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Whatever happened to... the Apple Mac?

Neglected computer biz is owed a relaunch

MacWorld Preview The success of the iPod, Apple's biggest ever consumer hit, was bound to overshadow the company's mainstay business in 2004. Clearly, the importance of the breakthrough can't be underestimated; the iPod isn't just a beach head into new markets, but a wildly successful product that's still in its infancy. But perspectives were lost. On several occasions pundits asked us to try and remember the far off days when Apple "sold more Macs than iPods", although that era only ended on 30 March last year, when iPod units sales surpassed CPU sales for the first time. In the numbers that really count: revenue, margins and profit, the Macintosh remains Apple's core business. So where did it go?

With MacWorld Expo looming, Apple's computer business is long overdue a relaunch, and if ThinkSecret's reports on a low price Mac and a consumer office suite are true - and with its chilling effects lawsuit, that seeks to compel a journalist to reveal his sources, Apple seems determined to prove that they are true - then the relaunch marks Apple's first serious offensive to expand market share since Jobs stabilized the company in the late 1990s. The disastrous 'Switcher' campaign was well intentioned, but atrociously executed.

(The scripts were generally excellent, but the CEO wanted something edgy, so the art director transformed ordinary people into the role of 'Twitchers'. This was guaranteed to repel customers and reinforced the impression, unfortunately confirmed by a handful of net fanatics, that to be an Apple User really means 'Loser'. Give that man an Oscar!

Happy, smiling people replaced the Twitchers within weeks, but the damage had been done.)

Some on Wall Street used the success of the iPod as a cue to renew calls for Apple to shut down its computer business, once again arguing that a vertically integrated systems company can't compete with Wintel economics. However, it's precisely because Apple isn't reliant on Microsoft that gave it the scope to launch the iPod and iTunes Music Store. Dell's own track record at marketing its portable jukebox should give these analysts pause for thought.

It's true that Apple's market share is stuck at three per cent with any wobbles in downward direction, but these tend to be both temporary and so inconclusive. Although well down from the nine per cent share Apple enjoyed in the early 1990s, the users have remained remarkably steady in the past five years of turmoil and provided the company with enough revenue to complete its extremely expensive migration to a new operating system (complete) and a new hardware architecture (getting there) while turning in reliable profits every quarter. The smaller cake no longer allows Apple as many opportunities to explore new markets: at one time Apple sprayed its R&D budgets around like an untended firehose, exploring TV set top boxes, middleware, PDAs and many interesting pure research projects. But it's finally scored upon a hit, and it's one that's highly complimentary to its computer business.

There's another reason too why Apple is perhaps more relevant now than when it was much a bigger company, with a much more distinctive offering, a decade ago. Microsoft has allowed an ecology of malware to take root and flourish, and failed to take security seriously. Service Pack 2 is a belated acknowledgment of the issues. Wintel machines have also failed to match simple ergonomic features such as reliable instant sleep that consumers appreciate if they ever get the chance to see them. All of which points to a promising low cost stealth strategy which tempts users to first try, then incrementally 'swap out' their Wintel PCs.

So does Apple have what it takes to expand this market share, and can it afford it?

Margin of error

The appeal of a low cost Mac isn't hard to see. In households with two or three PCs a low cost box that's marketed as an 'iPod accessory' has much to commend it. Many users are cost sensitive rather than performance sensitive. The addition of an Office-compatible budget suite adds to its appeal as a homework machine. The more radical step, of pitching the device as a home hub or media center, would make more sense to Apple, but it's far from clear that the dreaded DRM framework that Hollywood wants is yet in place. Here, Apple would be wise to let others make the mistakes before entering the market.

A $499 Mac would inevitably lead to some cannibalization of higher priced models, but perhaps less than might be expected. Sales of peripherals could rise, with potential buyers opting for say, a Bluetooth keyboard and mouse over the wired variety.

So how much would Apple be prepared to risk on such a strategy? Financial analysts look to margins, and here Apple's have historically been wider than the competition. Dell's margins are 18 per cent, while Apple's are in the high twenties. But executives have already indicated that sales of the iPod mini will drive these down nearer 20 per cent over time. The company could achieve a 20 per cent margin with a budget Mac, especially selling it directly, and still regard this as a good investment. Robert X Cringely this week speculates that Apple might even want to take a loss on the G88 - by giving it away for $249, a loss of $100 unit, which is close to where AMD is pitching its shoe-sized internet appliance in the southern hemisphere. While this would finally fulfill Apple's claim to create a "computer for the rest of us" (in Europe, the claim was always risible because of the popularity of more sophisticated and much cheaper alternatives from Commodore and Acorn), critics could point out it looked like desperation. Pride, and financial considerations are likely to make this a non-starter - more's the pity.

With Microsoft's continuing difficulties in getting Longhorn out of the stable, 2005 looks like a prime opportunity for Apple to capitalize on its hard work. The computer business still brings home the bacon. ®

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