Architosh Staff ([email protected])

16 April 2003

 

Fiscal Qtr 2 - 2003: Apple's results point toward Fifth Product Box and a need for New Marketing Strategy

Apple Computer's latest quarterly financial results clearly show a pattern: the sale of more peripherals and software and the sale of less computers. In terms of units, Apple sold 711,000 Macs this second fiscal quarter compared to the 813,000 it sold a year ago. However, let's look at where they are making up the money to keep their overall revenue essentially the same.

Software and Other

In the year ago quarter Apple made $153 million and $133 million in "Peripherals & Other Hardware" and "Software & Other", respectively, for a combined total of $286 million. In the most recent quarter Apple increased these figures to $216 million and $160 million respectively, for a combined total of $376 million. That's a gain of $90 million or 41 percent and 20 percent year-over-year gain, according to their financial report.

The Fifth Product Box

Years ago when Jobs took over the company he presented a four by four product matrix. It consisted of Pro and Consumer categories for desktop and laptop. The lion's share of the company's revenue fit into those four boxes. Today, Apple appears to have a fifth box! And it's revenue this last quarter has reached Apple Power Mac revenue from even the year ago quarter. A year ago Apple's Power Mac G4 second quarter revenue was $383 million on 211,000 units. This quarter their revenue in this new fifth box is $376 million.

Apple has made up for lost unit shipments from the previous year by increasing sales of peripherals -- like the iPod as the major unit -- and other hardware, like its new Xserve and Xserve RAID. It's very clear that this is a fifth product box. However the cost of this trade-off or revenue shift is approximately 200,000 units per quarter not shipping. That's not far from one million less units a year. Apple needs to get those units back!

Making it All Grow

Apple is clearly on a trend in the growth of both Software and Other hardware groups (servers and iPods), but they need to shore up and start growing their traditional Macintosh business as well. Whenever these quarterly reports come out one sees various categories going up and down depending on what is the new hot product from Apple. It's been a long time since that new hot product was a Power Mac -- and substantial evidence points to its return once Apple can deliver.

The iBook product line and iMac line have fallen in units. However, a new 19 inch iMac and much more aggressive eMac pricing for educational customers could help drive these numbers back up to where they belong, near the 370k units mark. An iBook that can shape itself into a tablet could also raise its numbers.

For Apple to really do better it needs to deliver a substantially more powerful Power Mac. Power Mac sales should really be up above 300k units per quarter if not even higher. Where Apple wants to be is about 1 million units per quarter (that's where they were a few years ago) so they can grow the aggregate installed base at 4 million new Macs per year. If they can do this and keep growing this software and other product box we could see Apple get its annual revenues up over $8 billion again.

A Different Type of Marketing Strategy

Apple needs a different marketing strategy. What they typically do is advertise the entire product matrix the same way. For example, when Apple delivers a new iBook or a new Power Mac G4, they run ads inside BusinessWEEK magazine. But this is wrong. BusinessWEEK is a general audience publication -- perfectly suited for OS X and iMac ads but not well suited for professional products. Instead, the people buying Power Macs need targeted advertising in the industries where Power Macs are popular.

For the money they spend on national TV campaigns, they could easily attend more vertically focused trade shows in industries like publishing and graphics, biotechnology and medicine, and architecture and engineering. Apple needs to realize that the "bulk" of their Power Mac users are real professionals in real industries. They need industry-focused marketing where they can build momentum with their core user base and extend it within that particular industry. Apple needs to do again in graphics, publishing and architecture what they are doing now in video.

The Video Market Model

Apple has done a superb job in the video market. They need to take stock in how they are doing that and utilize that approach in other "Mac-popular industries". They don't need to go out and create a Final Cut Pro for each industry, but they need the equivalent of a Final Cut Pro in each industry to run better on a Mac than a PC...and then they can aggressively go showcase that technology leadership. When Apple shows Adobe Photoshop on Macs running faster than on PC's they are hitting a nerve with the Photoshop professional. When they show InDesign or Quark XPress exhibiting advanced scripting support via AppleScript they are hitting that same nerve.

The Fear of Diminished Capacity as a Professional

In every industry where Apple is an exceptionally strong player they can identify this marketing message nerve point -- where there is something that will utterly resonate with these professionals and convince them that being anywhere else but Macintosh will make them feel they are operating in diminished capacity as professionals. The collection of things that trigger this fear of diminished capacity include things like:

• Not Being Able to Work with a de facto Industry Standard App
• Being Out-Performed by Another Platform
• Missing A Special Software, Hardware or Process Feature on the Platform (eg: like not having PostScript or the OpenGL technology available, for instance)
• Not Having Access to the Future of the Industry (eg: like not having a BIM - building information modeling application in Architecture, for instance)

We think Apple needs to apply the way in which they have advanced themselves in the video industry to all of the following industries:

• Graphics and Design
• Publishing (Print and Web)
• Education
• Architecture and Industrial Design
• Biotechnology and Medicine
• Science and Engineering

In this manner Apple may stand a better chance of growing overall unit numbers by leveraging the popularity of the Mac (and the network effect) in the specific industries where the Mac is already popular.

Architosh Marketplace

MacroEnter. is a CAD/AEC/Design, networking and large format printing solutions integrator, serving business, government and education customers. Reseller of VectorWorks, Microspot, HP and Encad product lines.

CAD Garage. is an online store dedicated to Architects, Engineers, Builders, Designers and Mac enthusiasts featuring ArchiCAD, formZ, Piranesi, Cinema 4D, HP and more product lines.

Lim Consultants, Inc. provides creative architects with practical solutions while incorporating cutting edge technology, pushing the art of structural engineering to new levels of excellence.

Place your text ad here and reach thousands of professionals each month for very affordable prices. (contact: [email protected])