Apple walks tightrope with budget iBook strategy

How low can they go?

Last year's MacWorld keynote introduced gave us the Mac Mini. Will this year's deliver the iBook Minus?

An Intel-based iBook has been widely trailed to be unveiled next week. If you're anticipating speeds and feeds ahead of next week's keynote, we'll have to disappoint you. But sources close to Apple suggest that the many in the rumor mill - the redoubtable Think Secret excepted - have failed to illuminate the bigger picture - a strategy to makeover the iBook as a cut-price bait to lure switchers, with price points much lower than Apple has ever risked for a portable machine.

In many ways, the strategy is risky, but with rival PC notebook laptop prices in freefall - Dell today offers a $499 notebook - Apple may not have any choice but to embrace it.

The 2001 iBook debuted at $1,299, and fell to $999 a year later, where it's remained ever since. At $1,299, Apple's 14" iBook finds itself competing with a 14" $549 Dell budget system. With such a price difference, it's hard for the halo effect to shine much of a light. The Apple machine boasts dedicated graphics memory, integrated Bluetooth and Wi-Fi, a larger hard disk and a DVD burner,but these matter little to the impecunious student. More tellingly, bringing the budget Dell up to spec by adding Wi-Fi, a bigger disk and DVD burning adds only $180 to the price. This leaves the iBook $550 more expensive - a tall order for any sales department.

So what risks are involved by fighting on price, then?

Apple has traditionally been under the same scrutiny as any low volume, high margin supplier in a commodity market experiencing tumbling prices. It costs more develop its Apple's own differentiators, such as non-standard parts and its own software - which puts its profit margins under pressure. Apple's market share has been flat lining at three per cent for several years, down from nine per cent a decade ago, but its margins have been stable, at around 28 per cent.

Thanks to the runaway success of the iPod, however, the prospect of falling margins in Apple's computer business causes analysts less worry than they might once have. And the iPod extends Apple's brand appeal wider than it has for many years.

But what does that brand appeal really mean, these days? Long gone are the days when Apple blessed even home users with first-rate SCSI drives, and when the risible Wintel multimedia competition was straitjacketed in 8+3 file names. In truth, losing differentiators such as FireWire - developed by Apple over a decade, and still a superior technology in terms of performance and versatility to the alternatives - may appal veteran Mac users (including this one) but help Apple compete in a ruthless marketplace.

But unlike the Mac mini, there's only so much Apple can cut from a portable. The Mac mini puts old notebook into a small form factor case - but fewer such options are available for a notebook design.

Another option is to make certain features optional - but since Jobs returned to the company he founded, Apple has refused to pursue this. Apple has competed with headline-grabbing ultralight and ultrathin PCs by insisting everything the user should expect from a computer - a built-in optical drive, and a decent battery - should be in the unit, not a slice, and not available as an additional optional extra.

Dell's gross profit margin was last year was around 18 per cent, around ten per cent below Apple's. The mini's margin of 20 per cent plus leaves Apple with some wiggle room. We'll soon find out how much. ®