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Oh, those fickle consumers. What kind of computers will they buy next? Figuring that out is a tough assignment. Just ask Apple Computer CEO Steve Jobs. After making a couple of great calls, such as the iMac, he has struck out big-time during the past six months in divining what consumers want. His beloved G4 Cube, pegged as Apple's next growth engine, is gathering dust in warehouses. At last count, there was an 11-week supply of this novel desktop that resembles a slick, oversize ice cube (see BW Online, 12/11/00, "Streetwise: Why Apple Is Losing Its Appeal Again").
Does such a misjudgment signal that Jobs has lost his touch? Is it time for media critics such as myself to gang up on him? Hold your venom, fellow scribes, and first tally up Jobs's successes during his current three-year reign. In addition to the iMac, there's the iBook portable computer, iMovie home-video-editing software, an enhanced Web effort, and an online store. That's a pretty good track record. Considering what a crapshoot it is picking winning computers and software, I'd say Jobs has rolled more lucky sevens than snake eyes so far.
But there's no question that he has gotten himself into a jam now. Analysts expect Apple to lose between $225 million and $250 million during the fourth quarter on sales of $1 billion, which will be off nearly 40% compared to the same period a year earlier.
COLD SHOULDER. While most analysis of this impending loss has focused on financial considerations, I think the real problem involves three strategic missteps. The first is the botched reorganization of the company's educational-sales effort, which I wrote about earlier (see BW Online, 11/8/00, "How Apple Flunked Out of Schools"). But the other two involve big bets on the wrong products. Let's take a look at these, starting with the Cube.
The Cube illustrates just how tough it can be to win over consumers. Its strikingly distinctive look, designed in the spirit of the iMac and iBook, signaled yet again that Apple was an innovator. Indeed, the Cube quickly won rave reviews from members of the media, including me. Consumers, however, gave the Cube the cold shoulder.
At $1,800, the Cube was just too pricey. Not even Apple's big following in the artsy set were willing to pay that kind of premium for style. They kept on buying iMacs, which start at less than $800 and have nearly as much power as the new machine.
Nor, it turned out, were consumers much interested in the DVD players Jobs started including in every new Mac. DVD drives, of course, are like souped-up CD-ROM drives that can also play feature-length motion pictures on your computer. Jobs gambled that DVDs would provide some of the "wow" factor to distinguish the Mac from its drab PC counterparts.
BURN OUT. Wrong again. DVDs were a dud in attracting buyers. Most weren't interested in watching movies on their computers. Having tried it myself, I don't blame them -- the novelty wears off pretty quickly. I found myself largely using my DVD drive to play regular old music CDs. Why pay extra for the enhanced functionality if you're not going to use it? I suspect others felt the same way.
There was, however, one new feature that consumers did want: The ability to save -- or burn -- your own files, photos, and music onto a CD. Compaq, in particular, picked up on this trend, adding CD burners to half of all their new PCs. Such models became big sellers. That success caught the eye of Jobs, who conceded in a recent telephone conference with analysts that "we totally missed the boat on CD burners."
Such confessions are something new for Jobs. In the past, he never admitted to mistakes. But today, he not only concedes errors but moves quickly to correct them. In education, he has already appointed a czar at Apple to reorganize internally and patch things up with schools.
STEVE BE NIMBLE. With the Cube, Jobs is also moving quickly to cut his losses. He's readying steep discounts to clear the Cube out of warehouses. My advice, if you can afford it, is to buy one. Mark my words. Some day you're going to see a Cube featured on PBS's Antiques Roadshow.
Now, Jobs is preparing to add CD burners to the next generation of Macs. He'll do so with a twist, jumping ahead of other computer makers by offering the first combined DVD and CD burner. His engineers are working around the clock on the device as I write.
Will this combined DVD/CD burner revive the sale of Macs? It certainly won't hurt. But what really counts here is Jobs's ability to stay nimble, changing direction quickly with the market. That's the most important talent he has brought to Apple. Nimble companies survive difficult times. After that, success is pretty much up to the company's customers.
Haddad, Atlanta-based correspondent for Business Week, is a long-time Apple Computer buff. Follow his weekly Byte of the Apple column, only on BW Online Edited by Thane Peterson
Copyright 2000, by The McGraw-Hill Companies Inc. All rights reserved.
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