Shock and awwww: Does Apple’s March madness reflect confidence or concern?

David Braue
18 March, 2009
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Ah, lovely March. The sweltering summer days are settling down into crisp autumn days. The Ides of March have passed without incident. School fetes abound. In the US, the ‘March Madness’ university basketball tournament is in full swing. And in Cupertino, cleaners are just picking up the last scraps of paper left from the media frenzy over Apple’s fourth major announcement of the month.

Well, technically, the Safari 4 beta came out in the last few days of February, but it was a short month so we’ll let that detail slide for now. That doesn’t change the fact that since February ticked into March, we’ve had new iMacs, new Mac Pros, new Mac minis, new AirPort Expresses and Time Capsules, new graphics cards, a new iPod shuffle (complete with new product lock-in strategy), and now a significantly improved version of the iPhone operating system to contemplate.

My brain hurts.

When Steve Jobs pulled out of the Macworld keynote gig late last year, many wondered whether this was the end of innovation at Apple; whether the company’s heart could go on, so to speak, without him at its helm. I can only read this unprecedented flurry of product updates as a clear signal that the company is determined to prove its critics wrong.

Yet behind the show of force, I wonder whether there isn’t an implicit understanding that Apple needs to put its best foot forward – that even the goodwill of longtime customers can be stretched by a company that seems to be ignoring certain products, pursuing a broader or non-core agenda, charging more than industry will bear for comparable products or upgrades, or generally becoming stale.

Avoiding these pitfalls has always been Apple’s forte: its carefully engineered, highly secretive launches are the stuff of legend. The company does hardware well – always has – and these are all incremental upgrades to existing products – so I don’t expect any of the first-adopter dramas that accompanied the simultaneous launch of MobileMe, the App Store, and the iPhone 3G last year.

This is all good thing, because in polishing off its entire non-laptop lineup (which, incidentally, also got a speed bump), Apple is setting a new baseline that it needs to build on if it hopes to continue its fairytale run.
It couldn’t have come at a better time, if the latest figures out of analyst land are to be believed. The latest figures from retail tracking group NPG Group found Apple’s retail sales dropped 16.7 percent year-on-year in February – including a worrying 36.4 percent year-on-year decrease in sales of its desktop systems.

You might attribute this decline to the overall global financial crisis, but for the fact that sales of Windows-based PCs were up 22 percent over the same period.

Viewed through this lens, it’s easier to see why Apple has gone to such extraordinary lengths to refresh its products: it needs to keep sales up. I’ve already argued that growth in Windows systems could force Apple’s hand in launching a netbook despite its supposed disinterest – and reports suggest the company is indeed building a device on the sly.

Yet being on the back foot is something Apple doesn’t do well, and it needs to reassert its leadership – not only in innovation, but in value – to stay relevant. If it can’t regain its retail strength, the company’s products (and I’m not talking about iPods and iPhones here because they continue to fly of the shelves) will drag it on a slow, spiralling path back to the niche-operator role Apple has enjoyed for years.

There are signs Apple is already preparing itself for such a situation: the March desktop refresh bumped up prices to the point where Australians are once again paying a harsh geographical premium: the 20-inch 2.66GHz iMac, for example, costs $1999 here (compared with $US1199 in the US) and the 24-inch 3.06 GHz iMac costs $3699 (compared with $US2199 in the US). The entry-level Mac mini costs $US599 over there, and $1049 here. The 15-inch 2.66GHz MacBook Pro costs $US2499 there and $3999 here.

That’s a 1.67:1 price conversion ratio for the iMacs (1.75:1 on the Mac mini), compared with a US dollar that’s currently worth around $A1.51. By comparison, the MacBooks launched last October had a 1.6:1 price conversion ratio, reflecting either slightly lower perceived pricing risk four months ago, or higher competition in notebooks generally.

For whatever the reason, Apple has jacked up its local prices further above natural exchange-rate comparisons, hedging potential movement in the Aussie dollar but also potentially pushing Apple back up into the realm of premium brands again.

Apple is also engineering new ways of locking customers in to expensive, proprietary products by clamping down on accessory manufacturers to stem the flow of inexpensive knockoffs: the latest example of this is the iPod shuffle’s headphones, which cost nearly as much as the new iPod shuffle to replace.

Given the current environment, this sort of thing is risky – yet so too is slashing prices on new products in the hope of boosting sales, as companies like Kogan (which this week launched a well-specced 10-inch netbook with a Mac OS X-like Linux interface for $499) are doing.

For its part, NPD argues Apple needs to ride out the storm not by cutting prices, but by providing more choice in the lower end of the market. “If you start cutting prices, it’s hard to go back,” NPG analyst Stephen Baker told Computerworld. “If you bring in something new, then that’s also a risk, but only on a temporary basis. You can always drop” the product later if it’s not successful.

Despite suggestions it has been confirmed, Apple’s netbook is still little more than a rumour – and will be until a launch I would expect around October, the pre-Christmas runup when Apple refreshed its MacBooks last year.

Yet will even the netbook be enough to save Apple? Time will tell. The intervening months will be a real test of Apple’s ongoing clout, with the success of its pantheon of new products sure to be closely watched by Jobs and Co. Apple will survive quite happily, and enthusiasm will flow from its iPhone 3.0 debut in June – but this year’s buying trends will be critical in determining just where its focus lies going forward, whether Jobs is at the helm or not.

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