How to Grow the Market – A Proposal

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Date: Friday, November 9th, 2001, 14:14
Category: Archive

Apple should take a new strategy. The four product computer matrix is a good basic structure, but there is logical room for a subdivision of one quadrant of that matrix and that is the focus of my idea. In short, a two part iMac strategy.

Apple should take a new strategy. The four product computer matrix is a good basic structure, but there is logical room for a subdivision of one quadrant of that matrix and that is the focus of my idea. In short, a two part iMac strategy.

Apple needs to build market share and to do that, they must combat effectively the market effects that Microsoft and Intel products enjoy by their de facto dominance of the PC marketplace. There are two ways to combat that dominance, marketing and price. Heretofore, Apple has chosen to only exercise the strategy of marketing. I believe that this strategy has been extended as far as it can reasonably in the current market. The company has done an excellent job of creating compelling products and finding better ways to present the products to customers. There have been failures as there always will be when new things are tried; but overall, the record has been great and the only question is: what next?

Currently, there is an excellent high end laptop with a best available anywhere screen and great power in the Titanium G4. There is a very capable desktop line featuring 1394 and built in DVD burners in the PowerMac G4. There is the best value in portable computing in the iBook. And there is the iMac. The iMac was definitely a breath of fresh air on PC design when it was introduced nearly four years ago, but let’s be honest, everyone is used to it now and it will never be the exciting new product that it once was. That, however, does not spell failure; it spells opportunity.

Every product line needs a model that people are familiar with and trust. Apple has that and nobody else in the industry does. I would venture that the iMac has higher name recognition than any other single computer model in the entire industry. The only other technology that even comes close to my mind is Sony’s VAIO line which most people don’t understand and nobody can pronounce. So what’s the point? To grow market share, you need a product which you can sell at low cost and still make money on. Apple can’t afford to sell products at a loss to increase market share. As a shareholder I, for one, won’t allow it. However, Apple may not be able to maintain a 30% gross margin on every product if they are going to grow their market.

I, therefore, propose to split the low end product in two. The existing iMac design should be continued with regular feature bumps and memory/drive capacity increases in the same form factor with the same colors/flavors, etc. This is the now the Honda Civic of the industry and should be treated as such. When Honda comes out with a new model of the Civic, they don’t rename it. They throw a party and Consumer Reports gives it a best buy and everybody goes home happy. You need a basic car that is dependable and comfortable, you buy the Civic and it runs forever.

The Honda Civic though, no longer turns heads by itself. That’s why Apple needs to drop the price on it. Stand alone 15″ monitors are going for $130 to $160 at CompUSA right now, so figure that as the base cost for the enclosure and the CRT and associated electronics. 40GB hard disk is selling for $130, combo CDRW/DVD drive is not listed on CompUSA’s website, but is a $150 upgrade on Apple’s site from a straight CD-RW, so figure it at $200 cost to Apple. Motherboard, processor (old technology), RAM, keyboard and mouse, maybe another $150 total. That gives us about $640 in product cost based mostly on pricing from CompUSA, which already includes a healthy profit for CompUSA. If I’m guessing anywhere near correctly on this, that means that Apple should be able to sell the iMac entry level at $600-$650 and still make money on the deal. All initial R&D costs have long since been amortized on this model and since the motherboard is based on the UMA concept, ongoing R&D expenses would be minimal. The least expensive iMac currently on the Apple webstore is $799. The economic question is how many more people will buy into the Macintosh experience for $200 less than current pricing and therefore become potential long term customers?

Now for the second tine of the fork. The PowerMac G4 is a great product, but it’s the Honda Accord to the iMac’s Civic. It’s distinguished, powerful, comfortable, and stately enough to be driven by attorneys. It also is the only option that Apple provides for people who want a larger screen than 15″. The cube was a failure because it was a solution in search of a problem, but there is a market segment which is important to the continued growth of the Apple market which is crying for a new product. I speak of the gamers.

Gamers want a machine with the power of the G4 chip and the hottest graphics card available, but have no use for expansion slots or colored plastics or anything except as much RAM as the box will hold; but the price must be right. I won’t go into a detailed cost analysis on this one, but an opaque or translucent enclosure with a standard AGP connector so that newer graphics cards can be installed over the life of the machine, lots of memory expansion options, and a fast G4 priced around $1000 would be a huge winner with the gaming community and a very good mid level machine suitable for a number of vertical market applications. PCI expansion slots would not be required for this machine, as they are not needed on the iMac, but the case must be large enough to accept standard sized graphics cards. I personally think that a vertical cabinet is the way to go with this product, but something different than a mini-PBG4 enclosure.

This would be the Honda Prelude for Apple’s lineup. Sporty, but practical enough for couples to use and really flexible people to get in the back seat. This machine would appeal to gamers and people who need a larger monitor without the expense of the PowerMac G4.

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