The Mac, a different kind of commodity

I've read some of the recent comments on Apple's latest financial results.  For the first time in a long time Apple is actually making some progress on the computer sales front.  Yet my somewhat jaded perspective has me questioning the assertion that "50% of buyers are new to Mac" in Apple's retail stores or least wondering if the impact is anything to get excited over in a worldwide market where Apple remains a small but closely watched player.

I am long past the days that I could stay awake during a whole Apple earnings call so my apologies if some of my questions were answered and just haven't made their way up to perch on the mountain.

Still I  wonder how Apple is coming up with the data that shows 50% of store purchasers are new to the Mac. Does this come from a comprehensive survey of purchasers?  Apple's never been very good at this.

As an owner of a new MacBook, I'm pleased to see the very strong numbers for laptops that Apple was able to deliver this quarter.  Yet in my travels I've still haven't run into an actual PC user who has gone out and bought a Mac.  I continue to bump into people who have bought new PCs or laptops that are non-Apple.  There are some good reasons for this.

Now I'll grant you that Roanoke, Va is not one of the Mac hot spots of the universe.  I suspect if I wandered onto a college campus in the next few months, I might find some of those PC users that are switching to Macs.  At least I hope that is the case.  The young are easier to change than people in my generation and universities are typically more favorable to Macs than other enterprises.

I read with interest some of the comments that were posted to "Apple market share myths deconstructed."  People get pretty emotional about Apple market share on both sides of the coin but most of them are trying to defend their positions with whatever numbers happen to make their ideas look good.  I prefer to just look at the numbers and see what they might tell us.

That PC to Mac switchers are relative invisible has little to do with where I live.  Those reasons remain the greatest challenge that Apple faces, especially if there is a blip in iPod sales.

First off, as good as Apple's unit sales were at 1,327,000, it has taken Apple over six long years to get back to this level of business.  In the quarter that ended in December 1999, Apple sold 1,377,000 units which is still more than they sold this past quarter.  In fact in that year, fiscal 2000, Apple sold 4,558,000 units.  Only last year did Apple get back close to this yearly unit number.

So why does any of this matter?  Well first off people don't switch operating systems lightly so my guess is that most of the Apple sales bump is coming from buyers like me who have been waiting for a reasonably priced Intel laptop from Apple.  It's probably no coincidence that the unit numbers for this past quarter are very close to those turned in for the quarter ending December 1999.  I'm willing to guess that most people using a Mac then are still using one today.  After all, using a Mac is almost a religious experience to some.

I think we've established that there are very few corporate Mac users out there.  Given a choice, if they can afford it, Mac users will buy another Mac.  So why haven't I run into any Apple Retail Store switchers.

Well according to the numbers from "Apple Store," the retail stores sold 216,000 computer units this past quarter.  Even assuming that Apple is being honest with their 50% number, that would mean that there are only 108,000 switchers from the stores from this past quarter in the whole world.  Odds of meeting one are relatively slim.  I actually do know one switcher down in Mt. Airy, NC, but I don't count someone to whom I sent information to help convert them.

While the switcher number is interesting, the even more interesting number is the unit growth from Q3 2005 to this year.  That number is only 145,000 units.  That could suggest that Apple is getting 74% of its unit growth (108,000) from the switchers in their own stores.

With roughly 150 stores worldwide that means that each store converted roughly 720 PC users this past quarter.  Unfortunately that's not a scalable model considering the prime real estate that Apple favors for its retail stores.

While Apple had a great quarter, Dell managed to grow their units in the same quarter year over year by 1,013,000 units or roughly 76% of the total units that Apple shipped.  Of course Dell's units for the quarter approached 10 million units coming in at a total of 9,730,000.  I don't have to be reminded that Dell is only one of many PC vendors.

The total worldwide PC market growth from the same quarter in 2005 was 5,429,000 units.  Apple's 145,000 unit growth translates into 2.67% of the worldwide growth.  That at least means Apple isn't slipping behind and is holding its own.  This is much better than Apple's 1% of worldwide growth that I wrote about in "Apple numbers in perspective" last October.

Assuming the 74% of unit growth coming from the stores, Apple would need an additional 168 stores just to get 5% of the worldwide growth.  Obviously this is just an academic exercise, but it does highlight the challenge that Apple faces.

As many have said, Apple has one of the best user interfaces in the world running on some of the best hardware out there.  Unfortunately most of the world doesn't care.  Selling someone on the advantages of Apple given the resistance of most computer users to change is a huge hill to climb. The differences between Mac OS X and Windows which seem so huge to many of us Mac users are very hard to explain to computer users who care little about doing anything but getting their task done as quickly and as cheaply as possible.

The reality is that Apple needs lots more sales people outside of their stores to be successful.  They have put them in CompUSA and other spots, but the impact doesn't seem to be huge.  In fact I would argue that Apple at best in those stores is just holding its own.

The real number of switchers is probably very small compared to the overall computer market. That's why I don't run into them.  I just happy that there are any switchers at all since this quarter is the first really positive computer result for Apple in a long time.

For Apple to make a really significant move is going to take great creativity (which hasn't been demonstrated by Apple sales executives in recent memory), something more than the iPod, and lots more Apple Stores.  It's also going to take Adobe and Microsoft getting their universal applications out as quickly as possible.  It is likely that neither vendor is interested in doing Apple any favors, so that's another mountain for Apple to climb.  It's also a very slippery slope since Apple isn't exactly very good at maintaining partnerships.

