[197] in bcs-newton
Newton Pricing Article...
daemon@ATHENA.MIT.EDU (white@nest.enet.dec.com)
Tue Aug 24 11:24:25 1993
From: white@nest.enet.dec.com
Date: Tue, 24 Aug 93 08:22:34 PDT
To: bcs-newton@world.std.com
Cc: white@nest.enet.dec.com
Apparently-To: bcs-newton@world.std.com
Hi Everyone,
Here is an article posted on our network that someone in my group sent to me.
At the end, I've included my opinion/response.
--Catherine--*
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NEWTON DEFIES THE LAWS OF PRICE MOTION
{Innovation By Michael Schrage, Boston Globe, 8/15/93}
{Contributed by Alan Maltzman}
These days, when Apple Computer dreams of its future, it dreams of a day when
personal digital assistants will be as common as VCRs.
Alas, for Apple, AT&T, Motorola, Matsushita and the rest of the computer
electronics industry, early efforts to market these pocket-size personal infor-
mation processors have proven something less than successful.
Why? Because it's tough to figure out which innovators are being more short-
sighted - the Americans or the Japanese. It's not that these companies are
stupid or foolish or lazy; it's that they haven't exercised the necessary self-
discipline to learn from their success. Is it any wonder that America effec-
tively has no real consumer electronics industry?
These companies have been so intent on launching PDAs that capture the high
end of the marketplace that they've foolishly neglected the mass market. Instead
of growing this market from the bottom up, companies are trying to build it from
the top down. That's a strategic mistake and it's going to cost them.
For example, Apple's Newton MessagePad truly is a nifty piece of personal
technology that enables people to scribble notes and organize their information
in a dramatically accessible way; unfortunately, it feels more like a production
prototype than a finished tool.
In too many ways, the Newton is really reminiscent of the early Macintosh
computer - clever, provocative, perhaps a year away from true functionalism and
uncomfortably overpriced. In other words, it's far more intriguing than com-
pelling.
Originally, Apple chairman John Sculley wanted his Newton engineers to design
the machine to cost less than $5OO. They failed miserably. Instead of figuring
out a way to produce a lower-cost machine, Apple let the price jump 5O percent.
The result is today's $75O-plus machine. Sure the price is going to come down,
but that's not the point. If you really want to define and dominate a consumer
electronics marketplace - which is what Sculley's Apple has long claimed it
wants to do - then you have to have the courage and discipline to design to
price.
The Japanese hardware companies can do it; the Korean companies can do
it. American hardware companies apparently can't or won't, because they still
cling to the 195Os industrial notion that higher prices signal higher value.
A truly gutsy approach for Apple would be to offer a low-end Newton for
less than $3OO. How about a bare-bones model for $99.95? So where does Apple
make its big money? From upgrades and enhancements! Bill Gates didn't get to be
a billionaire by charging premium prices for Microsoft Windows; he became a bil-
lionaire by pricing Windows at less than $1OO. Volume, volume, volume - and then
you become the standard by which all others are measured and judged.
AT&T - which you'd think would understand something about managing a
low-priced mass market in personal communications - has its Eo personal digital
assistant, which is even more expensive than Newton. Tandy's new Zoomer PDA
is also priced on the very high side.
What gives? Don't these people remember that sales for VCRs, personal
computers and cellular phones didn't take off until the prices plummeted?
Haven't they learned that it's far easier to move up the value chain to the
high end rather than slash and burn prices from the high end to compete in the
mass market? Guess not. People care about price and performance - with the
accent on price.
But let's not let the Japanese off the hook here, either. Sharp and Casio domi-
nated the comparatively small but potentially enormous personal organizer mar-
ket with their Wizards and Bosses. But just as American computer companies
don't understand consumer prices, Japanese consumer electronics companies
don't understand systems.
For example, it would have been a snap for Sharp Electronics to license the
right to manufacture memory cartridges for its popular Wizard line. That way,
third-party companies could have a powerful incentive in developing interesting,
applications in telecommunications, paging and note taking for the machines.
With that kind of strategy, Sharp could conceivably offer 8O percent of a
Newton for less than 25 percent of the cost. But does Sharp license its car-
tridge technology? No. The result is that Sharp condemned itself to a niche
market instead of creating a PDA infrastructure that could become a global
standard.
Interestingly, Sharp and other Japanese companies have licensed Newton
technology from Apple - but you can be sure the licensing agreement creates
some sort of pricing protection umbrella. Apple is, of course, smart to be
licensing the Newton software at this early stage. What's not so smart, how-
ever, is the field-of-dreams marketing approach to PDAs: If you build it, they
will come.
Sorry, but they will only come if the price is right.
Michael Schrage is a writer, consultant and research
associate for the Sloan School at MIT. His column is
distributed by the Los Angeles Times Syndicate.
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From: NEST::WHITE 24-AUG-1993 10:50:27.47
To: NEST::BARBER
CC: WHITE
Subj: RE: more NEWTON stuff
Bob,
Thanks for passing that along. The article makes some valid points about
pricing of PDA's in general, but I'm not sure if Apple is necessarily doing
what he claims. Apple has all along said that Newton is a family of computer
devices, not a single device, and other high end and low end products will be
released later.
Also the price, $750, he quotes is slightly higher than what I've seen for base
models, so it may be that he had a particular dealership quote him an inflated
price. Since they are really popular and selling well, some places are charging
extra. It is also true that Apple has not actually set a retail list price, so
dealers are pretty much in control of pricing.
It is true that there is an early Macintosh feel to the product, but some of
that is to be expected. I think that the perfection of Macintosh products has
in some ways made people more critical of the Newton. It really is a
spectacularly useful little thing. Handwriting recognition in a one pound box
is an incredible technical achievement. There will be some important RAM
patches, and more compelling applications and services coming out soon.
I'm sure that like the Macintosh, the Newton will evolve. The convergence of
technologies in the Newton is part of what makes it such an interesting
product. It is not, "Your father's Oldsmobile!"
Be Bold!
--Catherine--*
