Mac Musings

Marketing the Mac: Turning a Profit with Low-end Macs

Daniel Knight - 2004.04.28

Apple is in a rut. They've been selling about three millions Macs a year since the "beleaguered" era. While the broader PC market grows, Apple's unit sales are stagnant, and their market share is dropping.

This week we're looking at ways to grow the Mac market, which isn't a simple task. There are a lot of myths and misperceptions that keep people from even considering the Mac.

On Monday we looked at the fact that Macs are simply different than Windows PCs, a difference that most Windows users see as a negative thing. Yesterday we looked at how the limited expansion of all but the top-end G5 keeps "experts" (the people who others asked for advice when buying a computer) from recommending the Mac - and we proposed a smaller Power Mac G4 with plenty of expansion options to address their concerns.

Today we'll look at how Apple can turn a profit by selling low-end Macs.

The Initial Sale

Here's the basic computer I suggested that Apple produce in yesterday's column:

Always the optimist and always hoping that Apple will really go after the low-end consumer market someday, I suggested that Apple could probably sell a basic model (1 GHz G4, low-cost 40 GB hard drive, 24x or 32 x CD-ROM, 256 MB RAM, a low-end AGP 8x video card, and a copy of OS X with all the usual iApps) for US$600.

From there Apple could follow Dell's "sell 'em up" example. Apple could have base units assembled and ready to go - and also have bare-bones computers ready to be built to order. Options would include:

Step one in making a profit off a $600 Mac is to avoid selling the base computer if at all possible. It's called suggestive selling (not bait-and-switch - those who really want the base model would be allowed to buy it). "Do you want to burn CDs, watch DVDs, or maybe even burn your own movies?" "You're going to want a bigger hard drive and/or more memory to do that efficiently." "Do you want the wireless mouse and keyboard for $150 extra? That includes Bluetooth, which synchs with lots of PDAs and some cell phones at no extra charge." "Will you ever need dialup access?" And so on.

Apple would sell the base model at a small profit, just as they do with the eMac and 12" iBook. The profit comes from the upgrades and add-ons.

To really make that work, Apple should offer a few non-LCD monitors to complement their flat panel displays. They wouldn't have to be Apple brand monitors, although that would be nice. Selection might be a low-end 15" display, a 15" with a sharper tube, maybe a 17" that uses the same CRT in the eMac, and a large 19-20" monitor for those who want a lot of screen space.

The base video card should only support a single monitor, but more costly ones should be able to drive two displays, as with the current Power Mac G5.

The cost of each upgrade should be a bit less than buying the faster, larger hard drive or better video card on the Internet, RAM being the exception to that rule. Pull the USB mouse and keyboard when you sell the wireless mouse and keyboard plus the Bluetooth module for a bit less than those items would cost separately.

For the most part we're looking at plug-and-play options. Apple could warehouse the base computer, possibly with and without the modem installed, and simply ship those out as they are ordered.

Everything else could be customized from a base no-CPU, no-RAM, no-drive, no-video card box. Apple retail stores could offer 24 hour turnaround on custom orders. Hard drives could have OS X and the iApps installed at the factory, making this a quick and easy process.

And if Apple really wants to make the Mac attractive to the low-end and build-your-own crowd, they could even consider selling the new model with no CPU, hard drive, video card, etc. to those who prefer to customize their own machines, already have parts, or have other reasons for not wanting some or all of the components in the basic model.

Appearance

Although Apple's designs are often copied by PC makers, the new Mac should have a distinctive appearance. Physically it has to be about 16" deep to allow for full-sized PCI and AGP cards. It has to be wide enough for an optical drive. Beyond that, everything just has to fit.

I'm not going to recommend Apple offer a traditional desktop or minitower case. I'm going to suggest something quite different - a design that works equally well in either orientation. Apple first did that with the Mac IIcx way back in 1989. Here was a real brick of a computer: 5.5" wide, 11.9" wide, and 14.5" deep weighing 13.6 pounds and rugged in every sense of the word.

Some clones can be used in either their standard desktop orientation or switched to a minitower configuration by removing the bracket that holds the optical drive(s) in place, rotating it 90°, and reinstalling it. That's the model I'd suggest Apple consider here.

That gives us a space about 5.25" square, which provides enough room for three drives - or two optical drives and front-accessible headphone, microphone, USB, and FireWire ports. One option here might be offering an internal flash card reader, something many of the PC makers are doing these days.

Slots and all, we'll probably end up with a basic box 10-12" wide, 6-7" tall, and 16-18" deep - not much different from the IIcx my store manager at ComputerLand used to haul between home and work in a duffle bag.

And now we get Apple creative and do something really different, such as make the case out of translucent white iBook plastic or use an aluminum design like the G5 has. Just make sure it's strong enough to support a 20" CRT monitor if that's what the user wants to do.

And then make the new Mac a bit more different by building a handle or pair of handles onto the right side by the optical drive bay. Not only would it look cool and different, but it would also make it much easier to haul the compact Mac to a LAN party.

