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Monday, September 27, 2004

The Price of Freedom 

The first (and only) other person to ever link to me, Leander Kahney at Cult of Mac has had several posts recently about how much Macs cost in comparison to PCs. For example, here, here and here. Basically, Leander is pointing out that the usual PC comparison is done by looking at Apple's one model for a particular market segment (ie, casual consumer -> iMac), and comparing it to the cheapest offering for that same segment from a PC vendor. This creates some damning price differences, where the Mac is hundreds or thousands of dollars more expensive.

Obviously, this is a ridiculous way to look at it when the Mac is a much better machine. When you compare a Mac with a similarly equipped PC, you might well find that the Mac is cheaper than the PC. To be economically rigorous, we could run a hedonic regression to find a quality-adjusted price index. That is, we could run a regression that attempts to explain the price by the quantities of the characteristics of those goods (ie, amount of RAM, hard disk, processor speed, etc). Then you could estimate the effect of each of those components on price; the residuals (ie, the variation in price that isn't explained by the quality variables) would tell you what is happening to the quality-adjusted price level, which is what we're interested in.

I think that'd be a fun thing to do if I didn't have to find and enter the data, but I'm sure such geekiness isn't really necessary, and don't see any reason to doubt what they're saying. Apple has been making a conscious effort for many years now to make their models more affordable, though they still want to keep a higher average quality level. If it has borne fruit, it's unsurprising.

In any case, I think there's something that they're leaving out of their calculations, which is the value in the software available for PCs that isn't available for Macs. I'm not talking about the price of the software itself, I'm talking about the value of having the increased choice in software available. The PC has a much bigger software ecosystem available for you to play with, and probably has more suppliers for any given piece of software. This gives consumers more variety, because they can choose from more pieces of software, and thus they are more likely to find one that works exactly like they want. It gives consumers more flexibility, in case one supplier goes out of business or something happens that inconveniences them. It also gives consumers more market power in the software market, since they might find increased competition in the particular piece of software they want, and that will translate into lower prices. All of these things have value for consumers, and it makes sense that they would pay for them.

Of course, consumers are all different, and all of these factors might well be unimportant for a large number of users. This is almost certainly the case, and I imagine you do find a lot of these consumers on Macs. For example, a given consumer might be uninterested in purchasing third-party software, and want a computer primarily for the software it comes with. Apple probably has an advantage to this consumer. Or, a given customer might well want software where the market leader happens to write their software for Macs, which is undoubtedly the case for many media applications. Since it's so hard to nourish a software ecosystem, especially when you're not a market leader, Apple has wisely been investing in cultivating such applications.

Whether you realize it or not, you probably are comfortable paying for flexibility like this. For example, few people accept a mortgages that they can't prepay, even though they're at a lower interest rate. It only makes sense that PC manufacturers would be able to extract some of this benefit from you. They probably don't extract all of it, though, which means that Macs are only cheaper if you're not adjusting for this.

Long-term, there might be good news for Apple here. I actually used to use a computer, and be highly entertained by it long before I had any sort of access to the internet. Today, I consider a computer without internet access largely useless. The most interesting things to do with a computer have shifted to activities that are based on standard protocols that don't require you to be on any one platform, like email and web-based applications. If the trend continues, then Apple (and others) should have an easier and easier time getting customers. (Of course, Microsoft doesn't want that to happen, and they have a strategy for attempting to slow that down. It makes you wonder, what is Apple's strategy for .Net?)

Comments:
I forgot to realize how the trend toward web-based programs would affect the Mac vs. PC issue. For example, most applications I think of I say "hey, this could be done in Zope" or something similar.

But I've switched to windows from Macs after being burned too long by not being able to run software. I had both a Mac and PC for a long time, but I only bothered to upgrade the PCs. The PowerBook 520c is just deadweight in my closet, though it used to be a blast to use it even when it wasn't connected to AOL 2.7.

I think Mac advocates tend to live in the world where they don't need to read documents or run other special purpose programs so much. Even when I was studying for the GREs the practice program only worked on Windows, so had I kept to the Mac religion I would have been stuck. Also, in research I often need to run Windows-only programs. In a way, the OS is one of those natural monopolies. I guess putting it on the web-browser and server standards is a much better natural monopoly.
 
I've been reading your blog since Leander first linked to you (and incidentally, I've linked to you a few times myself, so Leander isn't the only one... ;)

I agree that for most people, there is limited choice in software availability for macs, but like you say, consumers are all different. I use a mac at home because it gives me *more* (not less) choice in software. I get to use mainstream software not available on linux (Office suite, Photoshop, iTunes) in addition to having access to all of the packages in fink. Of course, this means I'm not a "normal" mac user, but I don't think it's surprising that a lot of geeks out there have mac-lust (ie, they've come to the same conclusion re:software availability).

/Alex
http://www.chizang.net/alex/
 
a significant part of the problem is that macs are really only geared to particular markets, where as a windows machine is pretty much multi-use and appeals to most everyone looking to get a computer.

apple eventually decided to aim just at the desktop publishing segment, and even though they have finally upgraded their systems enough to run slightly current video games, anybody who is a true gamer either uses windows or a console. not a mac.

a large percentage of the computer using population aren't just doing online stuff, they are also playing video games. the macintosh ironically has never really been known as a video game portal, despite some of the first video games actually debuting on the mac. having worked in a video game company several times now, i can reasonably say that there is humongous demand for systems that are able to stay current with today's games, and even though apple has made strides towards reaching this, it is still a goal they fall short at.

when you think of all the great computer video game titles, how many of them had a macintosh version when they launched, or even several years afterwards? myst and marathon are about the only major titles i can think of offhand - it took nearly three or four years before half life even appeared on the mac os. this kind of stigma is deadly towards a computer company, especially if they want to gain massive footholds in households that have video game playing members.

there needs to be congruent video game software title launchs across both platforms in order for apple to regain some of the users who previously were indoctrinated into the macintosh world through the public education system.
 
Hey cool, Alex! I remember you. Awesome, I guess I actually have 4 regular readers. I'll add a link to you and see if I can't send some of them your way.

Also, Macneil reminded me last night that he has been linking to me, and of course, Dante has as well.

- David
 
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