The dream of an $800 Mac notebook has been deferred. So what are Windows manufacturers going to do about it? Industry watchers predict they will keep cutting prices, but Apple is only part of the reason.
It’s mostly the economy.
Last week, the anticipated across-the-board price cuts for Apple’s new line of MacBook and MacBook Pro laptops fell far short of analyst and blogger predictions.
But Apple has amassed such a broad and loyal high-end buyer base that it can hang tight on prices and get away with it, perhaps even flourish, in an economy teetering on a recession.
Apple may be its own breed (this week it reported record quarterly sales for both Macs and iPhones), but still it seems logical to think that Apple’s decision not to budge on pricing, paired with an economy forcing tech buyers and consumers to be frugal, puts Windows OEMs in a position to sell more units.
“There are more choices for Windows so this could hurt potential Apple buyers,” says J.P. Gownder, an analyst at Forrester who covers consumer product strategy. “Ultimately, Apple’s decision not to cut prices could be a net win for Windows OEMs. They will be able to keep people who were on the fence about switching to a Mac.”
Gownder acknowledges that the economy is the main driver of Windows laptop pricing, but says that high-end laptops in the $1500 to $1800 price range from the likes of Toshiba and Sony will also stick to their prices.
“However, the middle and lower-end laptops from Hewlett-Packard and Dell will continue to see price drops as we head into the holiday season in an uncertain economy,” he says.
Indeed, data culled by technology research firm IDC (a sister company to CXO Media) shows that the average price of Windows laptops fell to $894 in the fourth quarter of this year, a 7 percent drop from the same quarter in 2007. IDC estimates that PCs will continue to see price cuts through next year, dropping another 9 percent to an average price of $810 by Q4 of 2009.
Doug Bell, a research analyst at IDC who covers the U.S. PC market, says that Windows OEMs are battling to hit the right price points for the holidays, mostly against each other.
“Windows laptop pricing is not too affected by Apple,” Bell says. Given that approximately 90 percent of the laptop market is Windows, the numerous OEMs are often differentiated by bells and whistles. “The prices are basically the same for all the OEMs, so they tend to push other features such as functionality, style, color, sexiness and other gimmicks,” Bell says.
“With tech buyers, it’s all about brand reputation,” he added.
Both analysts agree that inexpensive ultra-small notebooks in the $250 to $450 range, often called netbooks, are an emerging market that will benefit the most from lighter wallets and Apple’s high-end stance. Apple, after all, doesn’t make a netbook and doesn’t plan to.
Most of the Windows manufacturers have added at least one netbook, which offers a choice between an open-source operating system and Windows XP, to their lines. The most notable are from Lenovo and Acer.
Netbooks are so promising that the PC market is reportedly afraid that netbooks will soon hurt laptop sales.
Yesterday, Microsoft expressed concern during its quarterly earnings call with Wall Street that Windows Vista sales were sluggish this quarter, despite 11 percent growth in PC shipments. Microsoft says this is largely due to the rising sales of netbooks running Windows XP Home or Linux.
One Microsoft watcher, blogger Joe Wilcox, states wholeheartedly that cutting prices is exactly the wrong thing for Windows OEMs to do.
Wilcox recently wrote on his blog, Microsoft Watch:
“Windows OEMs should follow Apple’s lead. Now is not the time to set off fire sales. Pricing panic now is sure to cost in margins and profits later on. By keeping firm, and even raising prices, Apple bets on a good holiday 2008 while leaving plenty of legroom for lowering prices if necessary. I would encourage Windows OEMs to do likewise. Slow October and early November sales can be recovered in December. It’s easy to panic with a short holiday selling season ahead. Black Friday is Nov. 28 this year. Panicky price cuts will be costly later.”
Playing Apple’s game on pricing would be a bold move for most Windows OEMs, but industry analysts don’t think it will happen.
“Windows manufacturers have to worry about buyers deferring a purchase until later, or sticking with Windows at all,” says Forrester’s Gownder. “So price cutting makes sense.”