Why Apple will not deliver a knockout punch to the PC world

When I started selling Apple's computers back in 1982, the competition was Commodore, Tandy, and at a later point Osborne.  Eventually we sold Sperry, Texas Instruments, and finally IBM PCs alongside Macs.

Apple had gotten into my blood so it was no surprise that I got on-board the mother ship in 1984. For the next almost twenty years I bought into the idea that Apple was always just one or two moves away from getting back to a key position in computing.

As an Apple believer, it was easy to swallow the marketing hype du jour.  I remember the almost annual showdowns where Steve or Phil Schiller would demonstrate how much faster a Mac was than a PC.

At one time there was talk from Apple's normally intelligent System Engineers that there was no way that Intel would be able to get a chip as powerful as the G4 in their laptops without them melting away.

Then there was the whole RISC verses CISC debate, and the supercomputer on a chip, the G5.  Surely Apple would grind the competition into the dust.

Finally there was the switch to the Intel architecture.  That had to be it.  Once everything was on the same processor, people would see the light and flock to the Mac in droves.

Apple has even taken some half serious shots at being price competitive over the years, the Mac LC, the iMac, and the iBook.  None of these have really challenged the low prices of the PC world in anyone's mind but that of Apple's executives.

I recently saw this in Appleinsider.

(Apple) plans to produce less expensive Macs in the near future that the Cupertino firm hopes will cancel out Microsoft's few remaining arguments against switching to a Mac.

It seems the old knockout punch metaphor has escaped into the wild from the fourth floor of One Infinite Loop.

The problem with the theory is that Apple is a company with less than 10% of market share that actually likes to behave as if they have as much market share with their computers as they do with the iPods.

Apple really has ignored the competitive landscape since Steve got back.

They have written their own rules and produced only what they wanted to produce.

Before the missiles start heading this way, let me say that Mac OS X is the best operating system there is, and in general Mac hardware is very good.  I depend on both, but I think the company has some internal limitations that will make its latest knockout punches even easier to duck than they were in the early days.

If you cannot see a pricing differential between Macs and PCs big enough to drive a tractor trailer through, do not bother finishing the article.  You will not agree with the other points either.

First and foremost Apple rarely reacts to the market.  Apple likes to create the market and set the rules.  In order to get to 10% and beyond in the market, Apple has got to have some better answers to low price laptops than their old white MacBook at $999.  It is just not going to cut it.

People are moving to inexpensive laptops of which Apple has none.  Even in the desktop market Apple does not make it easy.  They push their customers to either the iMac or their very expensive towers.  You can argue all day about what great values can be had in Apple's towers compared to a similarly configured Dell, but the real point is that few users buy computers at those price points.  There is a large sub-$1000 market that Apple poorly addresses with its Mac Mini.

At this point in history, Apple has had a really long time to take a serious shot at Vista.  Many users despise Vista.  Countless users have refused to move from XP which is seriously long in the tooth.  Yet Apple has been unable to put together a compelling argument to move those users.  We have some very cute and subtle ads, but no campaign to lure dissatisfied Windows users to the Mac.

Enough users have gotten comfortable with the iPod to grow Apple's computer share, but when you look at the the big picture numbers, Apple has not made it to double digits, and we are on the eve of what is being presented as the Microsoft version of finally getting it right.  I suspect Windows 7 is also wishful thinking on Microsoft's part, but that is another story. 

However, without a compelling campaign from Apple, millions of users will gamble on the next version of Windows.  Apple will have missed yet another chance to really move the needle.

If you want to hurt Microsoft and get more Macs on the street, you need to get aggressive.  With Apple's billions in the bank, Apple should start a campaign to modernize America's computing infrastructure.  Why not offer a $300 trade-in for the first 3,000,000 PCs brought to Apple?  Load up special bundles with iWork and give them a free coupon for the next version of the OS X operating system and for some training in the Apple Store.

You would see a stampede in the streets.

This would work better than lowering prices.  It will not even bother current Mac users, most of whom seem happy to pay higher prices.

It would take less than one of Apple's billions and think how many PC would be pulled from homes.  I have an old Dell Dimension that I would yank out.  They could be recycled and everyone would win, especially those who are no longer forced to use an out of date PC.

I will not be holding my breath for the great Apple trade-in, but I really do believe that Apple has got to start paying more than passing attention to the computer market. 

Perhaps Tim Cook should walk the asiles of the Morehead City, NC Best Buy to see how tough it is for Apple products to compete in that environment.  He could stop by Staples and see how easy it is not to buy a Mac when none are around.

Of course I make this in jest since I have first hand experience (even with Tim Cook) of the reluctance of Apple executives to make field calls.

There is no question that our area is not one of those major metropolitan areas that Apple loves.  And that is yet another problem holding Apple back.  The inability to effectively address those of us who do not live within easy reach of an Apple store has a major impact on Apple globally.

