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Piper Jaffray: The iPod Halo Effect is Real and Growing

by , 11:15 AM EST, November 24th, 2004

Much has been said of the iPod's "halo effect" -- the notion that strong sales of iPods will spill over into sales of Macs. Analysts have routinely cited the factor in bolstering their outlook of Apple, but to date little proof exists that the halo effect is in any sort of effect (most recently, Apple's global market share for sales of new systems fell to a paltry 1.8 percent).

While sales of Macs have been holding generally steady quarter after quarter, hovering around 800,000 units, a survey conducted by Piper Jaffray, the brokerage firm that earlier this week raised its target on Apple to $100, found that 6 percent of iPod users have in fact switched from Windows to Mac, and that another 7 percent are planning to make the switch.

C|NET notes that Gene Munster, a senior research analyst at Piper Jaffray, believes that the iPod halo effect is only beginning. "We're in the very early innings of a multiyear trend," he said.

The Mac Observer Spin:

A lot of controversy surrounds the halo effect and whether it really exists. Steady (and not growing) sales of Macs over the last couple years suggests that if there has been a halo effect, that without it sales of Macs would have actually declined. If we assume that half of iPods are sold to Windows users (the real number is likely more), then 3 million iPods have ended up in the hands of Windows users, which using Piper's 6 percent figure translates into 180,000 switchers. Unknown from Piper's survey is whether the 6 percent of iPod owners who had switched made the switch before or after getting an iPod, as the former would discount the halo effect. We'll have to see how holiday sales of Macs fare this year, which will perhaps be the most telling sign yet of a halo effect--especially since Apple recently refreshed its consumer iMac and iBook products, making them more appealing than ever.

Observer Comments

Show: Subjects Only | Full Comments
View Name:Guest
Subject: I just switched
Close Name:klaatu Posts: 28 Joined: 23 Jul 2003
Subject: The Halo Effect is real

I can say that I know at least one couple who have switched because of the iPod. They bought 2 iPods, and are now planning to buy a new iMac G5 next month. Simply because of the ease of use of the iPod.

Close Name:Mace Posts: 9163 Joined: 07 Aug 2003
Subject:

Sales of iMac = intrinsic + halo effect

Last quarter iMac sale = 50k. If current quarter is 150k, what portion is due to halo effect and what portion is due to intrinsic? We need to estimate the number upfront otherwise we will be guilty of rationalizing the number.

My estimate is intrinsic = 100k, halo effect = 50k, total = 150k.

Great, someone just said 6 months after buying an iPod, he bought a Mac.

Close Name:Biff Posts: 1479 Joined: 08 Apr 2004
Subject:

I haven't actually seen a halo effect from the iPod. But what I am seeing is just a general increase in Mac interest. A few years ago I would never have considered a Mac and I only knew 1 person who owned one. Today, slowly, 1 by 1 people at work and friends are getting a Mac. I have a number of friends who don't have lots of extra money hanging around but are trying to save up for a Mac. These people are "power user" types and have been attracted by OS X and the amaing hardware as opposed to an experience with an iPod. But it seems logical that your average "check email and chat" person isn't going to feel married to Windows, so the enjoyment they get from their iPod will probably get them to look at Macs. So all in all I think we will see the number of Mac users grow significantly but slowly.

All this halo talk has got me hankering to fire up the ol' XBox.

View Name:Guest
Subject: Age differences
Close Name:macnut Posts: 52 Joined: 28 Jul 2004
Subject:

This is something that is going take patience. Like the analyst said, this only the beginning. The iPod only truly began to take off in sales within the past 1.5 years - at the introduction of the iTMS and 3G iPod. Also, many people are not going to throw out a brand new computer and will wait until it's upgrade time before buying considering to switch.

This quarter will be good for Apple, no doubt about it. But it will be within the next two years, when we will see more momentum building up behind the Mac.

Patience is a virtue. Remember that. Apple has.

Close Name:mrmgraphics Posts: 824 Joined: 05 Sep 2003
Subject: The Redmond Effect

+

In addition to a real or perceived halo effect from the iPod, I've seen first-hand lifetime Windows users considering a Mac for their homes due to The Redmond Effect; namely, the security issues plaguing Windows. People are sick of the worms, viruses, pop-ups, and spyware, making the switch to Mac all the more attractive.

