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Why the Mac keeps growing

When the iPhone vs. Android rhetorical war heats up, both sides bring up the history of Macs vs. Windows PCs. The commonly held thesis is that Windows triumphed as the PC was commoditized (and modularized). This triumph was at the expense of the over-serving and over-priced Mac.

This is a largely accurate view of what happened during the 90s. But the problem with this thesis is that (1) the PC’s job has been slowly changing in the last decade (2) the Mac keeps growing faster than the PC and (3) Apple keeps capturing a vast portion of the profits in the PC industry.

These anomalies or contradictions to the thesis imply that something changed. What changed and can these changes turn the tables on the market and create an opportunity for a new computing disruption?

The PC of the 90s was hired first by companies as a productivity boosting tool and second by consumers as a way to duplicate their work productivity and communications in their personal lives.

However something changed with PCs when the laptop became “good enough”. With portable computing, the job the PC was hired to do evolved. It was more important that the product be well designed (for aesthetic value, usability and reliability) than just fast and spacious. The microprocessors were plenty fast but what mattered more was low power consumption, a low profile and tighter integration with software.

The product was also purchased in a different way. A desktop could be purchased on specs alone, sight unseen, from a catalog. But a laptop had to be touched, hefted and the screen had to be observed and the whole design contemplated before a purchase decision was made. The product had an integrated keyboard, display, touchpad and storage. It was not easily serviced by end users. It was, in a word, re-integrated.

You can see how portability changed the job and therefore everything else as well. Consumer tastes became important, retail distribution became necessary and R&D resources had to be applied to solve what was no longer good enough: the whole package.

Vendors which did not prioritize design, retail and R&D were left flat-footed.

At the same time, systems software became more commoditized and productivity software became portable. The old measures of performance were being over-shot while the new measures of performance were under-served.

While this shift was underway on the hardware side, Microsoft continued to improve their product to serve more demanding business productivity jobs. Their software was not getting optimized for this new portable consumer job. They left the new market open to disruption.

In stepped the MacBook with good enough (and improving) office productivity. With excellent appeal along the dimensions of performance consumers demand most of all. It was priced higher than other laptops but the price points were affordable and, inflation-adjusted, lower than they’d ever been. It should not be a surprise that Apple was one of the first vendors to see its portables line become bigger than its desktop lines. The market evolved to the point where what Apple had was what the buyers needed.

The shift to portability is a compelling story for Apple as disruptor in the PC market. It may not result in a complete reversal of the PC hegemony but it allows Apple to grow a product line at triple the growth rate of the market. A market that was considered completely dominated by entrenched incumbents with an unbreakable profit formula.

But with the iPad Apple is clearly also aiming at disrupting the Mac (and, transitively, the PC as a whole.) The iPad can be seen as an evolution toward seamless portability; the mobile computing paradigm shift.

  • Marian

    It's nice to see the extension of your model (modular vs integrated) to other markets. Also, it helps validating the model.

    Keep up the good work!

  • http://twitter.com/BenBajarin @BenBajarin

    I agree and in essence the Netbook proved this out. However there is something else that changed that explains what has changed and why the market won't be the same or like it was in the 90's.

    The major thing that changed is the market for PC's matured. History tells us when markets mature they fragment as companies seek to differentiate. In essence this is why the Mac took off in the first place. They were different and consumers were ready for different because of the maturity of the market.

    Its like cars, there are sports cars, mini vans, trucks, hybrids, economy ETC all because consumers know what they want and if they find value because it meets their tastes they pay for it.

    The same is true with mobile devices, as this is already fragmented and will remain fragmented because the feature phone was the standard platform that drove it to maturity. Now the challenge is differentiation at the hardware, software and services layer. That is the battle going forward and those who stay focused on who their customer is and what they want will own the markets they choose to compete in.

  • dchu220

    The interesting thing to me about Snow Leopard was that it was all about improving the efficiency of Macs. I don't think MS can do the same thing with Windows simply because of all the business interests that they have to maintain. On top of that, Apple can optimize all the hardware to consume less power and space to produce the MacBook Air.

    10 hours battery life is amazing.

  • Rob Scott

    Great post! So, I guess the war is far from over then.

    A luta continua!!!

  • Joe_Winfield_IL

    Does Apple break out sales of individual Mac lines? I would be curious to see the pattern in sales of iMac and MacPro lines over the last several years. Clearly, Apple has been ahead of the curve on mobility, but it seems (purely anectodal) that the iMac is selling quite well as more people trust themselves to break away from Windows. As buyer perception of Apple changes, do even the desktop lines benefit as a result? If so, that is truly a testament to the "halo effect."

