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JANUARY 15, 2003 BYTE OF THE APPLE By Alex Salkever Is Apple Getting Too Cool Again? Steve Jobs wowed the Macworld faithful with more amazing stuff. My only worry: All this hardware, software, and stores could be distracting
Apple introduced its new Web browser, Safari -- and, as promised, it's indeed faster-loading than Microsoft's Internet Explorer. (It still has a few glitches, but I've already ditched all the Netscape Navigator clones and IE for Jobs's new browser buddy.) On top of that, the new versions of Apple software such as iCal calendar software, PDA manager iSync, and the iLife digital-media hub suite totally rock. Heck, I would even think about forking over the 500 bones for the Burton snowboarding jacket unveiled at the expo. It has a special pocket for an iPod digital music player and volume-control buttons built into the sleeves -- and is available from Apple.com for only a year. WHAT'S MISSING. So much cool stuff was on display that I started to get worried. Why? A few simple reasons: Too much stuff is precisely what crushed Apple in the John Scully days. And for all the snazzy offerings, Jobs didn't talk much about the segment that matters most for the bottom line -- high-end PowerMacs aimed at graphics professionals. He was also mum about Apple's plans in the education market, where the company has been struggling of late. Let's look at these concerns one at a time. When Scully was ousted as Apple CEO in 1993, it had a bloated product line, with multiple hardware configurations that created a supply-chain nightmare. When Jobs returned in the mid-1990s, he cut the fat, reduced the offerings, and brought in a former Compaq exec to whip logistics into shape. But now it looks like he may be sliding down the same slippery slope. Apple has been branching out into a handful of very different businesses. It's now running a retail operation with its Apple Stores, which did $148 million in sales during the first fiscal quarter of 2003, ended Dec. 31. Apple plans to spend tens of millions more pushing its store count from 51 toward 100. TIGHT SHIP? Apple has also started a Web-hosting business, with 280,000 customers paying $100 a year for the .mac package of Web publishing, data backup, calendar synchronization between multiple computers, and other applications. Apple is also becoming a big software shop, overseeing the development of dozens of applications including iCal, iSync, iTunes, iDVD, FinalCut, and others. Finally, Apple's hardware line is starting to bloat again, with the iBook, iMac, eMac, iPod, PowerMac, and AirPort. Jobs & Co. claims it still runs a tight ship. Perhaps. But it's tough to stay lean with so many businesses under one roof. That's particularly true when the segments are so different, each requiring its own expertise. After all, it's hard to imagine businesses with more disparate requirements than software development and retail chains. The growing product lineup introduces complexity. And too much of that brought Scully down. Then there's the PowerMac issue. This takes us back to a long-time problem: Jobs revived Apple by finding a nice balance of cool gear and cold cash. Sure, Apple made neat stuff, but it also made certain it sold. With that discipline, Jobs built up a $4.3 billion cash cushion while holding liabilities of less than $400 million. My inner Apple compass tells me the balance has swung too far toward cool, and sales may suffer. EDUCATION CRISIS. Witness the Burton snowboarding jacket. It's hard to imagine something more peripheral to Apple's core mission -- unless the company thinks staying cool is job #1. Considering that Apple is expected to return fourth-quarter earnings of only 3 cents per share on Jan. 15, as compared to 11 cents the year prior on revenues that are about the same, one has to wonder if cool hasn't spun out of control. What would shareholders think is really cool? A new PowerMac line. Alas, that wasn't hip enough to make it at Macworld. Another crisis area for Apple is the education sector. Its share of the segment has slipped to 21%, according to filings for the fourth fiscal quarter, ended September, 2002. And Apple laid off 180 employees in the quarter, most likely from its troubled educational operations. Yet none of its honchos announced any big plans or product initiatives to goose sales to schools at Macworld. Granted, this expo isn't the traditional venue for announcements of nitty-gritty strategy. And Jobs did mention a program allowing teachers to upgrade to the latest operating system free of charge, an effort to keep them in the Apple camp. But with the earnings announcement a mere week away, you would think Jobs might want to counter shareholder fears that Apple is frittering away the once-lucrative educational market. LINUX-FRIENDLY. For sure, Apple had plenty of good news. The ranks of OSX 2 (a.k.a., Jaguar) users have swelled to 5 million. That's up from less than 2 million OS X users a year before. Sales at the retail stores met Apple's expectations. The list of applications designed for OS X reached 5,000. And Apple announced that Jaguar now has built-in support for a key technology called X11 that makes it easier to convert Unix or Linux software to run on the Mac. Still, I was left with a sinking feeling and a suspicion that perhaps Apple shouldn't concern its valuable executive staff time with products like a whiz-bang snowboarding jacket. And is it a retailer, a software designer, or a hardware shop? Maybe it can succeed in all of these areas, but that's a more complex trick to pull off than reviving Apple's core product. If Jobs wants to win that game, he's going to need to hang onto the cash cows he has. Show shareholders the money, Steve, because cool alone isn't a sustainable business model.  Regular "Byte of the Apple" columnist Charles Haddad is on leave. Salkever is Technology editor for BusinessWeek Online Edited by B. Kite Get BusinessWeek directly on your desktop with our RSS feeds.  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