Innovate or perish: The challenge facing Apple's new Intel iMac and MacBook

San Francisco (CA) - From this point forward, Apple Computer will have to innovate toward a unique and perhaps unparalleled computing platform, if the company expects Macintosh to remain a competitive force in a rapidly changing consumer computer market. That's the opinion of David Daoud, IDC's research manager for personal computing.

"A company that has a 4% market share cannot afford remaining stable from a product line perspective," Daoud told TG Daily this afternoon. "They need to innovate, or otherwise they will simply just disappear."

The little remote control, the media player front end, the embedding of the computer in a thin, flat panel behind the widescreen monitor, are all very nice. And the addition of Intel's Core Duo processors are, in Daoud's opinion, a tremendously positive step. Both the new iMac desktop units and the completely new MacBooks "certainly have all the nice features, like Front Row [media player], iSight [built-in camera], but they need to do a little more than that if they really want to gain market share in substantial ways," said Daoud.

You can almost hear the Macintosh proponents' outcry: How could today's announcements not be innovative enough? The company has made an unprecedented platform shift from an architecture derived from the Motorola concepts on which the original Mac was built, to a platform that doesn't even count multi-Byte numerals in the same Byte order. The new notebook machines will feature dual-core processors as standard equipment, along with features that have been called "innovative" and "competitive" in the past, like Airport WiFi and Bluetooth connectivity. And today, Apple CEO Steve Jobs announced his company will be completing its transition to all-Intel processors by the end of 2006, as much as half a year ahead of schedule. How can this not be considered innovative?

The problem facing Apple is innovating the Macintosh to a degree as substantive and as market-changing as its innovations to the iPod. Consumers interested in new systems are going to be comparing the new Intel-based Macs with the well-established established array of Intel-based PCs, feature for feature. At that point, they're going to discover some very familiar features - half-a-gigabyte of memory, 80 Gb hard drive, ATI Radeon X1800 graphics card, and others - and then compare the new MacBook Pro's entry level price tag with a comparable system from Dell, which Daoud calculated at about $1,400. Add-ons for such a system, like Bluetooth, WiFi, camera, and maybe even a little remote control, could bring the Dell system up to about $1,750.

Apple has slimmed down its "Macintosh premium" - the extra price consumers will pay for the right to say they own a Mac - to a gap of perhaps less than $200, assuming that these consumers necessarily want all the MacBook Pro's high-end features. Is this reduced premium enough to convince current or would-be Windows notebook users to make the jump? IDC's Daoud says no.

"I think any analyst out there who expects Apple to duplicate its success from iPod with the computer line, will be very mistaken," Daoud remarked. "The iPod sets the stage for a new industry, a new market. The PC is a very mature, very well established industry, and there are several very gigantic companies out there, and a host of small companies that are extremely innovative." So whereas it is much easier for Apple to define the theatre of operations for the entire portable music market, that authority does not automatically translate into the PC market, where much of the true innovation, some believe, has already taken place. "It's going to be very difficult for a company like Apple, or anyone, to really move market share beyond one or two points. It's just not going to be possible."

For Macintosh to gain market share, Daoud pointed out, someone else has to forfeit it. In most markets where market share is captured at the expense of a competitor, one company's innovation directly targets another company's leadership strengths. In the automotive market, for example, Dodge's recent re-introduction of the Challenger design at this week's Detroit Auto Show, and Chevrolet's dabbling in the waters of reinventing the Camaro, both appear to be moves directed at Ford's very successful refresh of the Mustang (one of Ford's few recent successes). In the PC market - even in portable computers - one computer tends to look very much like the next.

But this year, that's changing. At CES 2006, the major players in the notebook market - including Toshiba, Samsung, HP, and Sony - indicated they're searching for that breakaway formula that would enable them to carve new market niches for themselves. All four of these manufacturers are dabbling with high-end features, such as high-definition optical discs, WiMAX connectivity, and even Dolby Surround Sound, all of which contribute to a premium price tag. The premium end of the market has typically been Macintosh territory.

MacBook Pro doesn't appear to be targeted toward any of these high-end competitors at present. Instead, says Daoud, it's geared toward Apple's base, as well as heavy multimedia users who may already be familiar with - if not enamored with - the Apple brand. So MacBook Pro, he said, "really does not break into a new market. It really is a continuation of a product shift from the previous processors to the new ones, beefing up the system with applications that talk very well to the iPod world. But I really don't think that this is going to duplicate the success that we've seen with iPod, into that computer market."

"What you will see [is] a number of innovative products entering the PC market," Daoud continued, "that are really going to be branded as 'media centers' - various forms of PCs in new form factors, that are going to make the market pretty interesting, very diverse, and extremely competitive...Each of the vendors out there right now are introducing very interesting systems, from tablet PCs to media centers to things that can replace your stereo system and television." And ironically, Intel may be doing the most to help out these competitors, through the advent of the Viiv media center PC specification, which embraces the Core Duo specification well enough, but also requires Windows Media Center Edition.

"It goes back to a very critical point, which is innovation," IDC's David Daoud told us. What leads Apple to succeed in the portable music market is the fact that iPod has defined the functionality that consumers expect in that market, even from competitors. In the meantime, Apple's new computers "really are nothing else than refreshes. They are good systems, they are strong systems, they have new stuff, but so does everybody else. So it's a field where everybody is on equal footing, as opposed to what Apple did with the iPod, where they pretty much took the leadership role and created that market."