Apple’s Products Are Now Overpriced

Apple's (NASDAQ: AAPL  ) rapid growth in recent years has been the product of an extraordinary value offering: Since their introduction, both the iPhone and iPad have been the best products at the best price points. In the past, consumers looking to a buy a smartphone or tablet could go with a competitor's product, but they wouldn't be saving any money -- and they'd be getting an inferior device.

But, times have changed.

In just the last year, the market has rapidly shifted. Now, Apple's products appear to be overpriced compared to their rivals, and they aren't necessarily better.

The iPhone is getting undercut both at home and abroad
Ask most Americans what an iPhone costs, and they would probably tell you about $200. That's the price the majority of them pay because major mobile carriers (AT&T, Verizon, Sprint, and T-Mobile) cover the rest. But, in emerging markets it's quite different; carrier subsidies are practically unheard of. There, consumers often have to pay the full price of the device up front, and given that consumers in those markets, on average, earn far less money, that can be quite a hurdle.

Apple's new iPhone 5C -- the company's cheaper model -- will retail for about $733 in China, roughly equivalent to the average monthly salary in the world's most populous country. Is it any wonder, then, that (in China) the iPhone's market share is less than 5%?

Google's (NASDAQ: GOOGL  ) Android powers the majority of smartphones in China, where local vendors like Lenovo, Xiaomi, and Huawei offer high-end phones at bargain prices. Xiaomi's Red Rice is, from a technological perspective, about as powerful as the iPhone 5C, but retails for just $130.

Even in the U.S., Apple is being undercut. Although flagship smartphones from major competitors like Samsung, HTC, and Motorola also cost roughly $200 on contract, Google's Nexus 4 retails for just $199 unlocked. That means budget-conscious consumers can either buy a Nexus 4 (a phone that's about as powerful as the iPhone 5C) off-contract and go with a cheaper, prepaid carrier, or stick with a major carrier, but stay off contract.

The iPad is now one of the most expensive tablets on the market
The Nexus 4, despite offering insane value, remains a fairly low-volume phone. Google doesn't really advertise it, and most Americans appear to be fine with the wireless contract model.

But, the tablet market is far different. Subsidized tablets do exist, but most are still bought off-contract. Thus, consumers (even in rich countries like the U.S.) are far more susceptible to price differences in tablets than they are in phones.

In just the last year, a huge gap has opened between the iPad and its rivals. The full-size iPad retails for $500. In past years, this was a fair price, as other 10-inch tablets were just as costly, if not more so -- Motorola's Xoom, the first major Android tablet, went on sale in 2011 for $600.

But, as with phones, times have changed. The iPad's competitors appear to have settled on the $300-400 price range as the fair value for a 10-inch tablet. Microsoft's (NASDAQ: MSFT  ) Surface RT retails for $349, Google's Nexus 10 and Samsung's Galaxy Tab 3 go for $399, and Amazon's Kindle Fire HD is just $269 (though to be fair, its screen is only 8.9-inches).

When it comes to smaller tablets, it's even worse. The iPad Mini is an inch larger than most of its Android rivals, but that extra inch costs a lot. At $329, the iPad Mini is $100 more expensive than Google's Nexus 7. It's also significantly less powerful, with a slower processor, lower resolution screen, and worse camera.

How much does an ecosystem matter?
Despite being overpriced relative to their competition, people continue to buy Apple's products. Apple has a monopoly on one thing its competitors lack: iOS. The mobile operating system continues to be highly regarded, both for its ease of use and its app ecosystem.

Compare that to Microsoft: Despite a heavy ad campaign, including a $1 billion push for Windows 8, sales of its Surface RT tablet have been poor and the company was forced to take a $900 million writedown last quarter.

Based on hardware specs alone, the Surface RT isn't bad. It's about as powerful as the full-size iPad, but also has some key features the iPad lacks, like a USB port and the ability to expand its storage with an SD card. However, because it runs Windows RT, it's fundamentally flawed.

Unlike iTunes, the Windows app store is terrible, missing numerous key apps like LinkedIn, Amazon Video, and HBO Go. Although these services can be accessed through a browser, consumers prefer dedicated apps. Research firm Flurry found that 80% of the time people are using a mobile device, they're using an app.

What is iOS worth?
In the past, buying an Apple device was an easy choice. They made the best products and sold them at the best prices. Nowadays, it isn't so clear -- Apple might still make the best devices, but they are far from fairly priced. In the end, it really boils down to iOS: its value to consumers and the premium they're willing to pay for it. If iOS is worth that extra $100 -- and it may be -- Apple has nothing to fear.

