COMMENTARY | COLUMNISTS | PHIL BAKER

Apple's tipping point

Apple's CEO, Steve Jobs, announced two significant new product lines at MacWorld last week in San Francisco: the iPod Shuffle, which uses a memory chip instead of a hard drive to store music, and the Mac Mini, a new Macintosh that's about the size of a clock radio.

The Shuffle starts at $99 and the Mac Mini at $499. Both are significant products in Apple's (Nasdaq: APPL) efforts to woo new users and counter Apple's reputation for pricey products.

The Shuffle

The Shuffle is Apple's first product to compete with the less expensive memory-based products. Their lowest cost product had been the iPod mini at $249.

The Shuffle is the size of a couple of sticks of chewing gum and much more attractive and easier to use than competitive units, especially with the included iTunes software. Its rechargeable battery will last 12 hours and it will hold 120 songs in the $99 unit and 240 songs in the $149 model.

It has easy to use controls that start and stop, skip forward or back to the next song, and adjust the volume. Apple took a negative -- no display -- and turned it into a positive.

"Enjoy the surprise of a randomly selected song" and "life is random" are Apple's marketing messages. They've added an "autofill" feature to iTunes to let it pick out songs randomly from your library and completely fill the player with music. It's a smart marketing move that allows the design to be simple to use and less costly than competing players.

But their competitors see it differently.

Creative's (www.creative.com) CEO Sim Wong Hoo trashed the device before many had even heard about it. He said the product is five generations behind theirs.

Sim told Channel NewsAsia, "It's our first-generation MuVo One without display. We had that -- that's a 4-year-old product. So I think the whole industry will just laugh at it."

But it's about more than the product features. It's about simplicity and style, which companies like Creative don't get, and why they're a distant second to Apple. I expect this product to be a huge hit.

Mac Mini

The Mac Mini provides a way for PC users to experience the Macintosh at a price comparable with the lowest-priced PC from Dell (Nasdaq: DELL). The basic model is $499. An upgraded version is $100 more. It's shipped without a monitor, keyboard, mouse or wireless, but includes a suite of excellent software. It's designed to easily exchange with an existing PC and make use of all of its peripherals.

"We supply the computer, and you supply the rest," Jobs said. "We want to price this Mac so that people thinking of switching will have no more excuses."

With only 3 percent market share of computers, Apple needs to attract PC users to grow. Based on first-quarter earnings announced this past week, Apple is doing just that. Mac sales grew by 26 percent in the quarter, 2.5 times the rate of PC growth.

"People are looking at Apple in a new way," Jobs told analysts. "The iPod reminded them that Apple is the innovator in the personal computer market."

Malcolm Gladwell (www.gladwell.com), in his famous book "The Tipping Point," explains that major changes in our society often happen suddenly and unexpectedly. Products or ideas can suddenly become wildly popular, spreading like an infectious disease. I see strong signs that Apple is approaching a "tipping point" among computer users.

First is the "halo" effect from iPods. With most of the sales of iPods going to PC users, they've been able to experience Apple's skills in making hardware and software work easily and seamlessly with each other. That makes them much more receptive to considering a Macintosh.

Secondly, PCs continue to be a major headache to maintain, particularly for home and small business users who don't have an IT department to keep their computers free of viruses and spyware.

Nearly 80 percent of today's users have adware, spyware or viruses on their computer and many are experiencing issues that force them to spend hundreds of dollars to repair them, abandon their computer altogether or buy a new one. The problem is getting worse, in part because those using spyware to promote their products include mainstream companies like Motorola (NYSE: MOT), Verizon (NYSE: VZ) and American Express (NYSE: AXP). Once secretly installed, this software has the capability of generating unwanted popup ads, slowing down the computer or just grinding it to a halt.

Some of these intrusions and the efforts to clean them up corrupt registry files, causing components like the CD drive not to be recognized. It is becoming a huge problem that no one is addressing in its totality.

A Macintosh computer is the best antidote to this problem. I've heard from many people over the past few months that have given up on PCs and moved to a Mac, myself included. The Mac Mini is positioned to accelerate this movement.

Third, Apple has been putting into place solutions that address other weaknesses of the PC to make switching more attractive. They've improved the reliability of their machines and customer service to the point where they are now the best in the industry, according to Consumers Report and PC World. They've opened hundreds of stores and have hundreds more planned where their products can be easily demonstrated, explained and serviced. And they've bundled with their computers nearly all the software many will need for a positive computing experience.

While Macs will never replace PCs, particularly in the business environment, an increase from 3 percent to 6 percent market share within a few years is possible. And that's beginning to look possible with the new Mac Mini.


Baker has developed and marketed consumer and computer products for Polaroid, Apple, Seiko and others. He is the holder of 30 patents and was named San Diego's Ernst & Young Consumer Products Entrepreneur of the Year in 2000. He can be reached at phil.baker@sddt.com.

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