As a vestige of a previous life, I still somewhat track the personal computer industry, with a particular interest in the fortunes of Apple, a company I have long admired for its innovative and elegant products. And it has always been particularly amusing to read the dire warnings and earnest advice of industry analysts and other “experts” pontificating about Apple’s latest imagined misstep.
Most recently, as the world economy headed into a nosedive, the fear and loathing focused on price… specifically, Apple’s continued refusal to dip its toes into the low end of the market at a time consumers are rightly counting their pennies. For the first time in years, Macintosh market share was on the decline in terms of units shipped. Low cost netbooks were the hot new thing, yet Apple was snubbing its nose at the market. Meanwhile, Microsoft was more than happy to pick up on the “Macs cost too much” meme with an advertising campaign that featured Windows PCs’ low cost versus Apple’s pricey cool factor.
Yet this week, amidst all the usual economic gloom and doom, and even as Microsoft was announcing its first revenue decline, well, ever, Apple bucked the trend by reporting a 15% profit increase, and its best non-holiday quarterly revenue and earnings on record.
So much for conventional wisdom.
There are a number of factors that have contributed to Apple’s relative success during these tough economic times, but I think there are two that stand out from the rest. The most obvious is that Apple’s counterintuitive strategy of focusing on the high end of the market during an economic crisis turned out to be pretty damn smart. The high end is where people with money tend to hang out, and these are exactly the people suffering the least during the Great Recession. Apple’s devotion to quality, design, and yes, coolness over price, is also responsible for enabling the company to maintain gross margins the rest of the industry drools at.
The other major factor in Apple’s success, and somewhat related to the first, is that, at least since Steve Jobs retook the helm, Apple has displayed an uncanny knack for giving consumers what they want. Not what they think they want… and certainly not merely what they think they need. No, once they see it, touch it, feel it… Apple gives consumers what they really, really want.
Sure, one could buy a generic, plasticy, yet perfectly functional Vista laptop for hundreds of dollars less than the lowest priced MacBook… but one gets the feeling that even those characters in the latest Microsoft ads would have chosen the Mac if price was no object.
But… um… this is a political blog. So what am I doing delving into the Mac vs PC wars? Well, it all comes back to conventional wisdom.
Under Steve Jobs’ leadership, Apple is a company that has consistently defied conventional wisdom, and profited handsomely from it. While the rest of the industry has responded to the recession by focusing on affordability, sacrificing margin for market share, Apple understood that most of those already willing to pay a premium for its products would continue to be able to afford to do so. Apple also refuses to lower its standards in pursuit of lower prices, a steadfast resistance to commoditization that consistently earns it by far the highest consumer satisfaction ratings in the industry.
Now compare that to the budget compromise Democrats are hammering out during the final days of the legislative session.
Despite a gaping $9 billion revenue shortfall, a proposal to partially fill the gap with a high-earners income tax was largely scoffed at by the conventionally wise, as a politically futile and/or anti-stimulative tax increase during a recession. Instead, the Legislature has settled on a cuts-only budget that includes a sweeping rollback of spending on education, health care, public safety, parks and other popular and essential services and investments.
Not exactly the Apple way.
No doubt Democrats expect that, as unpopular as the cuts might be, they’ll at least get credit for being fiscally responsible, but I think it’s just as likely that their race to the bottom will actually make it more difficult to generate public support for refunding these services in the future. By joining the likes of Alabama and Mississippi as one of the Windows netbooks of state government—small, cramped, slow, clunky and cheap—Washington is setting consumer expectations awfully damn low.
Over time, some voters will grow accustomed to reduced services and expectations, and decide that a governmental netbook is good enough. (Today, we call these people “Republicans.”) Others will still long for the governmental equivalent of an iPhone or a MacBook Air, but will no longer trust the state to deliver these sort of “premium” services, at any price. Alas, a brand once tarnished is hard to rebuild.
What Democrats in Washington state consistently miss is what Microsoft’s ad campaign intentionally obscures: that there is a difference between price and value. Apple has thrived by delivering value that cannot be measured simply in terms of gigabytes and megahertz… a lesson Democratic leaders would be wise to learn, however unconventional. If we diminish public education, voters will be less willing to pay for it, as they rightly perceive government to be incapable of delivering value for their tax dollars, and the same holds true for nearly every other government service, commodities all.
Any Democrat who thinks our party will ultimately benefit from holding the line on taxes has another thing coming; what voters will really remember is the crappy service and real hardships these cuts will inevitably produce. As such, this budget will make it more difficult to enact a progressive agenda, not just in the short term, but in the long term as well. For who in their right mind would ever be willing to pay the so-called “Apple tax” on a brand better known for cheap, PC clones?