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How does the Mac gain share while increasing its price premium over the Windows PC?

Apple set a new record for Mac sales in the fourth quarter. This was not a surprise. The growth was perhaps a bit lower than some expected (including me) but it was still a healthy 23% and 8x the PC growth rate. The Mac has outgrown the PC (and hence has gained share) for 19 quarters straight, nearly five years.

What’s more interesting is where the growth came from. Every region outgrew the market. Asia-Pacific led with a 67% year-over-year increase, almost 10x the market. Japan grew at 56%, which is about 6x the market, and Europe and the United States both grew in double-digits despite both markets contracting overall.

Looking over a longer time frame, the Mac has nearly quadrupled in volume in five years. In the last quarter of 2005, Apple sold 1.2 million units. In the latest quarter it sold 4.1 million. So the performance has been relatively good.

One significant reason for the growth has been the shift from desktop to portables. The lines show how the percent of portables went from about 50% to 70% of units and sales in four years.

But what was surprising was that the average selling price increased to $1,313, up from $1,253 and nearly even with last year’s $1,324.

Prices in the PC industry tend to fall. Actually, to be more precise, they tend to collapse. Compare the Mac’s price trend with the rest of the industry as seen in the chart to the left[1]. It shows the Mac Average Selling Price which is what Apple books from selling into the channel vs. the retail price of PCs in the US.

The chart tells a partial story. The PC figures are retail while the Mac figures are wholesale. Furthermore, the PC figures include Mac, so stripping out the Mac would show the PC prices to be even lower. Lastly the Mac figures are global whereas the PC figures are US only.

But what I want to focus on is not the absolute difference, rather the relative value difference, which is diverging: The average PC went from $795 retail at the end of 2007 to $615 in November 2010. That’s a drop of 22%. In the same time frame the Mac went from $1,539 to $1,313 wholesale, a drop of 15%.

In other words, the Mac price premium at the end of 2007 was at least 93% and it now is at least 114%.

So here’s the real surprise: How does the Mac gain share while increasing its price premium over the PC?

The only answer I can offer is what I already wrote on the Mac in November:

…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.

In other words, computers became re-integrated. You only need to touch the MacBook Air to understand why.

—-

Notes:

  1. The inset chart comes from The Wall Street Journal using data from NPD. The Mac data comes from Apple financial reports.
  • sfmitch

    I think the answer to your question is really quite simple.

    1. Computers are very important to consumers
    2. Macs offer a better experience than Windows PCs
    3. Many people are willing to pay Apple a premium for a superior computing experience

    • FalKirk

      Respectfully, I don't think your argument holds water. Computers have been important to consumers for 35 years. Macs have offered a better experience than Windows for much or all of that time. Yet only a small portion of consumers have been willing to pay Apple a premium for a superior computing experience. Your premises are constant, but your conclusion has changed. That's illogical. To make your case, you need at least one additional premise illustrating what has changed.

      Horace has proposed that when customers moved from desktops to notebooks that it was more important that the product be well designed and since Apple makes well-designed notebooks, Apple's sales increased. I'm not saying that he's wrong, but his explanation doesn't seem sufficient to me yet. What do you think?

      • ericgen

        A lot of people have/had never used a Mac before. As such, prior to the iPod, they'd never used an Apple product before. As their confidence in and knowledge of Apple's products grew from using and enjoying the iPod, many were willing to try a Mac. Many of these same people would have never considered trying a Mac before.

        Simultaneously, Apple made it much easier for them to get "the full Apple experience" by rapidly expanding their retail presence. People dropping in to an Apple store, possibly just to buy an iPod, could easily play with a Mac, perhaps their first opportunity to do so. The iPhone continued to regenerate this cycle and now the iPad cycling it yet another time. Apple has been steadily developing their own virtuous cycle where each product sold helps increase the likelihood of selling the same customer other products from their line.

        One of Apple's biggest problems in the past was getting people to actually try a Mac. They've overcome this by gaining potential Mac customers' confidence from other product that they sell (the halo effect) and making it much easier for people to try a Mac. Most people know what using a PC is like. Apple is quite confident what people will decide if they actually try using a Mac.

    • Yowsers

      I agree with your points. One thing I'd like to examine — the "paying the Apple premium" is heard often, and accepted almost without question. It has become a stated fact, nearly.

      Let's flip that. Let's say that Apple's products are fairly priced, and the Dells, HPs, Asus' and Lenovos of the world are priced like junk because, well, that's what they have to price them at in order to get someone to buy them.

      If they could price them like Apple, they would.

      Those cheap prices are no heart-felt favors for consumers from Michael Dell — those are cold-baked figures resulting from supply and demand.

      Stock traders say that cheap stocks are cheap for a reason. So are consumer goods. I don't think there is an "Apple premium". I think they're fairly priced. Dells and HPs running Windows are junk and fairly priced, too.

      • Hamranhansenhansen

        There is no Apple premium, or Mac tax. Macs are cheaper. Non-Apple PC's just pretend to be cheaper through hidden costs:

        • Windows Starter Edition that has to be upgraded
        • 21st century basics like photo management and video editing left out
        • basic Unix security left out so you have to spend hundreds on security software and post-virus recovery
        • basic support left out so you have to pay the Geek Squad to fix even small problems
        • much lower reliability with costly downtime
        • much shorter lifespan means you buy more PC's.