But, investors should recognize that, over just the last year, things have changed for Apple. It has gone from a value leader to a premium brand, and the long-term ramifications of that shift aren't readily apparent.

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Read/Post Comments (30) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 16, 2013, at 6:23 PM, bobchr58 wrote:

    Hey remember the computer wars? the race to market share that ruined the manufacturing capacity of this country by shipping jobs to Mexico, and the far East. Yeah Apple has told you time and time again that they are not going to go that way by making cheap equipment. They command 80% of the profits in smart phones, even the middle class in developing countries want quality hardware, and if they want it they will figure out a way to own it. Apple would be doing it's share holders a disservice to make margins slip, and they would be doing their customers a disservice making shoddy merchandise. I vote they stay the course and let the marketplace decide and may you never get elected to their board. I find it amazing how you armchair quarterbacks , never seem to learn the lesson of how Apple became the most valuable company in the country.

  • Report this Comment On September 16, 2013, at 6:26 PM, zowner wrote:

    Apple does not want to make the cheapest products or copy products designed by others. I am not sure Apple thinks it needs to generate the most sales of phones or iPads, as measured by number of devices.

    Anyone buying Apple products realizes that it gets a premium in OS updates and support. Android statistics are almost always aggregated to report sales numbers, but in fact the Android world is severely fractured within the flavors of its own OS. Further, a buyer of Apple gets hands-on support that is unrivaled, and may include replacement or repair of products for up to two years. There are many reasons Apple products are superior in functionality, user experience, and support. The app store is light years ahead of the competition.

    It is really interesting that Apple gets roundly criticized for not having a lower cost phone, but once it is introduced, the phone is criticized for being lower cost. The carriers are lined up to handle Apple products, including internationally. Why? Because of customer demand, not because they necessarily want to subsidize Apple at high costs. Carriers also realize Apple devices generate more sales of other products than Android devices. At the end of the day, Apple may not have the most devices in the market, but it will control the share of the market that generates the most revenue, and it is entitled to a premium for its premium products.

    Just my two cents.

    zowner

  • Report this Comment On September 16, 2013, at 6:31 PM, Cuftbll wrote:

    It is and will continue to be the ecosystem! You can't put money or price on that. When I say ecosystem I'm not just talking apps! I'm talking everything...music, movies, videos, photos, apps, etc, etc and how my apple device all work together. As a family we have been in the ecosystem since the 3S and now we have new phones, iPads, MacBooks, and iPods. We are vested and will never leave. Yes, retention!

    It was awesome to see Apple directly address the 10-18 year old crowd with the 5C, introduce the trade in program that will give Apple older devices to sell outside America, and also lay the groundwork with the 5S for additional growth of ecosystem with 64 bit, M7, and Touch ID. (Those items show a glimpse of the future)

  • Report this Comment On September 16, 2013, at 6:52 PM, H3D wrote:

    Now if you could show me links to articles that you wrote 1, 2, 3, 5 years ago stating that Apple was the value leader, then I might treat you as something more than a nutter now.

    Apple always plays for quality leader and expect's to be rewarded accordingly. Nothing has changed.

  • Report this Comment On September 16, 2013, at 6:52 PM, garysund wrote:

    Apple iphones and ipads are over priced? For what market? China? You think the low end wage earners even have a smart phone? I have been to china and there is a huge part of the population that does have the money to pay for what apple is going to ask. And that market is larger than the US market. All of these articles are pure nonsense based on pure speculation. The truth will come out when apple has their January earnings report and trust me, they will be shocking to the upside. But that won't matter because the apple bashers are here to stay no matter what.

  • Report this Comment On September 16, 2013, at 6:53 PM, scooned wrote:

    An Apple bashing article written by Sam? How original!

  • Report this Comment On September 16, 2013, at 6:54 PM, mdl00 wrote:

    I'm officially going to stop reading articles from MF.

  • Report this Comment On September 16, 2013, at 6:58 PM, Thompr97 wrote:

    In every market where a significant fraction of consumers can afford an iPhone - whether due to wealth, subsidies, loans, or perhaps some combination thereof - people are selecting the iPhone more than any other brand, and increasingly so. Even in cultures that cannot generally afford iPhone, people aspire to own it, and wealthy people do.

