How Far Can Apple Take Its Consumer Crossover?

 
 
By Brad Gibson  |  Posted 2005-01-12
 
 
 

How Far Can Apple Take Its Consumer Crossover?


The Mac mini will help Apple Computer increase its market share, and the iPod shuffle will solidify the companys firm grip on digital media players. Thats the consensus among many analysts who watch the technology industry for a living. But while the cheaper Apple products look like winners, some believe they arent for everyone.

"Apple continues to show strategic flexibility with its lowest-priced Mac ever and an iPod at $99 with more capacity than I expected," said Merrill Lynch analyst Steve Milunovich. "I continue to think Apple is building a sustainable consumer electronics franchise rather than just getting lucky with hot products."

Steve Baker, an analyst at NPD, said that while he does not think the Mac mini will displace inexpensive PCs such as those from eMachines and Hewlett-Packard, it will gain market share slowly as "an adjunct U.S. $999 notebook."

"Its not a volume PC, "Baker said. "Its aimed squarely at the consumer adding multiple PCs to the house and who want a small form factor."

"I dont expect the $499 Mac will greatly affect purchases of more powerful Macs," said Joe Wilcox, an analyst at Jupiter Research. "But I do see it as a potential suitor to Windows users, particularly those that have iPods and enjoy the experience delivered by Apple.

"Apple might even increase market share," Wilcox added. "That said, I would discourage anyone from overexcited expectation that the Mac will surge against Windows PCs."

Baker said he doesnt think the Mac mini is a "volume shovel-ware product" that will be sold at Wal-Mart, for instance. What he sees are interesting uses and users for the inexpensive Mac.

"I think youll see a lot of uses for this product, given the form factor and it being so quiet," Baker said. "I can see this in a lot of environments that you normally wouldnt see. And I think education will be a big buyer."

"I believe the Mac mini will sell well to both PC switchers and Mac lovers wanting to put iTunes, iPhoto and iVideo into their entertainment room," Milunovich said. "The lower price point could entice PC owners to consider the Mac, particularly those with iPods."

Read more here about the Mac mini, the iPod shuffle and other new products making their debut at Macworld.

"The Windows market is huge, with massive, entrenched infrastructure," Wilcox said. "Apple could gain a few points of share—and the planets will have to align just so, as they appear to be moving—but doubtfully denting Windows PC market share in any immediate significant way. Still, if the mass-market strategy succeeds and ekes out even a few percentage points of share, the significance could be huge for Apple."

Baker said he thinks Apple will slowly gain "marginal" market share in the next 12 months, but he remains cautious.

"This is not the PC to make them competitive with HP or anyone," Baker said. "I think its going to be a difficult sell in a mass merchandiser because they havent bundled it with a monitor and keyboard. Best Buy could probably sell it if they wanted to."

Wilcox said he thinks distribution could be the deciding factor for the Mac mini.

"With iPod, Apple got many of the most important features right—size, battery life, functionality and, most importantly, synchronization," Wilcox said. "But iPods success also comes from good distribution. Consumers can buy the music player in thousands of retail outlets, not just Apple retail stores or CompUSA.

"HP opened up Radio Shack, adding thousands more available locations. If Apples initial target audience is the Windows user, then the iMac must be available where that consumer shops. Distribution needs to be broader than just Apple stores or CompUSA."

Next Page: Not a take-home Mac.

No Take


-Home Mac"> Baker also said that despite its price, retailers and customers will quickly realize that the Mac mini will end up costing a lot more before it ends up on a home or office desktop.

"Its not really a take-home Mac at $499," Baker said. "Youre going to have to add stuff to make it usable."

Do Apples new products make the grade? Click here for a column.

As for the flash-based iPod shuffle, starting at $99, Baker said he thinks the price is right.

"It seems to me to be targeted at those who are multiple iPod owners," Baker said. "I dont think its likely to cause cannibalization of the iPod mini. It will be a good solid product, to help them get additional [market] share."

Baker was unwilling to take a guess at what type of share Apple could get in the first few months, but did say the product will have an impact as soon as it is available through the majority of its mass retailers such as Target, Sears and Best Buy.

"Apple could take the top position in the flash-based MP3 market in the next few quarters," Milunovich said.

"This is a market killer at $99," Wilcox said. "Its very aggressively priced."

"There are two buyers for this," he said. "Consumers who wont pay $249 for an iPod mini, and existing iPod owners who want something small to run with."

Wilcox said its important to remember that Jupiter surveys have clearly shown that most U.S. consumers have far less than 1,000 songs they would want to listen to on a regular basis, "so the capacity of one gigabyte will be plenty for most," he said.

But for Wilcox, the success of the iPod shuffle—without a display—will come down to how easy it is to use its iTunes music software.

"If iTunes handles the workload to organize, shuffling will be fine," he said. "If it doesnt, shuffle is going to be a lot more cumbersome."

Motorola is previewing an iTunes phone. Click here to read more.

Baker tempered his optimism about the iPod shuffle based on what has happened to Apples MP3 competitors, who in the past have released players with no display.

"Apple is taking a big chance going without a screen," Baker said. "Most MP3 players that came out without screens came back having one, like the original Creative MP3 player."

He said the iPod shuffles lack of an FM radio could be another negative factor.

"If the iPod has reached iconic status, this product will start snatching share immediately" Wilcox said. "But it has to be as widely available as the iPod and iPod mini."

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