Anthony Frausto-Robledo, EIC ([email protected])

5 Jan 2005 - (originally written 8 July 2004)

 

Editor's note: We have decided to publish the second part of our 'Mac LC' story series originally written in July of 2004. We also have another companion opinion piece comparing the Saab brand and GM to Apple's brand and their relevance to each other.

The decision to publish this article (originally abandoned) has been brought about because some rumors suggest Apple may indeed have an LC like machine in the works for next week's MacWorld Expo. Thus our original reasoning may indeed be spot-on. -- Ed.

Opinion: Apple needs a New 'Mac LC' for Market Growth - Part 2

It seems we have published an opinion article that has garnered more reader feedback than any story in recent years. Many Mac users wrote back to us regarding this story's views. Some were positive while many were negative. All and all, what we realized is that the view of Apple's market share position is one of those subjects that people seem to be passionate about regardless of what position they take. As promised in part 1, I am today discussing what kind of machine Apple needs to grow market share.

Recap

What I said in the first article was that Apple realized in the original Mac LC line of computers the "ability to edit the product wisely". And this had an impact on Apple's market share growth. (Apple's market share growth peaked in the early 90's when LC's were everywhere, especially in education).

Market Share Market Snare!

Some people wrote in that market share is not important for Apple. Profit is important they argue. I disagree completely! You cannot continue to decrease your market share to the point where it barely exist. This notion is just not tenable. At some point things will come crashing down on you. Or at the very least become overly difficult.

As mentioned previously when Apple was at its market share high-point the company produced a broader but yet still well-defined product portfolio, where products were edited very well. When thinking about structuring products -- especially computers -- I like to think of the exercise as one of editing, simply because we all know what type of "best computer" Apple can come up with. It's a matter of paring down specific attributes to target specific market segments. In strategizing a product portfolio Apple has many choices but it ultimately all boils down to whether or not the company wants to sell a lot of machines for less profit but greater market share or fewer units with much bigger profit. There are two goals and two vectors in defining or editing a product line (see table) which establish four scenarios across the goals of increasing market share or increasing profits:

The first goal is to increase market share. The second goal is to increase profits. There are two vectors on products regarding pricing (you decrease price over time or you increase price over time, relative to the market). You can define or edit a product's feature set around all four of these scenarios above. And you can win on all four if you have the right factors on your side.

Looking at the matrix above Dell occupies the top left box. By under pricing their competition on identical gear Dell wins on volume and thus market share. When Dell does its best it occupies the bottom left box as well. A profit and market share dual win via the mechanism (or pricing vector) of decreasing prices.

Apple occupies the lower right box. By shipping products with unique or more feature-rich assets Apple can command higher prices and thus increased profits. When Apple does its best it occupies the top right box as well -- that coveted Sony position combining higher prices yet increases in market share. Apple naturally seems driven towards the opposite vector as Dell however.

Vector Strategies and the War Chests

The high-volume/low margin Wal-Mart strategy employs a war chest that gets stronger with market share advantages over its competitors. Relentless corporate cost savings, penny-pinching, high volume savings, and bully tactics with contractors are some of the staple moves by those who aim to win with this strategy.

The low-volume/high-margin BMW strategy employs a war chest filled with rich technological advantages, coupled with a corporate culture built around perfectionism and supremacy. Know wonder Apple teamed up with BMW for its first car to iPod integration play. Apple's best war chest looks something like this: war chest = big profits + big R&D budgets + Jobsian vision + perfectionist culture.

In the case of Apple, its war chest is best when the company can apply more money to its research and development. More money means obtaining the best and brightest and being able to fund truly forward looking research. However, part of Apple's war chest is the weapon of Steve Jobs. Steve is absolutely brilliant at making products great because he is such a perfectionist and he wants all of Apple's products to be the most excellent products in the industry. When Steve knows what market he is going after and understands that market, nobody can beat him if he has the resources around him.

Apple's perfectionist culture is a critical extension of Steve. At its best it means teams can deliver the goods. At its worst it means middle management gets stuck obsessing over the smallest details. The engine that drives Apple's war chest is both profits for R&D and Jobs. I don't believe for a minute that if Apple had Microsoft's R&D budget that Apple would be able to produce a better iPod because in the end the critical ingredient is Steve's ability to edit a product.

Getting To Sony

Jobs often talks about Sony as Apple's corporate idol and it's understandable why. Sony can and has won in the past by excelling within the top right box (increasing market share/increase price). That is, they have shipped products that cost more than competitors but at higher volumes or market shares. Sony's Walkman® shipped over 300 million units during its lifetime. For years, even after there were cheaper rival machines, people still paid more money for Sony's 'Walkman' because it was both the real deal and because it was Sony. Through the genius of the 'Walkman' Sony cemented its identity with consumers.

It appears that the iPod may replay this corporate history. The question is how does Apple do this with its computers? And can the iPod serve Apple's future like the 'Walkman' served Sony so many years ago?

Next Page > Learning from the LC

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