    That's because iPhone is, in fact, the best of breed. Sure, you could play the game of tech specmanship to refute this, but if you do, you will only be missing the point, much like looking for the imaginary number (which is quite real, by the way, in spite of the naming convention) on the real-valued number line (again unfortunately named). But I digress.

    Apple wins hands down on interface, integration, and ecosystem. It's not even a close contest. You have already basically revealed that you don't fully comprehend the value, meaning, and endurance of this, so you should be able to acknowledge that maybe that's why you don't understand Apple's superiority.

    The bottom line is this: in the set of people that can afford an iPhone, a simple majority purchases one. Apple haters and folks that like to hack their OSes may not, but most others do. And before you go grouping all of the Android brands together, you should note that many are building walled-garden ecosystems like Apple has done, and others are going out of business and not long for this world. Soon a developer won't be able to easily build for Samsung, LG, Amazon, and HTC devices simultaneously. So framing this as iOS versus Android is fiction and is nothing like Mac versus PC of yesteryear. (PCs were standardized across vendors... the OS was carefully controlled by MSFT, not given away for tweaking, etc.)

    The purchasing data is quite conclusive: most people find iPhone superior. You can debate the reason, but it is true. Sure, market shareable decrease because of dirt cheap feature phones in emerging markets are getting counted all together as a knock against iPhone. But I don't think that many developers currently targeting iOS are going to toss it out of their plans just to target the cheap junk that is driving the share numbers askew.

    iOS is better than Android all day long.

  • Report this Comment On September 16, 2013, at 7:23 PM, redalchemist11 wrote:

    Apple has been overpriced ever since they came out. For example, it costs $6.72 to make a 16gb memory. Apple charges $100 dollar extra for every 16gb upgrade when you can go out and buy 32gb SD card for 20 bucks. Oh wait... iPhones don't have SD card support.

    iPhones do work great and fluid but it is still overpriced and this is a fact.

    Also, Apple did NOT start fingerprint scan tech in cellphones, Motorola did with Atrix.

    You fanboys REALLY need to wake up before you start buying a feces with apple logo on it and say it is INNOVATION.

  • Report this Comment On September 16, 2013, at 7:25 PM, HanXolo wrote:

    Insightful point of view! I couldn't have said it better myself. Keep up the great work PC!

  • Report this Comment On September 16, 2013, at 7:47 PM, Thompr97 wrote:

    @redalchemist-

    People are willing to "overpay" for Apple's hardware -even components like the memory you mentioned - because they realize that they are getting much much more than the hardware. Apple is a software company that monetizes their software through aspirational (and inspirational) "overpriced" hardware. The bottom line is that people are willing to pay too much for extra memory to Apple because that's the only way they can get that memory configuration along with the platform they deem best of breed.

    And by the way, Apple may not have been first to include a fingerprint reader on a mobile device, but they also didn't make the first MP3 player, the first tablet computer, the first "smartphone", or even the first computer mouse. But time after time they come along and show how the first movers SHOULD have implemented the new tech. My hunch is that the same will prove true with regard to iPhone 5S and its fingerprint reader vis-a-vis Atrix.

    By the way, if one company consistently has to show others how to make tech commercially viable, then perhaps they are due a little more appreciation. Apparently, it ain't easy, else everyone would be successful before Apple got a chance to show them how it's done.

  • Report this Comment On September 16, 2013, at 7:54 PM, margiecfl wrote:

    test

  • Report this Comment On September 16, 2013, at 7:55 PM, biajy2002 wrote:

    So Apple's iPhones are overpriced with all the features and access they currently have? Really now! Ridiculous! Let's take a look back in time. Does anyone here remember the IBMSimon? If you don't read about it at the link below.

    http://en.wikipedia.org/wiki/IBM_Simon

  • Report this Comment On September 16, 2013, at 7:55 PM, margiecfl wrote:

    Sam

    I think you're analysis is fair and right on. Thank you for your perspective and bringing up the questions you have.

  • Report this Comment On September 16, 2013, at 8:07 PM, adamwins76 wrote:

    The negativity surrounding Apple right now is so outrageous and unfounded it's become a contrarian buy signal for me.

  • Report this Comment On September 16, 2013, at 8:14 PM, goscuderi wrote:

    This author is way off the mark. Apple has always been a premium brand and their products have always cost more than their competitors, but this kid is too young to know that. And yet they still became the largest company in the world. What Apple needs to continue to do is to introduce new innovative products and systems that fit in to that amazing ecosystem, and they will.

