iPod--Keeping Apple in Business

a few words:

compaq and IBM
the clones did not help one bit and almost sent apple out of business. To do clones apple would have to:
1)up the os price (US$400 maybe?) - imagine the uproar - people whinge at US$129
2)charge about US$300 a pop for each clone machine w/MacOS on it
3)charge a licensing fee for using the PPC architecture and to have a copy of the ROM that MacOS supports

clones would kill apple this time period.

Frisco said:

Why does Apple spend almost all it's time and marketing dollars on the iPod? Because Apple knows:

1) Their Computers are way over priced compared to PCs.
2) Their Computers are way under powered compared to PCs.
3) They have lost the OS marketshare war and their marketshare continues to dwindle.

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Points 1 and 2 are a bit emotive and comparing like for like for what all but the most power hungry pros need, you are on dodgy ground there.

Point 3 is correct, as of the late 1980's probably, so not a bombshell observation today. Still, for all their deficiencies, Apple ploughs on and their support structure for OS X grows.

If Apple was really concerned with marketshare then they should lower their prices. They have additional revenue coming in now from the iPod, which should correspond to a decrease in Mac prices, but it doesn't.

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They are concerned with the bottom line of profits on their sales and laying the foundation to ensure Apple stays in business for their core product the Mac. What does it matter if the rate of increase of the overall market for PCs keeps growing quicker than Apple.

In my view Apple has a few choices:

1) They can dramatically lower their prices, thus increasing marketshare, but taking a significant loss in profits. But once again the iPod revenue should reduce the loss. It's marketshare what is most important at this point.

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They are a niche company who can earn high margins and high margins means security. Grey box merchants on 2% margins are a lot more vulnerable than Apple. With the way Apple are expanding on their survival programme since the return of Jobs, they have a 25 million customer base to service which will keep them in business.

I tkink it's time for Apple to consider the clones again. The question is: Is Steve Jobs too stubborn to do this--is he capable of "Thinking Differently?"

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Is he capable of abandoning the fact that Apple are a hardware company and their killer software sells Apple hardware? I hope so.

Actually, Apple is quite safe, and will not be going anywhere. The iPod did not save Apple, OSX did. Even though Apple has high prices (649 for eMac on edu bulk purchase) compared to Gateway (Celeron, no ram, for 349), Apple continues to grow its market. Schools may have dropped Apple, but thousands of sci-tech people- drawn in by OSX's UNIX base, have replaced the loss of schools. Sci-tech folks generally go for the PMG5s, not the eMacs, so Apple gets more revenue, and marketshare. The "dwindling" Mac market is not caused by people abandoning the platform (more join than do leave) but rather the rapid recent expansion of computers in the Third World. Apple, priced out of the market by 'VAT', suffers from statistics. Certainly today there are more Mac users than when Jobs became iCEO, but statistics do lie as the PC and Linux markets are expanding more rapidly than Macs'.

Apple has learned that porting apps to Windows makes them $. Based on the success of Apple programs like Filemaker, and iTunes, expect to see more Mac programs for Windows- perhaps a return of Logic, or a port of iLife (a deal with Sony or HP?).

Instead of simply lowering prices, Apple needs to expand its product range. Outside the narrow range of 1-3.5 TB, Apple does not offer XServe RAID configurations for those who need services on the higher or lower end.

If Apple can expand all its product lines the way it has with software (iMovie->FCE->FCP), it will expand far more rapidly and more profitably than by simply slashing prices.

As for clones, I could see Apple continuing to leverage its HP connection and have HP distribute, under its name, a low-end Apple-clone. Pizzabox G4 HP clones when eMac goes G5, for example.

/soapbox

Frisco said:

In my view Apple has a few choices:

1) They can dramatically lower their prices, thus increasing marketshare, but taking a significant loss in profits. But once again the iPod revenue should reduce the loss. It's marketshare what is most important at this point.

Click to expand...

If Apple reduced its prices, there would be no "voila" increase in marketshare. Although there does exist a miniscule percentage of people who don't purchase Macs because of the $$$ difference, there are lower cost alternatives like refurbs and education discounts (I work at a university), not to mention the fact that a good number of these potential buyers will say "f--- it" and buy anyways if a Mac is what they really want.

