Many would say a begrudging yes to the former, and a resounding yes to the latter. In a word, yes. Apple has abandoned the low end product market.
First, let me define low end. Cheap. Low price. Low to middle value. Not high value. Not quality. Not functionality. I’ll argue as forcefully as anyone that Apple products are strong on quality (Macs and iPods) and strong on value. Apple only provides lip service to the low end, despite the $799 eMac and the $999 iBook.
The low end market has been abandoned.
Second, other terms have to be considered within the appropriate context. Value. Market share. Profit.
Mac users of many years know there’s strong value in Apple products; eMacs, iBooks certainly. Quality usually costs more but should provide for a wider variety of value propositions. Including the iLife suite of applications (iTunes, iMovie, iPhoto, iDVD, and Garageband) increases the value proposition of owning a Mac far beyond even the throwaway items found in the typical Windows PC.
Market share means different things to different people. Greater market share does not necessarily equate to greater profits, although success in the former should lead to success in the latter.
Apple competes for sales in many markets, and, conversely, does NOT compete in many other markets, so comparing Mac market share with PC market share will not yield an accurate picture.
For example, most reports indicate that Apple, on a worldwide or US basis (take your pick) has about 2-percent to 3-percent share of the overall personal computer market. That may be accurate, but the overall market also includes millions of PC’s which act as terminals, cash registers, print servers, typewriters, and so on—all areas where Apple just doesn’t compete.
However, in other areas such as graphics, education, audio recording, video editing, Apple either has a substantial percentage of the market, or is the market leader, despite availability of substantially less expensive Windows PC’s.
But not the low end.
Profits. It’s what keeps a company going. Without a steady stream of earnings, any company will be challenged to keep up. Stock market guru Peter Lynch says it’s the “E” in profits to earnings ratio that’s important when determining a company’s value.
Since Apple CEO Steve Jobs came back to the company in 1997, Apple has had a steady stream of earnings (profits), and, by all considerations, the stock price (with plenty of ups, a few downs, and up again) has benefited the Apple faithful and the patient.
So, Apple remains profitable, has a strong balance sheet, has launched a steady stream of attractive (and pricey) products, and remains competitive is a select number of markets (competitive market share). From any perspective the company is on a good roll.
Except for that low end.
To be fair, there’s probably a good reason for Apple not wanting to compete at the low end. For one, innovations don’t occur at the low end of the market (in any market). Unless you count as “innovation” figuring out how to make something cheaper instead of better (in which case, Dell is arguably the low end leader). Steve Jobs says Apple is all about innovation.
Mac and iPod customers would agree that Apple innovation is certainly a key point of differentiation.
What keeps Apple out of the low end pool? The company does stick its toe in the pool from time to time, but only to maintain market share in key areas (education, for example, with the eMac and iBook). There’s the $799 eMac and the $999 iBook. That’s low end product, right?
Continue on to Page 2 to see why Apple is out of the low end market for Macs, but why the company owns the whole spectrum for portable music players. Including the low end.
Click Here for Page 2…
Continued from Page 1…
What keeps Apple out of the low end pool? The company does stick its toe in that pool from time to time, but only to maintain market share in key areas (education, for example, with the eMac and iBook). There’s the $799 eMac and the $999 iBook. That’s low end product, right?
Except that cheapie Windows PC desktops and laptops are often priced one third less than that and probably sell 20 to 30 times as many “units” as Apple does Macs. That’s market share.
To get there, price is an object and Apple won’t move strongly to the low end for a variety of reasons.
Market Share Isn’t Important. On an overall basis, true. In select markets, it’s very important. In general, Apple doesn’t worry much about market share. That may create an “island mentality” which could be dangerous in and of itself, but it’s obvious there’s little worry on a general basis about market share.
Profit Is Important. Well, duh. Shareholder value is increased when the stock price goes up. Jobs and Apple and company know that, have shown superb discipline in recent years and have done wonders by squeezing out steady profits, providing for steady earnings, and shareholders have been rewarded with stock value.
Value Is Important. There’s room for multiple definitions here. Value could be cheap, hence “low end.” Value could also be determined as “so damn cool I want one no matter the cost.” For Apple, it’s not cheap. It’s cool.
That requires innovation, a balance of features and costs, and the ability to make products that not only work, but do so better than others in the industry. The sum of the parts is greater than the whole.
For example, look at competitors to the iPod. Some of them are technically superior to the iPod; perhaps cheaper, include FM radio, include recording ability, blah blah… So what?
Not one of them ALSO features iTunes, or iTunes Music Store, or totally seamless computer to player connectivity.
Apple’s iPod hat trick delivers the goods and cool. Users want iPod without even knowing all the reasons.
Are iPods the low end (with 65-percent market share for all portable music players, that’s not a problem, right?) of portable music? There’s always the threat of a competitor with a product that is the same thing, but less money.
If that happens, Apple would be forced to deliver a portable music product that pushes into the territory called “low end.” That may be necessary, but not now, not yet. Here’s why.
While it’s only necessary that Apple maintain lip service to the low end with the eMac and iMac (higher value, higher quality, higher price lead to profit), that may not be a requirement (at least for awhile) with the iPod.
Why? The iPod IS the low end. So successfully has Apple’s iPod defined the genre of portable music, that it also defines what is low end and what is high end. Low end? iPod mini and 20 gig iPod. High end? 40 gig and 60 gig iPod Photo.
In short, Apple owns the spectrum. For now.
Jobs and company are smart enough to know they cannot compete at the low end of the computer market and win (market share and profitability). They are smart enough to know they fully define the entire spectrum of portable music players.
What product successfully competes with iPod Photo (the high end)? Nothing is close because of iTunes, Mac or PC, iTMS, and the “cool” factor.
What product successfuly competes with iPod mini and iPod at the low end? Nothing is really close because, 1) iTunes, Mac or PC, iTMS and the “cool” factor, and, 2) with low sales, low product margins, weak distribution (which Apple now owns), competitors can’t make any money or make a dent in the market for portable players.
While Apple has decidedly abandoned the low end market for computers, the company has NOT abandoned value, market share (selective), profits, shareholder value, or the “cool” factor.
For portable players, Apple owns the market. Low end to high end.
What do you think? Is there portable music player competition for Apple at the low end? At the high end? Who? What? What about computers? Can Apple compete at the low end and market a profitable, valuable, $500 Mac? Or would that simply cannibalize the higher margin Macs and reduce profits?
Share your thoughts with other readers. Click the Comments link below.