My $1,000 iPad Purchase Odyssey (And The Law Of Large Numbers Be Damned)

I'm taking time out tonight to share my iPad purchase story. My experiences in buying this device provide corroborating anecdotal evidence as to why I believe Apple will achieve $20 billion in revenue this quarter and blow away most revenue and eps estimates. 

My $1,000 iPad Purchase
At the end of that day I had made a $1,000 iPad purchase (accouterment and sales tax included). I spent $1,053.60 to be exact and $960 before CA sales tax was added. The pre-tax amount is a nice even number because Apple doesn't do the silly ninety nine cent thing on hardware devices. The purchase odyssey required an eighty five mile round-trip trek along the highways and byways of Southern California and visits to two extraordinarily busy Apple retail stores on a Sunday afternoon. 

I have nothing against Best Buy per se and certainly not when the store is located conveniently in my home city of Santa Clarita. On this Sunday afternoon the local store had the 64 GB Wi-Fi + 3G iPad in stock. It's not the model I wanted and I was determined to purchase the desired iPad accouterment at the same time. My list of accessories included the external keyboard, AppleCare, additional power cable and the Apple iPad case. I also wanted the 32 GB iPad and wasn't willing to fork over the additional $100 for the 64 GB model. Off to the Apple store in Glendale we go. 

Glendale Apple Store
My wife and I arrive at the Apple Store in Glendale about 3:30pm and the store is absolutely packed. Every digital device on display has someone tending to it and every store staff member is busy with at least one customer and another waiting impatiently for their attention. The store also has absolutely no iPads in stock. Being the resourceful person she is, my wife grabbed the first seat that became available by a Mac on display, took out her iPhone, Googled store numbers and started making calls. The Best Buy in Burbank had no iPads in stock, the Best Buy in Santa Clarita still had the 64 GB model available and the Sherman Oaks Apple Store had the 64 GB model in stock but only if we hurry. 

Not to leave the store empty handed and just in case the Best Buy in Santa Clarita was the only option remaining by the time we drove to Sherman Oaks, I bought all of the iPad accessories I wanted at the Glendale store. The accessories were easy to find. An available sales person to handle the sales was the challenge. Finally we get a staff person's attention. While processing the purchases he recommended we get on the waiting list for an iPad purchase at the store. Estimated wait time was three weeks. I reluctantly signed up as the purchase mode of last resort. We made a beeline for the Sherman Oaks Apple Store. By the time we made the 20 minute drive I had already received my confirmation email from Apple of my reservation at the store for the 32 GB iPad I wanted. I grumbled all the way to Sherman Oaks I didn't want to spend the extra $100 for the 64 GB model, but I had resigned myself to that fate if I wanted the iPad that day.

Apple and the iTunes Gift Card Economy

I'm amazed at the number of iTunes gift cards purchased and distributed as gifts during the holiday season. No matter the small commission paid to retailers for sales of the gift cards, they represent an interest-free loan to Apple for iTunes product purchases at a later date. The cards purchased at retail may also reduce Apple's distribution costs because merchant fees are not paid on purchases made from gift card redemptions.

I've searched Apple's financial statements for some inkling of the amounts carried in the company's cash balances and the offsetting liabilities for unused gift card balances and the financial value of the cards still to be redeemed. I can't find a conspicuous mention of the amounts anywhere. I'm surprised these amounts are not detailed because of the volume of and dollar value of gift cards purchased and redeemed each year.

iTunes gift cards can only be redeemed at one place - Apple's iTunes store. But these gift cards provide recipients with an array of product purchase options ranging from music and movies to iPhone apps. The cards have become their own form of currency for use at the iTunes store.

While debates rage about the iPhone versus Android 2.0-enabled smartphones on the merits of the hardware, there's no disputing the added value to a product franchise from iTunes store integration. There's no real competition currently for the iTunes app store and Apple has become the world's largest commercial distributor of recorded music via of this online store. 

Today content and accessibility of content (software, music, movies, iPhone apps, etc.) drives hardware device sales. iTunes gift cards lock-in the card recipient to the store similar to the way many other gift cards can only be redeemed at particular retail outlets. The popularity of iTunes gift cards and the value of the unused card balances can only be a draw for app developers and owners of commercial content seeking to expand sales and expand those sales through a relatively easy to use digital store front on attractive distribution fee terms.

Providing access to the growing iTunes economy is one way Apple will continue to entice interested parties to provide content for its products. Access to the iTunes store is a decided advantage for Apple and an advantage that can not be mitigated quickly nor inexpensively by competitors. It's also a reason the iPod touch is important to the iPhone's continuing success. The iPod touch provides a large pool of consumers (now measured in the tens of millions) that can use iPhone OS apps, building the market for developers and accessory makers much more rapidly than the iPhone could provide on its own during its nascent phase of sales growth. 

iTunes integration is providing an underpinning for Apple hardware device sales and a captive market of iTunes account owners with unused gift card balances can only sweeten the proverbial pot for app developers and commercial content owners seeking to increase product sales.