Friday, October 1, 2010

Should Apple give away the Apple TV for free?


Apple is clearly using the razor/razor blade model for it's latest version of the Apple TV. The new device offers instant TV show rentals, Netflix and more from the comfort of your living room.


Apple chose the aggressively low price of $99 for this new product. Can you make a case of offering the device even cheaper? or free?


13 comments:

  1. I set my Apple TV up last night and the first thing I thought was... I'm going to start spending a lot more on iTunes!

    I also re-subscribed to Netflix (for the Apple TV streaming) so it is clear to me that the device will drive a lot of recurring and one-off transactions. Therefore, while $99 is a reasonable price, an even lower price point would probably make sense.

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  2. I think $99 is already a very aggressive price point. It is low enough so that consumers are willing to purchase it even just to "try it out". I don't think it should be priced lower or given away for free because it will call into question Apple's other product pricing and consumers will wonder why this product was free compared to Apple's other products.

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  3. I have to agree with Esther. The apple TV would be given away freely if it didn't harm the brand image as a high-end producer. I can see further reductions in price based on product bundling ( buy a computer and get the apple tv ) but I don't think we'll see any lower pricepoints for the tv alone.

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  4. So I agree with the previous posts in that I think clearly Apple is going to profit from the additional revenue and should not jeopardize any of the "brand" of the other Apple products by pricing at zero. That being said, I think one of the reasons that they moved to price at the low $99 price point was also because the first Apple TV was dud...

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  5. I do wonder though how Apple TV will compete with an integrated entertainment platform such as the Xbox, which already plays DVDs, streams videos (Netflix) and of course, plays games...

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  6. Ideally, putting it for free would be great...but in terms logistics/operations that would be impossible! So I agree with Esther, $99 is an excellent price point for enough consumers to "try it out." And this isn't permanent, Apple can choose to lower the price in the future or bundle it with other offerings.

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  7. A little cheaper, maybe.
    Free, no!
    I agree with Douglas and those before him: $99 is a good starting point and it'd be interesting to see the product bundled with other offerings.

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  8. Leonides De OcampoOctober 5, 2010 at 9:08 AM

    I agree that the $99 price is the lowest Apple should take at selling this product. This is due mostly to: cover cost of the device, and a filter those who are serious about using it. As mentioned, the goal is to get users to buy and rent from iTunes.

    Why the high cover cost? The device seems to be one of Apple's, beta testing products which the company has used in the past to test the waters of consumers. In this model, there is no cost cutting benefit from mass production.

    Why the filter cost? Apple does not want everyone to be ordering this gadget if they wont be using it. A waste in valuable time for both parties, and may increase the overhead of initial support cost without the tailing benefit of mass usage.

    Plus, it is always easier to decrease product price than increase it.

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  9. As of today Apple does not see its TV streaming device as a company's direct strategic product. It doesn't even generate much profits compared to iPhone or iPod. However, iTunes and its content is a strong strategic product the company promotes to gain control over consumer media life.

    Going cheaper for the Apple TV may increase the demand, but not with the same impact as giving it for free. A good strategy I would suggest is bundling it with iTunes media content. So the customer gets the TV set for three, but makes an upfront deposit for later iTunes purchases. This would have a sort of impact on consumer psychology on they buy the TV set, and when they initially make their spending for content. This would also have a significant effect on the payment transaction costs, which in the case of micropayments eats most of the profits.

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  10. Apple's component cost for Apple TV is $64. This does not include patent licensing and R&D costs.

    It would only make sense for Apple to give it away for free if the revenue from TV shows and Movies rented/bought on Apple TV exceeded the price of the unit. Since Apple has no data about the number of shows and movies would be bought on the new Apple TV, they have no way of gauging whether that revenue will exceed the component cost.

    Ultimately, why take the risk when the market will bear $99?

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  11. Kevin raised the q... "the market will bear". Apples pricing strategy hasn't been focused on lowering consumer entry hurdles, but rather raising what the market will bear. $99 seems to sit on the fence though - $99, really? There is still opportunity to differentiate - what's the elasticity of demand here... What's wrong apple? Get on with making an Apple TV cool, create inelastic demand, then charge $199. $99 just makes you look you have blue eye shadow, fishnet stockings, and trashy miniskirt.

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  12. To make it cheaper, Apple can make it bundle with service plan. This is a very typical example of mobile handset and I don't any difference in AppleTV.
    Mobile handset usually costs more than a couple of hundred dollars, but it's useless with no service. Likewise, what's the use of AppleTV if it doesn't connect to any of those video contents service? So Apple can make a strategic alliance with many service providers to create a joint service plan together to offer the customers. I am sure there might be various combinations of plan that AppleTV can be given out much cheaper than $99 or even free.
    I guess it's matter of time and a matter of negotiation.

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  13. Apple should make it cheaper if it wants to accelerate the trend of people dropping cable & dish subscriptions. However, I will vote for not lowering the price because the competing products (i.e. game consoles, google Tv or internet enabled TVs/DVD players) all are priced higher than $99.00. Finally, Apple customers are trained to expect high prices and high quality. $99.00 is just fine.

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