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Mac Musings

iPod Halo Effect Only One Reason to Expect Solid Macintosh Growth

Dan Knight - 2005.03.21 - Tip Jar

A lot of Mac users are bullish on the platform's future. That includes old timers who remember System 6, early iMac buyers from the late 90s, and many 21st century switchers.

Apple has positioned itself well. The iPod, the dominant digital music platform, made Apple a household word, and the Mac mini has demolished the "overpriced Mac" myth. I've had two or three Windows users talk to me about going Mac in the past week alone - people who have never owned an Apple computer.

What's happening?

Part of it is that after running this site for nearly eight years, people know me as "the Mac guy" - if they want to replace a Power Mac or have their daughter choose the right iBook for school, they know I'm going to shoot straight.

Part of it is that people are sick and tired of the blue screen of death, viruses, spyware, adware, and Microsoft's increasingly draconian license management. You don't have to call Apple to reinstall OS X, but if you want to reinstall Windows XP, you may have to pick up the phone and get authorized to reinstall something you already own.

And part of it is that people are getting ready to replace their Y2K hardware, have seen the iPod and iTunes, and are ready to think different. After all, for most home users, email and Web access are the main applications today, and they're both platform agnostic.

Y2K

Personal computer sales grew at a faster than usual rate from 1998 to 2000 - and then dropped in 2001, something unprecedented in the 25 year history of personal computing. It wasn't until 2003 that sales passed the 2000 level.

The sales bubble was caused by Y2K hysteria. Some people honestly believed that ATMs would no longer deliver cash, pace makers would stop working, elevators would fail, and their computers would just be wrong because of the "Y2K bug". Yes, it was way overblown, but no PC maker was going to say a word if it meant lost sales.

Businesses and home users moved their purchases forward a few months or maybe a couple of years so they would be safe when January 1, 2000 rolled around. And now they're in the market for newer hardware.

The same thing happened with the Mac. Macintosh sales peaked at 4.5 million units in 1995, dropped below 3 million during the clone era, rebounded in 1999 and 2000, dropped again in 2001-2003, and increased again in 2004. A lot of people who bought Macs in the 1995-2000 period are also looking for newer hardware.

The iPod Effect

Windows users who own iPods are about 20% likely to pick an Apple for their next computer. Of 10-12 million iPods out there, the majority belong to Windows users. Let's say that's 8 million - which implies 1.5 million new Mac sales!

But wait a minute. Those people aren't all buying new computers this year. Maybe one-third will buy a new computer this year. That would add a half-million Mac sales in 2005, an impressive number for a company that sold 3.5 million computers in 2006.

And iPod sales are still climbing, so it's conceivable that Apple will sell 10-12 million iPods in 2005 alone, which could add another half-million Mac buyers in 2006.

The iTunes Effect

Within four days of releasing iTunes for Windows, over a million people had downloaded it. iTunes is simply the easiest to use music program for Windows, and a lot of people who don't own iPods (yet) use it.

I wish I could locate download numbers for iTunes for Windows, but 10 million would be a very conservative guess. Using iTunes probably makes Windows users 80% likely to buy an iPod as their next music player, and it probably increases the likelihood of them going Mac as their next PC. Maybe 10% of iTunes users who don't own iPods, which could add a quarter-million or more Mac sales per year.

The Mac Future

Thanks to the affordable Mac mini, the iPod and iTunes effects, and aging Y2K hardware, I'd ballpark Mac sales at 4.5 million units in 2005 - matching the platform's best year in 1995.

Mac market share peaked at 12% in 1992, and market share dropped to about 2% of the worldwide PC market in 2004. In a worldwide market of approximately 200 million personal computers sold per year, this would give Apple the first market share increase since their small Y2K bump in 1999.

I don't see Apple ever becoming a dominant player in the hardware market, but I don't think that platform growth of 1 million units per year is unreasonable. Here's what that might look like assuming a 14% annual growth in the PC market:

  • 2004 - 3.5 million of 177 million - 2.0%
  • 2005 - 4.5 million of 202 million - 2.2%
  • 2006 - 5.5 million of 230 million - 2.4%

I don't anticipate Apple reaching 3% market share until 2008 at the earliest, assuming Microsoft doesn't do anything unusually stupid. Still, for a company like Apple, we're talking 20-25% annual growth in unit sales.

And that assumes Apple doesn't do something really radical - which we can never put past them. Yeah, I'm bullish on Apple. LEM

Dan Knight has been using Macs since 1986, sold Macs for several years, supported them for many more years, and has been publishing Low End Mac since April 1997. If you find Dan's articles helpful, please consider making a donation to his tip jar.

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