Monday, 29 October 2012

Apple's Product Portfolio strategy

Apple's Mini ipad was launched last week and most of the critic's complain about the 'lack of innovation' and its pricing especially the entry point, considered too high.

Let me consider the pricing argument, most of the critics are looking at ipad mini more as Nexus/Nook/Kindle plus thus has expected it price to be around $250 (+/- 10%). This perspective is totally different from Apple's perspective as company does NOT consider itself to volume/mass-marketer of  personal computing but a premium/luxury brand that provides superior experience. This has been put beautifully and succinctly by Felix Salmon (

"The point here is that Apple has already done the work of persuading people to buy the iPad mini — it’s done it through many years of creating products which are a pleasure to use.
Apple, famously, has the same pricing philosophy as Louis Vuitton: it sells premium products at premium prices, and it never discounts. That philosophy has made it an aspirational brand worldwide: you don’t see vendors in China selling fake Google Nexus 7s. Sometimes, as with the iPhone and iPad, the world beats a path to the company’s door in any case. Other times, as in the case of wireless routers or external displays, Apple’s products are so much more expensive than the competition that only the rich Apple faithful tend to buy them. But that uncompromising devotion to the fundamental philosophy is what has made Apple such a powerful global brand.
The result is that most of the millions of people who buy an iPad mini will never seriously consider any of the alternatives. They know what works for them, and they trust Apple to deliver. That’s the power of the Apple brand."

This in a nut-shell explains Apple's philosophy where it only wants to provide beautiful products for consumers who are ready to pay a premium. This was always the case even in initial era of PC before the arrival of Ipod, Iphone and Ipad. 
This is in stark contrast to Microsoft/Intel which created an ecosystem of hardware/software vendors that catered to mass-market demand for personal computing. They captured the 90% of global market, due to pricing which can be seen in historical price of an average personal computer from Apple, today OSX starting point is $1000 (in today's dollar this was $1500 in early nineties same as MS ones) while that of Windows is $400-500. MS built on this advantage due to network effect where being the successful platform attracted lots of third-party products and IT human resources which left Apple fighting for its very survival.

Now Apple with its introduction of ipad (built on iphone) has upended the old order of personal computing in a big way for individual consumers (Enterprises are always a second thought while reverse is the case for MS-Intel duopoly) by producing an exceptional product with touch based human-computer interface that is more natural to use especially in personal Use cases of Mail, Web surfing/reading, Gaming, Video/Audio consumption, education and all of this while supporting high mobility. The cons are mostly related to Enterprise use cases where lack of keyboards, accessibility to MS-office and availability of enterprise applications.
If only this was the case the product would have been successful and created an option for probably 15-20% of global market in consumer computing but it was launched with a brilliant pricing strategy from Apple where it decided to lower the entry price to $500 (50% of its traditional computing devices such as MacBook Air). This meant that lots of consumers looking for a device for home use consider ipad above a low end traditional PC, this has been reflected in figure of PC shipments from 2010 onward where either PC shipment are stagnant and recently have started showing a declining trend (excluding Mac platform) for the first time since their inception! Industry response which was initially either skeptical or scornful has now changed to fear where they would to grab a share of this growth (Industry response especially MS-Intel duopoly will require a post of its own) where we saw launch of MS Surface this week specifically to address this lacuna.

Meanwhile Apple is repeating its strategy of iPod for personal computing (I guess they have learnt their lessons from initial battle with MS!) which is to provide a flavor of Apple product at increasing lower prices (Ipod shuffle starts at $50!) for customers who appreciate Apple's attention to detail and build/usability quality. And in this world i.e. the world of Apple admirers/fanboys they are providing another lower price-point of $329 for almost all of Ipad functionality and looks. If we consider Ipod Touch  a sort of micro ;-) Ipad which starts at $300 then depending on your personal computing need you have products at almost every $100 interval until $2000.

This range of product portfolio is going to meet the needs of most of people (presumably in developed world) and at the same time ensuring that there is no repeat of early nineties where Apple brand was locked out into a niche market due to its higher pricing for superior products.
PS:  Personally, I would have liked Apple to reduce the $130 premium for 3G/LTE to a more $75 but that is just me ;-)

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