Why Macs Will Always Be #2

We all love Apple. Well, most of us do. The last few years, especially since the Vista launch, modern media has pushed on us the virtues of owning a Mac. Most of the top names in the tech blogosphere use Macs, and support almost all of Apple’s products. Leo Laporte, Ryan Block, and Peter Rojas are all self-admitted Macs (though they all come clean to using PCs). The “in” thing to do in the industry is to be a Mac. While this may put Apple in a position to become the leader in the PC industry, there are several reasons as to why Apple doesn’t want to and cannot do so.

Apple has long been the underdog of the PC industry. Right before Steve Jobs’ return as iCEO, we can see that this was for a good reason. Apple’s product line-up was a mess and the company was suffering through its worst years ever. Apple started out as a company that was all about the ability to “Think Different.” With Jobs’ return to Apple, this concept was embraced again, and the company started producing computers for the people. The original iMac and iBook are perfect examples: a colored and translucent computer was all about style and appealed to a younger audience. On the other hand, Windows PCs of the day were still considered the computers of choice amongst the tech elite and the business world.

Cut to today

Apple’s lineup of computers is amazing, to say the least. An Apple computer represents the latest and greatest in hardware: processors, graphics cards, RAM, connectivity technology, and enclosure engineering are all top-notch. The Mac lineup caters to both personal and business users and does so with extreme precision. Yet Apple is still the underdog of the personal computer market, having approximately 10% of U.S. market share. And this is exactly where the company needs to and wants to be, give or take a few percentage points.

One of Apple’s greatest strengths is its ability to manufacture both the software and the hardware that combine to make an amazing piece of machinery which outperforms all competition. But this level of performance comes at a price: the company’s second-greatest strength is the margin it enjoys. The last bevy of financial reports have pegged profit margin in the area of 30% or higher. Compared to rival companies such as Dell and HP, that’s an astounding number! It has turned Apple into a company that’s not only debt-free, but one that also enjoys tens of billion of dollars in the bank (and other short-term investments). But why can Apple charge so much more for its computers while other companies try so hard to earn even a 5 percent margin?

How can Apple get away with such a high margin?

1. The single most important reason is that Apple is a top-tier premium brand. Top-tier premium brands, by definition, are limited to the very few that can afford its products. If Apple were to gain a larger market share, it would do so by expanding down-market and diluting itself into something that doesn’t occupy a top-tier premium position. If this were to happen, Apple would not bring home as much money per item.

2. OS X is wonderful software, and the Mac is a great computer because of it. The sheer joy of using the two is thrilling: they just work. But why is that so? How can Apple’s product work in such great harmony while other computers don’t? It’s because of the limited product portfolio that Apple carries, a lineup with very well-known specs. This allows Apple to engineer OS X in a way that works best with the hardware it ships. Contrast that with Microsoft’s Windows, which has to support millions of components and hardware devices, all while not really being sure which combination of processor, motherboard, and graphics card will be used. Yet Apple’s limited hardware carries a price not denominated in dollars: there are some people whose needs are not fulfilled by the limited amount of products that Apple makes available. There are those that would like a netbook, or a smaller headless tower with the expandability of a Mac Pro. Such wants are simply not fulfilled by Apple. If the company were to fill every single void in its computer line-up, there would be a lot more hardware that Mac engineers would have to support.

As successful as it is, Apple still has to fight some uphill battles!

By having such a small market share, Apple is able to make only those products that its loyal customer base demands. In effect, this means that unless Apple finds a strong business case (iPhone, iPod, Apple TV) for certain products, they are simply not on the radar for the company. Many Windows PCs come in form factors and specs that simply do not exist in the Macintosh line-up (Tablet PC, anyone?). Many different manufactures produce thousands of different hardware combinations to make the Windows PC ecosystem as rich and abundant as it is. And while Apple seems like it is totally in control of its fate, the company does have its work cut out for it.

Price

Windows laptops are cheap; ridiculously cheap. A comparably spec’ed machine to the Macintosh line, while not as sexy, can range from $300 to $1000 less expensive. The company does not build OS X to support certain peripherals. Instead, peripheral vendors make supporting software (drivers) for OS X. This awards Apple the right to not have to go out of its way to ensure that every possible combination of peripherals work with its operating system. Microsoft, with its 90 percent market share, tried this once and the net result was Windows Vista, pre Service Pack 1. We all saw how that worked out for them (deservedly or not).

Compatibility is still an issue

On top of that, PCs are the industry standard and run many programs that OS X can’t natively. Many engineering and business applications only run on Windows. Sure there is BootCamp and various virtualization applications. But in my experience, most people prefer to have the same OS at home as they do at work.

Windows 7

Apple has dissed Windows 7 during WWDC 2009 – labeling it as Vista with a different name. That’s a great facade in and of itself. Internally, however, Apple must realize that the new Microsoft OS poses a threat to Mac sales. Many in the industry have cited Windows 7 as the answer to the problems that plagued Vista. Personally, I use Windows 7 on my daily machine and I can attest that this is an OS everyone will want to use. I feel that it combines the ease-of-use in OS X with the software compatibility (games!) that we have come to know and love from Microsoft. If Windows users are satisfied by Windows 7, it doesn’t give people a reason to switch to a Mac.

Still the underdog

Apple’s PR campaign has been an all-out attack on Microsoft. The “Get a Mac” ad series is very direct, calling the Windows world “stuffy,” filled with problems and vulnerabilities, and with people whose top priority is number crunching. Apple is able to do this because it is the underdog in the personal computer space. It is the David that everyone cheers for, versus Microsoft (the Goliath). Could you imagine if Microsoft took the same approach in marketing its products versus those of Apple? The closest and most effective approach the team in Redmond has come up with thus far are the “Laptop Hunters” series, which just calls MacBooks what they are: more expensive.

When it comes to malware, being small is an advantage!

A small market share also works to Apple’s benefit when it comes to malware. As a hacker/virus writer, why go after such a small installed user base when Windows machines are so much more abundant? Macs aren’t virus-free because they are inherently more secure. They’re free of malware because hackers don’t care enough right now. There is not enough money to be made by hacking Macs. And if hackers were to target the Mac, Apple would be forced to respond much faster in patching its software – something the company is known to not take very seriously.

The long and short of it is that first, Apple would have difficulty breaking out of the number two spot in the operating system world. And second, being number two is not necessarily a bad thing: considering the baggage that being number one brings, being at the top would put the company in a place it does not want to be. If OS X were the dominant force in the computer world, Apple would have to deal with the same interoperability issues that Microsoft faces today with Windows. In the race for the computer dollar, Apple is a distant second: and that’s where it should stay for the benefit of its customers and for its own good. That is, if it wants to hold on to its extremely high user satisfaction ratings. But will it be able to stay second? And if so, for how long?

Posted in Apple, Business, Decisions, Featured, Mac, Marketing, Microsoft, Operating Systems, Predictions, Software, Speculation, Windows 7, Windows Vista