Cover Story May 1, 2008, 5:00PM EST

The Mac in the Gray Flannel Suit

(page 4 of 4)

Apple will find it more difficult to gain ground in large companies, which tend to have more complicated information technology systems and fixed rules for tech practices. CIOs have long had objections to Macs, and those still apply. Complexity is one. Just as having Macs and PCs in your home creates headaches, supporting both in corporations means extra training for employees and extra outlays for Mac support staff. Then there are software limitations. Some industrial-grade programs won't run on Macs. Getting Microsoft's Exchange e-mail to run on the Apple machines is often a huge hassle, which makes them a nonstarter in some offices.

SECRETIVE CULTURE

Apple's culture is another challenge. Like Jobs, the Cupertino (Calif.) company is secretive and solitary. Yet corporate customers need cooperation. For example, most CIOs insist on knowing how a particular product is going to evolve in years to come. Yet Apple won't share that information, except with a handful of need-to-know partners. Instead, Jobs tells corporate buyers about new products the same way he tells the general public—with dramatic unveilings, often at the annual Macworld convention.

Plus, many CEOs like to sign up big services companies, such as Electronic Data Systems (EDS), that can buy and deploy the full range of tech gear so they don't have to. Apple doesn't have close partnerships with these companies. Instead, almost all of its sales are made through its online store, retailers such as Best Buy, (BBY) or its own chain of more than 200 retail stores.

Then there's price. While the average cost of PCs has dropped from $1,046 in mid-2005 to $963, according to IDC, the average price of a Mac has risen to $1,526 because of new high-end products such as the razor-thin MacBook Air. Apple's more affordable desktop model, the iMac, comes with a built-in screen. That's a problem for budget-conscious buyers, since monitors usually last far longer than the computer itself.

Yet none of these concerns has prevented Apple from succeeding in the consumer market. In 2000, Jobs had a plan to gain a point of market share a year. For years, it didn't happen. But now, bolstered by the popularity of its stores and the attention generated by the iPod and iPhone, Apple has been gaining ground steadily in the computer market. It's on track to hit 7% share this year in the U.S., according to Minneapolis- based investment bank Piper Jaffray (PJC), up from 4% in 2005. It has done so with a mere six computer models, compared with the dozens available from major rivals. Its only stumble has been its most affordable model, the Mac mini, a relatively plain box sold without a monitor that lacks the sex appeal and power of its Apple siblings.

THE REAL CORPORATE STRATEGY?

Demographic trends may be on Apple's side. All those college kids wielding iPods have created a deep pool of potential Mac users. According to a survey of 1,200 undergrads by researcher Student Monitor this year, 43% of college students who intend to buy a laptop plan to buy a Mac, up from 8% in 2003. "Many of today's technology decision-makers will ultimately be replaced by Mac users," says Eric Weil, managing partner of Student Monitor.

Of course, how far Apple gets in the corporate market depends largely on Jobs. Industry and financial experts don't expect Apple to make any of the major strategic moves that would signal a substantial new focus on selling Macs to the corporate market. Jobs almost certainly won't license his software to others to create a second potential Mac hardware supplier, as most corporate buyers would like. And he's just as unlikely to introduce some bare-bones cheapo desktop model to satisfy cost-conscious CIOs. "Apple is happy about its price points as they stand today," says IDC analyst David Daoud.

Truth be told, a full-scale corporate assault probably wouldn't serve Apple's near-term financial interests. Its lucrative profits stem from its focus on consumers and students who are willing to pay for Apple panache. Corporate customers are far more frugal. While Apple's net margin in the last four quarters was 15.1%, those at Hewlett-Packard and Dell were 7.3% and 4.8%, respectively. To grab chunks of share in the corporate market, Jobs would likely need to spend heavily on sales and support organizations and his team would have to work much more closely with customers and software partners. None of that seems to hold much appeal for him. He has long argued that he wants to sell to people who spend their own cash and who therefore will appreciate quality and style. And his Gulfstream jet seems to be reserved for trips to store openings and Hawaiian vacations, rather than corporate sales calls.

Then again, Jobs' public proclamations are by no means an indication of his future direction. He said Apple wouldn't sell videos on iTunes or get into the cell-phone business— before he changed his mind on both counts. And while Apple can afford to ignore the corporate market now, that field may look far more appealing as the company searches for growth in the years ahead. Harvard's Yoffie sees some opportunity. He teaches a course on the company to top executives each year and always asks how many have a Mac. In the past, a half-dozen usually raised their hands. This year, it was 16 or so out of 160. "Suddenly, the Mac is acceptable among these folks, and it all happened in the last year," he says.

Editor's note: A previous version of this story incorrectly said that SAP's operations software does not run on the Mac platform. It does. In fact, Apple uses the software internally to run its own business.

With Arik Hesseldahl in New York, Stephen H. Wildstrom in Washington, and Jay Greene in Seattle

Burrows is a senior writer for BusinessWeek, based in Silicon Valley.

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