    • asymco

      Apple reports "portable" vs. "desktops". I've added a chart to show the percent of total Macs that are portables.

      • Joe_Winfield_IL

        Thanks for the quick response Horace. Can we look at that against the growth of the overall units? Obviously the trend line is toward ever more portables, but my thesis is that Apple is holding their own on desktops better than the PC set – even as they lead the charge toward mobility.

      • Iosweekly

        I think the iPad is spurring an uptick in iMac sales – instead of buying a laptop, people are opting for an iPad + desktop.

        I'm speaking from experience, as when I purchased a iPad this year I quickly followed up with an iMac purchase. My 3 year old MacBook has not been touched in 5 months, the ipad fulfills 80% of my computing needs, and the other 20% is much nicer to do on the desktop rather than laptop (editing video on a 27" iMac is wonderful!).

  • Jackifus

    Another thing that precipitates growth for the Mac, is that the PC began failing at it’s job, mostly on the consumer end. By failing, I mean that it took too great an effort to keep the machine working in the face of adware or malicious software.

    That Macs don’t (currently) require antivirus effort or expertise makes them an valuable alternative.

    Lower cost of ownership is being realized on the consumer end and is now beginning to gain traction on the business side as well.

    Lower cost of ownership is a real value proposition.

    • dchu220

      The potential that the still PC has is pretty scary. It's just that people have been conditioned to treat the PC as a lowest common denominator.

      In order for MS to catch up, they would probably have to undertake a huge transition. They have a lot of legacy support that they still have to maintain.

      It's funny, but one of the advantages that Apple had when it transitioned to OSX was that there wasn't a huge number of developers relative to windows that they had to bring along.

      • unhinged

        I would have said it's just that Apple has not valued backwards compatibility as highly as MS – Apple is all about the latest and greatest, and I think that (as with USB adoption, the Apple II discontinuance, etc) they would not have changed their decision even if their developer base was ten times the size.

      • dchu220

        I think the Steve of old and the Steve returned are two different people.

        If your theory is right, then Apple would not have gone through so much trouble during the OS9 to OSX transition.

  • famousringo

    This elaborates a thought I've held for a while now: The smaller, more personal the computer, the more important good design becomes.

  • http://twitter.com/TektonikShift @TektonikShift

    One more element that changed in the last 10years;
    Devices (iPod), peripherals and services (iTunes) extended and/or complemented the Notebook experience. Apple did a better job than others of pushing and exploiting this trend.

    -Tek
    twitter.com/@tektonikshift

    • http://twitter.com/aegisdesign @aegisdesign

      iTunes is pretty awful for laptop users. On a Laptop you've got a limited amount of hard disk space yet iTunes pretty much refuses to work well with network shared libraries or multiple libraries or multiple users. Why must I copy my Library to multiple Macs on their local hard drives with no syncing between any of them?

      As Apple's interest in devices has grown over the years, iTunes has been pressed into service to do any number of things it shouldn't do and at the heart of it, it's still the crappy single music library in /Users/username/Music.

      If they really wanted to extend and/or complement the Notebook experience, they'd turn iTunes into the centralised home media server it needs to be and ship it on a Time Capsule like NAS like so many others do with Firefly built in to their NAS.

      Instead we've the bloated Carbon behemoth that it's become with crap like iDevice syncing (Hey, Apple, use iSync – you invented perfect wireless syncing) and Ping (nobody cares about Ping).

  • Rashomon

    Many good points above, particularly on viruses (relatively new as web surfing became extremely common only in the last 10-13 years) and iTunes. One other thing that helped the shift: Intel-based Macs are also by default — with a software install — potential PCs. This has helped those who have one or two uniquely PC apps to justify the switch, and others to rationalize that they're not leaving any potential functionality behind.

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  • WMP

    Great article.

    Ironically, it was Microsoft's hegemony on the desktop that facilitated the Mac becoming "good enough" for business. The Mac didn't need Word Perfect, Lotus 123, or anything else. It had Office. Never mind that compatibility wasn't 100%. Windows had Office, The Mac had Office. It was good enough that people didn't have to worry about it. It was a commodity.

    So then what mattered was how a computer worked in the home as a "personal" computer. The new job was music, movies, potographs and personal communications.

  • Steven Noyes

    Horace,

    I think another thing has drastically changed since Steve Jobs' return to Apple. One of the failings of the Mac VS PC war was the commodity of cheap hardware. Apple, for years insisting on manufacturing their own hardware, was unable to capitalize on this great cheap hardware. This, along with absent management, spelled the doom of Apple as a manufacture.

