To All The People Who Say Apple Can't Lower Prices Because It Would Destroy The Brand...

Steve Jobs iPodAPSteve Jobs in front of some brand-killing ‘cheap’ iPods.

Our editor-in-chief and CEO Henry Blodget kicked open the Apple market share debate again with this post:

Come On, Apple Fans, It’s Time To Admit That The Company Is Blowing It.
In a nutshell, Blodget thinks that Apple’s decision to sell its phones and tablets at a premium relative to Android is a long-term strategic mistake. He thinks Android is taking over the market, and eventually developers will flock en-masse globally to Android, relegating Apple to a second-tier status, putting the company at risk of losing in mobile just like it lost in the PC market.

Personally, I have my quibbles and doubts about certain particulars of his viewpoint, but in the big picture, I agree. I think Apple should lower its prices slightly to grab a bigger slice of the global smartphone market. Apple is grossly profitable with more cash than every other tech company. There is no reason to hoard insane amounts of cash while your primary rival takes over the most important technological platform since the PC.

Philosophically, I don’t think Apple needs $US150 billion in cash. Happily, it turns out Apple agrees, which is why it is giving a lot of that cash — basically all the cash it generates in the U.S. — to investors.

Personally, I would rather see that cash passed on to consumers in the form of lowered prices. It’s not just to give people a discount, but to also get the world’s best phone in more people’s hands.

Shareholders might cry about it, but in the long run, it’s actually better for shareholders. Apple, with lower prices, can grab market share, which helps solidify its platform. The margin could drop on a per-product basis, but that’s the cost of doing business here.

This is view is closer to the Amazon business model — take everything you make and pour it back into the company. Blodget (and I) really like the Amazon outlook on the world. Corporations don’t need to squeeze out every last dollar of profit to be successful. It’s not just us, investors also like it, and have rewarded Amazon’s long-term view with a growing stock price.

But, clearly that’s not Apple’s viewpoint. It’s happy doing what it’s doing. And that is working quite nicely! The iPhone and iPad are stunning successes. Blodget’s concern is that in the long run this will hurt Apple. I think Apple can still be a success even with a small piece of the market.

Anyway, that’s not what I want to talk about. What I want to talk about is how people flip out over the idea of Apple lowering prices.

One strange criticism that pops up is people saying that if Apple lowered prices it would hurt the company since it’s currently positioned as a high-value, premium company.

How could it sell a low-priced iPhone and defend that turf, ask these people.

To those people, I say, “iPod Shuffle.”

At our IGNITION conference this week, I interviewed Tony Fadell, the leader of Apple’s iPod division during its glory years. I asked him about pricing since his current company, Nest, is about to sell a $US129 smoke and CO2 detector, the Nest Protect.

I asked him if he believed in high prices since he comes from Apple. He said, no, he would love to lower his prices in time if he could afford to do it.

He noted that the iPod started at $US399, but ultimately came down to $US49. Apple got to the $US49 price point by selling a stripped down iPod, the iPod shuffle.

Don’t get too hung up on the idea that the shuffle is a simple iPod, because if you do, you’ll say, “What, Apple should make a feature phone?” The answer to that is, “No.”

The important thing here to keep in mind is that Apple managed to be a premium company selling a less-than-premium product. Apple’s brand is premium, so it would have no problem selling the same product at a variety of price points.

Apple is run by very smart people who successfully differentiated the iPod line at a number of price points. I have faith these same people could figure out a way to differentiate the iPhone at a number of price points to attract a wider group of users.

Here’s Fadell talking about pricing at IGNITION:

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