        A friend of mine was complaining about her PC support costs and was stunned to find out that I don't have an I-T consultant. Her one PC plus consultant was costing her more than my 2 Mac notebooks.

        The problem is, it's hard to explain this to consumers whose experience has been that their HP sucks just as much as the Dell before that and Toshiba before that. Apple Store is teaching people, though.

    • Kizedek

      Another element that comes into play, too:

      1. MS Windows held monopoly over the desktop paradigm. It is not the iPod and Phone and Tablet markets that are strange exceptions to the natural order of things, it was the desktop PC market that was artificially pre-determined. Now that the newer paradigm of mobile computing is taking off, the landscape is more natural — multiple OS', as there were before Windows.

      2. Because the merits of Open Standards are finally being recognized and pushed, it is not so important for everyone to standardize on one proprietary system in order to work together and get things done. The value is in what you achieve with your computing device, not how you achieve it in the same inefficient and head-bangingly, unintuitive manner as everyone else. But it takes a new paradigm to kick that off — mobile or cloud computing.

      3. Therefore, personal choice finally plays a more significant part in device selection than does the dictates of our workplaces.

      4. As companies allow more personal choice, but less subsidization and support, then workers are going to choose:
      a) that which makes them more productive
      b) that which requires less support
      c) that which lasts longer and has better resale value

      5. The computer playing field is leveled and truly innovative companies who are committed to superior user experience, higher customer satisfaction and quality and value in their products are rewarded.

  • giromide

    I’m intrigued to see how many more Macs are sold after Lion releases. Lion aims to make Mac OS X more familiar with iOS users who haven’t switched to using a Mac as their “main computers”.

    • FalKirk

      I think the already existing Mac App Store may be the key to increased Mac sales. After the introduction of iTunes, sales of iPods exploded. After the introduction of the App Store, sales of iPhones exploded. It's only in its infancy now, but after the introduction of the Mac App Store, why shouldn't we expect to see a proportionally large increase in Mac sales as well?

      • John

        Keep in mind that, mobility of the MacBook line notwithstanding, you're far more likely to see a friend running an interesting app on an iPhone and thus becoming intrigued/jealous, than to see, or be interested by, a friend running a Mac application.

        Additionally, at the time, smartphone applications were foreign to the vast majority of people. Not all that many people had smartphones, and app usage was much more rare than that. Compare that to desktop/laptop computing, where applications are the norm.

        The app store was very cool and tipped the scales for people interested in iPhones (and, of course, the concurrent introduction of subsidies helped significantly). The Mac app store is far less likely to be a game-changing driver of interest in the Mac platform.

      • FalKirk

        Well, we'll see. Remember, no one expected the App Store to be anything like the success it is today. Now we retroactively declare its success to have been preordained. In terms of selling software, I don't think it's the device that matters. It's the App Store that matters.

        We won't know for sure until about a year from now. Until then, chew on the words that Phil Libin, CEO of Evernote, wrote after Evernote sold 320,000 copies of their application during the first week of Mac App Sales: "Last week made us realize that the reality is a little bit more nuanced. It isn’t mobile that’s overwhelmingly important, it’s the app store. Until a week ago, all the good app stores just happened to be on mobile devices, but someone with a shiny new Macbook is just as eager to get the best apps as someone with a shiny new iPhone."

        I echo his words. Someone with a Macbook is just as eager to get apps as someone with a phone or an iPad. And as Apple has proven over and over and over and over again, content sells hardware.

      • Kizedek

        I agree that the Mac App Store could really win more people over more quickly to the Mac platform than were it not to exist. It will be a great thing for new Mac users who never knew what a browser was and that they could use something else besides IE. And as an old Mac user, I have already enjoyed using it.

        But I agree with John a bit, too: the reason new users might see the benefits of the Mac App Store is because they are aware of the iPhone App Phenomenon, which is more readily accessible and demonstrable when you see someone else's device which they have on them at all times.

        Regarding selling software, though, I do think the device matters; I don't think the App Store is all that matters. This is because the "device" in the case of Apple products is the "whole package". What makes the App Store work is precisely the same thought and planning Apple put into everything else: the OS, the custom components, the UI, the technologies, the features they add or drop, the UX, the SDK, the materials and finish, developer relationships, etc…

        It all adds up to a complete package. This is what makes Apple unique. If it were just the App Store (both the business model and a good use of HTML5 and WebObjects, etc.), one wonders why other App Stores fail.

        I know you said "in terms of selling software", but I wonder how true that is. Would Angry Birds be a success if it was not on the iPhone first? People see the buzz the iPhone version has created, and they download it for Android. They get an ad-supported version because there isn't a great record of "selling software" on that platform. So far so good, the App Store makes a big difference…

        But, why do developers say they will put all their efforts, or their first and best efforts, into iOS? Apparently, Android users get varied mileage with the App, depending on the device, the device specs and its user experience. Is it because of the App Store alone — or because the developer can more easily achieve a more compelling app for a more compelling platform which makes an already compelling device that much more compelling?

