Time for a change
Apple's unprecedented success over the past few years has propelled the company from its place as just another tech company to the most respected brand in the entire industry. But for all its success, it's still a distant second in its battle for operating system dominance. With just 8 percent market share, Apple has significant work to do if it wants to catch up to Microsoft and solidify Mac OS X as a major force in the software business.
The fact that it's even capable of making inroads to compete on the same level as Microsoft and its Windows platform is shocking enough. Just five years ago, Apple was woefully behind PC vendors in the hardware market and Microsoft in the software market. But since then, the company's Macs have gained in popularity and more users have found reason to switch from Windows to Mac OS X.
But Apple's success in the hardware and software market over the past few years is no indication of how well it will perform in succeeding years. If the company wants to capture significant market share from Microsoft and see Mac OS X become more ubiquitous, it needs to stray from its comfort zone and start making more innovative decisions.
The thought of reducing Mac pricing and licensing Mac OS X, while playing nice with developers may be anathema to Steve Jobs and Company, but with the opportunity to gain market share while Microsoft's focus is split between Windows and Google, now is the perfect time for Apple to expand its presence.
Why change focus?
Right now, Apple is tied to its hardware business. The company doesn't think of itself as a software company and it has said that it has no plans of turning its premium hardware brand into a commodity that runs the same operating system as its main competitors in the hardware space. But that doesn't mean it shouldn't.
As Apple pointed out in its latest quarterly filing, "it believes it is unique in that it designs and develops nearly the entire solution for its personal computers, consumer electronics, and mobile communication devices, including the hardware, operating system, several software applications, and related services." But because of that, it's forced to "make significant investments in research and development" that its competitors simply don't. Worse, Apple points out that its "competitors seek to compete primarily through aggressive pricing and very low cost structures" and if it cannot adequately compete with HP and Dell's slumping margins due to its uniquely high costs, it "could be negatively affected and have a materially adverse affect on its financial condition and operating results."
Apple also wrote that it "believes decisions by customers to purchase the company’s hardware products are often based on the availability of third-party software applications and services." And if "Apple’s minority share of the global personal computer market causes developers to question [its] prospects, developers could be less inclined to develop or upgrade software for the company’s products and more inclined to devote their resources to developing and upgrading software for the larger Windows market."
Taking Apple's two risk factors together, it finds itself in a tenuous position. Right now, it's thriving as a premium brand as consumers increasingly desire Apple products and become disenchanted with Microsoft's offerings. But because its competitors are constantly reducing prices and are capable of offering lower margins to realize the same revenue, Apple needs to keep up if it wants to maintain its market share or see it grow over time. After all, customers will only be willing to pay so much more for a Mac before they decide to save money and stay with Windows.
Apple's need to change its focus and start thinking about itself as a software company just as much as a hardware company goes far beyond possibilities, though. It can't simply overlook the fact that it commands just 8 percent of the OS market and Microsoft is pulling in billions of dollars in profits each quarter because of its stranglehold on the industry. It also can't neglect the fact that both Vista and Microsoft itself are struggling to create a real value proposition for consumers who are more likely than ever to switch from a PC to a Mac. And it absolutely cannot overlook the fact that PC vendors who have been begging Steve Jobs to bring Mac OS X to their platforms would be more than willing to give Apple sweetheart deals and competitive licensing fees to offer their customers a new choice that isn't riddled with Vista's baggage.
Focusing on making OS X more ubiquitous is the key to Apple's future success. By casting aside its preconceived notions about the value of focusing on its hardware business, it could enjoy even higher profits and more success as Mac OS X use jumps. Apple shouldn't limit itself for fear of losing hardware sales. It should realize that it's in a prime position to capitalize on its position as the most popular technology brand by using Mac OS X as a gateway for consumers to buy other Apple products.
Reduce Mac Pricing
According to NPD, the average Mac desktop costs $1,000 more than a Windows PC, while the average Mac notebook eclipses Windows laptop pricing by more than $800. Apple justifies its pricing through claims of establishing a "premium" brand that enjoys margins of 35 percent. But if the really wants to see Mac OS X gain significant market share and enjoy even greater success in the computing market, it will need to make Mac pricing more competitive.