    This is the primary thing Steve learned from the PC wars IMO. Now, Apple no longer "makes" anything but owns the IP that goes into everything other companies make for them. "Designed by Apple" is what is on everything Apple sells. You trim the product line. Simplify things. Let another company scrape for the commodity manufacturing.

    This is a very important aspect of what has changed. For the first time, Apple is able to take advantage of cheap production like all of their competition. This has changed the price equation substantially since the 90's making Apple products more reasonable to more people.

  • Alexkhan2000

    All of the comments make good points about why the Mac continues to grow and what its advantages are. I think the turning point more than a decade ago was the introduction of the original fruit-colored iMac before the transition to the Mac OS X. It was the beginning of the whole "i" concept and the Internet for the masses – the grandparents and housewives who just wanted to surf the net and use email. Compatibility with the much greater Windows world was not an issue. There was a significant segment of the population who only wanted access to the web as painlessly as possible and the answer was the cute iMac.

    In a sense, the Internet (the "i") saved Apple or it was the wide open wilderness that Apple could run to where Microsoft didn't matter. The "i" redefined Apple as a consumer technology company and allowed Apple to escape its niche status of a maker of expensive computers for the creative industries. Once the iMac became established as a consumer-friendly Internet access terminal, then it was onto iPod and iTunes and the buildout of the digital hub and media ecosystem.

    Continued refinement of the OS X and the remarkable success of the iPhone and the iPad has certainly had a "halo effect" on the growth of the Mac. And now we see the blurring of the line between the OS X and iOS as the entire Apple product line becomes unified with a common goal and theme: accessing and communicating through the carefully curated Apple ecosystem.

    Growth potential for the Mac is staggering when you consider all the iPhone owners (present and future) who do not currently own a Mac, especially in international markets and Far East Asia in particular where Mac usage is virtually non-existent. All these iPhone owners who look at it as a status symbol will now seriously consider a Mac to show off in their homes when it's time to upgrade the PC. The halo will continue to expand and do so at a far faster rate than the growth of the PC market.

  • http://www.notesark.com iphoned

    the graph showing percent of portables of all macs sold – I wonder if this is mirrors percent of portables of all PCs sold. I think a graph contrasting macs vis PCs would be more illustrative of the excellent points made in this article.

    • famousringo

      You can compare with the Morgan Stanley chart in this post:
      http://www.asymco.com/2010/11/17/in-three-years-a

      Apple seems well ahead of the curve, with 60% of all Mac sales being Macbooks for most of 2006 while the rest of the PC industry is still mostly desktop units. The rest of the industry seems to have nearly caught up, with portables selling around 66% for both Macs and PCs in 2009.

  • http://www.notesark.com iphoned

    )ne observation…at least in the US…consumers really have very little access to hands-on view high-end non-Apple portables. For some reason, not clear to me, all major retail stores where one can buy PCs (BestBuy, Costco) stock mostly the ugliest of the ugly version of PC vendor laptops. Even though HP, Dell, Acer etc. all offer very attractively styled laptops, one can not see them in stores, only on their Websites. But to the point of this article, viewing them on Websites is not a complete enough experience for the purchase of laptops. Why this is the case, is a big mystery to me. In any even, Apple via their own stores has a huge advantage.

    • Hamranhansenhansen

      The reason you don't see high-end PC's at retail is that the Mac took the whole high-end of the retail PC market over the past decade. The average retail Windows PC sells for something like US$450 now. When people spend $1200 on a notebook PC, it's a Mac over 90% of the time. The problem for Windows PC's is that there is no high-end Windows … all Windows versions have viruses and DLL Hell and so on, and most of the application software is still designed for Windows XP from 10 years ago.

  • Edwin

    Apple is awesome for getting people to grossly overpay for their computers.

    • famousringo

      When a whole sells for more than the sum of its parts, it's called creating value.

    • Hamranhansenhansen

      - MacBook Air 13-inch with Core 2 Duo, NVIDIA 9400M, Mac OS X, iLife, 2.9 pounds (US$1299) and AppleCare 3 year warranty ($249)
      $1548 total

      – Dell Studio XPS Laptop with 13-inch display, Intel® Core™2 Duo Processor, NVIDIA 9400M, Windows 7 64-bit, 4.9 pounds ($829), Dell 3 year warranty ($500), and 3 Geek Squad Windows virus cleanups ($199 each)
      $1926 total

      The Dell is almost twice the weight and made out of plastic, not aluminum, and has no equivalent to iLife, which is hundreds of dollars in software, and has much lower quality in almost every component.

      I don't see the savings, and neither do a lot of consumers who have been around this block once or twice by now.

