Sustainable Value

A colleague recently asked me what computer system I was favoring for the long haul. I immediately thought of Apple. He asked me why I thought Apple was a good choice, and I replied that OS X would be the main reason, and hardware “comfort” second. The open question for the evening was why didn’t Apple make cheaper products for the main stream? Their desktop units, in particular, were priced many hundreds of dollars above its PC competitors. Yes they are.

Why doesn’t Apple sell cheaper products?

I recollect a Harvard Business School case study from long ago that suggested competing on price was a losing proposition, in the long term. Sustainable value could not exist in an environment where competitors steered organizations based on price.

We see now in the PC business that the way to sustain markets is to build faster machines to maintain margins. The need for faster machines seems to be driven by the size, complexity and quantity of operating systems and other software. Unfortunately for PC manufacturers, people (with the exception of gamers, etc.) now realize they do not need all that software, hence all that speed. Both my colleague and I recently agreed we just have too much on our desktop, and it was time to cut back. Meanwhile, the mobile community is shifting value from Mhz to battery life, as wireless networking becomes ubiquitous. Down go laptop clock speeds. For the PC manufacturers and software developers, now what?

Well at least one person has an opinion. Bill Gates thinks hardware will someday be free. Bill is a guy who it is difficult not to listen to, but I still have to think about that one a little more. If you get the hardware for free, and don’t actually buy the software (you usually “license” it), it sounds as though the industry may starve on its own success. I doubt however, that you will ever be able to pick up Apple hardware for nothing.

Another industry has experienced a similar fate. The US auto industry failed to maintain consumer attention, due mainly to an inability to create a product of competitive quality while fighting each other for price superiority. Meanwhile, Toyota Motor refused to lower their prices to levels of their primary competition, and yet Toyota is now the number one car manufacturer on the planet in terms of volume. They still build vehicles for which quality is hard to beat anywhere, and at any price. Toyotas will likely never be free, but I suspect that at least one major US automaker will not make it another twenty years, at least not independently.

Apple may have had its trials and tribulations, but it still carries its own weight, and seems to be making great strides of late. Someone seems to have a clue that people are willing to spend a little more for a supposedly superior product. People keep doing this, so maybe there is just something to it.

PS: I drive a Toyota.

Originally posted to the thoughtmarket predecessor site by mg on April 24, 2004 09:13 AM

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.