August 26, 2004 2:20 PM

Next Steps for Apple

A few years ago, I mistakenly wrote off Apple as dead. Their sales were falling, their technology was stagnant, and I honestly didn't see where they could go. I was wrong.

As usual, Steve Jobs demonstrated he's still got amazing business and aesthetic sense. Apple's new technology, which is an improved version of the software created by Jobs' startup NeXT, is a seamless fusion of the Unix operating system with the prettiest GUI in existence.

Macs are easier to use than Windows for novices, and they are now very pleasant for experienced users and programmers, too. Apple by all rights should be selling product hand over fist. However, their market share has not taken off — it is still only a few percent of the market.

I think that is because Macs are perceived as too expensive. A lot of the market for personal computers is now in the deep sub-$1000 range, and Apple doesn't really offer much there. They have one product under $1000, the eMac, and the lowest price you can buy one for is $800. Add a few needed accessories and you're way more expensive than the $500 low end machines being flogged these days by Dell. Apple doesn't promote the eMac at all, either — it is largely a stealth product.

Apple might well be saying "we don't need that low margin business" but I think that's a big mistake. Selling much lower priced machines will not cut into Apple's sales or margins at the high end, but it will drive a market for Apple software and accessories that Apple needs. Just as importantly, it will get many people who never thought about Apple seriously addicted to the ease of use and quality of the Mac, which (over the years) will drive a lot more sales at the high end of the market. People who buy Macs never look back, but people who buy Windows boxes often don't know what they're missing. In the long run, gaining a solid presence at the low end would be very good for Apple's market share.

I think Apple should design a very low cost offering, aimed at the $500 to $800 market segment. Minimally configured, such a machine should provide a user with acceptable performance but very few frills, much like the low end Dells. Unlike Dell, Apple fully controls the price of their own operating system, so they can likely shave an extra $50 off of Dell's cost basis. Dell has to pay Microsoft, and Apple does not. Apple can also likely count on lower support costs, since their machines are much easier to use. They might not even have to sacrifice much in terms of aesthetics — an ugly case and a pretty one can often be the same price.

Such a machine would not make Apple very much money, but it would not need to. It would serve to re-establish Apple as the brand of choice for new computer users, students and schools, and then, ultimately, addict lots of those people to Macs for the long term. The product line would not cannibalize Apple's existing market at all. Power users who can pay $2000 would not be interested in a no-frills computer. It would, however, greatly interest software vendors to see Apple's market share rising, as it would encourage them to develop more for the platform. All in all, I think it would be a great win.

Now if only Apple would listen to me.


Posted by Perry E. Metzger | Categories: Miscellanea