As the resident Mac expert at my day job, I'm getting a lot of inquiries regarding Macs, especially compatibility questions with Office, so I know the interest is there. Also, I agree with what Guest said regarding age differences. Older people -- myself included (39) -- no doubt remember when Macs used no open standards, when compatibility with Word required translation filters, and when networking with Windows was a nightmare. Those same people look at Macs -- with no knowledge of OS X -- and have their impressions shaped by the beige-box years of the past.

Younger people know an Apple of iMacs, iPods, iBooks, and OS X. Plus, young people today are truly the Internet-world wide web generation (I used to work for CompuServe...remember them????), and nothing equalizes platforms quite like the web.

Add to that the fact that Apple is now a media darling (and no longer that "beleagured" computer company), and it's no wonder more and more people will be moving to the Mac. Everything is working in Apple's favor right now, even their ability to keep up with demand. That's about as good a shot at increasing market share as they're going to get.

Close Name:oldmac Posts: 226 Joined: 08 Oct 2003
Subject:

I have also seen the halo effect directly myself. My daughter has a classmate who was all PC. Then the classmate got an iPOD, then she gave up her PC habits and got a 15in Powerbook, and today she is a total convert and actively recruiting others to switch.

The other indication is that the Apple store in Chestnut Hill Mall in Boston is always mobbed. There is a lot of interest and people are going to the Apple store. The strange thing is that the Apple displays at the Micro Center in Cambridge and Comp USA elsewhere in greater Boston are not busy. If one just go to those places one would get a very distorted picture of how the Apple products are selling.

View Name:Guest
Subject: What happened to "beleaguered Apple"?
Close Name:usvwro Posts: 26 Joined: 06 May 2004
Subject: Halo effect?

Likewise I don't know if there is a halo effect, but definitely there are long time windows users switching. In my company I was the lone Mac voice in the wilderness. Now I know 5 people including our resident IT guy who have bought Macs. Even more telling is their ordering 8 iBooks for the route guys to use in place of their existing wintel laptops. (This is a company with over 300 wintel units in use.) <G>

I have seen similar things happening among friends and acquaintances. My youngest is 20 and solidMac fan. She has personally had three of her college classmates switch after coming over and seeing her iMac FP in use, with an iPod and an iSight and windows compatability.

There is a shift going on with Joe and Suzie Public. The next couple of years should tell a lot.

Close Name:podman Posts: 171 Joined: 14 Feb 2003
Subject: Halo

Just after I recieved my G5 iMac I bought a copy of Halo and have been suffering from it's affects ever since!
Happy Thanksgiving all!

Close Name:acdc1174 Posts: 677 Joined: 16 Apr 2004
Subject: Re: Halo

Quote
podman wrote:
Just after I recieved my G5 iMac I bought a copy of Halo and have been suffering from it's affects ever since!
Happy Thanksgiving all!


I am suffering form the Halo 2 effect...not the same thing I don't think.

Close Name:HugoMe Posts: 7 Joined: 24 Nov 2004
Subject: cycles (Good advice...)

A lot of people are forgetting that Apple has sold in history mainly to his established base. This means that the profile of sales is following the pace of introduction of successful new products.
Last peak was in 2000 (7983 M$, +30% on previous year) with the introducton of iMac
i believe we'll see the same effect in 2005. Lot of people replacing their old 2000 imac with the flat screen g5 imac of 2005.
As a result sales will go up and the stock price will soar because people will not be able to part this cycle effect from the halo effect.

Close Name:Nom Posts: 58 Joined: 07 Jul 2004
Subject:

The article above highlights a common confusion: "most recently, Apple's global market share for sales of new systems fell to a paltry 1.8 percent". If the total units sold per quarter were static and 'unit' = computer for desktop use, then this would be a cause for concern.

It's not.

The first question is whether Apple is selling more units than previously. This is generally true, although there have been some hiccups. So more new Macs are being sold than previously. Healthy.

The second question is whether Apple is even competing in the same market. In my workgroup, everyone's personal machine is a Mac laptop. However, we've also got a couple of XP boxes (specialised hardware design applications) and a bunch of low-end servers running various Unix varieties. The two XP boxes could be considered lost sales, but there was no choice since the particular application isn't Mac enabled. In contrast, the Unix boxes aren't lost sales to Apple because they're not producing cheap PCs for Unix hacking; their only server product is in a different league.

