This is a continuation of my prior article on this subject. Perhaps I shall collate my thoughts on those two advertisements in a future post. Before I proceed with the rest of my prior thoughts, I note that Microsoft appears to have edited its “Lauren—I guess I am not cool enough to be a Mac person” ad to cure some of the glaring deficiencies. Doing that breaks a cardinal rule; it draws attention to the fact that they screwed up the first time. I rarely watch television, but this is what I had noticed was changed:

1. Lauren is not seen both entering and exiting the Apple store; thus the problem of the obvious staging and timing impossibility is avoided.

2. Lauren does not pay with the cash she wasn’t even given yet.

3. And most importantly, Microsoft decided that perhaps it wasn’t such a good idea to tell the world that Apple does have a laptop which costs less than $1,000.00 (US).

You see, I noticed this because I am picky.

Lauren and Microsoft: Oh yeah! Well at least we’re cheap!

Cheap does not necessarily equal value; and value is what is important to the picky consumer (and should be the concern of every consumer). Microsoft pointed out what is true: Macs are generally more expensive than PCs. That’s fine as far as it goes, but why are Macs generally more expensive? And it is in that question that Microsoft has crossed the line of shrewd marketing to—well let’s not shilly-shally—lying. I supported in this accusation in my prior piece, but it can be boiled down to this assertion/insinuatuion by Steve Ballmer: The ONLY reason that Macs are more expensive is the coolness factor (or alternatively, having an Apple logo). I think I actually saw Pinnochio’s Ballmer’s nose grow when he made that statement.

All Things Being Unequal, Are Macs Really More Expensive?

Yes. After all it is quite clear what Lauren got for her 700 bucks. Take a look at what BusinessWeek says (Microsoft’s Lauren: She Bought the Fourth-Best Computer):

The conclusion you’re supposed to be left with after seeing the spot is that Macs cost more. Price appears to be the rhetorical sword that Microsoft is going to use against Apple during the economic downturn. If that’s Microsoft’s new argument, then so be it. If Windows machines are cheaper, they must be better right? Of course they must be, at least in the minds of consumers who know next to nothing about the finer technical details of computers.

It’s not that simple of course. So let’s go to a trusted third party for an opinion. Everyone respects Consumer Reports, right? Well it just so happens that Consumer Reports has updated its ratings of laptop computers, and the update includes both the new 17-inch MacBook Pro, and the HP Pavilion dv7 model that Lauren buys in the ad.

So what was the result? The Mac rated highest in the category for notebooks with 17-18 inch screens, scoring 80 points out of a possible 100. What did the HP score? A 59. When I was in school an 80 warranted a B grade, while a 59 was at best D-minus territory and dangerously close to an F.

All Things Being Equal, Are Macs Really More Expensive?

This very question can kindle a battle of Biblical proportions. However, that very fact demonstrates that the question is not quite so stark as yes or no. But the answer is stunningly simple. It is “sometimes yes” and “sometimes no.” To complicate things further, it is impossible for all things to EVER be equal as I will discuss below.

For the vast majority of users, the answer to this question is a resounding no. For super-techy geeky types, maybe not. But I am dealing with the majority here. If you think that the “cost” is just the price that is rang up at the Wally World or Best Buy cash register, then you are a dim bulb that needs to be changed. Yes I know that might sting, but this is basic economics, not to mention old-fashioned horse sense.

As The Jobs recently said:

We can’t ship junk. There are thresholds we can’t cross because of who we are. The difference is, we don’t offer stripped-down, lousy products. Apple CEO Steve Jobs, August 7, 2007

From MacDaily News:

Comparing sticker prices is a meaningless, and rather deceitful, exercise. It’s an—ahem—cheap trick waged on the ignorant by PC makers that Apple simply refuses to perform. Instead, compare similar spec’d systems, factor in the bullet points below, and see if the Windows PC offers more value as a Mac:

  • Which operating systems the machine can run: Macs are OS-unlimited, Dell et al. are OS-limited: no Mac OS X for you
  • Which software the machine can run: Macs can run all the world’s software, Dell et al. cannot: no iLife, Final Cut, etc. for you
  • How much the machine costs you over time: Anti-virus subscriptions, support, repairs, wasted time, frustration, annual wipe and reinstall Windows, etc.: no fun for you

Windows PCs offer more headaches, yes; more value, no.

