The Apple Scam and the Misused power of Marketing
It amazes me the halo that Apple seems to have over its operations. Yes it has returned to popularity and profitability, and yes it has one stunningly successful product in the iPod, a product largely based on a third party offering called Portal Player. Apple?s PCs, which at one time were largely based on Apple intellectual property are now largely based on IP from IBM and the FreeBSD community, and the firm survives on what many feel is the best marketing effort of any of the vendors in its class.
What Drives Apple Success and Failure
The original Mac was a TV like PC that had relatively broad success in a market that, at the time, was defined by modular products that were often both more expensive and more difficult to set up and use. This has really been the definition of Apple success, products that had a better out of box experience than their Windows based counterparts. Over time this has changed somewhat, branded companies like Dell, HP, Gateway and Sony go through a great deal of trouble to insure the out of box experience but few come close to what you can get with the iMac or iPod.
The first small form factor Apple, the Apple Cube, was as beautiful as it was difficult to set up and use. It was a nightmare of bad thermal engineering and had horrible reliability. The Lisa was a bone headed product that showcased how little Apple actually knew about the business market and both offerings showed what can happen if you focus too much on form and not enough on function.
Apple had the first handheld computer and the design team that created it went on to create Palm. Palm, for a short time, carried on a paper value that exceeded General Motors. The Newton was forward looking but it over promised handwriting recognition and the technology at the time simply wasn?t up to fulfilling the promises that it made. Apple exited the handheld computer market just before the category took off but it was the problem of over promising and under delivering that killed the offering, which actually had a strong vertical following at the time. Few seem to recall that the Palm platform was the previous ?must have? offering in this segment.
Apple also had digital cameras before they were hot. The Apple cameras didn?t look much like the other cameras at the time and were both limited by the technology and by the design choices they made. HP, strangely enough, is now the leading PC vendor with their own camera line. Sony, often seen as Apple?s biggest hardware competitor, nearly owns this segment with a line of products that are both easy to use and well designed.
I?m not a fan of the current iMac, the PC in a monitor has been done before and the new offering has relatively poor ergonomics (when compared to the old iMac), is less distinctive, and is far less stable. I live in California, earthquake country, and the old iMac was one of the most stable products in its class, the new one places the weight too high and relies on a base that is too narrow making it likely that it would fall. Falling glass can be a huge hazard in a home late at night when you are trying to get the kids and family to safety during an earthquake. It is pleasing to look at but it isn?t as advanced as the all-in-one design that IBM had several years ago which was, and probably still is, showcased in the Smithsonian Institute.
The New Mac Products: With one exception, disappointing
Apple announced three major products: The iPod shuffle, the Mac Mini, and iWork. Let?s look at each in turn.
iPod Shuffle: Flash Players are Not Stupid after all
When Apple brought out the iPod Mini, Steve berated anyone that was selling a flash player as near idiots indicating you would have to be stupid to want to enter a market saturated with low cost offerings. Of course, suddenly, one thing apparently has changed and that is Apple?s opinion of the opportunity. Let?s call it an ?oops? and leave it at that because 50% of the market (in volume not revenue) remains flash based and with flash capacity now hitting 4 gigabytes in some form factors it is clear the mini-hard-disk players are increasingly at risk. Currently the flash market is largely defined by low cost flash players without displays costing under $80 and higher cost product with displays costing more.
Apple now enters with a high cost player without a display which would seem, well, kind of stupid except for the capacity of the thing. It does have more capacity than most at the same price point today (but that will change before the end of this quarter). This seems to me to be a value play (we are the least expensive) and typically that play is not made by a premium vendor like Apple for fear of damaging the brand. $100 is a very popular price point and when you realize that products with more capability will be selling very soon for less you have to really wonder if Apple is watching the market. Perhaps it is time for Apple to go to CES so that they too can see what is coming. Running a company, like driving, is incredibly dangerous with your eyes closed.
The end result should be good numbers with the new product but declining sales of the more expensive offerings. If the same trend is repeated they will gain market share but at the cost of profitability and overall revenue could decline as well.
Mac Mini: Me Too Small Form Factor Computer
Compaq, now owned by HP, was one of the first companies to bring out a compelling small form factor computer in the mid-90s. Since their launch, Dell and IBM have both released and been successful with similar products. (Interestingly enough this product was called the iPaq, a name that now refers to their hand held computers). When Apple launched the iMac, research at the time suggested they would be vastly more successful with a headless design at a lower price point.
If you were to review the sales of all-in-one computers, outside of Japan, against their small form factor counterparts you would see that the small form factor products sell several times the volumes of all-in-ones. Had Apple launched this ?mini? product instead of the iMac as a better ?cube? they undoubtedly would have been more successful in growing their market. It would have been at the beginning of the small form factor trend instead of well into it and they could have better defined the space.
Now the product is simply another me-too offering from a company which hasn?t done particularly well with me-to offerings over time. Yes they will likely sell more of these than they will iMacs. However, that will largely be because iMac sales will have declined as a result of shifting demand to the more popular, and more flexible, lower cost offering.
There is a distinct difference with this offering. Unlike HP, Gateway, and Dell who all provide a complete system including keyboard, mouse, printer and monitor, Apple only provides the computer itself making this new ?mini? seem like a low ball scheme designed to get you in the store and spending more than you expected to. Most people expecting a $500 Mac will find they are paying as much as twice as much than they intended if they buy Apple peripherals and at least half again as much if they buy from third parties. In both cases they won?t get the expected out of box experience Apple has been known for because the offering is not complete.
Once again, for a premium company a value offering is seldom good, and low balling is particularly bad. It would have been far better if they had created a more complete offering or addressed another segment, like a media hub, that didn?t expect it. This is another step in what appears to be Apple?s sudden transition from Porsche vendor to VW vendor and this will not be an easy, nor inexpensive, transition.
iWork: The Killing of Office for the Mac
This is a simple product for the casual user, arguably what Microsoft Works should be but isn?t. Of the products presented this is arguably the best. The only risk is that it might upset Microsoft and the core group that has been incredibly supportive of Apple over the years. However, speculation that Microsoft may exit this market has remained high for years and at some point that decision will likely be made anyway. It remains interesting to speculate what would happen if Apple brought this product out on Windows or Linux. Given the Linux community is fast at work cloning the Apple interface, my expectation is we will actually find out the answer to this at some point.
Sometimes you do have to take the initiative but it would have been better had Apple looped Microsoft into this decision and worked on better interoperability between the two products rather than what was likely a blind side release embarrassing the Apple supporters in Microsoft.
Sometimes it isn?t what you do, but how you do it that defines a company.
Wrapping it Up
The world isn?t without risks and companies that take risks, and do so successfully, generally move ahead of those that don?t. Remember that Apple exists largely because Xerox didn?t want to take a risk with a graphical user interface and a mouse. But revenue at any cost has its price and, even with stunning marketing covering up critical mistakes, eventually the chickens come home to roost. They didn?t come home to roost last quarter. Apple did very well and actually grew in line with or ahead of Dell, HP and Gateway suggesting they held market share for once. But this year will be more difficult. The competition is becoming much more fierce and Apple?s offerings aren?t as interesting.
Rob Enderle is Principal Analyst for the Enderle Group a forward looking research and consulting firm specializing in emerging personal technologies, branding, and internet marketing.
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