  • Report this Comment On September 16, 2013, at 8:16 PM, twolf2919 wrote:

    The word "overpriced" is always in the eye of the beholder. I don't find Apple overpriced at all: you get a product with demonstrably better build quality (FixYa had a report recently in which it showed statistics for 700,000+ repaired devices - Apple products had THREE TIMES fewer problems than the next best - Samsung), an app ecosystem in which you don't have to worry about malware (80% of all mobile malware targets Android - only 0.7% target iOS) and where there are hundreds of thousands of apps specifically written for tablets - instead of just thousands (Android), content purchased AND shared among all devices in a family - with a single click, automatic sharing of photos among all devices, one-click streaming of videos to Apple TV. Backup of everything to the cloud configurable with just a few clicks.

    Just what is this worth to you? I'd rather spend my free time on leisurely pursuits than trying to search the web, app stores, etc. to cobble together the same functionality in Android (if that's even possible). For the up-front cost of a few extra dollars, Apple has made the use of and sharing among smartphones, tablets, laptops, TV streaming boxes so easy, anyone can do it - in no time at all.

    This has always been Apple's value proposition - it's never been about the device's specifications themselves. It's the total experience - from the interaction with the individual device to the integration between devices, to the services for the devices.

  • Report this Comment On September 16, 2013, at 8:39 PM, babyleg wrote:

    Please, people spend more on eating out then they do for their cell phones. Remember, you get what you pay for...

  • Report this Comment On September 16, 2013, at 9:23 PM, ErneSleep wrote:

    Are you just writing articles to upset readers and get a reaction?. I am about to drop reading motley fool. This is the second bad article I have read today, both from the same author.

    If it at least made sense.

    As an iPhone owner I could not be happier with my purchase. If it was not subsidized, in the US, I would still spend it. Same way I did on my iPad. It not being priced for 3rd world countries is another story.

    iPhone is not a 3rd world country phone. It is a phone for the developed world.

    When apple came out, most countries could not even support its data plan, it was just a fancy phone. People still bought it!. iPhone 5 faced a similar fate, we were paying more for 4G, when most developing countries don't have it. That is in part why people don't see a benefit on buying a 5 over a 4S.

    Apple is not overpriced, it is priced for the people who will benefit the most. For others it will likely remain a luxury.

  • Report this Comment On September 16, 2013, at 9:32 PM, ManofFewWords wrote:

    The biggest risk to Apple is one of its strengths today - its ecosystem. Apple was able to develop and expand usage of its ecosystem by being the first to launch the smartphone (and not having any competitors in the first 1-2 years) and its great product design. However, as people point out, from a hardware standpoint there are lots of phones with specs as good if not better then the iPhone 5C at a lower price. You can probably bet that majority of first time users are buying a cheap Android phone especially in emerging markets. These 1st time Android users will invest time, money, and effort on the Android ecosystem and in time it will be hard to move from Android to iOS once they get familiar with Android. If Apple does not have a strategy to capture 1st time users in growing markets, they risk those losing those users/customers to Android and it won't be easy making them switch to iOS same as it is not easy making early iOS users switch from iOS to Android.

  • Report this Comment On September 16, 2013, at 9:59 PM, webguy76 wrote:

    Come on guys you know the product is overpriced just like the author says, you're just pissed because it isn't cool anymore! Lets face it, there is very little if anything that separates Apple from the competition these days. Android does everything thatiOS does and even more. Every time I show one of my Apple buddies the capabilities of Android 4.2 they are wetting themselves with anger and anticipation that maybe one day Apple will have the same stuff. Besides, you guys just look at that crappy tiny little screen and get off on how cool it is when no one else cares. Wait scratch that, my 7th grade sister and 60 year old mom care, but no one else does. The fact is the Galaxy S3 beat out the iPhone a long time ago and the S4 buries it but you all still hang onto this fantasy world where people still envy you and your iPhone. Guess what, we don't care, your phone sucks, its lame, its yesterdays news, get over it, have a nice day :)

  • Report this Comment On September 16, 2013, at 10:14 PM, Bunnyking77 wrote:

    Apple? What about Microsoft?!

    That company just wholesale robs people.

