Back in October of 2001, Apple introduced the first iPod. Apple’s press release read – an “Ultra-Portable MP3 Music Player Puts 1,000 Songs in Your Pocket”. Priced at $399 a pop and aided by really slick advertising, it was an instant hit – that put Apple on the fast track – from a company whose stock was in the cellar for almost two decades – to a growth stock with excellent long-term potential.
AAPL – who famously rejected Intel’s chips and went with Motorola back during the birth of the PC in the early 1980′s, finally picked Intel as their choice of CPU in mid-2005. But Apple had already re-written their operating system, and its guts were UNIX [BSD 5.x] – making the switch from PowerPC to Intel rather painless [for Apple]. At this point, Apple had a mere 5% share of the PC market – with a focus on education, artists, and graphic/industrial design.
By mid 2006, all of Apple’s computer offerings had Intel CPU’s and Intel chip-sets. Files were interchangeable easily between Apple’s and other systems, and Microsoft’s Office ran [runs] on the Mac. With the narrowing gap between the PC and the Mac, and with the cachet of “coolness” that the Mac had, Apple’s market share rose to the high single digits by 2007. Former PC owners [like me] switched to the Mac – because the OS was more generic [UNIX], and file transfer issues of the past do not apply to the current generation of Mac hardware and software.
What Apple did correctly [till now]:
1. Slick new devices like iPod.
3. Mac O/S went from proprietary to UNIX based [easy file sharing with other OS's].
4. Slick new Macintosh designs – based on Intel CPUs and Intel chipsets.
5. iPhone/iPod Touch.
But, Apple is getting complacent. The latest revision of iPod Nano was evolutionary, heck, it was cosmetic. The feature most requested by Nano users – was built-in FM with recording, but Apple chose to not include FM with the Nano – instead, one has to buy this option separately, and there is no way one can record a tune playing on the radio – as there is no “record button” on any iPod.
While the next generation of Macs will have an Intel CPU, they will have an Apple-proprietary chip-set – making things more problematic for boot-camp hackers – the only bunch of happy Vista users. Apple shifted resources from OSX-Snow Leopard to iPhoneG3. This has already ticked off a bunch of Apple faithfuls – who look forward to every revision of the OS and the Mac – like Porschephiles do, the 911. Apple’s survival through the 1980′s and 1990′s was under-written by these faithful – who bought Macs despite the fact that they had to jump through hoops to transfer a file to someone who owned a PC.
Apple chose to not market the iPod Touch as aggressively as they do, their other products – so as to not cannibalize into iPhone sales. The Touch is probably the best compact mobile internet device [MID], yet it isn’t marketed as such. Yet, in the last two quarters, iPod Touch growth has outpaced the growth of other iPods – keeping AAPL’s gross margins for iPods in-line with what it was in 2007! Impressive.
Recently a small company called Psystar made a [and still makes a] generic Mac, and Apple immediately filed a copyright infringement suit [Psystar has countersued Apple and has charged Apple with restraint of trade, unfair competition and other violations of antitrust law. C'mon Apple, a certain amount of "generic" competition is OK, plus these guys package their computers in a generic box - no slick "I have an Apple" packaging.
Finally, Apple is the Cult of Jobs wrapped into a publicly traded company. The day that Jobs was rumored to have been sick, the stock dropped 5%.
Things Apple is not doing right:
1. Not being brave when updating the Nano.
2. Slighting their faithful.
3. Not marketing iPod Touch as a MID.
4. Gravitating towards proprietary hardware.
5. Once again, thwarting generics [which did them no good the first time around].
6. The Cult of Jobs – dependence on one single person.
Apple’s current line of products are still awesome, and I expect the company to not falter for the next twelve to eighteen months. But the end isn’t far from now.
Notes: No positions in Apple, MT, IBM, MSFT. Long Intel.