The death of the Apple tax


— 11:05 PM on March 29, 2012

The old adage says there are only two certainties in this world: death and taxes. Steve Jobs proved that not even the Reality Distortion Field is strong enough to resist the reaper. However, the company he spawned and subsequently resurrected seems to be doing away with the tax that came to be associated with its products. This so-called "Apple tax" refers to the price premium that used to be attached to each and every new product to roll out of Cupertino. These days, though, Apple's highest-profile offerings tend to be pretty competitive on price.

Take the new iPad, for example. With a Retina display that quadruples the pixel density of its predecessor, many expected the third-gen tablet to cost a little bit more than the iPad 2, but Apple's latest creation arrived at the same $499 price, knocking the old model down to $399. After all those years spent hyping the thinness of its products, perhaps Apple simply wasn't prepared to ask more for a fatter tablet, regardless of the resolution.

Whatever the rationale, the fact is both iPads offer pretty good value. The new model has the best screen on any mobile device, plus better graphics performance than Nvidia's Tegra 3 SoC for the same starting price as the Transformer Prime, our favorite Tegra tablet. The Prime offers more storage and other perks, but that's wading into details. Asus was expected to charge closer to $600 for the high-DPI Transformer Infinity Series, whose 1920x1200 display has fewer pixels than the iPad's Retina panel.

Right now, the 16GB iPad 2 may be the best tablet deal around. The $100 price cut brings the least expensive iPad down to $399, where it'll end up going toe-to-toe with Asus' next budget 10-incher, the Transformer Pad 300. Samsung's last-gen Galaxy Tab 10.1 has been discounted, too, but only to $439—and it's still without an official Ice Cream Sandwich update.

The Apple tax never really applied to tablets. After all, the iPad debuted at $499, a much lower price than many had expected, yours truly included. Perhaps Jobs learned his lesson with the first iPhone, whose price was slashed by 33% just two months after the initial launch at an exorbitant $599. (That was for the 8GB version, by the way; the 4GB model debuted at $499 but was discontinued two months later.) We haven't seen a new iPhone priced that high since. If I were to renew my cellular contract today, the iPhone 4S would cost about the same as the latest and greatest Android handset. The older iPhone models are basically free on contract.

To be fair, Macs remain relatively expensive compared to their PC counterparts. The gap is shrinking as PC makers chase ultra-slim designs to gain Intel's ultrabook seal of approval, though. Apple proved that a market does exist for high-end computers, and it seems everyone wants a piece.

Although they share similar lines and live in a walled garden adjacent to the one that contains iPads and iPhones, Macs are a very different breed. Those iDevices are much closer to consumer electronics products: there are fewer models and configuration options, the underlying hardware is simpler than what you'll find inside a notebook, and more of the component parts bear Apple's name. Those attributes, combined with the organizational influence of former COO (and now CEO) Tim Cook, have allowed Apple to continue reaping huge profits while doing away with lofty premiums. Cook reduced inventory levels and traded in-house fabrication for contract manufacturing. At the same time, he used Apple's massive cash stockpile to lock up supply of vital components like flash memory. We've heard that Apple is flexing its monetary muscle to fund entire factories dedicated to producing Retina displays—and that its carefully worded manufacturing contracts make it difficult for competitors to secure supply of high-DPI screens.

Part of me cringes at the thought that Apple might be actively trying to lock its competitors out of certain technologies, either by buying up all the available production capacity or keeping its suppliers from working with anyone else. But my bachelor's degree comes from UBC's Sauder School of Business, so part of me appreciates Cook's shrewdness, even if it has a ruthless undercurrent. That's probably that same part of me that was fond of the Machiavelli readings in my political philosophy elective.

Let's not forget Apple also has a formidable marketing machine that remains integral to the appeal of its products. Apple does a great job of convincing consumers they want the latest iDevices; the cheaper those products are, the less magical they need to be in order to get folks to whip out their credit cards. Had the iPad and iPhone maintained Apple's history of premium prices, I don't think either would be nearly as popular today. Whatever has been lost on markup has surely been returned several times over on volume. Remember, too, that these devices are tightly integrated with iTunes and the App Store, which contribute a healthy cut of each transaction. No wonder Apple's sitting on a cash stockpile that totals nearly $100 billion.

Even back when it was a vendor of high-priced Macs with relatively little market share, Apple had a disproportionately heavy influence on the PC industry. Now, thanks to a lineup of reasonably priced smartphones and tablets, it owns a huge chunk of the market for devices that make up an increasingly important part of the modern personal computing experience. That's kind of a big deal if you're at all interested in the direction of computer technology.

Now, you may not agree with the locked-down nature of iOS; the lack of built-in SD slots, USB ports, and HDMI outputs; the high cost of accessories; or the general smugness exuded by all too many Apple fanboys. I don't. However, I did encourage my girlfriend to get an iPhone 4S over the alternatives, and I have found myself recommending the new and second-gen iPads to others on more than one occasion in the past couple of weeks. Apple may not be earning my dollar, but these days, it's certainly asking for fewer of everyone else's.

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