Apple Dropping Hardware? No. (A response to Allan Warner @ Geek.com)

I’m feeling very relaxed today. I just got back from a weeks holiday which I have to say was very much needed, plus I got a killer tan which is always nice. Anyway, I was just scanning through today’s news and noticed an article by Allan Warner over at Geek.com. I’m not going to attack this like I did those two comments in my last piece. But I am going to have to say that I think Allan is wrong. No bones about it, just flat out wrong. I’m sure he doesn’t think that he is. I’m sure he thinks that I’m just another mac zealot, two bit blogger who thinks he knows more than he really does. But this is one of those topics that crops up again and again, and those who make the ‘software’ claims seem to be missing the big picture.

The first question Allan asks is, “Should you purchase a Macintosh with a PowerPC microprocessor between now and when the switchover is final?”. His answer is yes, and I quite agree with him on this. The next generation of OSX, Leopard, will be released at the end of 2006 and will be compatible with both PPC and x86 offerings. I expect the next iteration of OSX after that to present itself mid to late 2008, though this is pure speculation. This too will almost certainly support both architectures given the last PPC offering will roll off the production lines in 2007. So I would expect full current software support from Apple, and therefore other developers, until well into 2010. Most people buying macs will be on an upgrade cycle of around 3 years, and those that aren’t will probably never know there was a transition in the first place. Given this, there is no rational reason not to recommend people buy a Mac whenever they want. Most likely, they will see the transition as seamless, just like Apple wants. They will never really know anything changed anyway.

The second question is where it all goes wrong however. Allan asks, “Will Apple still be selling Macs in, say, 2008?”. His answer is that he doubts it. Hmmm. First he says that Apple will pull out of the desktop business, and possibly even the laptop business. Is this seriously likely to happen in the next 3 years? Especially given that Apple’s dominant market share are in areas where the power and screen sizes afforded by desktops are critical. Is video editing going to be done on Powerbooks in future, I think not. Well unless Apple releases a 30” Powerbook in the future. Plus, I can’t see Apple transitioning to Intel hardware, then dumping it within the year. Seems like a waste of R&D money to me!

Next Allan says that OSX will run on any off the shelf Intel hardware, irrespective of any efforts Apple makes to stop this, and they most certainly will. I have no doubt that some ‘Geek’ in his basement will be able to crack any preventative measures that Apple employs. But are his parents going to be able to? And are businesses likely to use a ‘crack’ in order that they can change their PCs to OSX? The answer is no. Even if it is possible, the majority of people will never know how, nor will they even know its possible in the first place. Anyone who thinks otherwise, is naïve.

To become a software only company is also a very unattractive economic proposal. Apple makes its money off hardware sales. Its hardware often has high margins, hovering around the 20% mark on average. On some items it makes more and on some less. Nonetheless this is much more than most, if not all, of the commodity hardware makers. While it is true that Apple also makes a lot of high margin software for specialist industries, it sells very little of this to the consumer market. If Apple wants to grow as a company, its the consumer market it knows it needs to go after. This is proved by the release of the Mac mini. So an argument based on the fact that Apple can ditch hardware and keep going on sales of its pro software is clearly wrong. iLife sales are not going to carry the company, I can assure you.

Allan’s next paragraph is amusing, because it states, “Apple will sell computers as long as it can earn a very good return.” Why is it that this situation, which currently exists, is going to change because of a move to Intel processors? Assuming that the move is as smooth as I expect it will be, no CONSUMER is ever going to know a switch was made in the first place. The same people as before are going to be coming through the doors, because they love Apple’s hardware design and the strength and stability of OSX on top of this. The only conceivable effect on an Intel shift ,is that some more people might be coming through the door buying Macs, because now they can install Linux and/or Windows on the machines as well. Oh look, now Apple is making even more cash on hardware sales, irrespective of any potential for future software sales.

Then Allan makes one of the commonest mistakes I see written. He says, “However, soon it [Apple] will compete with the Dells, Gateways, and Lenovos of the world, which sell commodity computers.” A change to Intel chips IN NO WAY means that Apple is now in competition with the commodity PC makers any more than it ever was. Its loyal customer base, though it may flux from time to time, will remain as it is today. Where the game becomes interesting, is when consumers realise they can buy a Mac, run Windows and/or its applications on it, and enjoy the stability that OSX affords on top of all this. The consequence of this is that Apple gobbles up the executive PC market, today held by companies such as Sony, and probably takes some of the business away from the commodity makers too, when consumers realise the value of owning the Mac over any other computer.

I could go on and on about this, but I have only one more comment to make, which could possibly be the most important factor at play. Apple is Steve Jobs’ company. Steve Jobs is a hardware guy, and always has been. As long as he is in control it is almost inconceivable that Apple would ever transition into a software only company. Who would want them to anyway? I love the hardware I buy from Apple. Without it, I would struggle to find anything I even wanted to buy at all, whether I could install OSX on it or not.

Comments

[Tim Coughlin]

Actually I would have to disagree with you on that. SJ was all about the hardware working at NeXT. It was not his intention for things to go the way they did. His obsession with hardware is arguably one of the reasons that NeXT failed to sell computers to its intended market : students. The perfection he sought meant that the computers cost far too much for anyone to buy apart from those with a lot of disposable income ie NOT students.

[MacMark]

Steve Jobs is not a hardware guy. Do you remember NeXT? In the end it was a software company.

[John Reagon]

Gee, I wonder how much Software Apple can make and sell. I don't think enough to fill those beautiful
Apple stores they are putting up all over the world.
Never heard such nonsense in all my life. A software company! Where do some of you guys come from, outer space? Oh yes, haven't you heard, Apples computer sales increases in May, out did the PC sales.

[OS11]

Apple will remain a Hardware Company for the rest of its long life. You need BOTH Hardware & Software to have a Great User Experience. Give up either, and you wind up with the whole Windows/Intel/AMD mess.

When anyone ever suggests Apple will give up the Hardware side, just try not to laugh too hard.

Yeah, would you want to give up 60% of your paycheck each month? AND marginalize your future lifestyle for the rest of your life.

The only people suggesting that path, don't understand the roots, drive and goals of Apple Computer Inc.

[Tim Coughlin]

OK, its a fair argument to say that Apple may become a software only company if this could make them as much or more money as today. But I just don't see why, if they were shifting this volume of software, they would shut shop for the hardware. I mean they would probably be selling more of it than they are today, and they're doing pretty good at the moment!

Tim Coughlin

[Richard Taylor]

Apple may morph from a hardware company to a software company only when the profits from the latter equal or exceed the profits from the former. It's hard to see how this can happen painlessly. Maybe if there's enough demand for OS X on generic intel boxes (and that will only happen via theft), critical mass will occur and Jobs will agree to license the operating system. Still, Gates must see the handwriting on the wall — more competition BAD — and ensure that Longhorn is, at the very least, "good enough" thus closing the window of opportunity. I agree with the stream of thought current now that the real battle isn't desktops, or even notebook computers, but emerging markets like movies-on-demand. If so, the whole Mac-PC thing may drift toward the back of the room.

[tom Barta]

Jobs' MacTels would surely be the prettiest, fastest things money could buy. But made the starched collare crowd would enjoy buying Dellintoshes from the same bland MBA's that have been bribing them for years? Maybe licensing in 2007 would be different from that last time.