However, there exists a monstrous percentage of people who don't purchase Macs because they are afraid to purchase Macs. None of their friends own a Mac, nobody on their block owns a Mac, nobody in their family owns a Mac so they can't quite possibly break through this suffocating xenophobic barrier and try one out. How long does the average household keep a computer before buying new again - 4 years? So in 4 years if it doesn't work out, merely switch platforms again. But that is evidently too much to ask.

I've witnessed this xenophobia first-hand and let me tell you it is unreal and I don't know if it can be reversed. In the past six months, several colleagues of mine have purchased new computers. These people use their computers to surf the web, email, shop, word process, listen to music and keep up their digital photo collections. And that is all.

I tried everything to get them to switch. Showed them my powerbook, my g-friend's ibook, showed them iTunes, iPhoto, showed them an iPhoto book I made for someone, showed them my iPod, my mini, downloaded a trial version of office, saved an excel file in XP format and sent it to myself so I could open it on a Gateway Profile at work so they could see the cross-platform functionality, showed them the website, product leaflets, articles in the news, the simplicity of drag n' delete, the dock, the slot-loading optical drive, that cool SHIFT-OPTION screen effect. Talked about viruses (hell, we were shut down for 2 weeks last summer) and what did they do after the 2-3 month sales pitch?

They all bought Dells. And not one of them would even take the time on a weekend to go LOOK at the Macs at CompUSA. On a side note, I by no means tried to oversell the Mac platform and potentially turned them off. When somebody asks me about Mac v. PC, I always ask them what they use their computer for and what they want to get out of it. I usually save the Mac-elitist stance for the unsavory types.

And if a major virus hit tomorrow and wiped everything in their eLives out, they would go right back to Dell, Gateway, etc., when the dust settled.

This is the enemy and it is a monster. I believe Apple is getting in the sack with HP, Pepsi, possibly McDonald's and now Nike to get the name out there.

My girl and I switched in December 2002 and will never switch back. I shudder to think that I was actually on the phone with Gateway ready to purchase a 600XL (that 9 lb-er) and pulled back. Two days later the TiBook was en route.

And the rest, my friends, is history.

Frisco said:

1) They can dramatically lower their prices, thus increasing marketshare, but taking a significant loss in profits. But once again the iPod revenue should reduce the loss. It's marketshare what is most important at this point.

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Without addressing anything else, I will make one comment from business 101: a for profit corporation exists for one reason - to make profit.

The only people who give a crap about high market share are marketing people because it gives them something to brag about and stock analysts because it gives them something to talk about.

Frisco said:

1) Their Computers are way over priced compared to PCs.

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i really don't buy this... if i wanted a piece of crap beige box, then yes, apple's are overpriced. BUT, if i want a well designed, attractive, well thought out, amazing machine then i'm going to buy an apple. i don't mind paying the premium one bit. i think it is expected. better products tend to cost more.

x86isslow said:

Schools may have dropped Apple, but thousands of sci-tech people- drawn in by OSX's UNIX base, have replaced the loss of schools.
/soapbox

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Schools here used to use iMacs running OS 9.2 and now they have upgraded to eMacs running Jaguar. Not all schools have dropped them but you see them less and less in highschools. Apple computers are usually seen in the elementary level up here.

from apple's first quarter data:

Total Apple revenue: $2,006 (million)
Macintosh: $1,269 million on 829k units (roughly $1,500 per unit)
iPod: $256 million on 733k units (roughly $350 per unit)

iPod sales account for one eighths of apple's revenue. and even if they turn out $100 profit per sale on $350 average price, there's no way they are making more profit for apple than hardware with average sale price of $1,500.

iPod is a great product and provides very strong and positive brand image to apple. but it's still a side business as far as revenues/profits go and apple remains a hardware company with very profitable margins.

I think a very large piece of the puzzle you are missing is software. With out buying additional software compare what you get on an a Mac to what you get on a Dell, or Gateway, or HP computer. And on the pro side of things FCP, and to a lesser extent DVD Studio Pro, have given Apple a whole new life in the tv and film industry. And the G5 just made things so much sweeter. I woudn't be surprised if Apple was barely making any money on FCP, DVDSP, and Shake but the sales and following they are building is more than making up for it.

One of the reasons Apple is pushing the iPod hard is they are trying to use it as a "gate way" product. As any Mac user knows there is a lot of "mac-phobia" floating around so people that might not even consider buying a Mac might be more willing to buy an iPod. Once they see how good a product the iPod they might give Apple a 2nd look when they are computer shopping. I see this happening on PC forums I frequent. People used to automatically bash Macs but with products like iTunes/iTMS, the iPod, the G5, Final Cut Pro, and iLife Apple is actually worming its way into want used to be militantly anti-Apple territory.


