HBS Article : Where Does Apple Go from Here?

[radhak]

Very interesting article. The guys seems to be outright disparaging of Jobs at first, but actually has some insightful comments, and even some faint praise...

http://workingknowledge.hbs.edu/item.jhtml?id=3877&t=marketing


i hope this is the right forum, or maybe somebody could move it....

 

[jrv3034]

Fascinating, and very insightful.

I don't think iTunes should have been introduced for PCs BEFORE it was available for Macs, but he was otherwise quite intelligent, and made some excellent points.

 

[radhak]

notable that he claims that Apple is fudging its numbers even to get their (admitedly low) market-share figures of today :

"There are roughly 25 million Macintosh users in the entire installed base. But in fact the real number of active users is something closer to 8 million, which is a tiny, tiny, tiny fraction of the real market for any electronic product."

wonder where he gets these figures?

at least he does not doubt the disproportionately large mind-share Apple occupies.

 

[Golem]

Originally posted by radhak

"There are roughly 25 million Macintosh users in the entire installed base. But in fact the real number of active users is something closer to 8 million, which is a tiny, tiny, tiny fraction of the real market for any electronic product."

wonder where he gets these figures?

Yea I would doubt that he would include machines like my fathers SE brought from Apple in 1988 or so and passed around the family for Letters and Geneology ever since, in his 8 million

 

[Rincewind42]

Originally posted by radhak
notable that he claims that Apple is fudging its numbers even to get their (admitedly low) market-share figures of today :

"There are roughly 25 million Macintosh users in the entire installed base. But in fact the real number of active users is something closer to 8 million, which is a tiny, tiny, tiny fraction of the real market for any electronic product."

wonder where he gets these figures?

at least he does not doubt the disproportionately large mind-share Apple occupies.

Who knows, he's probably looking at Market Share + World total of PCs . Using that logic, a market share of 2% becomes about 8 million computers.

The reality is that Apple sells 700K - 1M machines per quarter, or 2.8 - 4 million machines a year. Even at the low end that's 14 million machines in 5 years (the first PowerMac G4 onward) and you can bet that most of those machines were not replacement machines. In the PC world that is unheard of, and many people tend to apply PC cycles to the Mac. That's the biggest reason why Market share doesn't matter as much for Apple as for other PC makers - Apple isn't recycling customers nearly as quickly as other PC makers. The other side of the coin is that often consumers will own a PC along side a Mac, or Mac users will own multiple Macs. But in the end there are also single entities (schools for example) that own lots of Macs to offset that. But no one sells software to human head count (except maybe M$) but to computer head count, so the number of machines out there is what really matters when your trying to sell software.

 

[rainman::|:|]

back in the late 90s, apple claimed in their own sales materials (yes, back in the days of apple promo videotapes and brochures) that they had produced their 25th million Mac to be used by one of the 60 million Mac users. The number of old computers out of commission and their current production must balance to keep the first number consistent, but i refuse to believe Apple's users dropped to 8 million from 60 in 6 years...

paul

 

[Gyroscope]

Originally posted by paulwhannel
back in the late 90s, apple claimed in their own sales materials (yes, back in the days of apple promo videotapes and brochures) that they had produced their 25th million Mac to be used by one of the 60 million Mac users. The number of old computers out of commission and their current production must balance to keep the first number consistent, but i refuse to believe Apple's users dropped to 8 million from 60 in 6 years...

paul

Dude there was massive EXODUS of Mac users between 95-99. Situation had stabilised somehow after that,but then again marketshare saw drop 01-03 due to Apple inability to produce reasonably well priced /performed (G4 fiasco) Macs. However state of Mac today isn't any better. Macs are for most part so insultingly overpriced (except dual G5's). Even so more if you don't live in US. Put it this way,back in 95 I could get decently priced Quadra 630 that was more or less match for any Wintel PC in those days. Today similar budget ratio would allow me to buy piece of crap called eMac. Heck it would be even hard to find SDRAM for it at your local store.

 

[whooleytoo]

Pity Apple don't release iLife for PC. I don't think the "let's keep our apps Mac-only and PC users will switch" argument is really working.. (3% market share?)

Software has a high profit margin, and iLife on PC could be a big cash cow. And getting PC users used to using software with an Apple logo can't be a bad thing. Switching is much less of a hassle when you're going to be using the same software on both platforms.

 

[Rincewind42]

Originally posted by whooleytoo
Pity Apple don't release iLife for PC. I don't think the "let's keep our apps Mac-only and PC users will switch" argument is really working.. (3% market share?)

Software has a high profit margin, and iLife on PC could be a big cash cow. And getting PC users used to using software with an Apple logo can't be a bad thing. Switching is much less of a hassle when you're going to be using the same software on both platforms.

I don't think that iLife for PC would be a wise move, for a couple of reasons. 1) Apple cannot easily charge more for iLife/PC than it can for iLife/Mac, at least not without pissing off a LOT of PC users and encouraging pirates. 2) iLife actually doesn't appear to make any money! If you look at GarageBand, as a standalone product it would cost twice as much - and they are putting it on every new machine! There is a lot of software in there, and as Steve said in his keynote if you wanted to get the equivalent software on the PC you'd spend over $200. Apple can sell iLife for $49 because it expects to make the money in hardware sales and on the Jam Pack upgrade for GB. If they ported all that to the PC they wouldn't get the hardware sales that make it possible.

