Apple's cozy niche

Perhaps the greatest fear of the Macintosh enthusiast is that someday, the predictions of Apple Computer Inc.'s detractors will come true.

It seems there's always an expert explaining why Apple can't last against the Microsoft Corp.-Intel Corp. juggernaut, that its market share is shrinking, that its products cost too much, that it's increasingly irrelevant.

The day Apple's chief executive, Steve Jobs, introduced several new products at last month's Macworld industry show in San Francisco, Michael Hillmeyer, vice president of Merrill Lynch & Co.'s Equity Research operation, reinstated coverage of Apple with a "sell" recommendation.

"Although Apple makes great products, in our view, the product pipeline looks skimpy, and we expect continued market-share losses," Hillmeyer said in his report. "We don't think their retail store strategy will work."

Apple's "skimpy" product line announced at Macworld included new 12-inch and 17-inch versions of its PowerBook G4 laptop; Safari, a new Web browser; Keynote, a presentation program; and updates to three of its multimedia applications.

As if that weren't enough, Apple disclosed upgrades and price cuts to its pro desktop line last week, and the same for its iMac line this week.

It would seem that when it comes to Apple, fortune-telling is a perilous enterprise.

Granted, Apple's peculiar position in the computer world makes it difficult to compare to its peers. It is the only maker of consumer PCs that builds the hardware and the operating system, as well as several significant software applications.

What makes sense for a hardware maker like Dell Computer Corp. or a software company like Adobe Systems Inc. doesn't necessarily make sense for Apple, and vice versa.

Apple's business model, by definition, must differ from that of other hardware makers. As Hillmeyer points out, Windows PCs have become commodities. PC makers like Dell and Gateway Inc. compete primarily on price, not features.

True enough, but Hillmeyer seems to view this as a disadvantage. Apple cannot compete with the Windows box makers on price, so it competes by offering customers something else: machines that can do sophisticated tasks -- editing movies and burning them onto DVDs, for instance -- so easy that even novices can do them effortlessly.

But can that sustain, much less grow, Apple's slim 3 percent slice of the computer market -- which is a far cry from its peak of about 12 percent in 1992?

From time to time, Apple has been compared with Sony's Betamax videotape format, edged out of the marketplace by VHS.

But the difference between Betamax and the Mac is that Betamax did not offer a compelling alternative to VHS. The features and price -- even the quality, some say -- virtually were identical, but VHS' early ability to record as much as six hours' worth of material on one tape became a critical factor.

Betamax's market share slipped rapidly, and the public quickly became wary of a format in decline. Sony Corp.'s attempts to keep Betamax technology ahead of VHS quickly were matched by VHS-makers. In 1988, Sony capitulated and started making VHS-format recorders.

Even the most ardent Mac supporters will admit that Apple has almost no chance of seriously challenging the Windows hegemony, but unlike Betamax, the Mac represents a legitimate and quantifiable alternative.

Many potential Apple customers have little or vague knowledge about the Mac and how it compares to a Windows PC. And if they don't know much about Macs, it's very unlikely they'll buy one -- even if the Mac ideally suits them.

Since the Mac is only going to appeal to a certain consumer, it's vital that those people see and experience the Mac, which is exactly the mission of the Apple Stores, one of which opened last October in Towson Town Center.

If Apple can reach enough of these people, many of whom simply may be using Windows because they haven't been exposed to the Mac, it actually could increase its market share.

During Apple's Jan. 15 conference call, Chief Financial Officer Fred Anderson told analysts: "We view our retail initiative as our key strategy, along with putting our own people in places like CompUSA to control the point of sale, to reach out to Windows users and convert them, and that's backed by our ‘switcher' ads."

Anderson said that, despite criticism that the retail stores were too risky and were costing Apple too much to operate, they already were paying off by bringing in new customers. Citing a recent survey, he said that 50 percent of those who bought Macs at Apple's stores were not current Mac owners.

As it turns out, the Mac is well-suited to its role as a niche player in the PC world. As long as Apple can keep developing distinctive, innovative and easy-to use technology, its survival is assured.

That's where Apple's strategy -- including its retail stores, new iLife products and other software -- is looking increasingly savvy.

Apple distinguishes the Mac from Windows via its traditional strengths: innovation, ease of use, elegant design, as well as the seamless integration of its hardware and software.

"Apple has always catered to a particular type of customer, the ‘creative consumer,'" said Michael Gartenberg, research director for New York-based Jupiter Research Corp.

Gartenberg acknowledged that Apple never will get "the most price-sensitive buyer," but he thinks that those interested in performing the multimedia activities Apple has focused on, including digital photos and video, are willing to "pay a small premium" for the out-of-the-box simplicity Macs offer.

"I've watched an increasing number of people who want or need to use a computer but who have no interest in learning anything about computing decide that an Apple Macintosh is a sensible decision," writes Amy Wohl in her Mac newsletter.

Wohl said that such people are willing to pay a little more for a Mac when they learn that "they could be self-sufficient quickly on an Apple but require continued and costly assistance on the more complex Wintel platform."

Peter N. Glaskowsky, editor-in-chief of the Microprocessor Report and principal analyst with research firm In-Stat/MDR in Newton, Mass., praised Apple's recent product introductions as fortifying its role as a premium alternative to Windows PCs.

"Apple's doing a better job as a niche player today than it was two years ago," Glaskowsky said. "The iLife suite [Apple's blanket name for its four multimedia applications] has become a very strong differentiating factor for Macs. The new iMacs and PowerBooks are unique on the market."

That element, differentiation, comprises the essence of the Mac platform. It's the main reason the Mac, the "computer for the rest of us," is still with us.

Jobs always has been passionate about his vision of computers as a means of empowering individuals, rather than just a tool to get a job done. Most people view computers as tools, and so go with the cheap and practical option of a Windows PC.

Over the years Jobs has often likened Apple to BMW or Mercedes-Benz, saying that catering to a smaller customer base willing to pay more for the Mac's tangible advantages is a valid strategy.

There always will be those who see the computer as Jobs does. Apple's task is to make more such people aware of the Mac alternative.

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