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Apple's Pricey Message to Consumers: Don't You Dare Buy Lion at Retail

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Apple (NASDAQ: AAPL) has a new plan to push consumers to the App Store: charge too much for the alternative.

The long-awaited Mac OS X Lion arrived yesterday, and if a Global Equities Research report is accurate, the snazzy upgrade has already been sold to more than 650,000 Mac users.

That's an impressive number, to say the least, and it's one you're likely to hear very frequently.

There is, however, another number that's floating around that you're much less likely to hear about: 69 – the amount of dollars you'll spend to take home a retail (boxed) copy of Lion when it's released later this year.

Why is the boxed price so much greater than the digital release? Apple will argue that it's because it has chosen to release the software on a small USB drive. The company wouldn't be lying if it said that USB drives cost more to manufacture than a DVD or CD-Rom. But that very fact begs the question: why not simply release the software on a DVD? Clocking in at around four gigs, a DVD would be the perfect and most cost-effective way to distribute Lion – next to digital distribution, of course. Oh sure, MacBook Air users don't have a built-in disc drive option, but Apple offers a few ways around that, as most consumers are aware.

Why, then, would Apple charge so much for the retail version? It's not as if USB drives are that expensive. And it's not as if consumers will consider this to be a “premium” product and happily buy the USB version, thus giving Apple another reason to brag.

The truth is that Apple was not considering any of the above when it made the decision to price the boxed version at more than double the cost of the original. Rather, Apple was thinking that this would be the perfect way to encourage consumers to go online and see the benefits (read: cheap!) of digital downloads.

For now, at least. Make no mistake, consumers – when Apple, Netflix (NASDAQ: NFLX) and every other company attempting to wean us off discs and hardware have accomplished this goal, the prices of digital downloads and online streams will skyrocket.

We are already seeing hints of this from Netflix, which enraged consumers and ignited a social media firestorm after announcing that its streaming and DVD plans are being separated. Bear in mind that “separated” is a fancy, media-friendly word for “price increase.” Netflix also used the word “lowest” when referring to the price of its DVD-only plans, and attached the word “choice” to the whole separation concept. You know, as if this new option somehow benefits the consumer.

Apple is putting a similar spin on its Lion pricing gimmick. “Users who do not have broadband access at home, work or school can download Lion at Apple retail stores and later this August, Lion will be made available on a USB thumb drive through the Apple Store (www.apple.com) for $69 (US),” Apple wrote in a press release yesterday morning.

There are two key components to this statement. First, the way Apple casually encourages users without broadband to visit an Apple retail store. This reinforces the brand while simultaneously exposing consumers to the full collection of Apple products. Second, the company is sending a powerful message to users who prefer to acquire software in a more traditional fashion: don't do it.

One would think that Apple's primary goal should be to sell as many copies of Lion as possible, regardless of the medium in which the software is obtained. Instead, Apple is more concerned with the format we choose.

Of course, the Mac maker has taken this route knowing that the majority of its users have broadband Internet access. Many of them are at least a little tech-savvy, and those who aren't are more likely to perceive DVDs or USB drives as simply a bunch of “doohickeys” than they are to think of them as important items. It couldn't be that hard to convince either customer base to convert to the App Store. Thus, even if some people are upset by this decision, Apple can rest easy knowing that its contribution margin won't suffer.

Netflix, however, might not be so lucky. While Lion Retail vs. Lion App Store is an apples-to-apples comparison, the streaming and DVD experiences on Netflix are not yet equal.

Follow me @LouisBedigian

Posted-In: App Store Apple DVD Global Equities Research Lion Netflix OS XTech Best of Benzinga

 

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