      • poke

        There are obviously many things on iOS devices that are important to the App Store's success. For example, it's a curated platform, which makes installing software from small developers safe. The hardware and OS are not fragmented, which makes development easy. The development platform is designed so that appealing apps are easier to make. But all of these might be considered part of a general "app store strategy" – i.e., apps need to be safe, easy to develop and easy to use if you want your app store to be successful.

      • FalKirk

        "Would Angry Birds be a success if it was not on the iPhone first?"

        I believe that if Apple had introduced the Mac App Store in 2006, the Mac App Store would be as wildly successful as the App Store is today. I believe that we have cause and effect reversed. The App Store is not successful because it is selling mobile Apps. Rather, there have been a lot of mobile Apps sold because of the success of the App Store. App type stores sell content, content sells hardware, therefore the Mac App Store will sell a lot of Macs.

        So, in answer to your question, yes, I think the Mac App Store will generate its own Angry Bird success stories. I may be the only person in North America to feel this way, but that's my story, and I'm sticking to it. (Unless, I'm really, really wrong, in which case I'll just change my screen name. :)

      • Kizedek

        I largely agree — I love the App Stores. I think they are a wild success. I agree that Apps like Angry Birds are a best-selling success because of the App Store. And I agree with you that the App Store "is not successful because it is selling mobile Apps" but because "there have been a lot of mobile Apps sold because of the success of the App Store."

        However:
        1) your two-part statement above does not indicate WHY they App Store is a success. And I would say a large part of that is due to the devices (and the platform/iOS). My point was that I don't think you can separate the iOS devices from the success and say the device doesn't matter.

        2) A good store only makes a real success of an App that is good to begin with. And I kind of think that it took the iOS platform and the Apple devices, whose UI is just one big touch service (done really well), and the motion detectors, and all that, plus good SDK's to really unleash all that creativity in the first place — the fruit of which we are seeing in the App Store, as instant financial successes. I remember the first few developers featured at the keynote when the iPhone was announced — they were pretty giddy about what they could do with it.

        Why did the developers commit to the unproven App Store and make it a success a year into the iPhone? Because of the success and popularity of the device, as limited as it was regarding apps for a whole year. Because of the proven strength of the platform, because of Apple's dealing with the carriers, etc.

        It is a whole what came first, chicken or egg, kind of thing. But the developers saw a reason to develop for the iPhone and commit to the store in the first place. And, I would say that the device certainly matters, because I would maintain that only someone committed to an integrated device like Apple would be able to make this Store the success that it is. Again, why are no other stores successful? Because they don't have an integrated device maker like Apple to create and run them.

      • FalKirk

        I had intended to include the following link to the Phil Libin interview that I quoted in my post, above. The entire interview is worth a read. http://techcrunch.com/2011/01/19/evernote-mac-app

  • Danthemason

    I knew we had them when they said "Any computer with a mouse was a toy."

  • Tee

    I think a major reason that mac share is increase has to do with the ability to run programs remotely or equivalently at home for work. Folks that used to buy a home pc to match their work pc no longer need to do that as much. This lets more people buy whatever they want for home. I just went thru this recently, and there were a few programs left that I needed to run that are not on the mac. Other coworkers run linux or other alternative operating systems.

    As stuff like Citrix, webmeetings, and other productivity tools are deployed, what machine an employee has at home is becoming less important. The business no longer wants to provide expensive laptops to most employees, they put in desktops and assume the employee will use their own machine or go to the office.

    I would expect over time that a large number of people that have the choice will upgrade to macs when given the opportunity. They are lower complication to set up, maintain, spend less time running virus software or recovering from problems, can take them to apple store or call for help when needed to get issues quickly resolved. Anyone that values their time and has owned a pc in the last 8 years has see this all before – windows pcs can spend more time at home to maintain than you get out of them with usage. I was doing weekly virus scans, adaware scans, backups, etc, for a few hours of work. When I turned it on, it had various patches to apply and had to reboot. It would reboot itself overnight and I'd have reopen a bunch of programs/documents.

    Maybe interesting to see if the rise in VMware or Citrix is related to increases in mac sales. If you want to run your programs on a no hassle, nicely designed piece of hardware, and have good consumer friendly software for photos etc outside of work, very nice to switch to a mac. Could be re-collecting former mac users too. Some folks used mac in school and then had to use windows when they joined the workforce.

    • r00tabega

      Good point re: citrix, etc.

      In the past 10 years, almost all software has become web-centric. The use and development of web software typically only requires a machine that's comfortable to type/input and browse.

      Result: Work is often done online… in this space, the most comfortable device that is capable enough will fit the bill.

      Another point is that Macs are all Intel, and can run Windows if need be. If you want a device that can run/test all operating systems, a Mac is it. Windows PCs can't do this without a lot of hackery.

  • dchu220

    I find Apple's entry into China/Taiwan very interesting. On the conference call, they said the two stores in China brought in the highest amount of revenue per store. It could become a case study on how to build a brand in China.

