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Apple's Small World

13 January 1999 - Page not found | Low End Mac

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- Tip Jar

The title of the PCWorld article is supposed to say it all. Apple's World Is Still Small: Mac sales are successful but still lag behind Windows'.

Okay, unnamed columnist, tell us something we didn't already know. Depending on your source, Windows currently accounts for 85-95% of the personal computer market.

Apple has sold more than 800,000 iMacs since August, helping its hesitant recovery become a bold turnaround--all the more remarkable because it occurred amid draconian cost-cutting. As a result, analysts expect solid profit in the quarters ahead.

Now that's a very upbeat paragraph. Apple is selling computers as fast as they can make them, and they have just completed their fifth consecutive profitable quarter.

But the fact that Apple could have the best year possible and still be where it is points to the depths of its problems. The company is half the size it once was. It is transformed from an underperforming giant into an interesting dwarf.

It would be nice to see some statistics supporting this claim. In what way is Apple half the size it once was? Does it have less inventory? Definitely, but that's a good thing. Does it have billions of dollars in the bank? Certainly. Is it operating at nearly 100% of production capacity and selling product quickly? Absolutely.

Apple Computer has tripled in stock value and roughly doubled in market share over a one-year period. Maybe it's twice what it was a year ago and the writer got the figures backwards.

Even with the iMac, now available in five new colors, and a new high-powered Macintosh G3 unveiled at the show, analysts aren't giving Apple much chance of gaining significantly more market share.
 
The world still belongs to Microsoft Windows, and the new Apple product initiatives, for the foreseeable future, will serve mostly to keep loyal Apple users on board.

Ah, there we go, market share. Roughly nine out of ten personal computers sold run Windows (down from nineteen out of twenty a year ago). So maybe there's some way to turn Apple's 10% market share into a negative.

Can Apple gain significant market share? Truthfully, not nearly as fast as they are gaining mind share. Apple can only produce so many computers a year. If 800,000 iMacs sold in 4-1/2 months accounts for 7% of the personal computer market, and if Apple currently has about 10% of the PC market, that means they are producing approximately 3,000,000 computers a year. (It also means the entire new computer market is about 30 million computers a year.)

But Apple is working around the clock to build computers. They have pretty much stretched their capacity as far as it can go. Unless they outsource assembly or build another factory, Apple may never grow past 10-12% market share.

Of course, there's more to the computer world than market share. There may be an installed base of 25-30 million Macs already in use, ranging in age from weeks to well over a decade. And most of these users still buy software and peripherals for their old Macs.

"It's likely to increase (market) share a little bit in some segments, but really it's more defensive than offensive," said analyst Louis Mazzucchelli of Gerard Klauer Mattison.

Apple has seriously penetrated the consumer market. Roughly 100,000 iMacs were sold to people who chose it over Windows. Perhaps 250,000 went to first-time computer buyers, people who might have gone Windows or might not have bought a computer at all if the friendly iMac hadn't been available.

Only about 55-65% of the iMacs went to current Macintosh users. I wonder if any Wintel brand can say that only 60% of their customers had previous Windows experience?

I'm curious how having the most popular computer on the market and stealing 100,000 customers from the dominant platform is viewed as a defensive move. In war, sports, or business, it's generally called taking the offensive.

For now, even in the best of times, Apple's the 5-percent computer company. That's its share of the personal computer market--the other 95 percent goes mostly to Windows-equipped PCs, most often sporting Intel chips.
 
Market research firm Dataquest says Apple's market share rose to 5.3 percent from 4.6 percent a year earlier. But the removal of Apple clones from the market--a key initiative of Jobs's recovery plan--means fewer machines run the Apple operating system than a year ago.

First, Dataquest's data is flawed. It only looks at a segment of the U.S. computer market. More reliable data puts Apple's market share at about 10%. But you can expect PCWorld to choose the numbers that make Apple look bad, just as Mac lover crow about the BYTEmark that shows the G3 processor does integer math over twice as fast as a Pentium II at the same MHz rating.

But why the claim that there are fewer computers running the Mac OS than a year ago? The evidence contradicts this: not only has Apple sold more new computers, but Mac owners hold on to their old computers longer than Windows owners. There are people still using 1986 Macs; few users are on 1986 DOS computers.

The problem is confusing market share (current sales) with installed base. There are very likely over 30 million Macs in use around the world. And those who use them keep using them, including those who bought the Maclones that currently have no market share.

Every year, there are more Macs in use than the year before.

Apple sacrificed the clone market in an effort to regain control over its own marketing destiny, pulling back from the strategy of growing its share against Windows machines. The colorful iMac is the fruit of that effort.
 
The downside is that the Apple still suffers from the perception that there is far more software for Windows.

True. But how many users need tens of thousands of titles when, other than games, they'll only use a few. For that matter, studies have shown that Mac users tend to own and use more software programs than Windows users.

As for the game market, between Mac games, PC games (under SoftWindows or Virtual PC), and Play Station games (with the new Virtual Gaming System), Macs have far more titles available than do Windows machines.

Apple says that 12 percent of iMac buyers are Windows refugees--but that's just 100,000 computers, compared to the 20 million Windows machines sold annually. For all the richly deserved praise, the iMac didn't make a dent in that pile.

Excuse me, but comparing 4-1/2 months worth of sales of a single model to an entire year's worth of Wintel sales begs the question. Annualized iMac sales should top 2,000,000. That alone is 10% of the 20 million Windows machines sold annually.

And Apple also make PowerBooks and Power Macs, which account for almost 3% of the market.

All told, Apple should sell 3,000,000 computers in 1999, compared with 20-25 million Wintel computers. (It amazes me that numbers like these are somehow translated into 5.3% of the market. Where did they take math? Or how do they define the market?)

Why isn't 10% of the market "a dent in that pile?"

"They've done extremely well in reinvigorating their user base and staying viable--and there's nothing wrong with staying in a niche of loyal customers," said Dataquest's Erin Lawrence. "But the question is, where are you going to go to move forward."

Another perception/reality statement. Apple has sold 34-45% of the iMacs to new users or Windows converts. That's not exactly marketing to "a niche of loyal customers." As far as Apple is concerned, it's blowing open a whole new consumer market that they rarely had a foothold in.

Wintel fans can spin the data all they want, but the fact remains that Apple has grown market share, is stealing a small percentage of Windows users, and has become the first choice of a lot of first-time computer buyers.

Compared to Microsoft's control of 90% of the market, that may be a small world, but it's a very nice world to live in - and attracting immigrants.

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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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