Several cases have been made of late stressing the need for Apple to
sell a less-expensive Mac. The arguments are appealing, but consider
these questions:
- Will a less-expensive Macintosh increase Apple's market share?
- What is stopping Apple from releasing an inexpensive Mac?
Those who argue for an inexpensive Mac have an "if you build it, we
will come" mentality, but history tells us otherwise.
The question of market share is mixed at best. Ben Wells wrote in
his article, Resurrecting the Low Cost
Mac:
- "Apple nearly sank in 1996-97 because of its failure to provide
affordable competitors to then-new Pentium-based Windows 95 and NT
machines resulted in software developers and peripheral manufacturers
abandoning the Mac platform."
The truth is Apple nearly sank in 1996-97 because they tried to
compete with PCs on price by releasing several Performa models. Performas were poorly engineered
compared to Power Macs, but they were comparable to PCs in price and
performance. Performa sales did not expand Apple's market share. In
fact, they took sales away from the more profitable Power Mac line of
computers.
The core lesson Apple learned from the Performa fiasco is
differentiation. Unless Apple's high-margin products are significantly
different from their low-margin products, the lower priced products
will cannibalize their profits. Great pain is taken to ensure that the
iBook does not
compete with the PowerBook. The eMac exists only because the
iMac is
significantly different to the consumer (TFT vs. CRT).
A low-cost Mac would a risky proposition for Apple. Consumers
probably would not notice if, for instance, the high-end Power Mac had
800 Mb/s FireWire and the low-end Mac had only 400 Mb/s FireWire.
It would also bite into Apple's very lucrative upgrade market. An
inexpensive Mac produced today would be faster than almost any Mac that
is two or more years old, and it would run the latest Mac OS without a
hitch. This would make it a very tempting and inexpensive upgrade
option.
The proponents of the low-cost Mac favor releasing a computer with a
modest CPU and a modest amount of memory. In other words, they are
asking Apple to sell a bad-investment to consumers. These Macs will
depreciate quickly. They will not run future releases of OS X
well. Users may be dissatisfied with the performance.
How catastrophic would it be for "switchers" to take the Mac plunge
for $500-600 on a low-cost Mac only to discover it is slow? PC users
are used to windows flying open at lightening speed and applications
launching instantly.
This sort of low-cost Mac is a terrible idea for schools as well.
Schools keep their computers twice as long as the average business.
Poorer districts keep them even longer. Asking a school to make
such a poor investment on outdated hardware - and then keep it for five
years or more - is ludicrous.
Another frequently discussed idea is dropping the all-in-one form
factor in exchange for a few PCI slots. Apple's all-in-one strategy is
the synergy of two ideas, differentiation from professional models and
reduced support costs on Apple's end. As soon as the user is given
incentive to open up his or her machine for any reason, support costs
go up.
Remember, the more attractive Apple makes the low-end Macs, the more
high-end sales are cannibalized. Apple sells most of its computers to
existing Mac users, so the term "cannibalized" is particularly poignant
in this scenario.
This reflects the market, as it exists today. Is there no hope for
advocates of a low-cost Mac?
The Future
Apple's ability to differentiate between products is hampered by the
PowerPC platform. The performance difference between an 800 MHz G3 and
an 800 MHz G4 is not terribly large for anything other than Velocity
Engine applications. Furthermore, there is little performance
difference between Macs that use DDR SDRAM and those that use standard
SDRAM. This will change sometime in 2003 with the next generation of
chips, whether they are enhanced G4 processors or 64-bit IBM Power 970
CPUs.
Until that point, no Mac will be offered that is significantly less
expensive than what is available today.
Over time I do not expect the price of a low-cost Mac to drop below
$899. I also do not expect Apple to deviate from their all-in-one
policy. They will never make the Performa mistake again and try to beat
PCs on price. Conversely, they will never make the Cube mistake again and try
to sell something that has no clear niche or demand.
An $899 Mac with an AOL or MSN rebate would cost a consumer
something like $599, which is a very reasonable price.
This does not help schools, as they do not sign up for those types
of rebates. Instead Apple might consider offering free AppleCare to
schools. When an all-in-one goes bad, in most cases the entire unit has
to be shipped for repair. Offering same-day replacements or service
would be a tremendous selling point to system administrators. If you
were purchasing for a school, would you rather have a low-cost Mac that
is too slow to run the next generation of software or a Mac that
performs well and has superior service?
Apple is definitely a premium brand. Moving down-market in price is
always a challenge and requires original thinking. Mercedes sells
something called a smart car in Europe; Audi sells a VW Golf-sized car
that is all aluminum. These companies compete at lower price points by
being creative, without creating Performa-like fiascoes that cut into
their high-margin product sales.
I suspect Apple is trying a similar tactic and will look to expand
their market share by releasing innovative products. Opportunities are
everywhere - a tablet computer that is actually light and easy to use
comes to mind - and it is up to Apple to find the right products.
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