Tuesday, February 12, 2013

Is Apple Getting Ready to Play a "Price Game?"

"Apple Is Not A Hardware Company," Apple CEO Tim Cook says. What precisely that means is not drop dead clear. Cook probably is not just referring casually to the fact that these days, all "hardware" products are driven by "software" features. 

In fact, it is highly unlikely anything Cook says in a public forum is "casual." So what Cook might be laying the groundwork for, is the issue. One can think of somewhat exotic answers. Apple never before has licensed its operating system, so is Cook slowly laying the groundwork for a change of thinking on that score? Though possible, it seems less likely than other explanations.

Compare Amazon and Apple, in terms of their business models. Amazon does manufacture and sell hardware--namely tablets. But Amazon only does so to create a distribution platform for sales of its "software," or content. 

Apple has the opposite strategy: Apple sells valuable content at low margins so it can create more demand for its hardware products.

In other words, Amazon merchandises hardware to sell content and other products. Apple merchandises content to sell hardware. 

So Cook could be obliquely suggesting that Apple's revenue model might, in some cases, rely less on hardware gross revenue and margins, and make up for any shortfalls by sales of content or other products. 

"You could go in and accept a lower margin at any time, for strategic reasons," Tim Cook said. " Or maybe Cook is just laying the groundwork for introduction of lower-priced Apple iPhones, even though Apple denies any such thing is planned. 

With or without a big change in revenue model, Cook might be opening the door for "strategic" pricing changes, perhaps to compete with other devices in developing markets. 

Some of us think Apple must do so. 

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