    Lots of American companies have come to China, lost money and rationalized it by saying that they are investing in the future. They are like Google's eternal beta, looking for a business model. Yet, Apple has come in and almost instantly become very profitable.

    • KenC

      There are 4 Apple Stores in China. Apple came in at the most extreme high end, with some of the priciest real estate. The Shanghai-Pudong store is akin to the 5th Ave store in NYC. It's that iconic, not just for its design, but its location. It can't be replicated. It sends a clear signal to the Chinese consumer that this is THE pre-eminent luxury brand. And, China is now the #2 luxury goods market in the world after Japan. Yes, they passed the USA this past year.

      China is obsessed with brands. Alot of western and Japanese companies with tired brands, have spent an inordinate amount of money trying to convince Chinese consumers that their brands are still world leaders. For example, Izod. Here it's just a cheap polo. In China, it's a luxury brand!?! Buick is a dead brand here. In China, it's an incredibly popular upscale brand.

      So, everyone is trying to get in on China, with faux and real brands, but it's clear to the upwardly mobile Chinese consumer that Apple is the real deal. Only the richest company could afford to have real estate between the Shanghai CCTV tower, and the Shanghai World Financial Center, the two tallest structures in China.

      • dchu220

        Yes. Buicks in China. Makes me laugh.

        I like the point you make about Apple being the real deal. It's true.

        You don't know how many times I've had a conversation with a person from China and told him that in America nobody drives a Buick except old people in Florida. As China becomes more internationalized, I wonder how many of these brands will fall off the wagon.

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

    Great post, great analysis!
    As someone fortunate enough to be able to afford it, the first time I used the new MacBook Air I also knew I have never owned a computer/laptop nearly as good.

  • Tatil

    Many people do not really care about the quality of their computer and do not do much beyond netsurfing or emailing. In the past these people would be using a Windows desktop at work and they would buy a Windows PC at home. Now almost every company gives laptops to its employees, so there is no need for them to buy a new home computer anymore. The only people I know who buy computers these days are either geeks, doctors (I guess hospitals do not distribute laptops yet) or normal people buying them for their kids, who are more discerning and probably more image conscious.

    • David

      It will be a banner day for computer analysis when people drop these "image" and "marketing" arguments.

      • Tatil

        I am not saying Macs are sold mainly due to "image" and "marketing" , even though Apple is successful in that aspect as well. I am just saying the market for "good enough" laptop is shrinking because of the laptops supplied by employers. That forces many tech companies who need growth to hold up their stock prices to chase growth by lower priced products.

        My observation may not explain why Apple is able to grow its sales or command higher prices, but it explains part of the "collapse" of regular PC market.

    • r00tabega

      I know that the few (fortune 500) companies I've worked for in the past 5 years even, are now supporting a heterogeneous network. They may give you a company laptop, but their IT is now good enough (or overworked enough and don't care) to manage a good VPN client that is cross-platform … allowing you to use your home computer for work.

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

    The PC space had been driven for so long by Mhz & GBytes, that when the game changed the major players did not know what to do.
    When the PC became "good enough", Apple continued to innovate ("re-integrate") the PC experience, ….while the Wintel crowd put R&D on hold and competed in price.

    twitter.com @tektonikshift

  • dchu220

    Horace – You forgot to add in an important quote from your previous article which was (not verbatim):

    "It was much harder for user to open their laptops."

    People couldn't just open their laptops and switch out a motherboard or add the newest processor. They needed hardware that was going to last a long time to make their investment worth it. His makes hardware – software integrations super important as well as an OS with a mature platform development roadmap.

  • Martin

    Apple noticed something back during the iPod era – something that we see in some other markets like auto purchases, and probably now with TVs and other appliances. Consumers expect to spend a certain amount of money for these items. Call it the 'inherent value' of the item to the market.

    In the iPod era at the time when Apple was just expanding the line into the mini and nano, consumers expected to spend about $500. If they bought an iPod that cost less than $500, they made up the difference with cases, docks, speakers, and so on. Bottom line, they expected to spend $500 and one way or another, they did. The Apple Stores were instrumental in helping Apple retain as much of that $500 as possible.

    Many consumers seem to expect to spend about $1000-$1500 on a new computer. In the PC space, there just aren't many in that price range, so they buy a desktop and a netbook, or more relevantly, they buy a desktop and an iPad or iPhone. They're going to spend that money, but they want the most value for the investment. Apple has decided to set a floor of about $1000 for their computers. The Mini is below that, but toss in a monitor and keyboard and whatnot and you end up right in that price range. Eventually, two things are expected to happen:

    1) The perceived value of the Mac will increase. This is what the Apple Stores help to accomplish. You go in to buy that iPad or iPod and you see how helpful the staff can be with your computer – something they don't experience with a PC. Something that they may start to attach value to. If Apple can continue to add value to the Mac through synergy with iOS and other services, that will help considerably. PCs now generally are overkill in all areas for most consumers – more RAM, storage, CPU power than they need, so that's not really an area that is driving consumer decisions.
    2) By setting a price floor at $1000 and keeping it there, inflation will steadily bring more consumers to that level. It's simply easier to drop $1000 today than it was 5 years ago and 5 years from now it'll be easier yet.

