Faced with intense competition and a product line too profitable to mess with, Apple is betting on a new strategy to keep its opponents at bay.
It’s selling hardware at a premium, and giving software away free.
Apple on Tuesday unveiled a slew of product launches, upgrades and – most notably – steep price discounts, all tailored to capitalize on what has become the most profitable and imitated product portfolio in the technology industry.
The company showed off two new iPad tablets with advanced features, designed to help Apple maintain its dominance of an increasingly crowded product category. The launch came the same day that Nokia announced its own Windows-based device, the Lumia 2520. Meanwhile, Microsoft’s second-generation Surface tablet also went on sale.
But Apple’s tablet pricing strategy is a bet it can still own the high end of the market, while letting the industry’s most intense battle play out at the lower end.
The new iPad Air and iPad Mini will start at $500 and $400 respectively. And Apple is cutting prices on some of its older tablets in an effort to combat the rising tide of cheap tablets running on Google’s Android operating system. Those products, while not as critically acclaimed as any of Apple’s tablets, have nonetheless gained market share in recent years, primarily due to price.
That leaves Apple facing a fine balance, as it tries to cater to a growing demographic of price-sensitive consumers without watering down the profitability of its premium products.
“It seems as though Apple is trying to push average selling prices for iPads back up again after they’ve dropped steadily over the past year,” said Jan Dawson, chief telecoms analyst at London-based research firm Ovum.
But Mr. Dawson cautioned there’s room for the competitors to chip away at Apple’s lead, just as they did in the smartphone sector.
“The yawning gap between the specs of the cheaper iPad Mini and iPad 2 and the new iPads signifies that [Apple] is only willing to compete at the lower price points with older models … while others such as Google, Amazon and a raft of others aggressively target the sub-$400 market,” he said.
Apple’s headline products announced Tuesday – two new flavours of the iPad tablet – showed no revolutionary upgrades. Instead, the devices come with the kind of hardware improvements now familiar to most recent Apple announcements. The newest version of the higher-priced iPad, called the iPad Air, is thinner and lighter than all previous models, weighing only one pound. The slightly cheaper iPad Mini has now been outfitted with a sharper “Retina” display. Both tablets also have more powerful processors.
“As always with Apple, expectations on systematic breakthrough hardware innovations are irrational,” noted Forrester mobile analyst Thomas Husson.
“Yes, at some point, the company will need to disrupt a new market once again, but today’s announcement is really about making sure it maintains the premium brand experience for the holiday season when competition is heating up – not just for tablets but also for the amazing new line of Mac products.”
The theme of incremental improvements and price discounts was readily visible in almost every announcement Apple executives made on Tuesday. The company is upgrading more than 20 pieces of software that run on everything from smartphones to tablets to desktops. The software includes Apple’s OS X computer operating system and the iLife and iWork suites of productivity tools.
While many of the software tools are getting cosmetic overhauls or new features such as better Internet synchronization, Apple’s most significant change in strategy could be found on the price tag. For people who purchase Apple hardware, the productivity software will now be available at no cost. Most Mac users will also get the new OS X operating system free. The move is a clear shot at one of Apple's biggest rivals, Microsoft, which generates much of its revenue from the sale of Windows and Office products.
In addition to cutting prices on software, Apple also shaved $200 from its MacBook Pro line of laptops. And it announced the Mac Pro, an ultra-powerful desktop computer priced at $3,000 aimed at the high-end of the market.