TightWind is written by Kyle Baxter. Stay Hungry. Stay Foolish.

Ken Segall:

But any Apple analyst who gets upset over this should be ashamed for failing to understand one of Apple’s core philosophies. The company does not compete on price, it competes on quality. Apple does not sell to “everybody” — it sells to those who appreciate a premium product, and who are willing to pay a premium for it. Build quality aside, iPad comes with a more developed ecosystem, with a bigger choice in apps and accessories. Those who see value in this will pay for that value — as they have for every Apple product that has succeeded before.

I think Segall is assuming a philosophical reason for a higher price when there’s a very simple, pragmatic reason for it: it’s hard to make a tablet device with quality materials and build for a low price while maintaining a decent gross profit margin, and if they’re going to have to drop the price, they would be better off doing that when they know the market won’t sustain it than they would right out of the gate.

Segall is absolutely correct that Apple competes on quality and is trying to build products that fulfill their goal, but where he errs is in arguing that Apple doesn’t also want to sell to everybody. They want to sell to as many people as they possibly can while still making a good product. Their goal is not to make a premium product and sell it to people willing to pay for it; their goal is to make a great product and sell it to as many people as they possibly can.

The original iPad illustrates this. Apple sold it, out of the gate, at $499. For quite a while, this was very aggressive pricing—competitors could not make a comparable tablet, let alone one with the same build quality, at that price-point. Apple took a smaller (but still very solid!) margin in return for making the iPad a more enticing idea for people. They wanted people to think that not only is it a great device, but it’s also a very good price, too.

Apple wants the iPad to be something that nearly everyone wants and can own, but they don’t want to compromise what an “iPad” is to do it. This isn’t about being a premium product. It’s about being a great product. There is a difference.