Why Apple’s decision to cut the MacBook Air price was genius

MacBook Air Price

Apple is a company known for its great products, its past and current CEO, its great (and sometimes not so great commercials), and the way it influences people all over the world. However, all of that comes at a price, as Apple products are generally more expensive than its competitors, which has led to some calling Apple’s premium price points the “Apple tax.” That tax, however, may be coming to an end.

In announcing a minor update to the MacBook Air on Tuesday, Apple made a very curious decision, something it doesn’t often do. It cut the price of one of its existing products — the entry-level, 11-inch MacBook Air now starts at $899, down from $999. The 13-inch version starts at $999, and the premium version of both laptops will set you back $1,099 and $1,199, respectively.

By cutting the price on the entry-level MacBook Air to $899, this opens Apple up to a sweet spot for laptops, one where all the growth is.

In a research report a few weeks ago, JPMorgan analyst Rod Hall suggested Apple invoke iAnywhere, essentially making MacBook’s use Apple’s iOS operating system. While this hasn’t happened (at least not yet), Hall does note the best spot to be in the PC market is with laptops ranging in price between $500 and $1,000. Hall estimates that around 55% of all notebooks shipped in 2013 were in this price range, a place Apple had not been before. That’s around 100 million laptops, so it’s a significant market.

Apple sold 4.1 million Macs between January and March, helping generate $5.5 billion in revenue for the fiscal second-quarter. With that in mind, the ability to lower the price point, presumably while not hurting gross margins too much (all Apple did was update the laptop with an Intel Haswell processor), gives Apple the opportunity to sell a few more notebooks than it had been.

While it’s not going to help Apple regain the hyper-growth days of yesteryear, it will allow Apple to tack on a few more percentage points worth of growth, given the price point. Personally, one of the sticking points for me on a MacBook Air has always been the price point, but with this announcement (coupled with the fact Apple has dropped refurbished MacBook Airs to $599), this makes it that much more likely I will buy a MacBook Air this year. I’m sure I’m not alone in that thought process.

Though the PC market isn’t going gangbusters, with Gartner noting it shrank 1.7% year-over-year to 76.6 million units, anything Apple can do to take away growth from its competitors, including HP, Dell, Lenovo and others is a start.

On Apple’s fiscal second-quarter earnings call, Controller (and soon to be CFO Luca Maestri) noted that Apple took global market share with the Mac in the past 31 of 32 quarters. With the price cut, that can only help Apple.

Aside from helping Apple gain market share in the shrinking PC market, it also helps mitigate some of the slowdown seen in the iPad. Last quarter, Apple shipped 16.4 million iPads, which Apple explained as being strong, despite the year-over-year decline from 19.5 million units shipped. One of the chief causes of concern for the iPad has been that larger smartphones can do everything a tablet can, and they aren’t as powerful (yet) to work on for creating content as a PC or a notebook can.

It remains to be seen whether Apple’s price cut does indeed help drive volume to the MacBook Air, but given the fact Apple issued a press release on it, and the amount of coverage it got, I’d say Apple is betting on it.

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