On The Flip Side
by Michael Munger
Apple Is Beleaguered! Everybody Off The Bandwagon!
December 27th, 2000
Uh oh. Apple is in trouble again. AAPL is sinking. Channel inventory is larger than usual. Advertising has slowed down in the Mac publishing industry. Apple is having difficulty figuring out what to do with its processor. Many anti-Mac pundits are snickering and suggesting that finally, Apple will go down for good. Everybody run, quickly, before it is too late!
Wait a minute. Are we reacting a little fast? Maybe, maybe not. Are we sure what reasons are causing Apple to go through these difficulties? We should discuss it first. This is the place to do so :-)
I am just a Mac columnist, I do not work inside Apple, and I do not have any Wall Street insider friends. None of that. I will however give you my spin about the issues and tell you why I think that Apple goes through times that are difficult and why the present situation is very complex.
As I just said, such situations are complex and nobody could pretend to grasp all of them. I will expose some possibilities, and I could certainly be wrong about some of them. If you watched the US elections soap opera, you saw that the smartest pundits and legal analysts can be completely off the wall with most of their predictions!
Strike 1: US economy and industry troubles
Recent reports tell us that the US economy is dwindling. It has slowed down enough for many analysts to cross their fingers and the new president-elect of the United States to express his (perhaps politically colored) concerns about the issue. Rising energy costs could point to the root of the problem.
Such an occurrence is way beyond Apple's control. If the economy slows down, if corporations buy fewer computers and if individuals are not in a position to buy... what can Apple do? It can cut prices or try to go with the flow by modifying its offer, but it remains difficult. Demand for personal computers has also been down lately and it seems that most companies' attempts to turn things around aren't working either.
Is it a problem of saturation? Perhaps. The personal computer industry enjoyed tremendous growth in the last decade and if people decided to settle for what they already have, it would be hard for anybody to blame them. After all, once you bought all the hardware and software you need, you can stay away from the upgrade cycle and let your computer live for 5 years or so. It is possible that this is a symptom of the industry's woes. It would not even be logical to expect everybody to keep replacing their computers every 2 years once the industry conquered the markets that were available.
The matter could be well beyond platforms, therefore beyond Apple's control.
Strike 2: Wall Street
As many people know, Wall Street rarely forgives anything. Apple issued a profit warning last September, and recently said that it would report a loss on January 17, 2001. We also found out that the company's channel inventory built up to unusually high levels. What will happen next remains to be seen. It could go in different directions, from the most positive to most negative of expectations, and predicting it accurately is difficult.
What we know is that Wall Street sent APPL down, and made it attractive for any investor who likes to pick up stock when it is bound to go up in the future.
When your stock goes down, the perception factor plays against you. When I invested in an RRSP, I started to grasp what many investors must feel like. I started to think like them, at least more than I did in the past. I used to think that being profitable was enough for a company to do well in the financial arena. I am not so sure about that anymore. What if it takes more? What if it takes expansion to keep investors happy? As an RRSP investor, I want the man in charge of my money to invest only in stocks that will bring the best possible profit.
Therefore, companies that remain profitable are certainly in nice positions when they are concerned, but I want my investment to get the best possible return, so profitability is not enough for me. I need top performance. It requires more than profitability. It means that a company's stock has to go up, and up, and up, and up. Enough for me and millions of other modest investors to make money out of stock they indirectly invested in.
To be in demand, you have to be hot. Profit is not enough, you have to be... HOT. If you do not expand your market share, if you do not increase your profits constantly and do not expand further, you will be less attractive. Profitability is nice, but it has its limits.
Expanding your markets and profits is generally a good way to be hot, while remaining profitable may not be enough. Being profitable is nice, but it does not always make you hot in Wall Street. Of course, this does not apply as a universal principle at all times for everybody, but you can catch a glimpse of what I mean... because it is always better for Apple to be hot in Wall Street than to just aim at being profitable.
Strike 3: Apple's backyard
One gigantic aspect of Apple's business trouble is that there are places where Apple could substantially improve things. Style is not enough for the iMac and (apparently) the G4 Cube to bring in incredible sales. People feel that Megahertz mean a lot, and Apple's processor line has barely changed since September of 1999.
Many people complain about Apple's attitude toward its customers. I personally know an IT specialist who works at schools in South Dakota, and he had quite an experience with Apple's staff... Apple's position with Mac Web sites is also questionable. Sites have the impression that they are being punished for their sometimes-critical behavior when they are an incredible publicity tool for Apple.
Also, Mac OS X has a strong Unix flavor and quite a few users feel that the switch will not be as easy as they wish. What scares a few insiders is that Apple may become yet another example of failure to bring Unix to the masses. The quick answer against it in the Mac community could be more than just a knee-jerk reaction. If my name was Steve Jobs, I would feel concerned. Very concerned.
Salon.com came up with a series of 3 serious essays on Apple's fumbles. Many Mac users complained about them, but let me tell you that those writers are right on the money. The best of the three articles is the second one, which exposes the case of display connectors. Apple fumbled on many issues, and it is time for its users and the industry to realize it.
Salon's Chris Scott's comment struck me: he said that he would have problems recommending the technology to friends after his Apple Display Connector episode. He is right. How can you recommend Apple's technology to an unsuspecting friend unless you can be there at all times to guide the customer's purchase and prevent a hardware compatibility disaster caused by, say, the Apple Display Connector?
Before I finish this, I feel like telling you two things that make Apple's business model tougher to get working.
The first is that Apple and business users seem to live in different worlds today. Microsoft itself targets home users as the main market for Microsoft Office 2001. Business users will keep buying it, but why does MS focus on a user-oriented market? Does that mean that the Mac is a home user thing? I am afraid that this may be true. Of course, you may run your small business from a Mac, but I am afraid that you are the exception, not the rule. In corporate environments, people adopt Windows using PCs and that is that. Apple used to have a better penetration of the business market. Not anymore. This concerns me.
What about the equality of the platforms? The Mac is simpler to use and more friendly, but what about Windows and PCs? Fine, Macs are a little better, but you know what? You can use a PC and get things done. It has a graphical user interface too, and the other things you need to get work done. It stunned me that we (at my new job) use only PCs to publish a top-notch newspaper and its Web site. We do, and it works. I would like to say otherwise as I prefer the Mac, but it is reality. I am afraid that it is the case in many workplaces.
Many people use Windows PCs and they get their work done despite the imperfections. They do not see the need to shell out more money in order to get what should be a superior machine. Whether it is right or wrong is out of the question. It is reality, and it affects Apple's potential performance.
I do not mean to be alarmist, but any critical observer will have to acknowledge that Apple could do better. There are things that Apple cannot change, but for hell's sake, Apple has to see what it does wrong and do whatever is appropriate to clean up the mess that it partly created.
Apple is in a bit of trouble, and it is not too late if it wants to do something about it. It cannot keep trying to tell everybody that Megahertz are mere details and that Indigo will motivate the masses to get Macs. There has to be more to a Mac than a cute flavor and a Photoshop speed test.
Your comments are welcomed.
Michael Munger is a French Canadian living in Montreal. He discovered the Mac in 1994 while studying journalism, the profession he loves and practices. He also studied history and communications. In addition to his work at The Mac Observer, he authors the iBasics tutorial column at Low End Mac, and cofounded MacSoldiers in 1998.
You can find more about him at his personal Web site.
You are welcome to send me your comments or you can post them below.
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