      • Carlos

        It's funny how you have to add 600$ to make your point.
        I could say that you need to add to the Mac Air a licence of Parallels (80$) and Windows 7 (120$) and then, I'm sure that you would add the 600$ of the Geek Squad virus cleanup

  • Edwin

    In my culture, value means paying less for more.

    • famousringo

      That's an oversimplified definition of value.

      Whenever a customer chooses Widget A at price X + Y instead of Widget B at price X, it's because the increase in Widget A's value outweighs the increase in price. That value can represent a lot of intangibles that don't show up on a spec sheet, such as security, usability, reliability, interoperability, comfort, fun, etc. Different customers will place different values on these intangibles, and even different values on tangibles which can be listed on a spec sheet.

      These are the kind of elementary economic ideas that I feel everybody should learn.

      • Steko

        Don't feed the trolls, he's just here to spout off.

        Everyone reasonable knows what value means. People enter into voluntary transactions for Apple products because the perceived value is worth the price they are offered at.

    • Travis

      My daily-driver is a Rev A 15" unibody MacBook Pro. Despite being two years old, it does everything I need it to do and will likely do so for another year.

      Total cost of ownership in that time? Sticker price plus $30 for Snow Leopard. That's it. One fan failed three months after I bought it – Apple replaced both fans under warranty. Since then, bulletproof.

      That's value.

  • Dexter

    One thing this article misses, as good as it is, is the one thing that really helped Apple ascend… the rise of the Web and Cloud based apps. Once the browser became the most important app on your computer then anything Microsoft related mattered less. Use AOL, Google, Hotmail for your email? Now Outlook is superfluous. Communicate with friends via Friendster, Myspace, Facebook, or Twitter? Who cares whether the browser is Safari, Chrome, etc. As long as I have a functioning browser the techy stuff around computers matters much less (and as the article said… EVERY machine is plenty powerful for that).

    And lets not forget universal standards like mp3s, jpegs, pdfs, etc. No "walled gardens" for people's most personal digital belongings.

    NOW design, aesthetics, etc can allow Apple to rise and grow like crazy. The article is exactly right that the iPod/iPhone/Retail strategy worked amazingly well. People started using Apple designed things and got hooked. Now its hard to remember that people thought Apple was insane for opening stores. Dell was the tech darling with its direct sales model.

    Great stuff.

  • Jackifus

    Re:paying less for more…

    The key here is that Macs are moving towards an appliance or console model. Whereby they need little or no administration.

    A “cheaper” laptop is running windows which simply requires lots of admin.

    I set up my technophobic parents in law, living over seas, with a Mac. I’d never do that with a windows box because windows requires semi-professional attention.

    I could have paid less upfront for a PC… but I’d be paying more over time (mostly in down time).

    • Steko

      "I'd never do that with a windows box because windows requires semi-professional attention. "

      I'd disagree. While the Mac is still more usable and reliable imho it still has it's issues and Windows has made great strides starting with XP SP2 thru to Windows 7 today.

      • Hamranhansenhansen

        The Mac has very minor issues which are easily fixed by taking it to the Apple Store, where all hardware, software, service, and support is covered by the warranty and/or a very cheap extended warranty. It updates itself easily, it has no viruses, it sleeps and wakes instantly and reliably. None of these things are true about any version of Windows. Windows 7 runs 80% of Windows XP viruses. Fail, pure and simple. Windows is designed for I-T, not for consumers. It's a kind of con to sell it to consumers. It enables Geek Squad and other I-T to milk consumers while returning nothing of value.

    • Edwin

      Mac people seem to prefer these time warp comparisons of OS X 10.6.5 vs. Windows 95. Seriously, go and spend $500 on a Windows laptop (like mine: a 17", i3) that runs circles around what Apple sells for 2 or 3 times the price and see that Windows 7 and OS X are quite similar.

      FWIW, the iMac is actually a decent value, but Apple's Macbook pricing is absurd.

      • dchu220

        It's really not possible to compare the two because every person's definition of value is different. Value isn't created by specs, it's created by impact on the customer.

        For example. The fact that the new MacBook Airs can turn on instantly may not be of any value to a student or teenager, but to a lawyer who makes $400/hour, those 10 seconds he has to wait is worth a lot to him over the lifetime of the product.

        Another example is the road warrior who is constantly looking for an outlet. The one time he can't find an outlet but can punch out excel sheets for an additional hour or two of battery life is worth a lot.

  • Alexkhan2000

    Still plenty to be bullish about when it comes to Apple's future prospects in this concise to-the-point article at Seeking Alpha:

    http://seekingalpha.com/article/237788-bullish-on

  • Jonah

    You missed the main point: The application platform switched from vendor-specific APIs (Win32) to the browser. If that hadn't happened, all the apps would still be on Windows, and nobody would be buying Macs. Also, Apple most certainly isn't capturing the "a vast portion" of PC profits. If you compare them to Dell, HP, et al — the hardware companies — sure, but you have to figure in Microsoft's Windows profits, which still dwarf Apple's computer + OS business.