  • Report this Comment On September 16, 2013, at 10:22 PM, gstar65 wrote:

    No, Apple products are not overpriced, if you compare apples to apples (no pun intended). Here at the MF, you keep harping on the fact that the flagship iPhone does not compete with the basement Android phones...well neither will the Galaxy 'whatever'S or the HTC One, all priced at the same level as the iPhone 5. And as for tablets, you cannot compare the Surface RT as that is the low end model. Best to use the Surface Pro (full feature model). Let's try to be a little intellectually honest in our reporting, shall we?

  • Report this Comment On September 16, 2013, at 10:25 PM, gstar65 wrote:

    Webguy, I simply do not believe your comment. I have never seen any Android phone and "wet myself with anger" over its capabilities. Android is still buggy, crashes and freezes regularly, and features a wider variety of "second-rate" apps due to its "open architecture". I've "been there and done that" with Android, and won't fall for that again anytime soon. I happy that you like it though...

  • Report this Comment On September 16, 2013, at 10:35 PM, aionaddict wrote:

    For those of you saying the Iphone is still the leader in smartphone sales despite cost that changed earlier this year.

    http://bgr.com/2013/07/23/samsung-smartphone-sales-q2-2013-i...

    http://www.forbes.com/sites/haydnshaughnessy/2013/04/26/sams...

  • Report this Comment On September 16, 2013, at 10:53 PM, sypoth wrote:

    Value leader? LMAO! When have they ever been the value leader? When the G3 came out I was already using a faster computer with more disk drive space, a DVD-Rom, memory, TV tuner, and a host of features and capabilities that should you place the two side by side the G3 looked like absolute garbage, and mine cost less too! They didn't improve when they added an extra grand or two onto their computers in the G5 series asking more than an Alienware while offering significantly less, and my fully loaded Sager cost less than a Macbook Barebones and comparing a Sager to a Mac is like comparing a brand new Jaguar XJL(Sager) to a factory Yugo(Mac) in both performance and features. The ONLY time they had a product that could out perform and the price was justified was with the iPhone 3g but that was quickly crushed and the iPhone has consistently been left playing catch-up as other smart phones, even the dying blackberry brand, outpaced them by two to three generations at a time. Apple was a smart investment when they first came out, but for well over a decade they have been all hype and cost and no delivery. Why people think they are so good is beyond me, they think they have an aircraft carrier when all they have is a dinghy.

  • Report this Comment On September 16, 2013, at 11:02 PM, chenwen1234 wrote:

    Apple do lost its ground in emerging market like China now. Yes. iOS is still cool and stable as it always is and the good apps always push to iOS first instead of Android. However, more and more users in emerging market are going to use Android instead of iPhone is not a secret any more. Why? Take China as an example. China people always want the best CP value for anything they purchase. In before, iPhone is cool and own a iPhone will let other people know that you can offer it and they will ask you how you feel when you own it. But now Android phone refresh almost every 6 months with plenty of choice and iPhone is now one of the smartphone, not a unique existence anymore. And even more, people are realize that something you can do in Android and iPhone can't offer it. Like Chinese input, when you want to input Chinese words, the crapping input tools in iPhone is the only one you can use unless you jailbreak it since Apple won't allow anyone to change it. However, in Android, they are plenty of choice you can have. Also, when your friend use 5 inches screen watching a "downloaded movie" from internet on the phone, it will make your iPhone no longer the best one in your future shopping list. China and many emerging market don't care about the music and movie service that iTune offer. They just download it from internet or even watch it directly from live streaming and iPhone won't beat Android in the field. Although iPhone is still winning in many areas, but one by one they are taken by Android with lower price and bigger screen smartphones. You won't be surprise to see iPhone's market share decline further in the near future.

  • Report this Comment On September 16, 2013, at 11:21 PM, Oldfool103 wrote:

    I have a Galaxy phone and I hate it.

  • Report this Comment On September 17, 2013, at 1:13 AM, bugmenot wrote:

    Samsung already dominates Apple. Not to mention, Samsung also supplied Apple with hardware components for the iPhone. BUT that was before they got into a fight :-)

    In summary, iOS may be user friendly, but I am a power-user and I want FULL control of my phone; hence, the Android is a better option for me and many others. The Google Play Market has evolved significantly compared to 2 years ago. Not to mention, you get GOOGLE MAPS, which is 10x better than Apple's Map (What a joke).

    The S4 is still more impressive than the upcoming iPhone5 LOL!

  • Report this Comment On September 17, 2013, at 1:54 AM, kpbpsw wrote:

    Just look at the data, last generation Nexus tablets ended up so slow they were unusable, and ended up in closets not with users, this generation will probably end the same.

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