Apple: The great market maker

Apple knows how to build great products, but it doesn't always benefit from its innovations because of its insistence on being a mass-market luxury brand.

A few months ago, you had no desire for a tablet computer. The market, after all, has hyped tablets for years, to little effect.

Now, with Apple expected to launch its tablet, you've mortgaged your house so you can buy one. Analysts are projecting that we'll buy tens of millions of such tablets this year.

Why?

Because Apple has blessed the category as "cool."

Sure, Apple gets it wrong sometimes. How many Apple TVs do you own? "Zero" is the correct answer. But on balance, we're willing to bet Apple will get a product right.

This man can make you cool...for a price.

It's therefore ironic that Apple tends not to enjoy the fruits of being a market maker--not as much as its rivals do, anyway.

For example, Microsoft has built a massive profit machine on the personal computer, a market that Apple created with its groundbreaking Apple II back in 1977. But it was Microsoft, not Apple, that has been breaking ground on new facilities to accommodate its dominance in the market ever since.

Recent history suggests that Apple may be turning the corner, given its success in both introducing and monetizing the iPod and iPhone. The company may not fare as well in the tablet market, though.

Why? It's a matter of price. Apple succeeds in the mass market only at lower price points, and it's generally not willing to drop prices to get there. The iPod was priced at a premium to competing music players, but the cost was still within the budget of tens of millions of people.

The same is true of the iPhone, thanks to subsidies from a wireless carrier. Take away those subsidies, and Apple's market share in smartphones would be much, much smaller than it is today.

With a projected price tag of $1,000, Apple's tablet is not going to fit those same budgets. It will be a luxury item, not a necessity.

But that's OK. Apple is a premium brand. It doesn't seem to want to be anything more (or less).

It could be that low-cost applications will make the hefty price tag seem skinny, but I doubt it. Not until the cost drops to $500 or so will Apple's tablet hit the mainstream. And by that time, Sony, Samsung, Dell, and others will undoubtedly have competing products in the market.

Dell and Samsung, in particular, could give Apple grief. Both have traditionally been known for offering "cheap and good-enough" products. Samsung, however, has been moving upmarket: my new high-definition LCD TV is Samsung, and the reason is quality, not cost.

Dell, for its part, is learning that design sells, as evidenced by its sleek Z series laptop line.

If any of these mass-market vendors cracks the code on cool at a compelling price, Apple may yet again play the role of market maker...but not market beneficiary--not at the scale that its innovations deserve, anyway.

Apple is a mass-market luxury company. Its tablet is going to fly off the shelves as price-insensitive early adopters buy into its hype. But the mainstream market, which values design but must also pinch pennies, is simply not going to buy into a $1,000 luxury item. It can't.

Follow me on Twitter @mjasay.

About the author

    Matt Asay is chief operating officer at Canonical, the company behind the Ubuntu Linux operating system. Prior to Canonical, Matt was general manager of the Americas division and vice president of business development at Alfresco, an open-source applications company. Matt brings a decade of in-the-trenches open-source business and legal experience to The Open Road, with an emphasis on emerging open-source business strategies and opportunities. He is a member of the CNET Blog Network and is not an employee of CNET. You can follow Matt on Twitter @mjasay.

     

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