    By keeping their hardware profitable and stable Apple expects they can keep putting out first class machines and eliminating frustrations that plague other platforms – buying and installing software is the latest effort.

    • aardman

      Nice insight.

  • poke

    I think reintegration is exactly right. The PC market has finally ended its long adolescence. The rate of component innovation created a sort of product neoteny and kept personal computers permanently in their 'hobby' stage. Now that component innovation has slowed they're becoming subject to the usual market pressures that shape successful products (design, usability, brand recognition). Most PC manufacturers haven't been able to compete under these conditions so they've settled for competing on cost. Apple appears to be pursuing a reintegration-oriented strategy with the Air, the Mac App Store and Lion.

    This is another reason why arguments from 'openness' are so misguided in the smartphone market. The set of circumstances that made modularity a necessity for so long in personal computers are unlikely to occur anywhere else. It's hard to believe that people can argue that iOS vs. Android will be Mac OS vs. Windows all over again when the conditions that allowed Windows to dominate for so long not only don't apply to the smartphone market but clearly no longer even apply to the PC market itself.

    • Tatil

      Design and usability is important in consumer electronics, but judging by the quality of the interface and software in my Blue-Ray player, they are still not included in the feature matrix of the products by many of the big boys in that arena. The competition is not that much better, neither does the common reviews put much weight to that category. Netflix streaming: check; 7.1 audio: check… is still the norm.

      • poke

        The transition to more software-oriented products and more complex UIs has been hard for the consumer electronics giants, but there's nothing in the consumer electronics space on par with the DIY nature of the PC in terms of bad user experience.

  • FalKirk

    Well, I'm convinced that Mac sales are rising, but I'm still unsure as to why. I've heard the iPod halo theory, the iPad halo theory, the move to notebooks demanded higher quality theory, the move of software to the cloud theory and a couple of other theories as well. Maybe one of them is the answer. Maybe the combination of some or all of them is the answer. Or maybe we're just guessing.

    This thread is still young and some of the smartest people I know regularly chime in on these comments. I'll check in tomorrow in the hope that a new theory, or a new explanation for an old theory, presents itself. Because understanding how the Mac gained share while increasing its price premium in a declining market is a puzzle that I'd really like to see unraveled.

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

      @FalKirk,
      Have you thought about Gen-Y reaching the market? They're used to Apple products, they've been studying with MB and when they land a new job, they don't want a cheap Dell that crashes and is sluggish.
      Also, many companies are giving allowances to their employees to buy their own laptops, to work from home, and I see a lot of people (like me) buying better quality devices; you just need to bring about $500 and you get a very decent MBA. The anti-Apple IT CIOs are retiring, the new ones are more open.
      Finally, when I'm in places like Best Buy, I always do what I call a " torsion" test: take any cheap netbook, apply some torsion and you will SEE & FEEL how cheap they really are! Then move towards the Apple section and try doing that with an iPad or MBA :o ) make sure that other customers see you ;o)
      Luis

    • Joe_Winfield_IL

      I'll take a stab at it:

      In my opinion, we have to ask why Mac share was so low to begin with to understand why it is improving today. Many books have been written on the topic listing dozens of reason why Windows proliferated and quickly dwarfed all competing platforms. I would posit that the Windows' dominance in the consumer space was a direct result of Windows' dominance at workplaces. A user had a choice between learning one system or learning two; the only way to minimize learning was to stick with Windows, and a huge barrier was built for switching platforms. The clone PC business pushed prices down and quickly drove innovation. With the platform universal, purchase decisions were based on price for a set of specifications. New innovations created more utility for home PCs, and users had to upgrade frequently to catch the latest feature set.

      Over the last several years, we reached a point where new hardware features and upgraded processors didn't add utility. Users care about performance, but malware and background processes degrade performance with normal PC usage over time, regardless of clock speed and RAM. Users upgrade largely as a lazy way of starting over.

      Browsers, photo management, MS Office, and media players have become the critical software components for most home users. With the exception of Office, these programs are largely OS agnostic. Browsers are generic, and Apple excels at all things media. As internet browsing became more and more the main function of a computer, the fear of learning how to use Mac decreased. Buyers asked, "How different can Firefox be on a Mac as opposed to a Windows machine?" The barrier to leaving Windows has been lowering for years as usage is based increasingly on commoditized online services and programs.

      This created a huge opportunity for someone to change the value proposition of a PC. Enter Apple with "it just works." If a computer works perfectly after 4 years without fear of viruses, and it can do everything that a Windows PC does with minimal re-learning, it suddenly has great value. Add in a design aesthetic and solid physical build quality, and Apple had a real chance to start sniping Windows sales. Then, the snowball really started to roll downhill with the halo effect of iPod, and more recently, iOS.

      As long as Windows can successfully monetize workstation licenses, Microsoft's incentive is still to build an OS that serves business users well. Building the UX around media management and consumption and mobile device integration is extremely difficult in a licensed model – there are hundreds (thousands?) of media players, phones, and other peripherals that Microsoft needs to serve well, and dozens of third party applications developed for Windows that compete with Microsoft's own offerings. Meanwhile, Apple can build Macs based on working very well with iPhone, iPad, iPod, and AppleTV. Apple can design integrated functionality into software based on yet unreleased hardware, so that products work on day one. It is an order of magnitude simpler than the Windows approach, and almost an unfair advantage. This doesn't even account for the growing Google problem, with phones, search, and now Chrome OS. Poor MS has to allow its machines to do all the heavy lifting on media management for Android, which doesn't have a back end of its own.