    • Alexkhan2000

      "Also, Apple most certainly isn't capturing the "a vast portion" of PC profits."

      Apple competes directly with the likes of HP, Dell, Acer, Lenovo, Toshiba, Sony, and other generic PC makers, not Microsoft. The article was referring to the profits of the vendors of complete hardware systems, which is also what Apple provides with the Mac.

      The Deutsche Bank recently did a study of the global PC (systems) market's profit share and estimated that Apple is raking in 35% of the profits although having less than 5% market share in units shipped.

    • Hamranhansenhansen

      PC apps moved to the browser, but Mac apps did not. People buy Macs to get iLife, or run Creative Suite, or Final Cut, or Logic, or Aperture. All of these apps are either Mac-only or started on the Mac, years before they came to Windows. None of these things can be done in a browser. $500 Windows PC's are browser-based PC's, but $1200 Macs are not, in spite of the Mac having a much better browser. I have a friend who just bought her first Mac to get iPhoto and make photo books, not to run Gmail which she already had on her PC.

      Apple certainly does take the majority of the profits in the PC industry … yes, that means HP and Dell. Microsoft is a PC parts supplier, like Samsung, not a PC maker. Now that Apple has a $500 PC (iPad) they are set up to overtake HP as the leader in units shipped sometime in 2011. The fact that Apple's profits are almost the same as Microsoft's when Microsoft ships software licenses en masse to corporate customers and Apple sells hardware unit by unit to actual users is not a win for Microsoft or their disintegrated PC model. And Apple is growing much, much faster than Microsoft.

  • http://twitter.com/matthewfabb @matthewfabb

    Many have referred to the growing Mac market as the "hallo effect" of the iPod, iPhone and now iPad. That basically those who buy these products are then more likely to buy a Mac desktop or laptop.

    On top of that Apple has benefited from Microsoft releasing the horrible Windows Vista. Apple pushed that aspect in their great marketing of the "I'm A Mac & I'm a PC" ads. Microsoft has put millions into their own advertising, but ended up with duds like the Seinfeld ads. They have never been as successful as Apple's marketing campaigns.

    I think these two points have been more important to Apple's growth than how the devices perform themselves.

    Also while Microsoft has fallen behind with tablets and are playing catch up in the smartphones, many see Windows 7 has fixing the issues that were in Windows Vista and is now comparable to the latest Mac OS.

    • asymco

      Don't confuse marketing with advertising. Apple does marketing, ads are done by ad agencies. If you assign credit for success on advertising consider that ad agencies can serve many competing clients. If you assign credit to marketing consider that marketing professionals can be recruited by competitors.

      In other words, everything that defines Apple's "marketing prowess" walks out of the front door every day.

    • Hamranhansenhansen

      You're just excusifying for Microsoft, whose products just flat-out suck. It isn't about the marketing, because good products sell themselves. Microsoft customers are CTO's and PC manufacturers whom it squeezes for software license fees … that does not lead to great consumer products. Apple's customers are consumers, who are surrounded by generic crap and have to take a risk to run something different and must be rewarded for that with a much, much better product.

      > many see Windows 7 has fixing the issues that were in Windows Vista and is
      > now comparable to the latest Mac OS.

      That is a balm that Windows users apply directly to their foreheads to justify all the work they are doing to keep their crappy Windows systems from falling over. It simply is not true that Windows 7 is equivalent to Mac OS X. Windows 7 is not even Unix or EFI compatible yet, it doesn't ship with an HTML5 browser yet, it has viruses, it doesn't sleep right, it has almost no consumer usability.

  • luke in seattle

    this is not well written (was it translated from some Scandinavian language?)
    interesting, but hard to justify some of the over-hyped-marketing-laden-MAC-fanboi'ism here

    • Hamranhansenhansen

      Your rebuttal is 100% content-free and even worse, you made ad hominem attacks. Fail.

  • Alexkhan2000

    Horace, you know your site is doing well and generating the traffic when it attracts the Apple-hatin' trolls that we are starting to see here. Clearly, Aysmco is now drawing a good amount of attention.

  • davesmall

    For a very long time most users considered a computer to be a bulky immovable box that sat on a desk. If you wanted to use the computer, you had to sit at the desk.

    The introduction of low cost wireless internet connectivity (WiFi) meant you could access the web from anywhere within WiFi range. Apple was quick to exploit this technological advance.

