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ATPM 2.12
December 1996





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by H.M. Fog,

Not Looking Back

When Apple Computer made the transition to RISC-based processors, the company again ushered in a new era of personal computing power and performance. The industry alliance of Apple, IBM and Motorola established to support the Power PC program has also brought about significant change in the development, manufacture and sales of Mac OS personal computers.

The looming introduction of the RISC-based processor to the Wintel market and the continuing "battle of the browsers" between Microsoft and Netscape mean new battles for both hardware and software market share. This time around Apple may be less a contestant in the skirmishes and more an interested bystander. The company may gain ground simply by staying out of the fray. It could very well be the computer industry irony of 1997.

This article will explore the idea that because of recent changes in its market approach and product development, Apple Computer is uniquely positioned to realize significant growth in market share for the Mac OS and Macintosh-related software. Hefty hardware sales gains for Apple, Power Computing, UMAX, Motorola and other Mac clone makers are also favored. It's time for Mac users to look forward and a time for not looking back.

Microsoft Chairman Bill Gates has been warning the financial markets for several months now that the company he leads may not, in the short-term, maintain its recent pace of sales and profit growth. This is not news. Executives at Microsoft are on record as saying that their company will continue spending huge sums on research and development to maintain its leadership in core markets. Intel, maker of the Pentium and Pentium Pro micro-processors, is beset with its own problems. One is that Pentium processors sell at almost commodity prices. Another is the encroachment of less costly alternatives that don't require the latest, premium-priced micro-processors, such as network computers and other more limited, specific-use machines.

Personal computers are considered a "durable good." Consumers intend to keep them for quite awhile. Few business and fewer households can afford to replace their computers annually. This is a real world fact. To maintain good-sized margins, companies need to innovate and improve their products. However, the costs to develop innovative products must be timed with market need and other factors.

It is this writer's view that the hype over Windows '95 exaggerated the real demand for personal computers. I also feel that many personal computers were purchased for home use well before a definite need had developed. In short, many of the computers purchased were more for entertainment or other luxury uses than for occupational or educational necessity.

When Windows '95 was introduced, the Internet attracted a significant number of new users. Many who purchased personal computers in the latter part of 1995 and the first part of 1996 may have had Internet access in mind, however few envisioned how fast the Internet would change the way we communicate across-town and around the world. The pace has been so fast that non-RISC based computers will quickly become outmoded in many commercial environments and homes. However, resources may not be immediately available for business and home users to upgrade their machines. This will significantly impact the market approach of many companies, including Microsoft, Intel, Apple and Motorola.

These circumstances have set the stage for a resurgence in Mac OS-compatible hardware sales and for broad gains in Macintosh software's market share. The reasons are simple. Those of us who currently (December 1996) spend at least an hour a day on the Internet have witnessed almost daily advances in technology and Web site sophistication. During the past year Apple Computer has modified its business models, dramatically reduced costs, fundamentally revised its product lines and repositioned its approach to the market place. It's the first major personal computer company that has addressed current market realities by systematically restructuring itself.

Changes are evident in the latest Apple hardware products. The Performa 6360 and the Performa 6400/200 (pictured at the top of this article) exemplify Apple's new approach to the personal computer market. They're priced competitively with Wintel PCs, but the Mac OS offers the significant advantages of performance and ease-of-use.

Apple is also offering models tailored and packaged for a particular purpose, such as the Performa 6400/200 Video Editing Edition. This example illustrates Apple's ability to quickly develop and market personal computers for specific industries, professions and user skills. This approach will serve Apple well in the larger battle for market share that will include Personal Digital Assistants, the so-called Network Computer, portable computers as well as conventional desktop computers.

I mentioned earlier that many businesses and consumers will be reluctant to trade-up to new machines during the next 18-24 months. While the computers purchased in the latter part of 1995 and early 1996 are adequate for many tasks, the pace of technological change is quickly making these machines less competitive because of hard-drive size, installed RAM, processor speed, and other constraints. While many of these limitations can be overcome with add-on upgrades, the combined costs can meet or exceed the cost of a new computer. The typical home or small business user does not relish the prospect of opening their computer and installing upgrades. Purchasers will be more selective the next time they venture into the personal computer marketplace.

As we've mentioned many times in ATPM, Apple's current management team has successfully cut costs and streamlined manufacturing operations by reducing the number of different motherboard designs. The development of a thriving Mac OS clone market will also help to focus the company's efforts. Power Computing, UMAX and Motorola are in a position to offer full lines of Mac OS compatible computers, so Apple can shed the burden of "carrying" more computers designs than it can efficiently sell. This will allow the company to devote greater resources to building hardware and software solutions. It will also give Apple an opportunity to create pre-packaged systems for sub-markets such as Internet servers and graphic design workstations. By focusing on particular industries and sub-markets, Apple can sell products at a better margin than in the general market place.

The cost of a Macintosh has dropped significantly. This has been a benefit to home and small business users. For many, a Macintosh was viewed as a luxury computer because of its price. The development of a strong Mac OS clone market has made Mac OS computers much more affordable.

Among the many changes made by the current management team is a more open discussion of Apple's future and the overall direction of the company. Apple has stated that the Internet will be at the core of its market plan and product development efforts. So stated, the recent published reports from the company illustrate these objectives. Below are some key points from Apple's published paper on the internet.

In the months to come, Apple will continue to assert itself as the industry leader for personal computer solutions in Web publishing and Internet communication. Product releases (including the forthcoming operating system updates) will continue to incorporate the latest Web-savvy technology.

The information and communication revolution has just begun. Recent changes in corporate direction and focus have uniquely positioned Apple Computer to profit from the coming changes in how we communicate and share information. Home and small business users will benefit because Mac OS-compatible computers have never been so well-priced. Apple's technology leadership in many areas of Web publishing and Internet communication will be a strong draw for buyers. Apple doesn't need to double its market share to double its profits. It simply needs to provide quality products at reasonable prices.

As the needs of computer buyers change to embrace this new era of information and communication, Apple Computer will be uniquely positioned for renewed growth. It's time to move forward, it's also a time for not looking back.

[apple graphic] © 1996 H.M. Fog H.M. Fog is a west coast computer consultant who sometimes writes articles for ATPM.

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