      Meanwhile, Windows has little incentive to chase its tail keeping up with the MacOS UX. A loss of one or two percent share means much less to Microsoft's bottom line than it does to Apple's. Momentum is strongly on Apple's side, and Microsoft cannot possibly be focused on this specific problem.

  • KenC

    The shift to portables highlighted the good attributes of the Mac, while weakening the positive attributes of PCs.

    The Mac was lighter, woke up faster, connected to coffeeshop networks more seamlessly, lasted longer, etc., etc., etc. These were important features for a laptop, not so much for a desktop.

    The PC's easier customization advantage was gone with laptops. Note, the decline in Dell's fortunes taking place at the same time as this shift away from desktops to laptops.

    • Ian Ollmann

      We've also seen a paradigm shift in processors. Single core performance has been relatively stagnant over the last 5-8 years, compared to what went before. Previously, your performance was better over time if you bought cheap and refreshed often. Now, I think it makes more sense to invest in a computer to last a few years. I expect software quality to be increasingly important over time for the same reason.

      Horace probably has it right though that laptops need to be nicer because they are an integrated system not amenable to building out of spare parts. Also, you bring a laptop to meetings, where people notice what sort of laptop you use. It says something about you. Desktops just hide under your desk, and most of the differentiation, if any, is the software on screen, or the screen itself.

  • dchu220

    I think there are too many reasons to list on why the Mac has kept gaining market share. I'll try to list as many as I can think on and I encourage people to add on.

    The Internet – It changed the way people communicated and freed people from the need to install MS software for many basic needs.

    The Erosion of Trust – By entrusting their manufacturing to OEMs, MS passed the responsibility of taking care of the customer to 3rd parties who were more interested in selling units than customer satisfaction.

    The Value Equation – Macs come with a lot of software that takes care of the needs that consumers care about. iLife helps people manage their digital properties easily. I'm sure the suite sells a lot of units on it's own.

    The Wild Viral West – With the internet came virus, bots and a host of really disgusting things. Go to any software store and I would bet that the highest grossing software outside of MS Office is Anti-Virus software.

    The Price Disparity Isn't As Great – In stats we use the Average Selling Price a lot to compare stats, but that often hides the segmentation in the market. The difference in price for similarly equipped PCs are not as great as it used to be.

    The Apple Store Lessons – I broke the numbers down and each Apple store is averaging about 100 one-on-one lessons a day on how to use a Mac. I'm sure most of these people have or will buy a Mac. I would bet that most computer stores like Best Buy don't even average 10 computers sold a day.

    Like all things Apple, it's impossible to point to a single thing and say that is why they have been successful. Apple really takes a holistic view of its company and the market.

    • unhinged

      Don't forget Apple's move to Intel chips and the subsequent ability to run Windows natively (Boot Camp) or provide emulation with a very small fraction of the performance hit that used to be in place. This lowered the cost of switching because if you desperately need your old Windows software you can still use it on the newly-purchased Mac.

      Apple has consistently executed a long-term plan, started in the late 1990s, to remove barriers to switching. The iPod and then iPhone were the devices that brought attention to Apple, the promise of similar ease of use led people to consider the Mac and the move to Intel was the final major stumbling block removed. Price is still a factor in the decision to purchase, but Apple has always (correctly) known that if the object is desirable enough price becomes the least important issue.

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  • Ian Ollmann

    Horace,

    Does your PC data include netbooks? If we decide to ignore their effect — we'll temporarily suppose they are a failed experiment because they aren't good for producers and therefore prone to evaporation over the coming quarters — how does the PC ASP look then? That is, is this an Apple story, or a netbook story?

    • asymco

      I believe the data excludes netbooks. The following cites slightly lower pricing including netbooks.

      Read more here: http://www.eweek.com/c/a/Windows/Netbooks-Are-Des

      The average selling price (ASP) showed a decline in 2008/2009, possibly due to low-cost netbooks, drawing $569 for desktop computers and $689 for laptops at U.S. retail in August 2008. In 2009, ASP had further fallen to $533 for desktops and to $602 for notebooks by January and to $540 and $560 in February. According to research firm NPD, the average selling price of all Windows portable PCs has fallen from $659 in October 2008 to $519 in October 2009.

  • Sander van der Wal

    Why do people buy expensive, well-designed and excellent cars? To show status.

    Why do people buy expensive , well-designed and excellent laptops? To show status.

    Both cars and laptops are visible to other people. Desktop systems are not. There is no point in showing off with a desktop, as nobody will ever see it. The status symbol has to be functionally excellent, though, and not just expensive and good-looking.