Lethal

The iPod is not what is keeping Apple alive. It is the combination of excellent hardware, software, a relatively small but loyal user group, and innovation that keeps them one step ahead of the competition. Marketshare does not matter one bit. Apple has been a profitable company for the last couple years and that's what matters.

I disagree with the orginal poster's ideas about clones. Clones will ruin the company if they attempt clones again. One of the unique things about Apple is that it is a company that sells both its own software and hardware. First of all, this makes quality control better, and even more importantly, the software and hardware complement each other, resulting in more overall sales. Some Apple newbies are amazing by the software; others are impressed by the hardware. But no matter which one had drawn them in, once they start using it, they will be hooked. Innovation and an advanced operating system are essential because it keeps consumers satisfied, and gives them an edge over MS.

The loyal fan base is important to Apple, and it will keep them from total destruction. Even in the Steve-less dark days, many stood by the company, helping it survive. Today, this group continues buying and brings more and more PC users into the Mac camp. This user base is accomplished by the quality, obvious because there are obviously few Dell/HP/Sony zealots.

I would not worry about Apple's future untill either MS starts innovating (which will most likely never happen) or more feasibly, when Steve Jobs leaves and there is not viable replacement.

Margin matters more than marketshare. Apple is in business to make money and there are ways to do this without strictly trying to increase marketshare.

Apple will survive because they have a ton of cash ($3.7B if I'm reading the 10-Q correctly) and they spend a lot on R&D, allowing them to continue turn out high quality, innovative products. Would they like to increase desktop marketshare? Of course. But if they're profitable at 3% who's to argue they're doing anything wrong? And did I mention they have the most loyal, passionate, devoted customer base of any product I can think of?

There's been a revolution in the automobile world over the past few years. (I find the auto industry analogous in more than a few ways to the computer industry). Auto manufacturers have decided that they can no longer rely on the volume-business model rather, they have begun to focus on producing lower volume, but profitable vehicles. (I'm paraphrasing from the review of the Pontiac Solstace in the March issue of Automobile Magazine).

So there's been a move towards platform sharing to reduce costs and shorten the time it takes to bring a new model to market, improving quality, and producing a vehicle customers are willing to pay more for.

That's kind of what Apple's done, right? They streamlined their model line and focused on profits. If you're reading this, you've demonstrated that you're willing to pay a bit of a premium for something made well and that works well.

So be happy! Despite all the naysayers, the doom & gloom predictions and low, single-digit market share, the Mac just turned 20! Sure there were some touch-and-go years, but we're well past that. Can't we all just get along?

I think Craigdawg has drawn a good analogy except for one thing. 3% market share makes it difficult to get software developers interested. As a result, the Mac software market is fairly lacking in choice. There are very few major software developers apart from Apple itself, and they are mainly in the niche "creative media" area like Adobe where Mac marketshare is large. Microsoft is only there for strategic reasons. If Apple could increase 3% marketshare perhaps more software developers might get onboard.

So far 3% marketshare hasn't been a problem because I feel Mac software is generally good quality, but if a major developer like Adobe ever decided to walk away it would be catastrophic. Just look at the MAc games market for a definition of barren. Luckily not everyone buys their machine just to play games.

Apples are top of the line computers, a top of the line windows box costs about $1000 more. (I did a school paper on why macs are better than windows, I matched two computers starting with the windows box, which I maxed out. I then matched the specs with a mac box, (proccessor speeds were relative for many reasons which I do not wish to explain right now). The Mac box still had room for upgrades, and had a screen bigger by 1 in. It cost $1000 less....)

I posted this on another thread, so I'll just cut and paste.

There is a really good interview with a smart guy from Harvard. It talks about the 3 different ways Apple could go from it's current standing.

It's a very good insight into the company's future. Anyways, this guy believes that the best way to increase Apple's revenue is to switch to an AMD/Intel platform. Yes, we've heard this all before, but the interesting twist is that he believes that Apple should scrap their OS and build computers running Windows. In essence, become what Sony has failed to become.

As shocking as it may sound, his reasoning has some very good merit. The OS probably takes millions to develop (paying engineers, R&D, etc.). They could save a lot of money by just letting go of their OS. Apple could bring all their iApps to the Windows side (they already have iTunes and QuickTime for Windows), use their industrial design expertise, and build Windows boxes. They would lure customers by their industrial design and the iApps we have all grown to love.