Remember, geeks are part of our target audience. We want them to consider Macs as well as recommend them to others. And just imagine the buzz when the first one brings a gorgeous aluminum Mac - or a translucent white Mac with blue lights inside that make it glow - to a LAN party.

Heads will turn.

Enough for the "Experts"?

Would this be enough to convince the so-called experts that Macs are expandable enough and upgradable enough to be considered as an alternative to Windows PCs? I think so, especially after we've convinced the world that different doesn't mean that Macs can't do what PCs do.

At $600 for a base computer (or less if Apple lets users leave out some components), we're looking at a price very competitive to Dell's entry-level systems - no mail-in rebate necessary. (What exactly is the point of a mail-in rebate on something you can only order directly from the manufacturer?) Okay, it doesn't include a cheap monitor that you'll want to upgrade from anyhow, but it's a price that will get people's attention.

At $600 for a basic Macintosh (and maybe that's what Apple should call it, simply a Macintosh or a Macintosh G4) maybe a lot of the "experts" will decide to add a Mac to their own hardware collections. Getting them to try Macs and not just see them as a viable alternative would go a long way in giving them credibility and possibly turning them into Mac evangelists.

Sure, they're likely to buy the base model and do all the upgrades themselves, but so what? Apple would be turning a profit selling the base Mac, and if it helps lead to additional future Mac sales as the "experts" recommend Macs to others, the long-term benefit more than offsets a smaller profit in the short run.

The Cash Cow

We've created a low-end, expandable Macintosh that will get the attention of computer "experts" because of its features and expansion. And it will get the attention of consumers because of it's price, maybe finally destroying the myth that Macs are expensive.

The new Mac would nicely round out Apple's line - two portable lines, two modular lines, two all-in-one lines. It's thinking a bit different from the old four model Mac matrix, but that's already been stretched to the breaking point. And isn't thinking different supposed to Apple's stock in trade?

Anyhow, hardware is just the tip of the iceberg. Here are some ways Apple can improve the bottom line in the long run.

90 Day Protection

If anything goes wrong during the first 90 days, simply return the computer to Apple or your dealer for immediate replacement. When possible, your old hard drive will be installed, keeping all your files intact. Deauthorizing and reauthorizing your iTunes will be handled for you.

If Apple drops the price or increases the speed of your model during within 90 days of purchase, buyers will be eligible for a refund of the difference or an upgrade to the faster processor. The latter would be handled by simply plugging in a faster CPU.

If the buyer decides they want a different Mac within 90 days of purchase, the entire unit (with all original materials) can be returned for a full credit toward another Mac. No questions asked - and you'd get your files moved to the new Mac for free.

Ninety days of free .mac service. Try it, you'll like it. Get people used to using their iDisks, posting their iPhotos online, using their .mac email address. After 90 days with .mac, a lot of users won't want to be without it. That could bring in $99 a year for as long as they continue to use a Mac.

Ninety days of free OS upgrades. If Apple offers a new release of OS X during the first 90 days, Apple will automatically ship an OS upgrade kit to all registered users. If there are any incremental updates to the current OS, users may ask for a CD containing them at no charge (only once during the 90 day period). This gets people used to the idea of updating the OS and is especially helpful to those who don't have broadband access.

Free iTunes

Every Mac should ship with a gift card for the iTunes Music Store. Maybe $10 on low-end Macs and more on more costly models. Give people enough to buy and download a favorite CD or a bunch of their favorite tracks. Get them used to using the iTunes Music Store. A lot of them will become hooked on buying their music this way.

Upgrade and .mac Subscription

Offer a package deal on .mac along with any upgrades to the Mac OS and Apple software. Maybe $200-250 per year. With a new release of OS X coming out every 15 months or so and .mac already selling for $99, it's a good deal for the consumer - and it means more Mac owners will have the current version of the Mac OS.

Offer family packs, too. Not just additional email accounts and personal file space, but OS and software upgrades for each additional user at maybe $50 per year.

These are just suggested prices, but by encompassing a lot more users, the economics of scale should make something in this range possible.

OS X Update CDs

Allow registered Mac owners to buy update CDs at minimal cost on a regular basis. Maybe that means with every additional numbered update (e.g., 10.3.3 to 10.3.4). The CD should also include any other driver updates, patches to Apple software, etc.

Allow Apple dealers to burn copies on the spot on Apple-supplied blanks.

Make it easy for those using dialup to get their updates without being subjected to multi-hour downloads as the only option.

And get creative. A CD should have plenty of room for freeware and shareware programs, demos, maybe even updates for other software Mac owners are likely to have. (Office, Photoshop, and FileMaker come to mind immediately.) Or maybe AOL would want to sponsor an update CD....

There's great potential here. Maybe Apple could even work out a deal with shareware authors where Apple would process enduser licenses for a small cut.

Apple Profits

The key idea here is selling add-ons, both upgrades with the original computer purchase and service packs (.mac plus OS and software upgrades) to create a steady cash flow for as long as the owner uses the computer.

The 90 days of protection both makes choosing a Mac a safer choice - picked the wrong one? bring it back - and making it easier for Mac users to try-before-you-buy with iTunes and .mac. A little cost to Apple up front could lead to a lot more income in the long run.