Education Macs price cut

Martin Levins
2 June, 2008
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Once everyone realised that Kevin Rudd’s government policy of ready access to computers for all year 9-12 students was actually going to happen, the market suddenly changed. The goalposts weren’t just moved — we now have a different game and the rush of blood to the vendors’ heads has made them readier than ever to play limbo with price points.

We’ve seen $700 desktops from PC vendors and even $999 Macbooks with a .Mac account, on-site warranty, iWork and a carry bag thrown in from Apple in Australia (Apple will say this applies only to monies from the Federal government “education revolution” pot, but I wonder how this is interpreted in the context of the Trade Practices Act?)

I can see the “loss leader” idea applying here; like the “how can they possibly sell that so cheap?” bargain in aisle 13 at the supermarket, maybe Apple is prepared to lose some money to gain traction in sales, market share and, hence, acceptability in otherwise “PC-only” environments.

The exact nature of the loss is, of course, unpublished, but let’s do some sums. The cost of the same machine in the US to education (pre-tax) is $US1089, and Apple usually adds 20-100 percent on to its Bill of Materials (BOM) costings to cover profit, advertising, development, Intellectual Property, fulfilment (packaging, delivery and so forth) and inventory management. As a guide the Apple TV is costed by analyst iSuppli at 20 percent over BOM and the iPod touch, 100 percent. The AppleTV is a revenue generator, which presumably is why it has a lower profit, and maybe this represents the “loss leader” statistic.

So, let’s guess and propose a cost to apple of 40-60 percent of its US pricing, or an actual cost of $US450-650, to which we’ll add the cost of iWork ($71), three years Applecare, the carry bag, and a year’s .Mac account. You may say that the “cost” of .Mac and iWork is very little as Apple make it already and what’s a few extra free copies, but Apple, like most companies, has separate cost centres for hardware and software and they rarely talk (or rarely talk nice anyway) to each other.

Would it be fair to add this up to around $US550 for the machine, $US35 for the software, $US20 for the bag and, say $US50 for the .Mac account? That’s $US655 or around $A750 (using the ratio of pre-tax US education pricing to pre-tax Australian education pricing for the same machine; which leaves on-site AppleCare at $A249 before the numbers start to go red.

There’s not much wiggle room left here, raising some questions.

Such as, there appears to be a fairly healthy gross profit on existing (non-Rudd pricing) education sales. Good on them, I say. I’d prefer to have a company that’s going to be able to pay its consultants so I can contact them when in strife, and to be able to afford programs such as the podcasting roadshow of 2007. So why the aggressive price cut?

I think it’s more than gaining market share and acceptance. I think it’s because the Rudd plan specifically refers to a preference for group purchasing, and the buyers of computers for large institutions are usually price sensitive.

I also think that there’s a new device coming.

How’s this for some specifications: It will be sub-$A500, with a five-second startup from cold (can you say Solid State Disc?), with a four-year warranty (a replacement machine swapped in if damaged) and less than 1.75kg in weight.

Sound basic? Well, add to these specs a webcam, with voice and video input.

How does Apple’s rumoured Newton reborn look here? I think it’s going to be too expensive, and will face a lot of competition from something such as a scaled-up, soft-keyboarded, multi-touch, haptic screen, like the second iteration of the One Laptop per Child machine.

Things are getting interesting

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