    • LB51

      Anything can be considered a status purchase. Status is just a state, condition or situation. Purchases are very irrational. Even with the buying on so called economic value argument, the purchase has been rationalized irrationally. Ones purchase is a given right of choice and cannot be argued as right or wrong. If the purchase fails for the said consumer, then the right to purchase another product exists; the lifecycle of ownership starts over and who knows maybe this time the purchase is correct.

      Apple contains value to those that receives value. I personally was tired of spending excessive time and money keeping Windows based equipment running. And, to me nothing is more expensive than time.

  • Andrew

    "How does the Mac gain share while increasing its price premium over the Windows PC?"

    It's a two-step process. A consumer considers what they want. If they only want a computer to do task X, and price is their only criterion, they will choose the cheapest product, in this case assumed to be a Windows PC. If they consider additional factors, such as usability, reliability, specifications or re-sale value, they may consider a higher-quality product such as the Mac. Emotional factors may reinforce this choice.

    Having decided that spending more money on a Mac represents better value, they then look at the incrementals. Extra RAM, larger storage, more powerful processor, all these increase the value of a product, and since you're spending this on something that will be an important tool for several years, worth getting at the same time rather than spending more time and more hassle changing later on.

    The second stage of decision-making does not usually refer back to the first stage and result in a Windows purchase. However, with some exceptions, I am sure that Apple has become very good at making those incrementals look very good to buyers.

  • chano

    People across the world aspire to having quality purchases. And so, after serial disappointments with Ford or GM, we look to Mercedes or Audi. After serial disappointments with feature phones, they look for a smartphone. After serial disappointments with the Wintel non-integrated nightmare for the user, as victim of neglect, Apple seems to get it right and they notice the contentment and satisfaction of its customers and they switch or they buy Apple as a first purchase. No other manufacturer has complementary products that can engender a significant halo effect – not a one. No other manufacturer has proven the longevity of the useful life of their products as Apple has. No other manufacturer has demonstrated, without saying so, that the residual value of their computers when it is time to sell it, is higher than that of any competitor. And so, with all these factors in play and becoming much more widely recognised by Joe Public, of course sales will rise quickly. When you are a minority market share player (As Mercedes, Audi, Omega and other leading brands are, and your quality is self-evident, the premium seems more than justified.
    Apple set out to make the best (computers) devices they knew how to. People noticed. They bought.

  • George Providakes

    Since PCs include Netbooks would iPads if included change the ASP and bring more parity between PC and Apple. Or remove netbooks and make them part of Media Players. We don’t seem to have Apples to Apples comparisons to understand. I am not sure consumers see the world like Gartner, IDC, etc. see it.

    I do think the change to integrates is a big factor but data is la lacking. The I’m a PC ads to show parity at lower cost seem to have been a bust.

  • aardman

    The ratio of non-geek to geek computer purchasers has risen dramatically since the 80's and will continue to do so in the foreseeable future. Geeks want computers they can tinker with. Non-geeks want reliable, minimum-configuration appliances. Windows is designed for the former. Apple targets the latter. An integrated manufacturer will usually make better appliances. Especially with computers where even as they get more complex inside, customers demand that they get simpler to use. That is a skill in which Apple has no rival. That's why they own the future.

  • Sergio

    I wonder if these figures will be taken into account by Google when reassessing the future of Chrome OS… Surely the massive success of the app model will finally convince them that a cloud-only netbook is an empty proposition? Their efforts might be better spent by focusing solely on extending Android for tablets and laptops.

    • unhinged

      I don't know that you can say cloud-only is empty of value. If you're always on the network and the download speed is sufficient to make the local machine the bottleneck in performance, then you don't really care where the application is running. Look at X-windows, Citrix and VNC – the apps are running on another machine, but the responsiveness is usually the same as a local application. Plus, the user only has to worry about authentication rather than configuration, which means you can benefit from economies of scale with support costs.

      Right now, I think the majority of applications work best on a local machine, but as mobile networking gets more reliable, faster and more available, we may see the cloud-based apps becoming the best solution in a greater number of areas. Time will tell, and I think Google is demonstrating its belief that the tipping point is sooner rather than later.

  • unhinged

    So it's the curation that Apple provides that has resulted in the success of the App Store? That's the only variable that hasn't been mentioned yet.

    I too think it's a combination of factors rather than a single point. For me, if there is any major factor in play it's that the worry has been taken out of the equation in deciding to get another application for the computer being used. I have no data to back this up, but I think knowing that whatever you buy will work on your device and the only time you need to "uninstall" it is if you don't like it is a psychological weight lifted off the average user who has been through the pain of Windows configuration issues.

    The confluence of factors such as low entry price, low exit costs, high availability and (generally) high quality apps has led to the success of the App Store.

  • Kizedek

    You make a few good points, but it is your second post I disagree with strongly, not your first.

    Digression to quickly answer your rebuttal above: Yes, the fart apps are a "success" — a couple of hours coding and ANYONE can make some money on the App Store (that's the beauty of it). I think we can pretty safely say that there are far more "success" stories on the Apple App Store than on all other stores combined. Anything can be a success on the App Store, no doubt. I was actually counting that as a given, and was considering what makes a particular app, like Angry Birds, a success even by App Store standards? I still think it is because some extra creativity and innovations can be harnessed by the Apple devices and platform; rather than an attitude of "let's get something into the store, because whatever we come up with, we'll sell a boatload".

