The iMac Channel

Apple and the PC Price Wars

Dan Knight - 2001.11.12

There's been some interesting discussion about Apple and the PC price wars on the iMac list. Thinking through the issues, some things become clear:

  • Everyone wants to see a less expensive Mac.
  • Everyone believes that a less expensive Mac would increase market share.
  • Everyone knows that the PC price war is damaging, if not outright destroying, every company involved in the Wintel industry.

We all want Apple to survive and thrive. We don't want it to become the next personal computer company to go down the tubes, merge, or get bought out by someone else - and that's not likely to ever happen.

The PC world is filled with commodity computers. Dell, IBM, and the guy down the block can all throw together a competent PC to meet almost any need: killer gaming speed, awesome server performance, or a low, low price point. It's a mix-and-match world of interchangeable parts, at least in the desktop realm.

To win that game, you can either market price and keep shaving your margin until Dell puts you out of business, or you can market your brand as a quality product worth a few dollars more. That's the only possible way to compete with Dell, although Compaq, HP, Gateway, and others seem to think price is the more important place to compete.

Think Different

We keep coming back to Apple's corporate mantra since Steve Jobs came back: Think Different. The Mac is not a Windows PC. The Mac is not a collection of interchangeable parts. The Mac is unique: a consumer PC whose hardware and operating system are made by the same company.

Thus the Mac experience is different (and, we would say, better) than the Windows experience. Our computers know when you pop in a floppy, CD, or DVD; last I knew, Windows computers really didn't know until you told them to check the drive.

Although Macs do the same kind of tasks as Windows PCs (word processing, email, using the Web, etc.), they represent a different class of personal computer, one which Microsoft keeps trying to emulate while staying out of the business of selling computers.

Sell Different

That said, Apple has a serious perception problem.

"Isn't Apple dead?" It may as well be dead for the vast majority of PC users who never even think of the Mac when it's time to buy a new computer. And that's partly Apple's fault.

Apple is to be commended for building highly visible retail stores to remind the consuming public that Apple is alive and well. And while its solutions-oriented ads are great for showing specific Mac advantages, I think they need to be a bit more out front with the hardware.

To grow market share, Apple must first grow mind share. The iPod helps, as do iTunes, iMovie, and iDVD. But they need to go beyond pushing the special applications to remind the world that Macs work on the Web, handle email, and even work with Microsoft Office. The Mac OS, classic or X, is not just for graphics, music, and video; it's for everything you want a computer to do.

Apple made a splash with the iMac. It is visually distinctive, got geeks to debate the merits of floppy drives and legacy ports, and put Apple in the spotlight. It became a volkscomputer, the Volkswagen Beetle of computing. And the iBook was a marvelous follow-up.

The iPod is a nice peripheral for a niche market (Mac owners in the market for an MP3 player). It's made people take notice of Apple again, but I don't know if it improves the perception of the Mac as an information appliance - it's just a way to move tunes to and from the iPod.

To really sell different, Apple must pay attention to the PC price wars. It doesn't have to match Dell's $599 SmartStep 100D (what's the smart step in buying a machine with no possible RAM upgrades?) or $689 Dimension 2100, but it has to offer a solution that doesn't seem ridiculously overpriced compared with them.

Apple's current solution, the $799 CD-ROM iMac, doesn't appear competitive - until you realize that you'll pay at least $95 to have that inexpensive Dell shipped to your home or business. Suddenly we're looking at $694 and $784 computers. Let's quickly compare them:

  • SmartStep 100D - 1 GHz Celeron CPU, 128 MB RAM (no upgrades), 20 GB hard drive, CD-ROM, 15" monitor, external speakers, Windows XP Home Edition, Microsoft Works, $694 delivered.
  • iMac CD-ROM - 500 MHz G3 CPU, 128 MB RAM (expandable to 1 GB), 20 GB hard drive, CD-ROM, 15" internal monitor, built-in speakers, Mac OS 9.2.1 and OS X, AppleWorks, iTunes, FireWire, AirPort ready, $799 from your local Apple dealer.