It's common for people to think that if Apple just ported their software to the commodity box they money would follow, but the reality is that the commodity box is where software is least often bought. And additionally they forget that Apple is not a software company, they make all of their money from hardware and the profit difference between the software & hardware would mean they would need to sell some 20x more software for the same profit. Apple is not Microsoft - they can't jack up the price and still get everyone to pay and they unfortunately can't command the same volume as M$ because the software, while great, can't be marketed as a necessity of life - which will keep them off many a desktop.

 

[whooleytoo]

Originally posted by Rincewind42
I don't think that iLife for PC would be a wise move, for a couple of reasons. 1) Apple cannot easily charge more for iLife/PC than it can for iLife/Mac, at least not without pissing off a LOT of PC users and encouraging pirates. 2) iLife actually doesn't appear to make any money! If you look at GarageBand, as a standalone product it would cost twice as much - and they are putting it on every new machine! There is a lot of software in there, and as Steve said in his keynote if you wanted to get the equivalent software on the PC you'd spend over $200. Apple can sell iLife for $49 because it expects to make the money in hardware sales and on the Jam Pack upgrade for GB. If they ported all that to the PC they wouldn't get the hardware sales that make it possible.

I agree that iLife is very much underpriced, I'd have happily paid 99 euros for GarageBand alone.

I think the policy of using cheap software to generate hardware sales is a poor one, and one that's relegated Apple to such a small market share. But I believe Apple sees this too, which is why they're trying to make a greater share of revenue from the software/services side. Such as the (approximately) annual paid OS upgrades, .Mac, iLife, QuickTime Pro and iTMS.

If this revenue stream grew enough, it would allow Apple to relax their hardware margins a little and make them more price-competitive with PCs. Hardware margins are notoriously fickle, and Apple reducing it's dependence on them would be a good thing.

If you really wanted to speculate, it might even allow Apple to start thinking about clones again.

 

[Rincewind42]

Originally posted by whooleytoo
I think the policy of using cheap software to generate hardware sales is a poor one, and one that's relegated Apple to such a small market share. But I believe Apple sees this too, which is why they're trying to make a greater share of revenue from the software/services side. Such as the (approximately) annual paid OS upgrades, .Mac, iLife, QuickTime Pro and iTMS.

I suspect that Apple makes relatively little from OS upgrades (they have a LOT of developers to pay...), .Mac probably only just about covers costs (unlike Hotmail/Yahoo/etc they make no Ad revenue and they simply don't have nearly as many subscribers. QT Pro I think is just as much about license fees as profit and iTMS hasn't made much of a profit yet - it's another vehicle for hardware (iPod) sales. I seriously doubt that Apple makes any money on any of it's consumer level software - Keynote probably makes more money then all of them combined .

If this revenue stream grew enough, it would allow Apple to relax their hardware margins a little and make them more price-competitive with PCs. Hardware margins are notoriously fickle, and Apple reducing it's dependence on them would be a good thing.

I don't think Apple margins are it's real problem, but the psychological effect of the minimum cost of ownership. If you just walked past the $499 section at your local computer store and was the $799 eMac you'd probably wonder why it costs so much more for something that seems so much less in many ways (even if it is a competitive machine). It's just one of those little things, because if you go to the high end you often find that Macs are cheaper than equivalent PCs, while the low end looks much more expensive...

 

[Grimace]

This article should be read by every mac user. Apple is a paradox in itself because of the way it performs in the business world. It does everything wrong, yet gains more loyalty and puts out better products. SJ may just want to have the best damn company out there, not the most used company.

 

[whooleytoo]

Originally posted by Rincewind42
I suspect that Apple makes relatively little from OS upgrades (they have a LOT of developers to pay...)

Software profits scale well with volume - once you've developed the product, it costs very little to replicate more CDs and package them (especially given the 'manuals' Apple ships!). Apple would make a LOT of money from OS upgrades, if they had more OSX users to upgrade. They simply need to ship a lot more boxen (love that word!) and their software/service ventures should start scaling nicely. And cheaper boxen = more boxen!

I don't think Apple margins are it's real problem, but the psychological effect of the minimum cost of ownership. If you just walked past the $499 section at your local computer store and was the $799 eMac you'd probably wonder why it costs so much more for something that seems so much less in many ways (even if it is a competitive machine).

But I believe margins are a part of that $300 difference. I know a lot of companies have suffered from using price cuts to fuel market share - but they are hardware companies. Apple has a way (software/OS sales) of recouping the lost hardware margins while gaining the new customers.

 

[Rincewind42]

Originally posted by whooleytoo
Software profits scale well with volume - once you've developed the product, it costs very little to replicate more CDs and package them (especially given the 'manuals' Apple ships!). Apple would make a LOT of money from OS upgrades, if they had more OSX users to upgrade. They simply need to ship a lot more boxen (love that word!) and their software/service ventures should start scaling nicely. And cheaper boxen = more boxen!

Oh, more than agreed . M$ is a great example of that. Unfortunately right now, Apple is no where near that volume.

But I believe margins are a part of that $300 difference. I know a lot of companies have suffered from using price cuts to fuel market share - but they are hardware companies. Apple has a way (software/OS sales) of recouping the lost hardware margins while gaining the new customers.

Gross margins are certainly part of that difference, and relative to everyone else in the industry Apple's are the highest. Unfortunately all their costs pretty much amount to them virtually giving away their machines (from an overall standpoint, I'm well aware that margins are higher on pro-machines than on consumer machines). This quarter their overall profit margin amounted to just over 3% - $63 million on sales of just over 2 billion. If Apple felt they could increase volume significantly with a cut in margins, I'm sure they would - it's their responsibility to share holders. But it appears that unless they can get volume up, prices will stay where they are...