As much as I love the company, the only realistic way to gain any "significant" market share would be to do what this guy suggests. As long as Jobs is CEO, however, he would never let this happen. But an interesting idea nonetheless.

alphaq619 said:

I posted this on another thread, so I'll just cut and paste.

There is a really good interview with a smart guy from Harvard. It talks about the 3 different ways Apple could go from it's current standing.

It's a very good insight into the company's future. Anyways, this guy believes that the best way to increase Apple's revenue is to switch to an AMD/Intel platform. Yes, we've heard this all before, but the interesting twist is that he believes that Apple should scrap their OS and build computers running Windows. In essence, become what Sony has failed to become.

As shocking as it may sound, his reasoning has some very good merit. The OS probably takes millions to develop (paying engineers, R&D, etc.). They could save a lot of money by just letting go of their OS. Apple could bring all their iApps to the Windows side (they already have iTunes and QuickTime for Windows), use their industrial design expertise, and build Windows boxes. They would lure customers by their industrial design and the iApps we have all grown to love.

As much as I love the company, the only realistic way to gain any "significant" market share would be to do what this guy suggests. As long as Jobs is CEO, however, he would never let this happen. But an interesting idea nonetheless.

Click to expand...

The article that you and Frisco linked to got throughly panned when it came out earlier this year. I'm sure if you do a search you'll find the original thread(s) about it.


Lethal

LethalWolfe said:

The article that you and Frisco linked to got throughly panned when it came out earlier this year. I'm sure if you do a search you'll find the original thread(s) about it.

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What Lethal's referring to is the fact that Prof. Yoffie just happens to be on Intel's board:

http://www.intel.com/pressroom/kits/bios/bod_dbyoffie.htm

LethalWolfe said:

The article that you and Frisco linked to got throughly panned when it came out earlier this year. I'm sure if you do a search you'll find the original thread(s) about it.


Lethal

Click to expand...

Lethal,
I'm sure it did when it came out. I'm just referring to it again since it seems relevant to this thread.

Frisco,
I agree with you in regards to the OS. The OS makes the Apple experience what it is. The idea that Apple should make computers using Windows does make sense (if you're looking to increase marketshare). However, I would hate to see that happen. I'm sure a lot of other people would hate to see the OS go. As long as Steve calls the shots, we'll get to keep our OS.

alphaq619 said:

I posted this on another thread, so I'll just cut and paste.

There is a really good interview with a smart guy from Harvard. It talks about the 3 different ways Apple could go from it's current standing.

It's a very good insight into the company's future. Anyways, this guy believes that the best way to increase Apple's revenue is to switch to an AMD/Intel platform. Yes, we've heard this all before, but the interesting twist is that he believes that Apple should scrap their OS and build computers running Windows. In essence, become what Sony has failed to become.

As shocking as it may sound, his reasoning has some very good merit. The OS probably takes millions to develop (paying engineers, R&D, etc.). They could save a lot of money by just letting go of their OS. Apple could bring all their iApps to the Windows side (they already have iTunes and QuickTime for Windows), use their industrial design expertise, and build Windows boxes. They would lure customers by their industrial design and the iApps we have all grown to love.

As much as I love the company, the only realistic way to gain any "significant" market share would be to do what this guy suggests. As long as Jobs is CEO, however, he would never let this happen. But an interesting idea nonetheless.

Click to expand...

Thats a very dangerous idea. The PC business is a COMMODITY business, which means its price driven. Thats exactly why Sony failed, why would consumers buy a Sony when they can buy a discount PC upgraded with a good vid card and maybe a media card reader & firewire which would be cheaper than a Sony. Apple gets away with a premium by providing a different experience altogether.

alphaq619 said:

Lethal,
I'm sure it did when it came out. I'm just referring to it again since it seems relevant to this thread.

Frisco,
I agree with you in regards to the OS. The OS makes the Apple experience what it is. The idea that Apple should make computers using Windows does make sense (if you're looking to increase marketshare). However, I would hate to see that happen. I'm sure a lot of other people would hate to see the OS go. As long as Steve calls the shots, we'll get to keep our OS.

Click to expand...

It only makes sense if you want to see Apple close its doors. There is absolutely no bennifit<sp?> at all for Apple to scrap their OS and their "closed" computers to become just another company pumping out Wintel boxes.


Lethal