Wednesday, September 01, 2004

Apple is Making a Strategic Error

The WSJ is reporting that Apple no longer considers the iMac central to its business strategy. I think this is an error of alarming proportions.

The last time Apple Computer Inc. introduced an all-new iMac computer, back in January 2002, Apple Chief Executive Steve Jobs was featured smiling with the desktop on the cover of Time magazine. In order to give the iMac maximum exposure, Mr. Jobs even changed the date of the computer's unveiling to coincide with the publication of the Time story.

But yesterday, when Apple revealed its first new iMac in more than two years, there were no splashy magazine covers. Mr. Jobs, who is recovering from cancer surgery, wasn't there to promote the new flat-panel desktop. While Apple heralded the machine as a "breakthrough," the company didn't bother to have a live Webcast of the event, which took place in Paris at an Apple Expo conference.

The low-key unveiling highlights how much Apple has now moved beyond what was once its flagship product.

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Computers still remain Apple's key revenue source, but the company's business and product strategy has since evolved away from the iMac. Indeed, sales of the computer peaked in the quarter ended in late December 1999.

Apple now relies heavily on its portable laptops, such as the iBook and PowerBook, which formed more than 50% of the company's computer revenue in its last quarter. Graphic designers and other professionals favor high-end models, such as the Power Mac G5, which are easy to upgrade with accessory hardware.

What's more, Apple is increasingly focused on its faster-growing business of digital music, which includes the white-hot iPod music player and the online iTunes Music Store.
Mac fanatics like to make the BMW vs. General Motors analogy to justify Apple's focus on selling high-priced, high-margin hardware, but in doing so they overlook a crucial difference between the computer business and the automotive industry, namely the importance of sheer market size.

Nobody buys a computer simply to have it sit there, but to run software, and by far the most important consideration developers who are aiming to sell shrink-wrapped must make is the potential size of the market they're targeting: given the choice between writing software for a platform with a market share of 3% and one with 93%, it's a no-brainer which one most professional developers will make. With that in mind, it is positively suicidal for Apple to write off the low-end market as unimportant, however slim margins might be in that section of its business.

The rise of the web as a platform has weakened the case for grabbing market share somewhat, as has the increasing prominence of primarily UNIX-oriented free software, but neither of these two developments has entirely removed the argument in favor of pushing aggressively for a wider installed base, and in any case, relying on open source UNIX-heads is far from being an ideal way to promote the use of the APIs that are specific to the Macintosh platform. I don't know that Mac users will be content to lean ever more heavily on Apple to fill the holes in the application market that will appear as Apple's market share continues its steady decline, and even if Apple were willing to play the role of developer of last resort forever, it cannot be a good thing for software quality that there should be only a single vendor catering to the needs of the user base - and that holds true whether we're talking about Apple or Microsoft.