Dell wins the MHz war. No matter how you slice it, you won't be able to convince very many people that a 500 MHz G3 holds a candle to a 1 GHz Celeron.

On the other hand, the iMac wins for offering RAM expansion, a built-in monitor and internal speakers (less desktop clutter), iTunes, FireWire, and AirPort. As for Windows XP Home Edition, even the pro-Microsoft sites are saying to avoid it in favor of the more expensive Office Edition. I'd say the iMac is worth the extra $105.

  • Dimension 2100 - 1.1 GHz Celeron CPU, 128 MB RAM (expandable to 512 MB), 20 GB hard drive, CD-ROM (CR-RW or DVD-ROM currently available at no extra cost), 15" monitor, external speakers, 4 PCI slots, Windows Me or XP Home Edition, Microsoft Works, $784 delivered.
  • iMac CD-RW - 500 MHz G3 CPU, 128 MB RAM (expandable to 1 GB), 20 GB hard drive, CD-RW, 15" internal monitor, built-in speakers, Mac OS 9.2.1 and OS X, AppleWorks, iTunes, FireWire, AirPort ready, $999 from your local Apple dealer.

Again, people may simply dismiss the 500 MHz iMac in comparison to the 1.1 GHz Celeron. That's a point in Dell's favor, as are four PCI slots and the DVD-ROM option.

On the other hand, the iMac accepts twice as much RAM, has the speakers and monitor built in (less clutter), includes two operating systems (not a choice between a pedestrian one [XP Home Edition] and a worse one [WinMe]), iTunes, FireWire, and a place to drop in an AirPort card.

On the gripping hand, is all of that worth $215 extra? Again, it's going to be tough convincing someone that the iMac is worth the extra money.

Sell Different

Apple has got to address the MHz thing. Simply calling it a myth won't make it go away....

Apple has got to address the MHz thing. Simply calling it a myth won't make it go away, as AMD also realizes. If Apple can buy 700, 850, and 1000 MHz G3s from IBM, then Motorola be damned and sell higher MHz G3 consumer machines than G4 "pro" computers. A $749 iMac CD-ROM at 700 MHz would be a lot easier to market against the 1 GHz Dells, Compaqs, HPs, Gateways, etc. than the same thing at 500 MHz.

Market the heck out of these things, especially pointing out that AppleWorks works with Microsoft Office files - and Microsoft Office itself is available for the Mac for those who insist on "the real thing." Point to the reviewers who have stated that Office for OS X is a better solution than Office XP on Windows.

Then leverage the iPod. Create a slightly larger, heavier iPod incorporating a 20 GB 2.5" hard drive, sell it for about $300, and offer it at a very hefty discount (or even free!) with the iMac. Make the current iPod the TiBook to the new iPod's iBook. Offer iPod bundles with each and every Mac sold.

Go the extra mile and create iVCD, which will allow anyone with a CD-R or CD-RW burner to turn iMovies into Video CDs for their friends and family. Make this freeware for any Mac, past or present, with a CD burner and OS X. (Much as I resist migrating to OS X, Apple needs to push more and more X-only solutions.)

Run TV ads about the hardware, not the software. Sure, tag on that only a Mac can run iTunes, iMovie, iDVD, etc., but put the focus on the Mac (especially the iMac and iBook) as fully capable computers that come with a Works suite, work well on the Web, handle email with alacrity, and (don't forget this one) hardly ever call in sick because of a virus.

Then close the ad with, "From Apple, the company that ignited the personal computer revolution - and keeps leading the way."

The Mac is different, but its uniqueness doesn't mean Apple can afford to ignore pricing in the PC world. If Apple can trim the margin a bit at the low end, up the MHz a bit more, and preach the Mac as a fully capable computer (not just for hip MP3 swappers or DVD movie makers), then we may see some real market share growth.

Preach it, Steve. LEM

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