Bite-Size Apple


By Charles Haddad No one expects Porsche to outsell General Motors. Why, then, does everyone expect Apple to best Dell, Compaq, or Gateway, the giants of computer hardware? That hardly seems reasonable, since Apple represents 3% of U.S. computer sales and Porsche a measly 0.2% of the U.S. car market. Ah, but what a two-tenths of a percent it is: the richest of the rich, willing to pay $40,000 for a base model Boxter and $100,000 or more for a speedy 911.

Sadly, as a group we Mac enthusiasts are not so financially well endowed. Still, the market we represent deserves the same respect as Porsche's. Doesn't the Mac stand for craftsmanship and artful use of technology? I'm tired of so-called industry experts bellyaching about Apple's small market share. It shows an unflattering lack of comprehension about Apple and its role in the computer market.

Here's the problem: Most analysts confuse size with success. If all it took were a top 10 ranking in market share then Gateway, the No. 4 PC retailer, would be wallowing in black rather than red ink. Sure, I wish Apple was ranked among the top 10 PC makers (it's not even close any more). But the fact it isn't doesn't portend doom.

NICE NICHE. Just look at the fiscal third-quarter results. Apple reported a gross profit margin of 29.4%. Its bank account bulged with $4.2 billion in cash. And consumers snapped up 182,000 of its new pearl-white iBooks in a very soft market.

Better yet, Apple remains well entrenched in some markets, key for any niche player. In schools, 34.7% of portable computers are Macs. And a recent survey by Scientist magazine found that nearly 30% of life-science researchers use Macs in their work. Are these the numbers of a financial loser? Gateway, which lost $20.8 million in its second quarter, should be so lucky.

My point is: There's room enough in the PC market for two or three giants and at least one big niche player -- the role Apple plays today. It's delusional to believe the Mac OS will ever overtake Windows as the dominant operating system. That war is long over. It's time to accept and acknowledge Apple lost, and that it's okay.

THE NO. 2 SECRET. Think of it this way. Every Coca-Cola has its Pepsi, an ever-striving but perennial No. 2. In fact, Pepsi is doing pretty good right now, racking up big profits and becoming the acknowledged innovator in soft drinks. Nobody's asking Pepsi to knock Coke off the top shelf.

Pepsi understands the secret to being No. 2 -- and so does Apple under Jobs. You have to make a splash that suggests you're a giant rather than a pipsqueak. Apple forgot this lesson for a while during the mid-1990s.

It bloated into a $11 billion company that cranked out boxy beige PCs to try to keep up with Dell, Gateway, and Compaq. The strategy almost bankrupted the company. Revival came only when Apple bucked industry wisdom and introduced the translucent colorful gumdrop of a computer called the iMac. Soon, other PC makers were falling over themselves to make their own candy-colored computers.

THE OS X EXAMPLE. Today, Apple plays the role of innovator well. It continues to surprise the industry, introducing computers shaped like Kleenex boxes and made out of titanium. Not all of these innovations succeeds, but so what? To paraphrase Jobs, the company wouldn't be trying hard enough if it didn't produce a bomb every now and then.

My bet is that Apple's next big industry shaker will be OS X -- once it's perfected, that is. In two years, Bill Gates will be whipping his hordes of Windows developers to copy OS X's photo-realistic look and translucent dialogue boxes.

Yes, we Mac enthusiasts should be thankful Apple stubbornly refused to license its OS to other computer makers back in the 1980s. If it had, the Mac OS might very well be the dominant one today. And then we'd be bashing Apple instead of Microsoft. And, if you ask me, Gates makes a much better villain, with his whiny hectoring about how we had all better do it Microsoft's way, or else. Haddad, Atlanta-based correspondent for BusinessWeek, is a long-time Apple Computer buff. Follow his weekly Byte of the Apple column, only on BW Online


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