15 years ago

Steve Jobs had already warned that margins are going to be down. It was a strategic decision to not earn Apple-sized margins on the iPad, but rather outflank the PC industry by introducing a new computing product.

Wired.com is right though on the ability to suck the air out of the touchscreen supply. It is an acknowledgement to the artificial gravitational field Apple exerts on the hardware components market.

Why Nobody Can Match the iPad’s Price

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