Why you didn’t see an $800 MacBook: The Dell Comparison
Apple is worse than ever at keeping what is coming next a secret. This inability to keep a secret is counterbalanced by a rumor mill that churns out more inaccurate, yet almost believable rumors, than ever. Thus while it was widely suspected (and accompanied by pics) that Apple would reveal MacBooks carved out of a single bit of aluminum it was also just as widely believed that one MacBook model would hit the $800 price point.
Two days ago one rumor became fact and the other rumor became a sore spot for Apple fans. After the non materialization of an $800 MacBook the spin kicked into high gear. Microsoft is breathing easy, the Apple stock is going down like a wolf being hunted from a helicopter etc, etc. Spin aside, the disappointment is palpable. People really wanted an $800 MacBook and having their hopes dashed against a cold billet of aluminum is a pain that lingers.
Why no $800 MacBook? The go to answer is that Apple couldn't crank one out and keep profit margins where the company wants them. Is this reasoning even remotely plausible? The quickest way to tell is a trip to the Dell website. For the purposes of this exercise we'll whip up something reasonably close to the latest MacBook and see what the price turns out to be.
(Note for people who wish to play at home: The Dell build a computer process is truly, truly awful. What should take about four seconds takes at least twenty minutes. But if you've got time to kill, perhaps you are incarcerated, feel free to check the numbers.)
Keeping the specs exactly the same isn't really possible and instead of running through the choices made with an explanation of why we opted for X a screen grab will reveal what we chose. You can make up your own reasons.
The price for all that? $819. If Dell can do it, so can Apple. But that conclusion, some will argue, is pure shinola. The Dell benefits from economies of scale and pushes every stupid add on possible during the ordering process so the chance of a consumer really getting out of the cyber door with that notebook for $819 are pretty slim. It isn't really that the Dell is going for the less than a MacBook it is that you get to pick where you are gouged.
Valid points when comparing the MacBook to a similarly configured Dell. But even that configuration is overkill for OS X on an $800 machine. What people want out of a low end MacBook is adequate performance. They won't expect stellar movie editing or the ability to make GarageBand jump through hoops, they just want a cheap notebook that runs OS X. How can we be certain that both the Dell and MacBook are overly adequate? Because the MacBook Air is an adequate Mac and that machine uses a 1.6 GHz chip. If a 1.6 GHz core duo is good enough for the Air it is good enough for a cheap MacBook. When you rerun the exercise you discover you can get a Dell for $599. Same plastic shell, same memory, same hard drive, same CD drive. Two hundred bones less.
With that in mind, let us take a look at whether or not Apple could meet the company's desired profit margins with an $800 machine. Apple's rule of thumb for gross margins is 25%. Assume that the $599 Dell is sold at cost. Assume the purchaser is Apple. What price tag does Apple have to slap on the Dell to get the margins Cupertino desires? $798.65. Bam, there's your $800 MacBook!
But wait, if it is that easy why isn't Apple selling a rebadged Dell? Well, there is a lot of labor in sticker removal to start with but the more telling reason is that there isn't any reason for Apple to try to hit that artificial price point. Why make an $800 MacBook if it will end up costing you revenues and profits? That might sound like the rantings of someone who spends long hours talking with themselves, after all it is the same as saying "Apple doesn't want to sell more computers" but in this case it happens to be true.
How is that possible? Instinctively we all know that if Apple charged less for a MacBook the company would sell more units. For example, the iPhone truly took off when the price was cut to $199. Generally the price begrudging pundits labor under the illusion that when faced with a the choice between an $800 Mac and a Dell priced at $800 reasonable people will go for the Mac every time. Thus, it is thought, every incrementally cheaper Mac results in a disproportionately large jump in market share. That idea is simplistic.
The majority of people will opt for a Windows based machine over a Mac with the same specs (and price) every time. To a true Mac user that doesn't make any sense. Why would you pick a Dell over a Mac? Macs can run Windows! Macs make people happier! Macs cost less to own! People write great books about Macs! Resale value, TCO, coolness, they're green, etc! The logic is impeccable if you're a Mac user but put that logic up against: I already know Windows, I've already got Windows software I stole from work, etc. Now is the time to wrap your brain around an uncomfortable truth. Most people don't avoid Macs because they cost more, most people don't buy Macs because they prefer PCs.
With the realization that Apple isn't really competing with Dell or any other computer maker it is time to get to the truth of all this. If you're selling the base MacBook for $800 with the goal of increasing sales you'r e not really gaining a bunch of market share from Dell. All Apple really accomplishes is selling a few more notebooks to people who were going to buy a Mac anyway. They might not wait as long between machines, they might switch to a Mac a little sooner because of the new price point but Apple won't be converting a bunch of Windows users just because the MacBook is a couple of hundred bucks cheaper. Apple's pricing decision comes down to lopping $200 off the price of the base MacBook and selling those machines to a bunch of people who were going to buy a Mac anyway or keep the price the same, sell almost the same number of machines while giving users a better computing experience and making more money. With those choices the consumer will say "go low end" every single time but what is really important to Apple is what is best for Apple. If you've got an office on the Cupertino campus the answer is a no brainer.
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“… Apple isn’t really competing with Dell or any other computer maker ...”
Now there is an argument that makes sense! Apple doesn’t do everything for everyone, and with 30% yearly growth they probably don’t feel the need to try. Slow steady expansion is in their best interest, otherwise they could overheat and implode.
