Redefining "square one," and then starting there all over again
The "Wintel" PC market, as Mac users tend to call it, is made up of vendors whose chief weapon of competition is price point. When one company comes up with a discount, others follow within weeks; when another company creates a reason to charge a premium, its competitors find a way to counter quite soon. If Apple is truly going to compete, then to begin gaining a foothold while it carves a new innovation path for Macintosh, Daoud believes, is to begin playing this same game. "If they really want to go after the mass market, he told us, they're going to have to address the pricing element, and that is very critical. At $2,000 entry level, it's very expensive."
In the past six years of data that IDC has collected on Apple's marketing of Macintosh, Daoud said, there emerges one very clear pattern: "What you can predict from Apple is that every two quarters, there are refreshes. They move to a higher configuration for the same price, roughly, and then whatever they released two quarters ago, prices will drop." This six-month product cycle, he noted, is very compatible with the product cycles emerging from Intel in its processor line - perhaps more so than with the PowerPC. As processor capabilities change, he said, Apple will find it has some wiggle room to shrink that premium: "Eventually the prices will decline over time, there's no doubt about it. It's a matter of really basic competitive position."
From there, Apple has to change the game. "I think they've made a very good step in terms of lining up their models to the Intel platform," said Daoud. "That's a very good first step. The second step is, how do you then start redesigning the product, making it as functional as the iPod, differentiating it from your regular PC, making it a true media center experience - perhaps at some point, introducing a tablet PC? How do you go beyond your traditional PC?"
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Intel's introduction of its own Viiv platform for Windows PCs is proof enough that the market is looking to move away from the traditional consumer-oriented PC. If Apple intends to make a similar bold move, it already has three factors in its favor, Daoud says. One is the Mac OS operating system, which is comparatively stable. Second is the front end, the user interface - Apple's traditional jewel in the crown. Apple is still the company associated with ease of use. Third is the very intriguing fact that Apple now knows how to define new markets - it's already done it, with spectacular success. "The company is a model that a lot of competitors in other industries should follow," said Daoud, "i.e., take ownership of what you do, take ownership of your market."
Apple has already defined a standard for itself. But Macintosh is, in many respects, an aging standard, even as it makes its exodus into the Intel realm. "The question is," asks Daoud, "do you stay there or do you move ahead of the game? I think Apple is in a very good position to change that industry drastically, make real changes, for several reasons: One, they have no option other than to innovate. They don't have any other option for them to succeed, except through innovation."
A second reason, he said, is that the horizon for the PC market isn't exactly clear these days. "What is the future for this big consumer computing world?" Daoud asks. "It's very hard to know. You see, right now, competition is not coming from your traditional PC vendors only, but it's coming from other bizarre sources." While we talk about Apple facing competitors like Toshiba, Dell, and HP, as the media center PC standards emerge, it's quite possible that all of these players may be facing strangely stiff competition from players from left field, like Comcast, TiVo, and oh-so-ironically, Motorola. If a competitor owns the cable leading into your house, Daoud projected, it could make a play for the entire home connectivity market by arguing that expensive PCs are unnecessary, and propose a kind of home-oriented ASP service instead.
In such a bizarre environment, it would be nice to own a service that has a foothold in the distribution of content. And what do you know, Apple already does: iTunes. "I think what Apple is doing is the right thing," Daoud said. "I think it's looking at the way the market's moving, and it's playing its cards accordingly, one of which is, how do you first secure a presence in the content world?" Apple's announcement of the extension of its content deal with NBC Universal helps in that regard; the company's burial of Steve Jobs' perennial hatchet with which he has attacked music publishers in the past, would also go a long way. "Then perhaps [Apple should] deal with the issue of hardware and the pipelines that are going to carry this content to the end user."
Focusing on hardening Apple's content channels is critical now. The next step, which will come soon, is to work with Apple's suppliers to minimize the cost of producing "boxes," to use the cable providers' term for them. "I think companies like Apple have identified that a good mix of content and hardware may be a winning formula," Daoud concluded. "We'll have to see. On the computer side, they're making the move towards Intel, a very good sign; they have relationships with software makers, including Microsoft, which is [also] a good sign. So let's see where they're going to go... I think there has to be a lot more in planning than what was announced today."