Lessons, ancient and contemporary for Apple Computer, Inc

2004-12-29T13:26:00.000Z

Lessons Apple should have learnt a long time back.

Everything is going well in Macland. Apple's making a lot of money. The stock price has zoomed 190% since the beginning of the year. iPod's are the most talked, coveted and gifted electronic item at Christmas this year. There is a nice rosy halo effect too.

Advertising

Apple has cranked the publicity machine up a couple of notches. Apple is also getting it's product out through email marketing, online advertising and retail stores. This year I got way too many emails from Apple telling me what a perfect gift an iPod or an iMac would make. They even sent me a last minute email saying hey don't worry if you haven't got a gift, give an iTunes gift certificate.

Then on Dec 23rd an acquaintance asked where it would be possible to buy an iPod for his two daughters. I didn't know which one he wanted so we went to the Apple site and he said he was hoping to get them the silver, blue or pink ones. iPod mini.

Everywhere I looked the iPod mini was sold out, and the iPod, iPod Photo & iPod U2 were still available. Then on Christmas eve I happened to go to the HP Shopping site and it said that the 20Gb was sold out. 40Gb was still available.

HP Shopping 2004 Gift Ideas
http://www.shopping.hp.com/

On Apple's site, the top sellers are the

iPod Mini $249
iPod $299-$399
iPod U2 $349, and
iPod Photo $499
in that order.

http://store.apple.com/

History Lesson

Mac Classic was "Introduced as the first sub-$1,000 Macintosh in October 1990"
http://www.lowendmac.com/compact/classic.shtml

I have heard that the $999 Mac Classic was one of the most popular models and it was the first Apple hardware to sell more than 1 million units. According to many Mac sites it was underpowered, and really crippled to get it to the $999 price. Yet it was still one of the most popular model's in the line up.

---------------------start citation----------------------
Sales Are Strong For Macintosh
Special to The New York Times. New York Times (1857-Current file). New York, N.Y.: Jan 9, 1991. pg. D4, 1 pgs
Document types: article
Dateline: PALO ALTO, Calif., Jan. 8
ISSN/ISBN: 03624331

Abstract (Document Summary)
PALO ALTO, Calif., Jan. 8 -- Apple Computer Inc.'s chairman, John Sculley, said the new Macintosh Classic should sell more machines in its first year than any other computer introduced by Apple
----------------------------end citatioon--------------

Cheap rules

Anyway I look at this, the cheaper the product the better Apple does. In the 90's Apple managed to sell a lot of computers with the $999 price tag. This Christmas the majority of the sales have been for the cheaper $249 iPod mini. Next Christmas it will be the flash iPod that sells like crazy.

Proof is in the pudding.

Management did not learn the lesson in the 90's that the consumer public was looking for a decent low priced Macintosh. Today the success of the iPod mini also shows that consumers are looking for lower prices. There are many who cannot understand why Apple should make and market a cheaper flash iPod (http://daringfireball.net/2004/12/flash_gordon). They don't see the appeal of a cheaper iPod. The people everywhere do. I like my 5Gb first generation iPod for the 1000 songs it holds. In a typical 8 hour day I will listen to 50 songs maximum on the commute to and from work. If my flash iPod can hold 250 of my favourite songs, I can have a week's worth of music to listen for my long commutes. At the end of the week I can change the music for the next week, and for a cheaper price I am willing to live with the hassle of changing my music once a week, actually even once a day would be fine with me.

If you think I jest, look at all the people who have bought $500 PC's with Win XP and have to deal with spy ware, virus and ad ware. They are willing to deal with poor performance 6 months down the line, a computer which is going to make them go crazy as long as it is less than $500.

The same argument is valid for the flash iPod. People would be willing to live with changing their music once a day. Just give me a price which is cheaper. Some things they will want are 8 hours of battery life, easy controls, compatibility with their current computers.

$499 eMac

The same argument favour a cheaper Macintosh desktop. Everyone knows it is cheap. You can't really expect it to be everything for everyone. But it would be a great machine for surfing the web, home finance, email, digital pictures and music. This is what most of the people do 95% of the time. The rest of the 5% already have a choice of going up to the iMac, PowerMacs or PowerBooks. Not many people need the DVD burner, 250Gb hard drive, 3 Ghz processor and 8 Gb of RAM. Gamers requiring the fastest hardware can go and spend there $5000 elsewhere or on a PowerMac.

In 2005 if Apple wants to really gain market share, it needs to give the $500 and below crowd something to buy. Many people would be willing to switch to a better computer for a 10% premium. Maybe Apple could charge $550. But I know of very few people who would be willing to pay twice of what they really want to pay for a computer. I doubt people would be willing to pay even a 25% premium. Apple should of course still make it's 15% margin on the low end machine. No point in selling computers at a loss to gain market share, Apple just doesn't have that luxury.

Apple has this one chance of getting things right. Otherwise it will irretrievably give up that $500 and below mass market to Linux, which continues to improve, or to Microsoft in 2006. Today Apple has a chance to take that market when Linux is still not polished enough for most consumers and Windows is riddled with problems. The $500 Macintosh would be the perfect combination of price, usability and secure computing. Apple can continue to make some more money on AppleCare, OS upgrades, etc.

Conclusions

Apple needs to get a cheaper flash iPod out otherwise the predictions of losing the online music market to Microsoft and it's partners. This will happen eventually as the low end is taken over by Microsoft and allies running Janus DRM (repeat of the PC market).

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