High-End iMacs + Cheap iPads = Trouble For PCs In Between

It's a pretty well-known fact that Apple's desktop computers cost more than the average computer, and the latest numbers reflect that. PCs are far easier to buy than iMacs, but there's a good reason why Apple isn't compromising on price and performance in the consumer market. Thanks to the iPad, it doesn't have to.

After starting out nearly equal in pricing beginning in the 1990s, the average cost of all desktop PCs on the market is now just 39.5% of the cost of entry-level Apple desktop PCs. That marked difference in pricing looks bad for Apple, but it could actually be bad news for PC makers.

iMacs Define The High End Of The PC Market

The difference in price points is rather stark. According to market analysis firm NPD, the average PC cost $513 in 2012. That's $786 less than the price of the entry-level New iMac introduced this week. Even more telling, when the first clamshell iMac was introduced in 1998, the cost of the average PC and the iMacs were nearly identical. At the end of 1998, the average cost for PCs was $1,296, and the then-new iMac debuted at $1,299. So even adjusting for inflation, that's still equal pricing in 2012 dollars.

But by the middle of the first decade of the 21st Century, things were very different. In 2006, the average PC price was $726, with the new Intel iMacs still clocking in at $1,299. If you figure that in 2012 terms, PCs averaged $833.70 while the iMac was priced at $1,491.06.

The chart below, which shows the price points in real (2012) dollars, displays the disparity very clearly: While the real cost of Apple desktops has come down, the rate of decrease has not been anywhere near as great as the decline of a PCs' average cost.

IMacs vs. Average PC Prices, 1998-2012 (2012 Dollars) IMacs vs. Average PC Prices, 1998-2012 (2012 Dollars)

Some notable caveats: Clearly, this chart compares higher-performance Apple machines to a market replete with just-barely-cranking-along PCs. The chart does not address whether buyers get what they pay for, or take into account the vast improvements in computer technology since 1998. Comparing iMacs to equivalently equipped PCs would likely tell a very different story. The only thing being compared here is computing devices. Specifically, how much does it cost for someone to get their hands on an Apple machine versus a PC?

Based on this criteria, it appears that Apple's desktop is going to be a reach for many people, especially budget conscious shoppers just looking for a decent computer.

In fact, figuring the median inflation-adjusted household incomes since 1998, you can determine how much of a reach. In 1988, buying a Mac or a PC would represent 3.44% of the U.S. average gross income ($53,582). Today, getting a PC dings only 1.02% of the $50,054 2011 average salary (the latest available figure). Buy one of those iMacs, though, and the average U.S. household gets hit for 2.60% of its gross income.

Apple's Deliberate Two-Pronged Pricing Strategy

Rather than use these numbers to knock Apple for charging too much or abandoning the average user, I believe they help explain what the company is doing with its iPad tablet line. Throughout all four generations of the iPad (not counting the iPad mini), the cost for a new entry-level device has stayed flat at $499 (now even less for an iPad Mini). In 2012 dollars, that means the real price has fallen from $529.78 in 2010 to $499 today - all price points well under the average for a PC.

Granted, a tablet is not a PC. But given the device's use cases for many average users - Web surfing, social media, email, games, etc. - for many people Apple's tablets can do the job of a PC at a price point more easily attainable by the average buyer. While you could make the case that Apple is pricing its tablets too high, compared to the broader computing sector, the iPad's relatively low price may be the reason why Apple isn't working too hard to bring down the cost of its desktop line, as seen in the next chart.

iMac, average PC, and iPad costs, 1998-2012 (2012 dollars) iMac, average PC, and iPad costs, 1998-2012 (2012 dollars)

The tablet, Apple could be reasoning, will satisfy the needs of most users, while the more powerful (and pricey) desktop and notebook models will cater to those users with the professional need or personal wherewithal to afford them.

For commodity PC manufacturers, Apple's two-pronged approach bodes ill. In the past, they could market against Apple being too expensive. But now there's a decent alternative that's even cheaper, cooler, and way more portable.

How will PC makers pivot to respond to Apple's high-low threat? Thus far, the idea seems to have been to keep making cheaper, more powerful PCs and smaller laptops and try to own the middle ground. There have been few credible efforts at a Windows-based tablet - the one viable offering is from Microsoft itself. Perhaps CEO Steve Ballmer understands what the company's manufacturing partners seeming don't: that shooting for the middle of the market is all well and good - until you start to get squeezed.

Title image courtesy of Apple.