    I understand how you disagree with me, because you changed the direction of the debate with your second post in this thread.

    This is the crux of the issue, because the whole reason I have engaged in this debate with you (rather good by the way, so thanks), is that you seem to have shifted gears between your first and second post in the thread, and I found that rather odd, to say the least…

    1) "I think the already existing Mac App Store may be the key to increased Mac sales. After the introduction of iTunes, sales of iPods exploded."
    Great, I agree! The Store(s) add value. This is a great thesis. We were talking about Apps and not just Music, but oh, well. This thesis is right on topic and proposes an answer to the article, "how does the Mac gain share…?" Love it.

    Then John replies and logically proposes how the Mac App Store may be less high profile than the iOS App Store. He argues that you can't necessarily expect the same kind of explosion in Mac sales, because we don't whip our Macs out of our pockets and show off our Mac apps to everyone on the metro. Oooh, good point, John.

    Then, you suddenly switch the debate:

    2) "In terms of selling software, I don't think it's the device that matters. It's the App Store that matters."

    What? I tried to play by your rules and still give reasons why the device matters, even if selling third-party software was the whole point of Apple's existence. (And I have a few more reasons ;) ).

    But, ultimately, the device matters for several important reasons: it matters because it matters to Apple; it matters to those of us who choose to use Apple devices and platform no matter what apps may be available (and the moment the initial gloss of the App Store wears off, this seems to be the case with most of Apple customers); and it's the point of this article. Who said anything about the selling of software?

    You switched from "Why the Mac App Store WILL help Apple sell even more Macs (even though we are talking about Mac gains in the recent past), to: "Why the App Store and the Mac App Store are good for Phil LIbin of Evernote". He's selling Evernote — Of course the device doesn't matter to him! I concede, you win.

    What interests me is the intentions of Apple regarding the App Store(s); and by extension, Apple's devices. Apple repeatedly say they want to make insanely great, integrated products; and that their software and services and ecosystem are something that adds value to their hardware; they don't use their hardware as loss leaders to promote expensive games or services. Nor does Apple show indifference to its products by extruding another one every five minutes depending on which way the wind blows and what specs are hot at the moment.

    So, I have to say, with every product out there, EXCEPT Apple's, yes, the device doesn't matter. Apple's intentions make a subtle difference from the other companies, but it makes a difference. The device matters.

    • FalKirk

      @Kizedek: First, let me thank you for the high level of the discussion. Like you, I'm enjoying the exchange of ideas.

      Second, I think we've been on parallel tracks. I take full responsibility for this. I've been struggling to understand where you were coming from. You can possibly see this in the tone of some of my remarks. For example, where I said "what I think you're saying…". I just wasn't following you. I suspect that if we were face to face we'd be back on the same page in under two minutes.

      Third, because of your last post I went back and re-read the entire discussion. Let me see if I can sort this out. You said my second post changed the nature of the debate. That was both unintentional and unnoticed by me. Let's reiterate.

      1) I said that the Mac App Store would sell Macs.
      2) John replied that the Mac App Store may be less high profile than the iOS App Store.
      3) You say I veered from my original point (see 1, above) and shifted my position to "Why the App Store and the Mac App Store are good for Phil LIbin of Evernote".

      What I had INTENDED to emphasize using Libins quote was "It isn’t mobile that’s overwhelmingly important, it’s the app store…someone with a shiny new Macbook is just as eager to get the best apps as someone with a shiny new iPhone."

      It appears that it was the following sentence that sent the discussion off the rails: "In terms of selling software, I don't think it's the device that matters. It's the App Store that matters." I'm still not sure how you're interpreting that, and that's the disconnect. I remember struggling with that sentence when I wrote it. I added "In terms of selling software" at the last moment. Clearly my poorly worded sentence is communicating something so unintended that I still can't fathom what it is your hearing! (Although I suspect that the undefined use of the word "device" might have something to do with it.)

      Forget about Evernote. My comment was not supposed to have anything to do with Evernote and its software sales. What I was trying to say, in rebuttal to John's comment, was that I don't agree that the Mac App Store may be less high profile than the iOS App Store. It's the store that matters, not the "device" – iPhone, iPad or Mac – that is receiving the content from that store. I acknowledge that you disagree.

      Thank you for your patience and your understanding. This was just supposed to be a little side trip from the main discussion and instead I lead everybody down a winding garden path. My apologies. I'm sure we'll get a chance to discuss the Mac App Store again on future ASYMCO posts. The Mac App Store is not going away. Hopefully, I'll be a little clearer next time than I was this time.

  • Xavier Itzmann

    I'm surprised no-one has mentioned brand power.

    When the IBM PC came out, plenty of people were already shipping millions of computers. Apple, Commodore, Sinclair, even Texas Instruments.

    But the IBM brand brought credibility to the new industry and so many who would have never purchased an Apple II went ahead and bought an IBM PC.

    Likewise, Apple was shipping millions of Macs in 1998. But the brand had eroded its credibility, especially among business. Today many people buy Mac simply because the brand has begun to be seen as "serious".

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