Apple's absurd price tag for the Vision Pro is part of a brilliant and proven strategy

There is a lot of criticism about the high cost of Apple's Vision Pro, but it's actually a smart move by the company.

• Apple Vision Pro costs almost $4,000 after tax.
• Giving the device a hefty price tag is actually a smart strategy.
• The high cost helps maximize profits,  protects the brand, and funds future innovation. 

It seems like people have decided the two biggest flaws with Apple's Vision Pro face computer are…

1. You kind of look like an idiot when you wear it. Notice how Apple CEO Tim Cook never put it on?

2. It's extremely expensive – $3,499, or about $4,000 after tax. Notice how Cook kept telling people it costs "thirty-four ninety-nine"?

I don't know what to tell you about the first problem, other than that I guess people wear masks when they go snorkeling or skiing so we do know that they will sometimes put weird things on their faces for fun?

On pricing, I present you a theory from Matthew Ball, who is an investor in the metaverse world and advisor to a bunch of companies, as well as the author of "The Metaverse and How it Will Revolutionize Everything."

In a text message, he tells me Apple is taking the "Tesla approach."

"There is a reason why, just before unveiling the Vision Pro's price, Apple's talked about a hypothetical where you bought an ultra-HD display, gaming supercomputer, surround sound system, iPhone, and so on, while also positioning the headset as the most complex device the company had ever built."

"Apple needed to explain why, and to some extent, prepare us for the Vision Pro's $3,500 price point – a stunning $4,000 with tax. At 7x more than the Quest 3, the Vision Pro should be far more powerful and capable – and of course, it is. Furthermore, Apple Silicon gets far more performance per dollar cost in computer, too. But this price will also keep it out of reach for nearly everyone for the time being."

"The company is taking the Tesla approach – start with the Model S, eventually get to the Model 3, and then keep lowering its price while improving its performance."

(Long text message, right?)

Anyway, I think he's onto something.

I also don't think history shows us Apple has ever had much issue charging way more for its devices than competitors do for products in the same categories.

In fact, people used to say Tesla was following Apple's approach to pricing.

The first iPhone was announced by Apple on January 9, 2007, and it went on sale on June 29, 2007. It cost $499 for the 4GB model and $599 for the 8GB model. You could get a good BlackBerry for $200 at the time.

Analysts and others say a key part of Apple's strategy is something called "price skimming."

Price skimming is a strategy where a company sets the initial price of a product very high, then gradually lowers it over time. The idea is to "skim" off the top layers of a market willing to pay more, before moving to more price-sensitive layers.

Here's how Apple uses it and why:

1. Early adopters will pay: When Apple releases a new product in a new category, it's priced very high. This targets early adopters – customers who value being the first to have the newest tech and are willing to pay a premium for it.

2. It keeps profits high throughout a product's lifecycle: By pricing products high at launch, Apple maximizes its profits from these early sales. As the product matures, they gradually reduce the price to appeal to more budget-conscious consumers. This skimming strategy allows Apple to make the most profit from all segments of its market.

3. It's good for the brand: The high initial pricing reinforces Apple's brand image as a luxury, aspirational brand. It's a clear signal that they are not in the game to compete on price, but rather on quality, design, and user experience.

4. It funds innovation: The high profits from initial sales can fund Apple's ongoing research and development. This is crucial in the tech industry, where staying ahead of the curve is key to maintaining market dominance. There's a reason Apple was able to develop this product over many years. It had enormous piles of cash to burn through after pricing the last new product so high.

For me, the biggest question remains, will enough people happily wear a face computer for hours at a time?

Given these red marks WSJ gadget reviewer Joanna Stern walked away with after using Apple Vision Pro for just 20 minutes, I remain skeptical…