Tuesday, May 20, 2008

Is Apple recession proof?

MacpcWhile US sales for the rest of the PC industry are declining, Apple’s PC sales in the first quarter of 2008 grew by more than 50%. Among US retailers in Q1 2008, Apple has 14% market share. And it sells two-thirds of all PCs at the $1,000+ price point.

eWeek (the former MacWeek) quotes Stephen Baker, VP of the NPD group:

Apple's success above $1,000 defies some of the conventional retail thinking about PCs, where the emphasis is on lower pricing and greater features. "Consumers don't care about features," Stephen asserted. "People see a value proposition in an offering that gives them a great experience."

Stephen said Apple appeals to the right segments, like multiple-computer households. Consumers that are buying a second, third or even fourth PC have different buying priorities, such as ease of use.

But the retail stores make a huge difference. "Apple has got better distribution than it's had in the last 15 years," Stephen explained. "They're in the right spot right now. There's the iPod advantage. But the big thing is the stores."

Apple's retail stores aren't just places to buy Mac products. They're part of a larger end-to-end value chain—and with it the promise of a certain kind of experience.

"What Apple drives home: This is a product that we own from factory to finger," Stephen explained. "We exert some control so that you get the best experience. When you get in the store, we get you what you want."
Or, as John Paczkowski of the WSJ blog put it, “Apple has tapped deeply into an affluent and expanding fan-base that’s willing to pay a premium for its iProducts.”

Apple is a successful systems vendor, with end to end integration. Such integration also works for Dell, but only in delivering low-margin commodity products. It didn’t work for Gateway, and HP depends on other people’s stores for most of its consumer and SOHO sales.

Of course, Apple — like any premium-priced product — is not recession proof. But right now the number of people who can afford to pay a premium is growing faster than the number who want to buy a commodity PC.

Update May 21 10am: Looking for something else, I found this interesting retrospective (with pictures) of Steve Jobs opening Apple’s first retail store. It does a great job of putting into perspective that Apple has not always been doing so well. Back then 5% US market share seemed like an impossible dream, while today its share is 6.6%.

The difference between success and failure here is called management. Apple’s new management of the past decade has dramatically changed both the company’s innovation strategy and also its ability to execute.

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