The interesting question is how many people are buying Macs for their desktop vs other brands, not total sold.

Close Name:Biff Posts: 1479 Joined: 08 Apr 2004
Subject:

Quote
acdc1174 wrote:
I am suffering form the Halo 2 effect...not the same thing I don't think.
Thats the same effect that I am suffering from!

Close Name:DawnTreader -   TMO Staff Posts: 13800 Joined: 04 Jan 2002
Subject:

Quote
Mace wrote:
Sales of iMac = intrinsic + halo effect

Last quarter iMac sale = 50k. If current quarter is 150k, what portion is due to halo effect and what portion is due to intrinsic? We need to estimate the number upfront otherwise we will be guilty of rationalizing the number.

My estimate is intrinsic = 100k, halo effect = 50k, total = 150k.

Great, someone just said 6 months after buying an iPod, he bought a Mac.


I suspect iMac sales will be 250k or more for the quarter.

Why?

Apple has 5 to 6 weeks of channel inventory to fill and there is much pent up demand from the 3rd calendar quarter. In terms of the halo effect, it will first be seen in iBooks, then iMacs.

iPods, Windows virus issues and the maturity of Mac OS X all add to an increase in sales and a big gain in share this quarter from a lack of iMac supply in calendar quarter 3.

Close Name:Mace Posts: 9163 Joined: 07 Aug 2003
Subject:

So you are expecting iMac + eMac = 250k + 100k = 350k.

Quote
... In terms of the halo effect, it will first be seen in iBooks, then iMacs...
Agreed. I was giving an quantifiable example.

I would treat any increase in unit sales of iBooks over previous quarter, and any increase over 350k iMacs, as halo effect.

Edit: Reflect the 100k eMac



Last edited by Mace on Thu Nov 25, 2004 3:50 am; edited 1 time in total
Reply | Quote
Close Name:DawnTreader -   TMO Staff Posts: 13800 Joined: 04 Jan 2002
Subject:

I say 250k iMacs, 100k eMacs.

Last year Apple sold 829,000 CPUs in the Christmas quarter of which 227,000 were iMacs/eMacs. I see well over one million Macs shipped this quarter, perhaps over 1,100,000 CPUs.

View Name:Guest
Subject: It could be.....
Close Name:tommy_yanez Posts: 4 Joined: 26 Oct 2004
Subject: "Halo effect" may be working

Maybe some people that cannot afford a new Mac are buying them refurbished/used. It doesn't count for the market share because it's not a new computer but he/she does count as a "Switcher". In this case, the "Halo effect" is working, even though the market share is not growing.

P.S: Sorry for the duplicated post, but i forgot to register before posting my opinion.

View Name:Guest
Subject: That's exactly what happened with me ...
View Name:Guest
Subject: A way to accelerate the halo effect
Close Name:Mace Posts: 9163 Joined: 07 Aug 2003
Subject:

According to Appleinsider, iMac G5 is outselling iBook by 5 to 1. I went to AppleStore Europe and noted that iMac G5 is ranked #2, iPod mini #3 and iBook #5. Also noted that over 700k iMac was sold in Q1 2000, total Mac sold = 1,377 units. So 350k for iMac G5 may be a low estimate.

Note: In US, all top 10 are iPods and its accessories.

View Name:Guest
Subject: What exactly is this 1.8 percent.
Close Name:treadlightly Posts: 17 Joined: 22 Nov 2004
Subject: One More Sold

I took my father in law into the Apple Store at Woodfield Saturday and he walked out with an iMac. It wasn't the halo effect, it was two years of hard work to convince him. He had recently decided to get a new computer. I thought I had him and then he announced he wanted Windose again. His wife immediately told him that was a bad idea (I had already convinced her). On the way in to Woodfield, she told him that she wanted to buy him a new computer for Christmas since he was so frustrated with his old one, but she'd only pay for it if he got a Mac. Between my answering EVERY objection he threw at me and his wife's kick in the pants, he got the iMac.

On the other hand, my company's computer consultant (a die-hard windose guy) told me that he has a client whose daughter is insisting on a Mac. They are the "IN" thing now, and I'd guess that's the halo effect.

View Name:Guest
Subject: Bougt a mac several months ago
Close Name:Mace Posts: 9163 Joined: 07 Aug 2003
Subject:

Welcome abroad Guest. Enjoy your trip and iMac G5.

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