Last year I set out a metric of 6,000,000 units to measure Apple's success this year.  To get to that number Apple would have to sell 2,307,000 units in Q4.  I don't think that's going to happen since it would be quarter to quarter growth approaching 174%.

But I don't think that means this year has been a failure for Apple.  I pulled the 6,000,000 unit number out of the air by hoping that Apple could come close to maintaining the 38% unit growth they showed from FY04 to FY05.

I'm expecting Apple to do about 1,500,000 units next quarter which would let them finish the year at 5,193,000 units.  That would be a substantial achievement and a growth of almost 15% in a transition year.

I still believe that breaking the 1,500,000 unit mark in a quarter would be the best indication that Apple has achieved significant growth beyond the pent up demand of Mac users like myself.

While I don't think Apple's survival is something we have to worry about these days.  I do believe that Apple has yet to demonstrate it's broad computer market appeal.  There are plenty of Windows users out there waiting for Vista or to be converted by Apple.

I'll give Apple another year to hit the 6,000,000 units, but we all have to realize that even those numbers aren't going to move the worldwide market share very much.  We should also understand that the market share number doesn't mean a lot as long as developers are healthy, and we're still getting Macs that we enjoy.  Apple has a huge mountain of cash so they aren't going anywhere.

One other very positive numbers that came out of my calculations is that I estimated that Apple's average CPU was worth $1,699 in the quarter ending December 1999.  Apple seems to have defied industry trends by moving that number upward to $1,811 in this past quarter.  My guess is the higher number reflects the large number of laptops in the quarter, but its still a great accomplishment and something that makes Apple's hardware group healthier.

If next year at this time, I'm writing another post wondering why Apple can't break 6,000,000 units, I hope Apple's board of directors will make an effort to clean out the sales executives.  Apple sales management executives have long demonstrated their inability to sell their way out of a paper bag.  That's a good part of the reason Apple is facing this huge challenge today. You don't wipe away all those years of ineptitude with one great quarter and a switch to Intel.

It's just a good thing the product development people keep doing a great job.

 

Comments

[typo180]

It will be interesting to see how Best Buy does with the Apple line. It could mean great things for them.

[yie]

I apologize, as these comments refer to your previous two entries.

a. Best of luck with the MacBook.
b. OS X has nothing, security-wise, on Open BSD (et alia). 10.4.7 had fewer security fixes, but the 10.4.6 update included the phrase "arbitrary code execution" too many times.

Just for reference, I think your son and I might get along, as I share his all-you-need-is-vim attitude. =)

[Stephen]

A few years ago, there was an Op-Ed piece in one of the Apple trade rags (MacCentral or MacObserver), where one insightful fellow opined that Apple should use some of its billions in cash hoard to convert one Fortune 500 company to Macs, to include servers. He suggested inviting the WSJ, NY Times, Businessweek, etc...in to measure ROI and security, all the usual features and benefits vice Windows.

If I recall correctly, OS X went on sale in Mar 2001.

Other than Apple (at 263), is there any Fortune 500 company that runs more Macs than Windows today?

[Sam C]

I assure you that your outlook would be more optomistic if you were in a college environment or a big city (or at least, New York, I can't really speak very well for any other cities).

At this point among the people I know, the switchers represent probably a third, with maybe a quarter having used macs all along and the rest unconverted.

[Kunal]

Interesting reading.
I live in San Francisco, and I see a lot of people using Macs here. I switched from Windows a couple years ago, and have met a number of people here who have switched too - friends, co-workers, and most recently, my dad! I do think Apple has a LOT of recent switchers, mainly because OS X does offer a better experience. And no viruses is a big deal for switchers too.
Just my $0.02.

[ocracokewaves]

I wouldn't be surprised to find someone in San Francisco switching to a Mac. The question would be how did resist so long in a city that should be at the epicenter of any Mac growth?

It's far different out in the boonies where it is hard to find Mac support and even Mac resellers.

When and if Apple cracks the code on getting people in towns like blue collar Roanoke, Virginia to swing over to the Mac, then they may be onto something.

Maybe the trend you set in San Francisco or what happens in New York will eventually work its way to the rest of us.

[from malaysia]

Well, I live in Malaysia and I can tell you that I see alot more people using Macs in hotspots in Starbucks and other cafes these days. Two years ago, I was always the only one using a PB in a cafe.

Nowadays I see Macbooks, Macbook Pros, PB, iBooks sitting on tables. The demographic of the users seem to be quite spread - students, office workers with ties, sales guys on mobile phones, artsy types etc etc.

And when I travel around the region, I do see more Macs used in airports.

I also have a couple of friends who recently switched from PCs to iMacs and Mac minis for their home computers. When I asked them why, most answered that they just wanted to try something new. It was nothing to do with no virus on Macs, ease-of-use and all that. None of them have obviously seen those recent Apple ads, we don't get them here.

So from just own personal experience and observations, I can tell that there alot more people using Macs today. Folks who were most probably using PCs before.

But ultimately, I don't think all this is going to help increase Apple's marketshare. The PC user base is increasing globally and when countries like Vietnam, India and China install millions and millions of new computers, 99% of them will not be Macs.