Dell and Creative: Challenged by the iPod?

 
 
By Ian Betteridge  |  Posted 2005-01-19
 
 
 
Its a truism about the computer industry that when your competitors are talking in public about how theyre not worried about you, theyre doing a lot of worrying about you in private. So perhaps Apple should take it as a huge compliment that within the space of a week, senior executives of both Dell and Creative have taken time out of their busy schedules to mention how they arent concerned by the announcements the company made at this years Macworld Expo in San Francisco.

For Creatives Sim Wong Hoo, the iPod shuffle is "a big let down … worse than the cheapest Chinese player." For Dells Kevin Rollins, the iPod is "a fad" and the Mac mini poses no threat to the companys 17 percent market share.

Some analysts have already cautioned that both men might be mistaken about the impact that the iPod and Mac mini might have on the industry. In a posting on his blog, Jupiter Research analyst Michael Gartenberg called Wong Hoos comments "foolish." "Creative doesnt get it and is going to dismiss Apple to their own peril. … You can see why [its] going to get beat up in this market pretty bad."

Gartenbergs colleague Joe Wilcox described the Mac mini as "a potential suitor to Windows users, particularly those who have iPods and enjoy the experience delivered by Apple."

Wilcox goes on to caution that hopes of massive growth in Mac users—something that Mac aficionados would love to see—could be premature. "Apple could gain a few points of share … but doubtfully denting Windows PC market share in any immediate significant way," he claimed, adding that distribution might prove to be the Mac minis Achilles heel.

Of the two CEOs, it would appear that Creatives has the most reason to be scared of the potential success of the iPod. After all, Creative is No. 2 to Apple in the hard drive-based music player market, and the entry of the company into the cheaper flash-based arena could mean Creative is displaced from its premier position there. Should the iPod shuffle prove to be a success—and early reports suggest early reports suggest that the player is selling as fast as Apple can make them—Creatives attempt to woo consumers with $100 million of marketing money will look like desperation, rather than good business.

For insights on the Mac in the enterprise, check out eWEEK.com Executive Editor Matthew Rothenbergs Weblog.

For Dells Rollins, the threat from Apple is less pressing, but certainly something that the company will be aware of. Apples strategy to exploit the success of the iPod in the wider computer market is an interesting one, which almost reverses the traditional relationship between the peripheral (in this case, the iPod) and the computer (a Mac). Where companies like Dell have long sold or bundled peripherals when a customer wants to buy a computer, the Mac mini acts as an invitation for those buying a peripheral—the iPod—to get a computer to go along with it. After all, this is a peripheral that, in its most expensive form (the $599 60GB iPod photo) costs more than a Mac mini.

So its easy to see the Mac mini as an extension of the iPod platform, rather than the other way around. And this is what offers the greatest threat to other computer makers, for if Apple is able to persuade a significant number of those customers coming into its stores to buy an iPod to walk out with a Mac mini as well, it could gain the two or three market share points that would make it a serious player in the PC market once again.

What will worry the other PC companies is that, in a market where everyone except Dell has struggled to make money, Apple has long been highly profitable with only a 2 percent to 3 percent market share. Should the company boost this to 4 or even 5 percent, its profits—and thus its ability to increase its spending on marketing and development—would also be significantly increased, raising the prospect of the company simply being able to blow away its less profitable rivals.

Such a revitalized Apple could, over the long term, become a challenger to even the 17 percent of the worldwide market that is currently owned by Dell. While Rollins may be right to dismiss Apple in the short term, you can bet that hell be keeping a sharp eye on how well the Mac mini is doing.

Check out eWEEK.coms for the latest news, reviews and analysis on Apple in the enterprise.

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