Apple Takes The High Road

With the impending launch of the iPad, once again, Apple takes the path toward higher prices, higher margins, higher quality. From James Surowiecki in The New Yorker:

Apple’s launch of the iPad next week is a gamble in more ways than one. To start with, it’s obviously a bet that there are millions of people looking for a new way to surf the Web, watch movies, and read magazines. But it’s also a more fundamental gamble; namely, that people will pay for quality. Starting at five hundred dollars, the iPad is significantly more expensive than its competitors. But Apple’s assumption is that, if the iPad is also significantly better, people will happily shell out for it (as they already do for iPods, iPhones, and Macs).

With Apple taking the high road (high quality, high margins, expensive) and Acer taking the low road (lower quality, very low price), what of everyone else in the middle?

While the high and low ends are thriving, the middle of the market is in trouble… The products made by midrange companies are neither exceptional enough to justify premium prices nor cheap enough to win over value-conscious consumers. Furthermore, the squeeze is getting tighter every day.

The middle market for techno gadgets is larger, but not necessarily more profitable.

And the allure of a big market share is often hard to resist, even if it doesn’t translate into profits. According to one estimate, Nokia has nearly twenty times Apple’s market share, but the iPhone alone makes almost as much money as all Nokia’s phones combined.

Market share is no longer the prime indicator of how well a company is doing. Revenue and profit growth are increasingly more important.