    Soon it became possible to build a laptop with specs that rivaled powerful desktops. Advances in chip technology, disk drive miniaturization, batteries, high resolution displays, and power management software all played a role.

    Many PC users were stuck in a rut. They wrongly perceived the Microsoft Office suite of desktop applications to be the the heart and soul of computing. They spent a lot of time sitting at their desk in front of that big bulky box while using those apps.

    Meanwhile, other (Internet based) applications became more important. Web browsers, email, VNC screen sharing, etc. MS Office wasn't dead but it no longer stood front and center in computerdom.

    The difference between Apple and the other computer companies (Microsoft, Dell, HP, etc.) is that Apple spotted these trends early and let the charge. The other companies followed Apple's lead (belatedly).

    Another major difference is that many PC users became preoccupied with specs and price rather than design. You won't ever know the joy of owning a BMW or a Porche if your method of rating automobiles is to make a list of features and look for the lowest price (eg: 1 steering wheel, 4 wheels, 25mpg or better, 5 passenger capacity, large trunk, etc.).

  • OpenMind

    Great analysis. Mobile changes everything. Exact same thing happens to telephone company. Mobile phone causes great decline of landline business. For AT&T and Verizon, they suffers and adapts new mobile business. For Qwest, they got bought. Adapt or demise is the question every PC CEO must answer.

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  • Alexkhan2000

    I think it's very realistic to project Apple doubling Mac market share in the US to 20%+ and 10%+ globally over the next 3~5 years. As mentioned earlier, Far East Asia provides the greatest potential for big gains as the iPhone and iPad become the most desirable "status symbol" gadgets in China, Korea and Taiwan. If the US market share for Macs is around 10~11% and 5~8% in western Europe and Japan, it's certainly less than 2% in the rest of the Far East.

    I've been traveling mainly to Korea and China since the early-90's for the line of work I do (both for supply chain management of lower priced musical instruments and equipment and for marketing and selling of high-end musical products to those markets) and it has always been very rare to see the Apple logo anywhere. In the 90's, I remember people there looking at my Mac PowerBooks and asking me why I'm sticking with a dying brand computer that doesn't connect with 97% of the world's computers. I got that look of disdain and dismissal from the typically conservative and conformist crowd over there.

    Now it's completely different. People look at my MacBook Pro with envy and are genuinely interested in the whole Apple platform and ecosystem. On my most recent trips to Hong Kong, China and Korea, I saw a lot of iPhones and iPads at the airports there and even amongst executives at the factories I visited. Macs are still hard to see but it was easy to sense the interest in getting a MBP or an iMac, especially amongst the iPhone owners. During the typical dinner business meetings and the drinking outings afterwards, I end up talking more about Apple stuff with them than our musical instruments business.

    Many friends, relatives and business associates that I have in Korea have told me that they've got an iPhone 4 on order and that they're seriously considering going "completely Apple" in the near-future. Even an ex-Samsung Electronics employee who now owns and runs a high-end musical instruments importing, distribution and retail business told me that he'll be getting an iPhone and an iMac and I thought that was funny. So much for "patriotic" brand loyalty! Considering nearly 2 million iPhones have been sold in Korea since its introduction last year and that KT Corp. has already taken over 40,000 pre-orders for the iPad that will be introduced there on Nov 30, it's obvious that "Apple Fever" is sweeping the Far East.

    The status symbol desirability for all things Apple will continue to grow in the most dynamic economic region in the world – the Far East and especially China. It is the epicenter of consumer electronics – both from manufacturing standpoint and as a developing market to sell into. China and Japan are now the world's second and third largest economies, respectively. South Korea is not far off from breaking into the top 10. Taiwan remains a serious player – at least from the manufacturing perspective and from the influence it has on China's development.

    This aspect of Apple's growth potential is still under-appreciated by people here in the US and Europe. But then, Apple still has much room for growth in the West as well. For the foreseeable future, one of Apple's biggest "problems" will be in being able to keep up with demand worldwide. Build the goods and they will come…

    • asymco

      Fascinating. Thanks for the details.

      • Alexkhan2000

        Now it's up to 60,000 pre-orders for the iPad in Korea.

        http://www.koreatimes.co.kr/www/news/tech/2010/11

        Korea will be a very important market, especially considering that it's the home base of Samsung and LG.

        I'll expound on the "Apple Fever in Asia" theme later. As a Korean-American who grew up in both Korea and the US (my father was a diplomat and went back and forth a lot during my youth) and who has continued to split time between the East and the West, I think I can offer some insights about the Far East that you'd find interesting. I'm also just as fluent in Korean as I'm in English.

