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On The Flip Side
by Michael Munger

The Danger Behind The Apple Store
August 3rd, 1999

When Apple launched its own online store in 1997, it was a very good initiative. However, a chain of events has taken place that makes me think Apple may be sailing in dangerous waters.

Right now, the fact that Apple sells computers directly to its customers through the Internet with the build-to-order system can only benefit the company. By removing the middleman, Apple's profits on each unit sold through the Apple Store are higher.

So Apple makes more profits from each unit, eliminates the reseller and has a closer relationship with its customer; this is all good, right? Not so fast!

The Macintosh market - picture it as a pie - is much smaller than the Wintel market. The number of units sold each year can ensure profitability for the good old "Mac only" resellers. Once Apple takes its huge slice of the pie, the odds change.

In theory, the Apple Store is no threat to authorized dealers. The company promised that its system would not become unfair competition to the dealers, but earlier this year, an issue arose over the availability of iMacs and PowerBooks. It seems they were there available at the Apple Store BEFORE retailers saw them. This disillusioned some people out there.

Apple steals sales from its authorized dealers. I have had enough talks with people who work for authorized dealers to know that it has had a certain chilling effect on their business. On the other side, big chain stores like CompUSA and Sears might not feel the pinch as much because a good portion of their customers are first time computer buyers and wouldn't likely be purchasing a computer over the web in the first place.

In the short term, Apple wins. More profits, more control over its market share... However, in the long term, Apple could be digging their own grave instead of a gold mine.

The resellers cannot compete with their distributor, it is that simple. If Apple continues to favor its online store in the future, the people who advocated the Macintosh during the most difficult years will want to leave the platform and turn to PC's for survival's sake. I have already heard testimony from some of these resellers that shows how this possibility exists.

What will happen if Apple loses its authorized resellers in the long term? It is all about repair and maintenance.

The "Mac only" dealers are those who provide services once the computer is in your hands. They repair your computer or replace broken parts and give you assistance in general. If they are not there anymore, who is going to do this? The only possible solution for this would be the mushrooming of solution centers that specialize in repair and technical support. Apple would have to push for them to appear everywhere.

If you cannot get your computer repaired when you encounter major problems with it, it becomes frustrating as a customer. It leaves a bad taste in your mouth and customers have a good memory. They come back when satisfied but they ditch you if you do not serve them well.

Apple is playing with fire with its aggressive online store strategy. It risks alienating its faithful authorized dealers on a long-term basis. Such a loss would be fatal for the Macintosh unless somebody else takes care of repairs, maintenance and solutions. Apple has enjoyed tremendous success in the past only to spiral down to disaster. Today, Apple is again heading into success and I can only hope that the Apple Store does not actually lead the company back down the disaster path.

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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