Still as our society changes and more workers chose to do their jobs from places with a great quality of life, places like the Southern Outer Banks will become increasingly important.

If you missed my online interview and chat session with the Toronto Globe and Mail, check it out here.

Comments

[Wilfred Hildonen]

Lots of good points, but I miss the international perspective, which makes it even harder for Apple, since I feel that they miss it, too. The situation we have is that Microsoft has a global dominance, and against that it seems like Apple is competing like it is all about the US. Well, they are an American company, but that aside; the situation and the market is global. And MS´dominance is global and although US is still the strongest economy, sheer numbers should make people stop and think. There are billions of us out here.
Apple can probably never compete fully on that scale, but if they need to be more aggressive inside the US, I should say they need to be that, outside of it, as well. That there are so many users of Macs in the world, says something about the quality, because nothing much has been done to convince people to switch. TV-ads? I haven´t seen any in Norway, at least? Apple Stores? There are a few spread around in Europe, none in Norway. Prices? Macs cost even more here, than in the US, much thanks to higher VAT, but PCs still cost more or less the same as in the US. And, in most countries, the income level is lower but people still buy PCs. Many would like to opt for a Mac, but they cannot afford it.
Maybe there is not so much to be done about it, but that is the situation. Microsoft is everywhere on this planet. Apple is in California, US of A.

[ocracokewaves]

Very good points.

Over the years many international users have complained about being ignored by Apple.

I know a worldwide warranty was one of things that we kept arguing for when I was at Apple.

We had military people buying Macs in the US and being deployed around the world. Their US warranty did them little good outside the US borders. I wonder if that has been fixed?

[Neil Anderson]

I think Apple will be in double digit territory after the back-to-school quarter.

[CT]

Good idea.

I'm looking forward to your next article: How Mercedes should lower prices so it can get a bigger market share like GM.

[slappy]

Well going up against a company that has monopolized the market, is just about impossible. Believe me MS is hard at work trying to get the net tied in to windows and its browser. Look at Active X, asp, net... more and more sites are requiring IE only to work properly. I thought the whole idea of the net is that its accessible to anyone on any platform on any browser.

[ocracokewaves]

CT- Cars are a notoriously bad example to use in comparison to computers. First cars have gone up in price for as long as I can remember. Computers have been going down in price since they were introduced. Even Apple's prices have gone down, just not as much as the competition. The idea of spending money to get more long term users should not frighten an Apple user or stockholder. Once someone switches to a Mac they rarely switch back. Many forward looking industries evaluate strategies based on the cost of customer acquisition. If you spend $300 to acquire a customer who provides you with $3000 extra profit over the next few years that is a good expenditure of money. What is the difference between spending money on cute commercials and buying back Windows computers. One might really move the needle and the other is cute. Right now MS is winning the advertising war unfortunately.

[iphonerulez]

I really like that idea of bringing in an old Windows PC as a partial trade-in for a Mac. And at the end of that campaign, have all those PCs tossed into a crusher or be visibly destroyed in some other outlandish manner. I know they can't do this because those things need to be recycled, but it sure would be dramatic if it could be done. I could just see the look on Steve Ballmer's face upon hearing people trading their cheap PCs for expensive Macs.

Apple really needs to push Leopard and Macs during this Vista fiasco. Even if they threw in retail copies of Windows XP for BootCamp users just so even Mac hardware users wouldn't upgrade to Vista or Windows 7. Step on Microsoft while it's still down.

[Al]

Who makes the big money in the computing field? Apple makes theirs selling computers, iPods and iPhones. Microsoft makes theirs selling Windows and Office. HP makes theirs selling ink for printers. Intel makes theirs selling chips. IP companies make theirs selling internet access. Google makes theirs selling internet ads. IBM makes theirs building and maintaining networks.

Apple is the only one that makes big money selling computers. What good is gaining market share if you lose money doing it?

[ocracokewaves]

I am not suggesting Apple lose money selling computers. I am saying that Apple has an opportunity to do some aggressive marketing before Windows 7 ships. $300 is a small number for a customer for life. I wonder what the cost is per Windows switcher at an Apple Store? I suspect we would all be surprised.

[Darla]

You say, "It would take less than one of Apple's billions and think how many PC would be pulled from homes. I have an old Dell Dimension that I would yank out."

I'm a Mac devotee too and have a rarely used Acer desktop around the house that I'd be happy to exchange for a discounted iMac. Neither you nor I would be switchers, just bargain hunters.

By the way, $1B in the plan you describe only represents sales of about $3.3 million units with additional money needed to collect and dispose of the used PCs, administer the rebate and advertise the deal. PC sales during this worst year are expected to be 257 million units. This plan wouldn't put a dent in the numbers, yet it would seriously cut Apple's profit.