      • Alexkhan2000

        I posted the following on some other Apple-related sites that discussed the vast growth potential in the Far East and I'll post it again here for those who may be interested.

        The Far East Asians are really into the glamorous Western brands and Apple exemplifies that image more than any other tech/CE company in the world. There really is no other company that is even close to matching Apple's buzz and pizazz in this area. Someone like Ballmer will say that Apple has a "$500 logo", but the reality of the situation in the burgeoning Asian markets is that the brand matters a lot.

        Why, you may ask. Why more so there than here in the States or over in Europe? Of course, we certainly have our share of people here in the West who like to flaunt their riches but it's not such a mainstream thing as it is in the urban population centers of Korea, China and other nations in east Asia. The Japanese people, though, do not seem quite as desirous of Western luxury brands as the people in Korea and China tend to be. It's an interesting thing to observe from a cultural perspective. I know that this is a bit of generalization, but I think the Japanese society has always cultivated a culture of frugality, modesty, and savings over spending, consumption and blatant displays of wealth for many centuries and perhaps that's why the aspirational brands aren't quite as highly regarded there.

        As for Korea and China, I think the societies there allow a little more individuality while being very hierarchical at the same time. And that hierarchical structure has a lot to do with the upper class wanting to display their social status through the products they own – the cars they drive, the clothes they wear, the handbags that women carry, and the phones they use. Also, the population density in these countries is much higher than the vast swaths of the US and even Europe. Whether it's the crowded subway trains or packed downtown streets, there'll be many more people looking at what you wear and the phone you carry. People who are affluent or have a little more income than the majority want to show that they are in that upper range of the social and financial hierarchy.

        I suppose when one is just another face in a sea of millions in a very compact area, the desire to set oneself apart from the rest in a "respectable" manner becomes an overriding need. Countries like Korea and China are still very conformist societies. Setting yourself apart by sporting a mohawk or piercing your nose isn't really a good way to get noticed and earn the respect or envy over there. Having spent much time in both the East and the West, I've always wondered why Far East Asians seem more prone to irrational brand lust than their counterparts here in the West. I've come to the conclusion that the society itself simply – albeit unintentionally – encourages this kind of behavior. And now that Korea is an economic powerhouse and China is starting to taste what the good life is all about after decades (even centuries) of miserable poverty and putting in 70-hour workweeks, the flood gates have opened to unbridled consumerism.

        Well, all this works extremely well to Apple's advantage in the years ahead. Apple's focus on China is self-evident. We've already read about the pandemonium when the iPhone 4 was introduced and about the scalpers who will easily sell the phones at ridiculously inflated prices. I mean, you don't hear of such things happening in the States or in Europe. How many people here would buy phones off of scalpers no matter what kind of an Apple nut they are? And the affluent and the relatively well-educated over there also know very well about the rampant counterfeiting and fraudulent business practices that still infest their societies. In fact, this makes the real deal even more desirable and aspirational. You can be assured that Apple has a big top-notch legal team in place in China to go after the counterfeiters, trademark violators, fraudsters, scalpers, etc.

        This is well beyond China just being a big market of nearly 1.4 billion people. It's about the economic growth trajectory as well as the psychology of the growing middle class. The implication of these factors cannot be underestimated and it's clear that Apple is definitely not underestimating the potential of what they can accomplish there over the next decade. Now this is well beyond hardware-software integration, the ecosystem and the technical specs. It's about the power of the brand holding sway over many hundreds of millions of consumers with growing purchasing power. To this day after all my years traveling there, I still find China mind-boggling. To put China's population in perspective, it's roughly equal to *two* United States and *all* of Europe combined.

      • dchu220

        If you don't mind, I'd like to add another point being that I live in Taiwan.

        In Taiwan, and in a lot of Asian countries, TRUST is a huge factor. Family and reputation are extremely important. You climb ladders by knowing people. Everybody is always looking out for scammers. Building a brand out here is difficult, but once you do, people will die for your brand.

        "It's not uncommon to see college students making $2 an hour saving a years worth of wages to buy a second hand LV bag."

  • Alexkhan2000

    @ dchu220

    Branding, from a marketing perspective, is an art form in itself and requires astute strategic thinking and development. It's part of my gig marketing high-end musical instruments ($2000 and up) and related equipment and it's something I think about a lot. There's a lot of thought going into branding Apple in Cupertino and it's as interesting to me to observe as the technology developments and the supply chain management aspects of what Apple does.

    Another point that I want to bring up about why the Mac continues to grow, despite the general perception of it being expensive, is that technology is relatively cheap and keeps getting cheaper all the time. Compared to putting in a wooden storage cabinet in the garage, getting a decent sofa for the living room or even putting kids through a football season, a computer is virtually a bargain depending on how well it's used.

