A Six-Step Plan for Apple

By Alex Salkever To: Steven P. Jobs

CEO, Apple

From: Alex

Re: Expanding the Mac market

Dear Steve,

No doubt you were disheartened by Apple's (AAPL) delay from July to September in introducing the new iMac -- especially given the decision to stop production of the second-generation model. But honestly, did you have any choice? Let's face it. They haven't been selling like hot cakes -- even with the iMac's nifty swiveling flat-panel display and stylishly compact footprint. Sales peaked at 448,000 units a quarter after its release in January, 2002. It has been downhill ever since, with sales in Apple's second fiscal quarter ending Mar. 27, 2004, totaling just 252,000 units.

Your iBook laptops are struggling in the marketplace, too. Sales totaled just 223,000 units in the most recent quarterly report. Sure, the iBook posted an impressive 47.7% increase in units shipped in Apple's second fiscal quarter, vs. the same quarter of 2003. But that comparison rings hollow because that period in 2003 was the nadir for iBook sales over the past 10 quarters. The overall picture looks like doldrums. Apple's share of the U.S. PC industry has fallen from 4.2% in mid-2002 to 2.8% in the first quarter, says IDC.

Now I've heard your execs say sizzling iPod sales will eventually have a halo effect, snaring new users for Macs as well (nice iPod ads, by the way, catchy and hip). But let's be real: iPods alone won't turn around sales in desktops and laptops. It's time for a bolder plan. Not that you asked, but here are my suggestions. Let's call them "Six Steps to a Bigger Mac Market." Here goes.

1) Price trumps style in the computer market

I know this may be hard to admit for a guy as innovative and design-conscious as you. But Apple charges too much for its computers. The PC market's benchmark price level is sinking quickly below the $1,000 mark -- turf where Apple has been loath to tread. Even laptops are moving down into a similar range.

Yet, Apple's list price for iMacs started at $1,300 before production was halted. And the iBook remains listed at $1,100 on Apple's Web site. First Albany Capital analyst Joel Wagonfeld says taking into consideration discounts by resellers, the average price of an iMac in the first quarter was $1,161, with PowerBooks at $2,140 and iBooks at $1,109. Sure, Apple flogs low-grade eMacs to schools at bargain-basement prices -- but they have big, fat CRT monitors. Ugh.

You say the iPod, priced from $250 to nearly $500, proves that Apple can charge a premium for superior design. I disagree. What makes the iPod so hot in the consumer market is superior technology -- the first workable user interface on a digital music player. That's the reason why the premium has stuck, not the nifty form factor or funky colors.

Yes, Apple's operating system has some ease-of-use advantages compared to Windows XP. But Windows offers enough convenience for most people at a lower price. That's why it holds such a dominant market share.

2) Make 'em cool and cheap

You've been to Target (TGT), right? You probably seen the terrific product designs such as well-known architect Michael Graves' line of stylish housewares -- offered a budget prices. Heck, Blue Light Specials at Kmart (KMRT) haven't been the same since Martha Stewart's line of kitchen gear, sheets, and towels hit the aisles several years ago. Dumpster-diving debutantes can't get enough of them. Even sportswear designer Mossimo makes great threads for fiscal lightweights.

We're in the era of cheap chic, Steve. And I have no doubt that Apple can play that game with the best of them. Give us a really cheap, really cool PC, and watch them fly off the shelves.

3) Ditch the all-in-one mantra

The iMac concept was inspiring, but consumer interest in computers with integrated monitors has never really taken off. Offer a headless Mac at a decent price with all your nifty iLife software installed, and the masses will at least give you a closer look. Then you can pull out the big marketing guns. See steps 4 and 5.

4) Sell that soap

Sometimes it's good to take a page out of a competitor's playbook. Dell (DELL) had an interesting marketing ploy with its offer to pay a $100 bounty for any iPod brought in by a customer buying Dell's own digital music player, the DJ. Steve, you can top that. Offer a $200 bounty on a PC exchanged for a new iMac or iBook. Buyers get the $200 discount only if they bring a PC that's two years old or less. And they must have a valid receipt.

Why not offer that discount on a million Macs? That could cost Apple up to $200 million -- hardly chump change. But the marketing outlay would barely dent Apple's $4.8 billion hoard of cash and short-term investments. What's more, you would be more likely to attract true switchers seeking entry-level devices rather than geeks who play both sides of the fence and hanker for PowerBooks or G5 PowerMacs. Think of the news coverage such an offer might generate. You can't pay for that kind of buzz.

5) Sell that soap II

Why not offer all Mac buyers a try-and-buy program much like what some Apple resellers are offering to purchasers of high-end Xserve units. The geeks who fork over $3,000 or so for the Xserve can have a couple of weeks to test-drive these babies, depending on the vendor. If they aren't satisfied, they can return them and get a full refund. That's unheard of in the computer business.

I believe such a tactic with iMacs and iBooks would play well, too. Show Joe Schmo's ma, who wants to use the PC only to see pictures of her grandson, how much you care about her. Show her how much confidence you have in your products. And aren't they way better looking than a Dell? Everyone already knows what a Mac is, as evidenced by Apple's consistently sky-high brand-recognition ratings. Take it to the next level.

6) Sell security

I have yet to see an Apple ad campaign playing up the fact that Macs remain largely virus-free. As each week brings us yet another Microsoft (MSFT) critical alert, the computing masses have grown weary of updating, updating, and updating again their operating systems, browsers, and any other software vulnerable to hackers. Most don't want to have to think about their computers being violated, let alone navigate the arcana of security software, firewalls, and antivirus systems.

The latest round of attacks on Microsoft software is terrifying. If using a Mac means servers in Russia are less likely to harvest my passwords and offer my identity to the highest bidder, I think that's an offer I'd like to hear more about.

So there you have it. I can't say my prescription is guaranteed to flip the switch. But I might suggest you enact my plan at around the same time you launch your much anticipated new iMac line. If you want me to head your marketing department or even do a guest consulting gig in exchange for some autographed T-shirts, you know where to find me. In the meantime, I'll just keep writing columns. Salkever is Technology editor for BusinessWeek Online. Follow his Byte of the Apple column, only on BW Online

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