“Most people don’t avoid Macs because they cost more, most people don’t by Macs because they prefer PCs.”
This is true, but a lot of people are still unaware of the differences between macs and pc’s. A friend recently asked about recommending a pc I said have a look at a mac before You decide.
Mac?
Yes Mac’s have no viruses, less problems etc.
Why are macs so good?
They run os x and Apple make their own hardware so they are perfectly matched.
So what’s os x then, what version of windows is that?
See what I mean, Apple still have to educate a lot of people.
The bottom line is that 85% of the people buying PC’s buy it on price alone because to them a personal computer (any OS) is not worth more than $499, $399 or $299 - to them, it’s not IMPORTANT enough to spend more. Many of us would disagree here but to them, it’s like buying curtains or a bookcase ... there are people who spent $5k on curtains and $10k on carpets but $499 on a computer because it’s just not that important to them so Chris is right, people claim they want a “cheap” Mac and they have one - a Mini but for the most part, who does it bring to the table? Either Mac users or feel they don’t really need that much power and prefer to choose their own monitor or a few PC users but if you go to an Apple store, most Pc users who decide to go mac either buy a laptop or an imac ... people who buy macs value VALUE ... just as a Kia can outcorner a BMW in a specific test and costs way less than a BMW but what % of BMW buyers buy a Kia? Or conversely all the people who claim that PC pricing is the only criteria but would never buy a car that way? The facts are that people calim they want a cheaper mac but the mac buying audience ultimately decides they’d rather spend an extra few hundred dollars from a mini + monitor to an imac or to a macbook ... that is why Apple’s US share of $1k retail sales is 66% ... people who really want a computer and not just to have a thing on their desk choose Macs ... or conversely, WIN PC’s have fallen from 98% to 34% in 7 years in the $1k category ... (and of course, clearly, the growth of $1k is faster as Apple is crusin at 35% growth EVERY year while Win PC’s are increasing at %5 growth ...)
A lot of people buy on price alone. I’ve worked in Apple retail and people are genuinely interested until they realize just how much more they’ll have to spend. Hardly anyone considers resale value because PCs don’t have any so they can’t believe Macs do. Likewise few think about the cost of dealing with malware. Unfortunately for all of us, millions of Windows users have no protection against malware at all because it’s an added cost. These people are easy pickings for bot-net operators.
From my 3.5 years at an Apple specialist I believe they could gain a significant number of new buyers if they hit some “magic” price points. At the same time Apple has decided that gaining those people would come at too great a cost, both in real dollars and image. Too many buyers of $1200 Macs would go for an $800 model to be covered by new buyers coming to the platform and Steve’s carefully crafted elitist image of Macs as the BMW/Lexus of the computing world would start to crumble.
It’s the same reason we’ll never see another reasonably priced tower from Apple (apart from Steve’s hatred of towers): too many MacPro and high end iMac buyers would buy a $1200 tower instead, costing Apple serious dollars. With the desktop market in decline the number of new customers wouldn’t be sufficient to make up the difference.
At the same time I believe one of the reasons why the desktop is in such decline is because Apple, the trend setter in the marketplace, hasn’t had a competitively priced desktop since 2003. It’s just not cool to use a desktop computer because Apple says so. I don’t count the iMac because most people who choose to be tied to a closed, notebook-like design want to be able to carry it with them.
I think it’s correct to say that most people don’t want to pay more than $500 for a computer anymore, unless that piece hardware is going to make them money. And that’s how it’s becoming for me. I don’t want to pay more than $500 for a personal notebook. I just don’t think they’re worth it, whether it’s made by Apple or Dell. Apple is charging too much for the average consumer who is not spending that much time making imovies or creating Garageband cuts. Consumers like myself who are interested in doing the latter will buy an expensive Mac Pro or Macbook Pro. But in the days of Web 2.0, I just don’t need an expensive personal computer.
“The bottom line is that 85% of the people buying PC’s buy it on price alone because to them a personal computer (any OS) is not worth more than $499, $399 or $299 - to them, it’s not IMPORTANT enough to spend more.”
I definitely agree with this.
I think those who were thinking that they’d actually see an $800 laptop don’t know Apple or Steve Jobs at all. Sure, the Mac mini was a bone, but to say it’s underpowered for the money is an understatement, and the price on the mini is creeping up.
Heck, Apple’s LEAST powerful laptop that they make is $1700. What would an $800 laptop be able to do?
In fact, the price point for new Macbooks actually went UP, not down.
The closest we’re getting is the current plastic Macbook now priced at $1000. That’s cheap by Apple standards. And probably as good as it’s going to get.
I did find an $800 notebook. All the upgraders dumping the older MacBook for the newer one will sell them on eBay for about $800. No?
The only thing that’s missing from your cost comparison is software that compares to the iLife suite which comes with the macs......not that itwould put it up in the same range, but I think you have to include it in your calculations.
Is it also not possible that Dell is cheaper because they’re being subsidized by software companies paying to put add-on software (trial versions) on the desktop? It’s probably not much (certainly not $200 per unit, there’s no way a company would cover that at the 1 in 300 conversation rate of people buying a full version of an add-on), but it’s probably something.
Also, despite the fact that all computer parts are commodities at this point, there does appear to be some quality difference between Dell and Mac hardware that has to be accounted for somewhere (higher QC, more rigorous testing on the line, versus Dell shipping every unit and letting the customers discover the lemons).