    And the Mac is something that can be put to very good use (both in quality and quantity of time) by all the members in a family – even kids below the age of 10. A Mac (say, like the 21.5" iMac I recently got for the family), for all its perceived expensiveness, isn't exactly a classic "luxury" item like a BMW sedan or a Chanel handbag, etc. It's still a tool or an appliance for media consumption, communications and to get some work done efficiently.

    The value is in the quality of the user experience which makes us enjoy using the Mac (and iOS devices) which in turn makes us get things done without frustrations or wasting time. I believe Apple has made spec comparisons a moot point to the majority of the consumers. When I got the new family iMac several months ago, I really didn't care about the processor, the amount of RAM, the graphics processor, the number of ports, etc. I just knew the base 21.5" model at around $1100 would be more than we'd ever need.

    Sure I lust after the 27" model with maxed-out RAM with mega storage for myself but I know that I won't use even 25% of its capacity before wanting to upgrade in 3~5 years. The new family iMac with the Apple TV 2G has completely become the focal point of the home entertainment center. We got rid of the cable set-top box and the DVD player as well. But then, we're just not much of a TV or video game family at all, so I guess it depends on the family.

    But when the PC-owning family friends and relatives come over and see the sleek and super clean system, they are immediately intrigued and become envious. Trust me; I'm not a geek at all. But when they see how I wirelessly stream and play all our music, movies and photo slide shows from the iMac to the ATV and the home theater system with such a bare-bones minimalist setup, they are amazed. When I tell them I spent around $1200 for the whole thing and literally spent only 10 minutes to set it all up, they are amazed yet again.

    Technology should just be a means to an end. I'm convinced that Steve Jobs and Apple understand that as far as the customers are concerned. It's about the end result, whether that's getting the content we want or getting things done as quickly and painlessly as possible so we can enjoy other things in life and not deal with complexities and clutter. Seems that's how Apple runs their business as well.

    • dchu220

      I think a lot of Apple's branding philosophies were driven by the failure of the Apple III. When they first released it, it had a couple critical bugs and was panned by the public. Even after they fixed the bugs, they were never able to break the perception that it was a crappy computer.

      I also read that in each product development cycle, Apple identifies 7 features that it thinks will blow away it's customers even before the cycle begins.

      Yeah. They are a pretty amazing company. I bet we could talk forever about things we've learned about them. It helps that I grew up a couple of blocks from their headquarters.

  • SomeGuy

    @Alexkhan2000: excellent posts & analyses! Pleasure to read. Same for Horace’s work in it’s entirety.

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  • Dante

    Steve jobs and by proxy mac, does not want the ipad to cannabalize the mac products. The vision that mac sees is not that you just get a laptop; you get the laptop, the ipod, the iphone, eventually the desktop, and from there you get their newest models. I think it is silly when people even talk of a paradigm shift in portable computing–people do not want their data stored online, it is not efficient enough! likewise, people do not want to use an ipad//tablet all the time because the keyboard is not optimized for typing &etc. Yes it is nice for a lot of applications, and yes it is very aesthetically pleasing and has many fun applications as well, but a tablet cannot really exist without a dock somewhere. It would seem absurd to me that someone who could afford an ipad would also not be able to, and have, a laptop…a nice one at that.

  • jmmmx

    "The commonly held thesis is that Windows triumphed as the PC was commoditized (and modularized). This triumph was at the expense of the over-serving and over-priced Mac."

    I think this is more descriptive of the events than explicative. There are a lot of reasons that this happened and it is NOT simple because of the superiority of "open" vs "closed." One important reason is that industry loves a single system. You train the user on one word processor and that is all anyone needs to learn. Same with OS. DOS inherited dominance from when IBM went into making PCs. It then leveraged/coerced that dominance into total dominance. The hundreds of thousands of Windows support staff were of course happy to buy-into and promote the platform – it was their high-paid job!

    Most bean-counters were immune to the "total cost of ownership" line of thinking, believing they had done their job if they bought the cheapest PC they could. Then there was the manipulative actions by MS (e.g. pseudo compatibility of MS Word for Mac, and for I.E. on Mac.)

    So it was this complicated mix of factors (including the fact that Apple refused to provide a professional level service to the enterprise) that led to the Mac's demise.

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  • Chui Tey

    The factors for disruption were all there. Moore’s law guaranteed that a new device will up-end the PC the same way PC replaced big-iron. The price point of an iPhone 1 is lower than the entry price of a PC. Because it is underpowered in its first incarnation, and its design constraints – battery life, form factor – it necessitates a new OS. Microsoft’s business divisions were never set up to allow this.

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