The company recently started advertising lower prices in response to other resellers offering systems for below "MAP," or minimum advertised price. While lower prices are benefiting customers, Apple's direct sales effort may become an irrelevant and expensive experiment as a result.
Products sold directly by the Apple Store are listed at MAP. Under this system, customers normally shouldn't find a better deal on a new system, but some resellers are undercutting those official prices, from between $100 to $500 on some systems. For example, a Power Mac G3/266 from Computer Discount Warehouse (CDW) is priced at $2,849, while Apple's official price is $2,999.
A Power Mac 9600/300 is being offered by CDW for $3,589, while Apple is selling the system for $3,799, a difference of $210.
ClubMac fired the first salvo in the price war in November (see related story), offering some systems for $500 less than official Apple prices. MacMall is quietly offering limited rebates to customers in order to stay competitive.
When resellers offer systems below MAP, they forgo money Apple gives them for advertising. Resellers like ClubMac are counting on increased sales to offset the loss of advertising money.
Advertising money from Apple is important to catalog resellers, but resellers receive more money from software companies than hardware manufacturers because of the lower profit margins on PCs, says Marcia Aaron, managing director at BT Alex. Brown, an investment banking firm.
MacWarehouse's response to changing market conditions is of interest because Aaron estimates the company will do $870 million in business this year, again making it the largest Mac vendor. But the company is already in the process of reducing its dependency on Mac sales, and Apple's online initiative may alienate the company further.
MacWarehouse--which also sell Windows-Intel PCs--might be able to forgo Apple money, but hasn't yet enunciated a strategy for responding to Apple's direct sales initiative or other resellers. Apple first unveiled its Apple Store strategy in November.
"Their strategy in the Mac area is to maintain market share and profitability and use that piece of their business to help fund growth of their Wintel [catalog] business. Clearly, the Mac arena is not growing and they [MacWarehouse] are not making investments in that area."
Distributors and resellers generally mark up the cost of equipment to make their profits, and Apple has not yet tried to undercut its product dealers on price, but may soon be unable to resist the temptation.
Apple's main advantage over resellers is that they are able to sell the newest "G3" Power Macs in customized configurations directly from the factory, while catalog resellers mostly offer standardized system configurations. However, Apple is expected to give resellers the ability to order custom-configured systems from the factory as well, rendering its costly direct operations irrelevant unless it eventually decides to fully compete against resellers.
Apple could not be reached for comment.