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Apple's Next Gambit: Compete on Price?

Apple's Next Gambit: Compete on Price?

Apple is seldom seen trying to undercut its rivals on pricing, but there are hints that the company is putting more attention on affordability as it designs its upcoming products. Hints from COO Tim Cook have ignited rumors of a cheaper iPhone, and there's talk that Wednesday could bring about a less-expensive iPad. Plus, Apple's reportedly halved the minimal buy-in for its iAd program.

By Richard Adhikari MacNewsWorld ECT News Network
03/02/11 5:00 AM PT

Apple's ramp-up for an announcement Wednesday, believed to be the unveiling of the iPad 2, failed to stir Wall Street.

The company's shares closed at US$349.41, down 1.1 percent, after a day of volatile trading, possibly marking the resumption of the eight-day slide that was reversed Monday when its share prices closed at $353.21.

That could be tied to the overall market's slide as oil prices rise due to concern over the unrest in the Middle East, although Apple's share prices often buck the tide.

Still, Cupertino appears to be on solid ground overall -- shareholders last week voted down calls for greater transparency over the board's CEO succession plan.

Further, Apple unveiled a new family of MacBook Pros with "Thunderbolt" I/O technology, among other improvements, and secured one year of exclusivity on that new technology from its developer, Intel.

Finally, Cupertino halved the minimum buy price for its iAd mobile ad platform in a move that may bolster its sagging fortunes.

Son of iPad

Rumors abound regarding improvements Apple will make to its iPad for the line's second edition, and as usual, Apple has thus far remained tight-lipped. However, popular theories suggest that the iPad 2 will have a dual-core processor, cameras in the front and rear and a new high-resolution screen.

Supplies of the device may be limited by problems with its ultra-thin glass screen, warned Bill Shope, an analyst with Goldman Sachs. That's no surprise, as it often takes a couple of runs to get the production of a new technology right.

Still, the iPad 2 will likely come into a hot market. The overall tablet market will keep growing, Jeff Orr, a senior practice director at ABI Research, predicted in a report.

Apple, which accounted for 93 percent of the 4.5 million media tablets shipped in Q3 2010, will continue to rule the roost, albeit with a smaller piece of the pie.

A smaller share of a larger pie is still quite palatable, n'est c'est pas?

Shareholders Back Cupertino

At its annual shareholders' meeting last week, Apple's board fought off calls from some dissidents for greater transparency in its CEO succession plans.

The challenge came from the Laborers' International Union of America (LIUNA), backed by Institutional Shareholder Services.

The shareholders' vote signals confidence in Apple's management team and succession policies, which translates to confidence in the company.

New MacBook Pros With Thunderbolt

Apple last week unveiled a new line of MacBook Pros with new processors and other technology. Perhaps the most striking feature was Thunderbolt, Apple's name for Intel's "Light Peak" technology, which aims at using optical technology instead of copper to handle I/O processes more rapidly.

However, "ThunderBolt is not true Light Peak technology because it still uses copper wires," Fang Zhang, an analyst at IHS iSuppli, told MacNewsWorld.

Intel said Thunderbolt will work with USB 3.0 and other existing technologies, although Apple seems to be planning to revolutionize connectivity with the technology.

It may be aided in achieving that aim by the one-year period of exclusivity Intel has granted Apple with Thunderbolt.

"If Apple succeeds in creating a market for high-end, high-speed peripherals, PC manufacturers will have to follow suit or lose sales," Carl Howe, director of anywhere consumer research at the Yankee Group, told MacNewsWorld.

Apple did not respond to requests for comment by press time.

Apple Competes on Price Now?

Finally, Apple may be signaling a major shift in strategy, competing on price instead of quality.

For example, Bernstein Research analyst Toni Sacconaghi told investors in a note Monday that Apple Chief Operating Officer Tim Cook seemed to indicate the company might be developing a lower-priced iPhone. Whereas wireless carrier AT&T has often sold older iPhones for a reduced price once a new model is released, this could signal a new iPhone model that, at the moment of launch, costs less than the usual $199 (with contract) new iPhones normally start at.

Further, Apple has just halved the minimum price for ads on its iAd platform from $1 million to $500,000, AllThingsD reported.

There have been persistent rumors that the iAd program wasn't doing as well as Apple claimed, and the company had apparently stopped discussing the platform until it announced the price cut.

"The real problem here is that Steve Jobs said the company had commitments of $60 million, but there hasn't been any definitive word from Apple that that figure was achieved," Neal Strother, a practice director at ABI Research, told MacNewsWorld.

Competition could have played its part in forcing down the iAd tab too.

"In general, Apple's pressured by whomever is selling mobile advertising, whether that's Google, Millennial Media, Jumptap, Greystripe or any other provider in the mobile ad space," Strother said.

Then there's the renewed threat of Microsoft, which is adding apps to Windows Phone 7 at the fastest pace of any platform, Eric Rickson, director of mobile trends at Webtrends, told MacNewsWorld. He got his figures from Distimo.

WinPho7 recorded a 30 percent growth in apps in January versus 18 percent for Android, leading Webtrends to release a software development kit for its mobile analytics platform on WinPho7.

The iAd price cut "is opening up to leverage more advertisers coming in at a lower price point," Krishna Subramanian, a co-founder of Mobclix, told MacNewsWorld. "A $1 million budget is a pretty big commitment for the adviser."

The price reduction, combined with iAd Producer, an app from Cupertino that lets advertisers design and assemble interactive content for iAd more easily, may prove a potent combination, Subramanian suggested.

Perhaps Apple has finally learned what other businesses know: Volume sales trump high prices any time.


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