houstonr77 (< 20)

Apple’s products are commodities

August 11, 2012 – Comments (0)

Last April of this year, my sister and brother in law came here from the US to the Philippines for a vacation. As is custom in the Philippines, I was given a present. My present was an Ipad 2. Could you imagine the look on my face? I think you would think that my face lit up similar to those who have been given or have bought Ipads. But I was just non chalant and far from being giddy. You may be thinking, man, this guy is a tool, an ingrate even. But in my defense, I was able to manage a smile and of course say thank you for the Ipad. I just was not thrilled.

Forward a week later and I was smitten. I just found out how it made my life easier. I check my email regularly and it allows me to check it quickly without waiting for a laptop or desktop to load. It also goes without saying how user friendly it is. Anyone who has experience with computers can use it easily. I also found out about the fuss about apps. I can install apps that fit my interest. In fact, I believe there are as many apps as there are as many interests. It also allows me to connect with my sister and brothers in US via Yahoo Messenger and then eventually Facetime. A few clicks and I am able to see and talk to them.  

I have been using the Ipad since April and I just realized something. It will become a commodity along with the other Apple products like the Ipod touch and the Iphone. I say this because aside from its strong brand equity, its products are easy to copy. Just look at the numerous tablets, mp3 players, and smartphones out there. How much can you truly differentiate them? I do not believe that Apple’s brand alone would allow it maintain its market share. 

For me the selling point of the Ipad is convenience but other tablets also offer this. I have not tried other tablets so I do not know how smooth their touchscreen interfaces are but I am guessing that the other tablets are not far behind. The selling points of the Ipod touch are the library of songs from itunes and apps that you can install. These again are hardly the exclusive domain for the Ipod. There are many gadgets that can be loaded with songs and apps. What’s more there are plenty of sites offering free songs. The Iphone is a combined phone, Ipod and tablet with a smaller screen. There is nothing really special with this combination.  

As commodities, price is the driver of sales. These three products are priced at a premium compared to their competitors. As for the Ipad, I was just lucky to be given one. But if I were to purchase another tablet, I would consider other tablets due to price. As a user, I just need the ability to open my email, get my apps and connect with my relatives.    

I also had a 2nd generation Ipod which I promptly loaded with free songs during the early 2000s. The rules regarding free songs then were not as clear cut as it is today so I did not have any qualms downloading free songs. Late 2011, I was given an Ipod touch that I have not opened. For me the price of songs being sold in Itunes is prohibitive for me to get interested once again in an Mp3. (By the way, I live in the Philippines and a song that is priced at 40 to 50 pesos is too much for me.) Finally, I do not plan to purchase an Iphone because of its price. Also, I like the tactile convenience of my Blackberry’s QUERTY.

Apple is planning for a smaller tablet and also to enter the smart TV market. Again, I do not see any competitive advantages that it would have against competitors. These products would again become commodities.  

Currently, I believe that Apple is riding a wave of buzz around its products. Network effects are strong. Brand equity is strong and it cannot be denied that owning Apple products is a source of status. But I do not see this wave continuing. Eventually, consumers would wise up to the fact that Apple’s products are not much different from those of its competitors and that they are priced at a premium.

To maintain its share, I believe that it must invest in software and lower the prices of their hardware. I read somewhere that Apple’s strategy is the opposite of the Gillete model. They sell software at a low price to be able to sell hardware at a premium. The problem is I do not see Apple having new software to continue with this strategy. 

From a consumer’s point of view, I would like Apple to segment its pricing depending on geography. This is done by retailers why not Apple. If the price is right, I might open my Ipod touch and start to download songs from iTunes.