At the Technologizer: Are Macs More Expensive? Let’s Do the Math Once and For All:

Round one: The MacBook takes on Dell, HP, and Sony and does just fine.

That article dealt with pre-October 2008 Macs, but they have updated it with Is the New MacBook Expensive?

The MacBook is close in price to the laptops I looked at which it resembles most closely, all of which target what I think of as the low end of the high end of the notebook market; if there’s a Mac Tax here, it’s not worth worrying about. That said, it’s possible to get a somewhat more utilitarian 13-inch notebook—one that’s better-equipped than the MacBook in some respects, even—for a lot less.

Note that I included that last statement as well. But comparing Macs to butt-ugly utilitarian P[ieces of]C[rap]s is massively stupid as Apple does not compete at all in that market. Whether they should do so is an entirely different argument, and it is that fact that Microsoft is rightfully capitalizing on, despite its less-than-honest tactics.

Apple Matters in Apple Pricing? Quit your Bitching! states:

The moans of those who think Apple charges too much and the excuses of assembled Applemanity all lack when the cold light of logic is applied. Apple doesn’t price products according to how much the product costs to make, the company prices products according to how much you’ll pay. Should the cost to make a product exceed the price X number of users are willing to pay, the product, however cool, does not get made.

Let’s try and refine this argument just a little bit by adding some numbers in. Dell’s net profit is margin is 5%. Apple’s profit margin is more in line with other industries at 15% (according to Yahoo! finance anyway). Now it is time for some wild oversimplification of factors. Assume Dell cranks out a computer consisting of $500 worth of parts. Dell charges $525 for the machine. Apple creates the exact same machine, rounds the corners and paints it white and charges $575.

In the previous heavily oversimplified exercise, Apple is charging $50 more for a shiny case. But that isn’t the real truth, Apple charges more because people believe the company’s products are worth the extra expense. How much is worth not to be confused by the various incarnations of Windows Vista? How much is it worth to be able to take a Mac to the Apple store and know that the problem is Apple’s instead of being told you need to call Microsoft because it is a software problem not a hardware problem?

Other factors should be included but they become impossible to quantify very quickly. Is the look of OS X worth more than the look of Vista? If so how much? How much value do you put on the seamless integration of Apple branded hardware and OS X? You can’t measure these benefits in the cost of circuit boards or by pixel depth but the value to many users is very real.

At Appletell, The futility of the “Macs are more expensive than PCs” argument:

Are they, though, when you get down to it? Sure, the up front cost looks like more, but how does that play out over a year? Two? Three? How about resale value? Support? Maintenance?

Appletell then quotes an Applelinks article:

I’m not conceding a millimetre of ground on the “Macs are more expensive” gotterdammerung. There are many ways to parse “expensive” and the contrary than up-front capital outlay, and even there a Mac today is demonstrably not necessarily more expensive than an equivalently (hardware) equipped PC, but the real value arbiter is TCO— total cost of ownership, and in that context the Mac is the big winner hands-down.

For example, I’m typing this screed on an 8 1/2 year old PowerBook Pismo running what was Apple’s latest Mac OS version less than a year ago, and enjoying excellent performance. Try running Vista (which was the current Windows version when OS 10.4.11 was released) a PC laptop built in early 2000.

Tom’s Hardware, a PC site, says:

Bottom line: Macs aren’t “way more” expensive than PCs. So where do things get really hairy with Apple? Upgrades. Apple really stabs you in the face when you’re upgrading your Mac.

