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stratechery

Apple’s Black Friday Deal Was a Missed Opportunity

As first reported by Mark Gurman, Apple’s Black Friday deal was for gift cards, not the traditional discounts.

As part of the American Black Friday sales tradition, Apple typically offers minimal discounts on its own products and third-party accessories via its online and physical retail stores. However, this year will be significantly different. According to multiple sources, Apple’s sales event this Friday will be based around gift cards, not discounts on products. If a customer buys a product from Apple on Black Friday, instead of receiving a discount, they will be given an Apple Store gift card. This gift card will likely not be able to be used at the time of purchase, solely at a later date. The setup is similar to that of Apple’s recent Back to School campaigns, but it is Apple Store cards, not iTunes cards.

In an update, Gurman expounds on the reasons (basically, it sounds like discounts were a massive PIA), but I’m much more interested – and disappointed – in the switch to Apple Store cards instead of iTunes/App Store cards.1

From a financial perspective, it makes sense:

  • For iTunes/App Store gift cards, Apple “spends”2 70 cents for every dollar (which goes to the respective developer)
  • For Apple products bought with the Apple Retail gift card, Apple “spends” 64 cents for every dollar (Apple’s margin last quarter across their product line was betweet 36 and 37 percent)
  • For non-Apple products bought with the Apple Retail gift card, Apple likely “spends” around 60 cents for every dollar (presuming a typical 40% retail markup)

Moreover, there is a clear logic to gift cards: there is no better way to induce a repeat purchase than to have a customer feel like they ought to buy something else – after all, that gift card is just burning a hole in said customer’s pocket.

And yet, there is so much more long-term benefit to be gained from iTunes/App Store gift cards.

  • Gift cards effectively inject millions of dollars into the app ecosystem to the direct financial benefit of developers, making the most appealing platform (iOS) for developers – particularly those who make paid applications – that much more appealing.
  • Paid applications – even if bought with gift cards – have a lock-in effect; any consideration about switching is likely to be weighed against the worth of purchases you have made
  • Gift cards encourage exploration and risk-taking in the app store, significantly increasing the chance users discover apps that make their iOS device magical

Still, this decision, while disappointing, is not surprising in light of Apple’s reticence to enable sustainable apps beyond consumable IAP, not to mention their having devalued many productivity apps by having made iWork and iLife free.

Ultimately, as always, Apple is counting on only itself and the experience it believes it can deliver to sell devices to repeat customers. Given their track record, it’s not exactly a terrible idea, but that doesn’t mean it’s the best one, either. After all, for many customers, Apple hardware is fantastic, but apps are the biggest reason to buy an iOS device.3

  1. You can, of course, buy iTunes gift cards with your Apple Store card, but that’s beside the point
  2. This isn’t even remotely correct terminology – or, er, accounting – from an accounting perspective. I hope you’ll give me credit that I know that and let me use common English in peace
  3. I’d love any pointers to specific research about customer’s reason-to-buy

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