Apple and Niche Products

March 2nd, 2016

Take a look at Apple these days. One billion device activations, hundreds of millions of users for individual products. This is mass market to the nth degree, yet it wasn’t so many years ago that the company was regarded as a maker of niche computers. The relatively lower volume products, such as Macs and even today’s Apple Watch, sell in quantities of several million per quarter. Yes, I realize Apple Watch figures are outside estimates since the company isn’t releasing actual figures.

But even when Macs occupied market shares in the low single digits, it was hardly niche, although it was the one and only maker of products using the Mac OS; well except for the failed efforts to clone the platform in the mid-1990s. Still, with the world having moved to Windows, Macs were not regarded as terribly significant in the scheme of things.

Today’s Apple is so large that making relatively low-volume products doesn’t appear to make sense, at lest according to some people. These uninformed critics even suggest the time has come for Macs to be retired, forgetting that tens of millions of people depend on their for them for their workflows. Many of these people would never, ever, consider using a Windows PC, so why deprive them of their recreational, education and work tools?

Now if Apple actually lost money from Macs — which they don’t obviously — maybe the critics would have a point. But this is an environment where the majority of profits for medium and higher-priced PCs industry-wide are earned by Apple. I hope these pundits aren’t quitting their day jobs, and if this is their day job, they are in the wrong business.

In any case, since Apple deals with products that sell lots of copies, with only a relatively small selection of different models, you might wonder what it takes to earn a slot in that model lineup. How many is enough, how little is too little. Does Apple keep a relatively slow-selling product in the lineup because customers might depend on it?

I suppose one such product is the Mac Pro. With roughly five million Macs being sold each quarter, some 80% are note-books. This means that one million are desktops, so how many of those desktops are Mac Pros? Certainly less than 100,000, and possibly less than 50,000. But these are sales to high-end users, such as content creators and scientists. This is not a business to take lightly, considering that a Mac Pro may cost up to ten thousand dollars when fully outfitted, and that’s before the customer adds a display and peripherals. This is a solid and high-profit business.

But it may not be enough to update the product line very often. It’s been over two years since the last refresh, a controversial redesign that gave up on most internal expansion options. Maybe that’s the problem, that customers preferred the huge Mac Pro towers with the cheese grater metallic look. But I don’t know how many of those were sold either. In any case, the iMac has earned a lot of the business that formerly went to the Mac Pro.

At the same time, the Mac Pro represents the sort of prestige business I don’t expect Apple to abandon despite the low sales volumes. Apple also sells a small number of $10,000 Apple Watch Editions. But I don’t expect that sort of luxury business to be abandoned unless Apple gives up completely on smartwatches.

If Apple decides to build cars, you’d expect initial volumes to be in the tens of thousands, if that, at least at the start. But that depends on what price targets Apple is shooting for. I would hope they wouldn’t select the extreme luxury space that the Tesla still occupies, at least until they get the promised mid-priced vehicle into production. I’d much rather see a $35,000 Apple Car; that price may seem high enough, but it’s actually not far above the average transaction price for a new vehicle in 2016. And that’s before all those government incentives that lower the price of electric cars.

Now when you consider that Apple has no problem with lower volume products, it makes plenty of sense to make a 4-inch Phone, since it would be catering not to tens of thousands of customers, but tens of millions. There is indeed a valid market for the smaller iPhone, lots of customers for whom even the 4.7-inch iPhone 6s is too large.

That alleged smaller iPhone is supposedly being readied for introduction later this month. Sales may be sufficient to take negative growth into positive territory. So I just wonder, in passing, why it took so long to get one out, assuming that’s what will be coming at the rumored Apple event the week of March 21st. It doesn’t seem that putting most of the guts of an iPhone 6s into a model with a smaller display represents much of an engineering effort from a design point of view. So why wasn’t it done, or did Apple misjudge the market? Did they believe that selling an older iPhone would be enough?

This doesn’t mean Apple needs to fill every single potential product niche for smartphones, tablets, Macs and smartwatches. But the lineups are certainly larger than they used to be, and if sales volumes of individual models make sense, that’s good for everyone, even if those volumes might be classified as niche by some.

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