Can Apple beat the too-expensive rap?

At WWDC Monday, Apple revealed new pricing that showed it's being realistic about the economy and competition.

Erica Ogg Former Staff writer, CNET News
Erica Ogg is a CNET News reporter who covers Apple, HP, Dell, and other PC makers, as well as the consumer electronics industry. She's also one of the hosts of CNET News' Daily Podcast. In her non-work life, she's a history geek, a loyal Dodgers fan, and a mac-and-cheese connoisseur.
Erica Ogg
4 min read

Apple iPhone
Apple got aggressive on pricing at WWDC 2009. James Martin/CNET

SAN FRANCISCO--The big knock on Apple--whether or not it's always been accurate--is that its products are more expensive than most of its competitors.

But in the keynote speech Monday that opened Apple's Worldwide Developers Conference, it became clear the company is tackling the price question head on.

The best example of this new attitude is the decision to keep the 8GB iPhone 3G, but sell it at $99. That was the most aggressive price move it made Monday. But Apple was price conscious in other ways, too: It upgraded its 13-inch unibody MacBook to specs worthy of its more high-end MacBook Pro line, while also reducing the price. The MacBook Pro 15-inch and MacBook Air also received price cuts. And Apple didn't stop there. The new Mac OS X 10.6, known as Snow Leopard, will cost current Mac OS X 10.5 owners just $29 to upgrade when it becomes available in October.

The price cuts on the MacBook lineup and the iPhone 3G are clearly intended to bring more "switchers" over to the Mac and iPhone platforms. And it shows that Apple is acutely aware of the financial problems facing potential new customers. But will it work?

There are two things that lowering the price of the iPhone to $99 does: It broadens the potential base of people who can now afford the iPhone. It also kneecaps Palm. The $199 8GB Palm Pre has been touted as a potential "iPhone killer," or at least a very nice alternative to Apple's device. But the Pre is now $100 more than the comparable device from Apple. That could make the decision very easy for people who are on the fence.

But this isn't just about Palm. It's about all the other phones that are currently sub-$100 right now, too. As of the beginning of the year, Apple owns just under 11 percent of the smartphone market, and that could increase exponentially now. In order to figure out just how much a price cut from $199 to $99 on the 8GB version will affect consumers, the best example is what happened when Apple cut the iPhone from $399 to $199 last year. That was also a 50 percent price reduction.

Apple watcher and Piper Jaffray analyst Gene Munster notes that the price cut last year tripled the sales of the device, from 4.7 million iPhones sold in the three quarters before the price cut, to 15 million iPhones sold after the release of the $199 iPhone 3G. There are other factors of course: greater visibility for the iPhone after a year of being on the market, people who had been holding out for a 3G version of the phone, and more availability in international markets. But Munster says demand in the U.S. alone increased 100 percent with that price cut.

Whether Apple can repeat this is going to be determined by a number of factors. Of course, the economic environment isn't the same as it was a year ago, plus far more people have iPhones already, and there are more smartphones on the market now.

In any case, the decision on price shows Apple is being aggressive, and it makes a statement about the kinds of customers it is courting.

The same is true of its pricing approach to the Snow Leopard upgrade. While there are plenty of flashy new tweaks to the operating system, they're just that: tweaks. The updated OS is not a monumental change from Leopard, which is why Apple likely went with the easier-to-stomach and surprisingly low upgrade fee for current Leopard users of $29. (When Leopard was introduced, it cost $129).

Jab at Redmond
The move also clearly puts pressure on Microsoft vis a vis Windows 7, which will start shipping in October. Microsoft executive Bill Veghte told CNET News last week that Microsoft is considering whether to offer a lower-cost Windows 7 upgrade for Vista users--and hinted as much in a speech earlier on Monday. A leaked Best Buy memo says the retailer plans to pre-sell Windows 7 upgrades for $50. However, it is unclear if that is a promotional price; Microsoft has yet to publicly detail its plans.

That wasn't the only jab at Redmond during the presentation. Some were more subtle than others (Like Bertrand Serlet's remark about "Windows 7 is just another version of Vista.") Microsoft has worked hard to make the choice of buying a Mac or a PC about the price--just witness its series of I'm a PC ads that send moms, kids, aspiring actresses, and college students searching for inexpensive laptops at retail stores. Apple, however, has never really engaged on the issue of pricing--the company's messaging on Macs has always been to position it as "the best computer" period. But the aggressive pricing on Mac laptops revealed at WWDC today shows that Microsoft (and Hewlett-Packard, and Dell, and Sony, etc.) has Cupertino's attention.

Prices were cut across the board, from the newly introduced 13-inch MacBook Pro to the MacBook Air. The 13-inch now starts at $1,199 and 15-inch at $1,699, though both received upgrades to battery life, the screen technology, and a new SD card slot. The MacBook Air price was the biggest change: It now costs $1,499 for the low-end Air and $1,799, down from $2,499, for the high-end version packed with a 128GB solid-state drive.

Apple is obviously hoping to rejuvenate its Mac sales. While the overall market for computers has dropped steeply, Apple's sales have fallen but not as drastically. Its market share stands at about 7.5 percent, but sales for Februaryand Aprilthis year were both trending at about a 4 percent to 16 percent declines in unit growth from the same time a year prior. Price cuts across the board could definitely get people to shop again.

Perhaps even Laptop Huntresses "Lauren and Sue" will want to reconsider that 15-inch MacBook.