It’s hard being the envy of nearly every brand.
Yet, as today’s rollout of a new set of iPads demonstrates, that may just be Apple’s core problem. It’s the HBO of tech companies. It’s a highly profitable, premium brand that got started in the 1970s, and that industry peers envy and love. But while highly profitable, it always has to cope with cheaper, aggressive competitors. (Netflix announced Monday that it had surpassed the premium cable network in subscribers).
Well, Apple is now a purveyor of expensive, high-end products in a market where consumers are turning to cheaper alternatives.
In the past year, Apple’s dominance in the tablet market has crumbled. As Henry Blodget noted at Business Insider, in a market that’s exploding, iPad’s sales dropped 14 percent in the last quarter compared to the year prior. Apple has gone from controlling 71 percent of the tablet market in the beginning of 2012, to holding down just 28 percent by the end of the most recent quarter. In that time frame, more competitively priced competitors like Samsung and Microsoft have made significant gains.
And the biggest future gains to be made in the tablet market are in emerging economies, which are home to plenty of people who can afford Apple products at their current prices, but which are also home to hundreds of millions of people who never will be able to afford Apple products at their current prices.
To aggravate matters, Apple’s most significant attempt at breaking that cycle, the cheaper iPhone 5c, has so far been a flop. Real Time host Bill Maher presciently noted that when it came to Apple’s new iPhones, there was “a gold one for the haves. And for the serfs, a lime green one that looks like it’s wearing Crocs.” The 5S, particularly the gold one, has flown off the shelves, the 5c has stumbled as a lack of demand led Apple to cut orders. The phone had two major problems. It was a cheap phone that wasn’t that cheap. And if people are going to shell out for an Apple product, they want the real deal, not one that is called “the cheaper option.”
Apple’s big Tuesday product reveal doesn’t do much to change this dynamic. In fact, it was a bit of a snooze. The most exciting part for techies seemed to be when Apple’s Phil Schiller mistakenly referred to The Dark Knight as The Black Knight (gasp!).
Over time, consumers generally expect that electronics and computers will provide better performance and more features for less money. And Apple delivered on that score. The new iPad Air is a thinner, faster, lighter version of the most recent model. But its price point of $499 ($629 with cellular support) is still pretty steep. The updated iPad Mini, which will start at $399 ($599 for cell), gets a retina display as well as better performance.
Do these new products have the ability to light a fire under waning demand? Initial sales will be huge. Apple’s decision to simultaneously launch the iPad in China—as it did with the iPhone 5S—will certainly lead to an impressive opening weekend. The question is what happens in the months, weeks, and quarters after the big launch. If recent history is any guide, Apple may find itself looking at quarters with negative annual comparisons for some of its flagship products. And it may face what has long been the question surrounding Apple: at some point, it may have to cut prices drastically—and thus sacrifice margins—to keep unit growth at high levels. Or it may simply try to change the conversation, and focus more on the size of the company’s margins and the wealth of its premium customers, rather than on the sheer numbers of devices it is moving. As CEO Tim Cook put it on Tuesday: “It’s not about quantity, it’s about quality.”
