Monday, July 16, 2012

New Android prices

I must say the pricing development in Android tablets has been swift. Although it was also necessary! Two years ago the normal price for a good 7-inch tablet was about $600 if one didn't get a phone line contract. And it seems like now the new standard level is going to be around $200! One-third in two years, that's pretty amazing.

And starting with the Google Nexus 7, these tablets will be much less feature-scraped than the Kindle Fire 1 (except still low storage). Meaning they will begin to put more competitive pressure on the iPad for the first time.
OK, they also don't have cell phone net connection, but I never had that and never missed it. If I need to connect in the wild, I just go through my iPhone's hotspot.

Hey, does anybody know about the plans for 4G network in Europe and UK? It sounds like valuable technology, super-fast connection out there, but so far it seems it's really only extant in the US?


Stephen A said...

It's much more than that. This puts Apple firmly in the low end disruption scenario of the Innovators Dilemma.

One can liken this to the Swiss watch market in the early '60s. Up until that point watches were mechanical. They were very expensive, and more expensive watches had a very distinctive advantage in terms of accuracy and reliability. As a result it made much more sense to have one Swiss watch, than multiple cheap watches.

But at that point Casio and Seiko entered the market with quartz electronic watches, and eventually digital watches. Pretty quickly a reasonably Casio priced watch performed just as well as a Rolex, and soon a cheap Timex watch was "good enough" although a Casio was still nicer.

The Swiss watch industry was decimated. While a partial recovery was achieved with the mass produced swatch, the margins were nowhere near that of mechanical watches. The remaining high end watch companies essentially sell Veblen goods which are effectively jewelry which announce the wealth of the owner.

Their insanely high margin iPad faces two low end threats: The Nexus 7 and generic A10 tablets. The Nexus is a more than good enough "Casio" tablet at a price, while the A!0 tablets are "good enough" capacitive screen and relatively zippy performance even with ICS and much better performance with Jellybeans graphics optimization.

If Apple tries to retain high margins by adding features like "retina displays" they face overshot, with the features exceeding those of the needs of the mainstream market. On the other hand if they go downmarket they face razor thin margins.

While Android manufacturers effectively pool R&D and draw from interchangeable modules (like the A10 and Tegra 3 Chipsets), Apple follows a "go it alone" path of performing all iOS and hardware development. Such a model is sustainable with huge margins but impossible with limited margins. Worse yet, if volume drops unit costs jump and margins get squeezed further, and Apple can no longer corner the market on critical components.

This is further complicated by loss of near monopoly status. At present Apple can levy 30% of all sales since they are the only game in town. If Amazon and Google offer competitive distribution channels with smaller cuts content will flock to them.

My prediction is that there is a good chance Apple's margins will drop to market norms within 5 years.

Eolake Stobblehouse said...

They might, though it'd be the first time.

You have some good points. But it remains to be seen if anybody can do the trick with bigger tablets, and if anybody can replicate Apple's Full Store experience, not to mention the great feeling of the smooth and simple interface. If not, then I think Apple can still command a premium. And I don't think it needs to be huge, people expected the first iPad to be $1,000, but it started at $500.

They won't hold a market share like with the iPod. But I'd be very surprised if it ever falls to under 10% like the Mac did partly because back then they refused to ever play ball with the prices.

Anyway, should be interesting for consumers.

Bruce. said...

Recently I was able to buy a refurb iPad 2 from Apple for $325. That's with new glass, plastic case, and battery, and a full 1 year warranty. That's a very competitive deal for a 10 inch tablet from any manufacturer.

This year Apple is keeping the iPad 2 in production for $400. If they follow the same trend as the iPhone they will keep the iPad 2 in production for a third year and drop the price more. What I paid for a refurb this year could be the new price of an iPad 2 next year.

If Apple makes an Air this year, then 2+ years later they will likely have a sub $300 iPad Air to sell.

Apple may pay more for their components in the first year, but they have hit on the strategy of much longer production runs than their competitors, which brings unit cost down quite a bit.

Eolake Stobblehouse said...

Wow, $325 is a *very* cool price for a like-new iPad 2, congrats.

Bruce said...

I almost missed the deal - saw it at the Apple Store on a Thursday and decided to sleep on it. Friday AM they were gone! :-( They showed up again about two hours later and I grabbed one. They were off the site again before the day ended.

Since then I have been checking the website out of curiosity. I very rarely see the WiFi only, 16 Gb iPad 2 model in the refurb section. When I do see them, they are the same price I paid, but I feel lucky to get one.