Apple now transfers data from a PC to a new Mac, and does the setup for the customer (although my cat could set up a Mac). The One-to-One program, private computer lessons oriented to switchers, costs the customer less than $2/hour. It's basically a freebie. Apple Stores have many free seminars every day covering numerous applications. (Granted, these services are only available at Apple Retail Stores which do not exist away from urban areas.)

Students get a free iPod with a laptop purchase in the fall. Adding more value rather than cutting price has been Apple's marketing philosophy and it has resulted in huge profits. I do agree that Apple should preload Macs with iWorks. Not having word processing, spreadsheet and presentation software preloaded makes Mac less of an out-of-the-box experience.

I continue to purchase Macs in large part due the extroardinary service and support. Apple's recent stunning increase in sales has affected not only product quality, but service. Genius Bars are booked every minute of every day. While it still takes only minutes to get AppleCare on the phone, the knowledge level of tech support staff varies widely. Apple is also putting people on the retail floor before they are ready. I have been advised wrongly about product purchases. I have had questions answered incorrectly. Millions more new Mac users would give the company short-term profits, but degrade the overall customer experience. Rapid growth that cannot be handled has destroyed many good companies.

A "knockout punch" to all other PC manufacturers is not desirable for the same reason a gourmet restaurant doesn't attempt to compete with McDonald's on price or number of meals sold. There's a different level of service, a different quality of product and a different customer experience.

I take issue with the assumption behind this statement: "If you spend $300 to acquire a customer who provides you with $3000 extra profit over the next few years that is a good expenditure of money." Exactly what does this $3K profit represent? This sounds much like Microsoft's nonsensical claims about the "Apple Tax." A customer who bought that discounted Mac would have to buy more than $8000 worth of Apple products to generate $3K in profit, assuming a profit margin of 35%. (If you meant to say $3K in sales --not profit-- the average computer user will not hardly that much with Apple within a few years of buying their first computer, even adding AppleCare, annual MobileMe subscriptions, iWorks and One-to-One. A Mac is not generally a gateway to an iPod or iPhone purchase. It's usually the other way around. People can and do buy accessories such as backup drives, printers, cases, cables and software from other vendors.

[ocracokewaves]

So getting 3,000,000 new Mac users is not a big deal. Apple only sold 2.2 million units last quarter. I would think picking up close to a quarter and one half of sales might blunt the Windows 7 advertising a little. Apple can continue on harvesting money from existing users and picking up a few new users along the way. However, the chances are Windows 7 will not be quite the disaster that Vista is. Will Apple ever have another opportunity to capitalize this much on dissatisfied Windows users. You don't by any chance have a MBA do you? Yes bargain hunters will dilute the program somewhat, but Mac users stay around for decades not a few years. The question is whether or not Apple will still be making computers for them in decades?

[Future Demonito]

You are missing a few highly important points in my opinion.

1) Apple does not care about the enterprise. This is a refrain one hears over and over again. This has many implications but it means that the huge auto-purchase / upgrade enterprise environment is fairly closed to Apple.

2) Related to (1), Apple does not care about Java. Without a really good Java story enterprise users will never be really happy. Its own branded Java that majorly lags and no real integration to Cocoa even at the level of python-Cocoa integration is a major blow. Once Apple claimed it would be the best Java platform ever. Now it is close to the worse.

3) Lack of real database offering in the box. Sqlite is fine for simple Document based apps without a lot of threaded database mutation but it is a toy when it comes to real database work. No concurrency except file (entire db!) level locking. Postgresql (BSD licensing apple is fond of) would be a much better choice. This is important to Apple software internal as well as external. File and sqlite based apps cannot share data well resulting in less integrated offerings both from Apple and 3rd parties. Microsoft has both Access and SQL Server as add-on extra $$ products. If Apple offered a full featured OS database out of the box that was well integrated that would be a large win imho.

4) Support non-scripting languages other than Objective C. Objective C is imho long in the tooth. Usable but quirky and limited to Apple products largely. And it is the basis for much of the Apple goodness. Yes there is C and C++. Yawn. Apple could benefit greatly by fully supporting Mono or other implementation of .Net / C#.

[GodOfBiscuits]

Apple triples the number of Mac OS X machines in use in the last 3 years and you think they're doing something wrong.

You think that a thing is only worth the sum of its parts.

You think that the value add of software and support when purchasing a Mac shouldn't be allowed to figure into the overall price of a Mac.

Thinking that the enterprise drives the entire computer market is like thinking that wall street drives the entire economy.

Oh, you can *believe* it does, but only at your own peril.

[oteast]

Talk of Apple and Windows misses the point, the real powerful movement is the accelerating pace and adoption of free and open source of which GNU/Linux is the tip. Some of the distros Ubuntu, PCLinuxOS, Mint, Mandriva) are here in the fully modern "User Experience" sense. The applications suite is arriving too. I think this is where both Apple and MS have to worry about losing install base to, not each other.