In Strategy Shift, Apple to Unveil 3 Low-Cost Macs
Apple Computer executives disclosed Tuesday that the company has fundamentally altered its product strategy, offering three new machines in an effort to become a high-volume, low-priced vendor.
Rather than charging premium prices and settling for a small but highly profitable customer base--a longstanding approach that has drawn increasing criticism from customers and industry analysts--Apple will cut the cost of its flagship Macintosh computer almost in half in an effort to increase sales volume and bring in a new generation of first-time buyers.
“Apple used to be the computer for everybody, and then it became a machine for the corporate market,” said Tim Bajarin, executive vice president of Creative Strategies, a personal computer research firm. “They’re getting back to their basic market.”
The cornerstone of the revamped strategy will be a new line of Macintosh computers to be unveiled Oct. 15. Although Apple has long been expected to introduce a cheaper Macintosh, the company has gone further than anticipated by introducing three new machines that replace much of its current product line, and altering its basic strategy.
Apple’s aggressive move is in part a response to Windows, a new software system that gives the widely used International Business Machines-compatible personal computers many of the easy-to-use features that originally made the Macintosh popular. Analysts say countering Windows is critical if Apple is to remain a major player in the $25-billion personal computer industry.
And the new strategy, which comes at a time when many computer vendors are slashing prices to spur slow sales, also indicates that Apple has recognized the need for a broader customer base in the escalating war to establish desktop computing standards.
“The basic goal is to gain market share,” said Apple Chairman and Chief Executive John Sculley, who discussed the new strategy in a breakfast meeting with reporters. “We are going to take lower margins. We need to get unit growth up.”
Apple, the first company to make the personal computer a mass-market product, has long been fighting a lone battle against the IBM-compatible machines. Those PCs have traditionally used a software system called DOS, developed by Microsoft, to control the basic functions of the machine. The brains behind the systems are microprocessors from Intel.
The IBM/DOS/Intel design became a de facto standard in part because the so-called clone makers were able to make the machines cheaply and thus encouraged broad sales. Software developers rushed to write programs for the widely distributed computers, and corporations who wanted standardized products bought them en masse.
The Apple Macintosh, introduced in 1984, was generally considered more powerful and easier to use than the DOS machines and achieved a loyal following despite its high price and the fact that it could not communicate or share information with the IBM-compatible machines. A strategy put in place by Sculley in 1985 to sell the Macintosh to corporate America was more successful than many expected, but the Apple model still claims only about 8% of the market.
Over the past year, Apple’s growth has slowed, and customers have grown increasingly restless with pricing that gave Apple gross margins of more than 50%. And the DOS standard has begun to fracture: IBM is promoting a replacement for DOS called OS/2, while Microsoft is pushing Windows, which works on high-end DOS machines. Both OS/2 and Windows emulate many of the Macintosh’s features.
In addition, the UNIX operating system, which has traditionally been used only on powerful engineering and scientific computers, is growing increasingly popular on cheaper desktop systems. Sun Microsystems, which has pushed the price of powerful engineering workstations below the $10,000 level, is now considered a long-term strategic competitor in personal computers.
“There are three places where people are trying to build something--Bellevue (Washington, near Microsoft’s headquarters), Mountain View, (Calif. home of Sun) and Cupertino (home of Apple),” said Michael Spindler, the former head of Apple’s European operations who was promoted to chief operating officer earlier this year. “Everyone else is just peddling.”
Analysts have long speculated that Apple might eventually be forced to license the Macintosh design and operating system--as IBM/Microsoft and Sun have done. That would allow clone-vendors to make cheap Macintoshes and expand the machine’s base, which would in turn encourage software companies to write programs for it and make it more of a standard.
But instead, Apple has chosen to offer cheap machines itself and is counting on its ability to build them as efficiently as any clone-maker could. Sculley and Spindler both emphasized on Tuesday that the company had put a great deal of effort into cutting production costs at its highly automated factories in California, Singapore and Ireland.
The new products to be introduced Oct. 15 include an entry-level machine, about equivalent to the current Macintosh SE, that is expected to cost about $1,000 in its cheapest version and $1,500 with a hard disk drive. The “street” prices and prices charged to educational institutions will probably be several hundred dollars lower.
A new color Macintosh will be priced at about $2,500, and a second color product--featuring a faster microprocessor and more expandability--is expected to cost about $4,000. The prices are about half what one would have to pay for comparable power and speed in the current Macintosh product line.
The new products will replace much of Apple’s current low- and mid-range product line, but the company will remain committed to the Mac IIci and the Mac IIfx as its high-performance machines.
Apple will not comment on the pricing or characteristics of the new products, though they have already been shown to thousands of computer dealers, software developers and consultants. Sculley said Apple will spend $40 million, mostly on advertising, to promote the new line.