Which is why nearly every Mac user tells you to upgrade it yourself. I do note though that Apple’s practices in this regard have recently changed, and their prices for RAM no longer require a second mortgage.

(photo source)

Total Cost of Ownership

The above dealt primarily with unquantifiable subjective intangibles, such as user enjoyment, ease of use, etc. While those are certainly important, there is a much more important and quantifiable issue—Total Cost of Ownership (TCO). (Please note that at the end of the piece I will make it clear that I believe that the intangibles SHOULD be considered as part of TCO, but by its very nature, that valuation will be subjective.) This is something that any decently educated teenager should know. Say I found this great pair of shoes marked down from $150.00 to $50.00. Sounds like a great deal right? The snag is that they are only suitable for a party that I go to once a year. This part is actually a true story, and here are the shoes:

what the heck!

So if I keep those shoes for five years, my TCO is $10.00 per wear. That same day I find a quality pair of basic black flats which I will wear with a variety of outfits, at least twice a month, for $100.00. Now let’s say because I wear them so often, I only have them for two years. Despite costing twice as much, my TCO is 48 cents per wear. While this analogy cannot be forced to walk on all fours for technology products, it is used to show the basic logic behind the concept. It simply isn’t rocket-science.

I would be remiss if I didn’t point out that TCO is not without its flaws, but these are not particularly relevant in the basic consumer environment that is the subject here (the alternate solution of NPV in the linked article would have no use at all to a non-business application).

Imagine my surprise, when a worthwhile blog tried to argue that TCO is basically a load of hooey. From AppleMatters, Are Macs More Expensive?:

I was on Digg the other day and saw a comment about Macs being more expensive. I couldn’t help jumping in and throwing my support behind the commenter because Macs are more expensive for most people.

Bzzt! See all the evidence already posted above.

The Mac vs PC, “which is more expensive” argument is the same. The Mac fans like to go on about quality and TCO to support their argument. These are amusing because if people listened to those arguments, they’d all be driving expensive European cars. Ever noticed just how many cheap-ass cars are on the road?

Which disproves TCO precisely how? Plus I tend to disagree. I don’t know if the author lives in the ‘hood, but where I live I see many more cars (such as Lauren’s Volkswagon) which are not cheap in price or quality. Mine isn’t one of them, but it has nothing to do with TCO; it is has to do with the fact that I don’t care about cars. If I could find a way to realistically be car-free, I would be as happy as a clam at high tide.

But in the end it’s got nothing to do with these. They’re just furphies to fool people into thinking they should spend the extra money. It’s about having the choice to spend less, which, within a spec-range, you don’t get really get with Macs. And, consequently, it’s also about budgets.

Sigh. This will be shown to be a wild hypocrisy on the author’s part. Yes, Apple does not cater to the low-end market. It is just plain dumb to claim they are not competitive in an area they are not competing in. It would be akin to decrying the fact that my sales commission is at zero. I don’t work in sales. Now, the author does hit upon the target that Microsoft is aiming at: budget. However, how do you define budget? Americans have gotten into huge trouble defining budget by figuring out if they can afford the downpayment; the ARM micro-payments; and forget about that balloon payment that will come due in three years. In any capital investment, “budget” is not simply the initial purchase price. Jane and John Doe consumer may see things that way, but that doesn’t make it true; it just makes the wrong belief relevant. Relevance is not the same as truth.

Mums and dads, first off, don’t give a brass razoo about TCO, they just want to know how much it’s going to cost today.

My oh my, where DID you find a brush so broad? True enough, many mums and dads are economically stupid. The current global economic crises has proven that humanity is general has been colossally stupid. Just because that is what all they foolishly want to know has absolutely NOTHING TO DO with the truth of TCO and certainly doesn’t justify calling it the pejorative “furphy,” which quite frankly I find insulting.

A furphy, also commonly spelled furfie, is Australian slang for a rumour, or an erroneous or improbable story.