Numerous arguments can be made to show that Mac pricing is in-line with Windows-based machines. Some say that with all the bundled applications, Macs aren't nearly as expensive as originally thought. Still others say that over time, the average user will need to replace a Mac less often than a Windows-based machine and will generally stay free from additional costs needed to own a Windows PC, like buying security applications or another copy of the OS to install when things go awry. But for the mainstream consumer who doesn't have that kind of understanding, the sticker price speaks for itself.
Apple currently stashes well over $18 billion in its coffers and has no debt in its financial structure. With that much in the bank, it not only can afford to reduce its margins, but it can afford to do so for quite some time. And although it has been loath to do that, the company did hint that it would reduce Mac pricing in the next quarter when it mentioned that its margins would drop from 35 percent to approximately 30 percent.
As consumers become more aware of the issues and limitations facing Windows-based machines, they're going to look towards Apple as a possible alternative. But once they see that Mac pricing is considerably higher than a comparably-equipped HP machine with the same basic components, they will be hard-pressed to choose the product that is simply too different and too expensive to use.
Granted, Apple's customer satisfaction is high and people are switching. But if it wants to attract a larger contingent of mainstream Windows users that are looking to switch, the company needs to be aware that pricing is where Dell, HP, and Acer hold the advantage. And it can't let that happen any longer.
Bring on the business apps
Converting the enterprise to Macs should be paramount in Apple's decision-making over the next decade. Right now, Mac usage in the business world is minimal at best, and there is no indication that the company will be able to capture more of the market if it doesn't develop a cohesive enterprise strategy. But now that Vista is being downgraded to XP at an alarming rate and companies are starting to look beyond the world of Windows for their computing needs, Apple needs to capitalize and start working with developers to make more business applications compatible with Mac OS X.
Regardless of whether major financial or accounting firms want to switch to the Mac, they simply can't. Companies like PricewaterhouseCoopers and countless other auditing firms are inexorably tied to Windows because their accounting software—Lacerte Tax, ProSystem FX, and countless others—only work on Windows-based machines.
Worse, most IT managers are concerned that Apple's enterprise support is suspect and its software licensing policy makes creating a full-scale, office-wide deployment practically impossible without a solid understanding of what the company deems acceptable.
All these issues—poor application compatibility, draconian policies, and sub-par enterprise support—stem from one issue: Apple has historically failed at developing mutually beneficial agreements with enterprise developers due to its desire to control as much of its software as possible. But recent evidence suggests Apple has realized it's making a mistake and things may be improving.
Last month, a group of enterprise developers, including Atempo and Parallels, joined together to create the Enterprise Desktop Alliance, an organization that aims at increasing Mac adoption in the business world, after witnessing considerable progress on the part of Apple.
Much of that progress came from Boot Camp and Apple's intent to be open to creating an easy migration path for applications that won't be ported to the Mac. But Boot Camp's shortcoming—namely, the fact that users need to restart the computer to switch operating systems—has stopped some from switching to a Mac.
Parallels and VMware Fusion solve that problem, and in doing so they've created a strong value proposition for the enterprise. If companies want to switch to Macs, but many of their applications simply aren't compatible, either Fusion or Parallels lets employees switch to Windows in a flash—they only need to open a window in the OS X environment. Armed with those tools, the enterprise has lost some of its excuses for switching to Mac. Granted, running VMware Fusion isn't the most ideal way of of moving to the Mac, and most would rather run applications natively, but desktop virtualization software is a good start in the right direction, a start that should allay some corporate fears.
Apple's foray into the enterprise is doubly important. Not only will the company be able to expand its presence in the business world, but it will be able to expose Windows users to Macs and to show them that using a Mac is just as easy as using a Windows machine. And if they then choose a Mac for home use, Apple will be able to capitalize on two markets by simply working better with developers and making sure that its operating system can run key business applications.
No comments:
Post a Comment