I am sometimes accused of writing lurid headlines just for the effect or the higher hit counts. I don’t agree. The headlines always relate to the content, and in this case, my theory is right on the money. What’s more, recent figures based on retail sales of new PCs from the NPD Group confirm the trend that will ultimately marginalize the rest of the PC makers and push Apple to the top of the heap.
Indeed, we’re already seeing how the industry trends are hurting Microsoft. For the first time since 1986, Microsoft has reported a full year decrease in sales. Indeed, the stock market Thursday afternoon quickly reacted to the news that Microsoft’s revenue fell short of analyst expectations, dropping some 7.8 percent in after-hours trading.
For the most part, Microsoft’s excuse was to blame the economy and declining PC sales. Every PC that isn’t built means less revenue for Microsoft, which gets its OEM fee from virtually every unit sold.
At the same time, Apple is reporting record sales and profits, and rapidly increasing sales of new Macs. But the trend didn’t stop in June. So far this month, sales have soared even further according to the NDP Group. Clearly Microsoft’s pathetic Laptop Hunter’s ad campaign hasn’t done much to stem the tide that now favors the Mac.
And that trend is far more compelling than you might think. What am I talking about? Well, here’s the pertinent quote from my friend Jim Dalrymple’s article on the subject: “According to data from market research firm NPD, Apple’s revenue share for PCs over $1,000 is 91 percent.” The information is based on June sales. Last year, the percentage was 66%.
Now it’s certainly worth looking at what this all means. First and foremost, this is the “revenue share,” which means how much money Apple takes in compared to other PC makers with products in that price category. It’s also based on surveys of the retail marketplace, which certainly excludes online transactions, direct sales to businesses and to educational institutions.
The trend, however, is telling. Basically, Apple is adding more and more value to its products, and is thus driving the PC industry to compete at the low end of the market, where profit margins are low, and they are forced to make up the difference on volume. This is particularly true for netbooks, where you have to question just how much a manufacturer can earn back from every unit sold. Sometimes I even wonder whether some of these products are meant as loss leaders, in an effort to upsell you to a model with more goodies, or to add accessories, where profits are really generated.
As you know, this surely doesn’t mean Apple has no Mac products under $1,000. There is that $999 white MacBook for example, but a lot of potential buyers look at that model, compare it to the $1,199 MacBook Pro, and choose the latter. That’s one reason why the entry-level MacBook Pro remains on back order.
Then there’s the Mac mini, starting at $599, which is a product that has seemingly never gotten its due. It is seldom featured in ad campaigns, yet retains a loyal audience seeking value but having no need for performance levels that none of their apps really require. In fact, author and commentator Kirk McElhearn recently transitioned from a Mac Pro with all its multicore goodness, to a mini. He says the performance dip was only observed when booting the computer, or ripping a CD. Otherwise, he doesn’t detect that much of a difference, simply because he doesn’t use any app that requires a faster model.
Now in all fairness, NPD Group’s Stephen Baker tells me that the retail figures favoring Apple aren’t fully as significant as you might gather at first glance. That’s because Windows PC box builders don’t offer that many models costing over $1,000 at retail stores, leaving Apple to fend for itself in that price category. However, if you want quality, the cheap PC may end up being a waste of money, and it seems that more and more people are realizing that very basic fact.
There is also, to be perfectly fair, a downward trend in PC prices. This even true for Apple, which cut the prices of the MacBook Pro and MacBook Air lineups to a surprisingly large degree last month. But they’re still above the magic $1,000 threshold, and it’s doubtful Apple has any incentive to make them cheaper.
So while the PC makers struggle to sell as many boxes as they can, with very little differentiation, Apple has carved a growing value segment where folks who are willing to acquire a computer with more features, greater build quality and reliability, have somewhere to go.
Despite the economic downturn, it’s clear that there are loads of people still willing to pay a fair price for the best product. It also demonstrates that Microsoft is no longer invincible, and it will probably take extraordinarily high sales of Windows 7 and their other new products to turn things around.
With Snow Leopard still apparently on track for a September delivery, and the promise of revised desktops perhaps as early as this fall, Apple’s march to dominate the quality portion of the PC market will be complete. How far they’ll go from there is anyone’s guess. But I definitely predict ultimate doom for Microsoft, although their final decline is still years away.
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