Is TCO a rumour? Is it erroneous? Basically are all those who study and rely upon it bold-faced scam artists and liars? Think carefully before dung-slinging, thank you very much. The author then goes on to give a scenario using Australian dollars (of which I am ignorant so I will not make a fool of myself) to show that in the majority of cases mum and dad are finding that the original outlay for the PC is way less. I do not know about Apple pricing in Australia, but that blanket statement is simply not true in America. But, for the sake of argument, let’s pretend it was true in every time and every place. Does that make TCO a furphy? NO. It is merely something that mum and dad should consider but might not. That says more about mum and dad than it does about TCO or Apple’s pricing decisions.

But here is the hypocrisy:

(BTW If you’re a PC user thinking of switching, and if you can stretch the budget, do it, you won’t be sorry.)

WHY won’t they be sorry? Why oh why??? Because there is more to cost and value than initial outlay!!! I think I hear the pitter-patter of furphy feet slinking away in shame.

Businesses have been using TCO in IT purchasing decisions for years. For example:

Cost of ownership analysis (or total cost of ownership, TCO), is a business case designed especially to find the lifetime costs of acquiring, operating, and changing something.

Those who purchase or manage computing systems have had a high interest in cost of ownership since the 1980s, when the large difference between IT cost and IT purchase price became known. The five year cost of ownership for major computing systems can be five to eight times the hardware and software acquisition costs.

Here is a presentation explaining the importance of TCO in considering technology purchases for the classroom.

Since AppleMatters used the example of cars, ConsumerReports advises:

At about $17,500, a Mitsubishi Lancer could cost $4,000 less than a base Mini Cooper to drive home. But when you estimate the total costs of ownership for each car, the Lancer could cost you $5,000 more over five years. A Toyota Highlander can cost you $3,000 more to purchase than a Ford Explorer V6, but owning the Ford after five years can cost $6,750 more.

Here is how simplified TCO:

When evaluating the TCO of hardware, software, or networking equipment, you should consider:
1. The initial costs of the hardware and software.
2. Costs for the initial deployment and employee training.
3. On-going maintenance fees for software updates and upgrades as well as help-desk support.
4. Expenses related to system and network maintenance, backup and other data protection services.
5. Costs associated with downtime.

Since we are not really dealing with enterprise in this piece, but home use, there is the human factor; how much is pleasure, delight, and peace worth? I know that my Macintosh gives me those things that my PC never did. Those items have a worth and a butterfly effect. For me the sequence went something like this: I used a PC for over twenty years with a moderate skill level; I bought a Mac; I fell in love with technology all over again; I developed higher technology skills; I convinced a whole law firm to switch to the iPhone; I convinced many friends to buy a Mac; and I ended up as a technology writer and editor for World of Apple. Who knows what’s next? When a product can cause some to fall in love with it passionately, the future returns are wide open. “Do you want to spend the rest of your life selling sugared water or do you want a chance to change the world?”

Though I think my point has been proven, here are some other sources to consider:

I leave you with this audio snippet from Stever Robbins, host of the Get it Done Guy show.

Resources for further reading in support of my position:

Resources for further reading in partial or full opposition to my position:

  • The Truth About the Apple Tax. This Gizmodo article is particularly interesting in discussing what appears to be some illogical pricing decisions by Apple. It doesn’t disagree with TCO but does bring out some pricing issues that I haven’t seen analyzed in such detail before.
  • Microsoft Shatters Mac Pricing Myths. Frankly even though I think this article is vapid; I have included it so that the interested reader has easy access to opposing arguments with the beginnings of a link trail to follow.

While I was writing this piece, Microsoft retained some consultant to put out calculations which supposedly include TCO in an attempt to disprove that assertion that Macs are indeed an overall better value. I haven’t had the time to do the necessary research that I hope my readers expect of me to comment intelligently. Additionally there are now two more “Laptop Hunters” ads put out by Microsoft. Do not be surprised if there is a Part 3 to this series.