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Why is Apple in Trouble?

I'm writing this as the price of Apple stock continues to plummet. The press has been calling me, asking why it happened. What follows is an opinion based on my 13 years working for Apple, plus 10 years closely following the company. It is surely not the complete story, but it might shed some light.

Apple lives in Microsoft's shadow. The analysts have long suggested that were Microsoft to pull Office and Internet Explorer from the platform, everyone in Cupertino might well have to close up the shop and turn off the lights. They suspect the people at Microsoft have been happy to see Apple live, because Apple has been at least a weak defense against charges of monopoly. However, it is doubtful Microsoft wants Apple to live well, at least well enough to seriously threaten the Windows market share.

I've watched Microsoft in action, particularly in their business dealings with Apple over the last 23 years. I watched a couple years ago the tide of major developers leaving the platform when the market share dropped too low, developers that Steve was able to turn around only at the last minute when he came back on board. I share the analysts' opinion.

My regular readers have seen me lambaste Apple more than once for crimes against the interface, most recently with OS-X, but those are criticisms within the family. The fact is that the Macintosh interface continues to be superior to Windows, with every probability of remaining so. Unfortunately, that's a well-kept secret.

Microsoft continues to do a wonderful job of convincing a fawning press, as well as the general populace, that Windows machines are easy to use. This, in spite of overwhelming evidence to the contrary. Steve Jobs, meanwhile, has done a masterful job of breathing life back into a company that had lost most forward momentum and all press support.

Apple has been up and down before. In the next several weeks, you will read a number of stories about how this time the company is not coming back. If you get tired of reading those, I have a whole file of similar articles stretching back to the late-1970s, when the stock was at around $1.00 a present-day share and then dropped in half. Had you bought $10,000 worth of stock during that first "Apple will never recover" crisis, you'd have a half million dollars today. If you'd sold high, when Apple could do no wrong, then bought back on every one of these "this is the big one" dip, you'd probably be able to buy a small country. And so the cycle continues.

A Few Things Apple is Doing Right

Apple's industrial design is second to none. If you haven't laid hands on a G4 Cube, hie thee to a computer store. The Cube is perfect. In essence, they started with a chimney, then built an extremely compact (8 inch3 ) computer around it. The chimney's natural convection means no fan, and no fan means no irritating noise.

To open the G43, you stand it on its head, push in on the handle in its belly, and the entire insides just slide free. I installed 64megs of memory in my son's Cube in less than two minutes. That included the time to figure out how to open the Cube, locate where to put the memory, install the memory, and slide the computer back together, locked in place. Slick.

Critics argue that, other than memory, there's not a lot of internal expansion. That's true, but, unlike Steve's original Mac, lacking not only slots, but high-speed ports, this computer can connect to almost anything, be it Firewire, USB, Ethernet, or Modem.

The iMac has also come a long way. It now sports high speed, a proper amount of memory, and colors that range from fun to conservative.

OS-X is a good thing. It fixes the single largest human-computer interaction problem with the current OS—reliability, or the lack thereof. It still has faults in the demo nature of its interface, but many of those are slowly falling under the weight of public opinion.

A Few Things Apple is Doing Wrong

Apple's immediate problem is lack of sales. A fair portion of these are attributed to soft sales in the college and university market. One reason for this is just simply the overwhelming presence of Windows. Another one, however, lies with Apple. Apple used to seriously discount computers for college students. Now, in effect, buying an Apple with the student discount can actually cost you more.

Apple, for example, gives a nominal $50 student discount on a $1500 iMac DV Special Edition, selling it for $1450. Retailers, however, while pretty much toeing the line on price, are offering extras worth close to $100, like another 64meg slug of memory or, in the case of one large catalog dealer, one of those suddenly ubiquitous scooters. Apple can't make money by giving away computers. On the other hand, they should ensure that students receive a price at least commensurate with what their parents are paying.

Another problem is that Apple is selling old computers, as my collegue, Andrew Gore, points out. Steve got millions of dollars worth of free publicity when he introduced the iMac. Today, the iMac is old news. When you are selling sizzle, it's important to keep the pan hot. Steve tried to get another year out of a well-matured, but cooling iMac, and its not working.The cube is a hot looking machine, but it is priced beyond the reach of generation-y kids, with their youthful attraction to things bright and shiny.

Apple is also way behind the perceived power curve. I say "perceived," because the Apple is still as fast or faster than the PC. The PowerPC chip does twice as much per cycle, but has a clock speed only half that of the fastest Pentium. The net effect is a parity in instructions per second. The problem is that 1000 Mhz sounds a lot faster than 500 Mhz, and speed is the only message getting across. Motorola needs to speed up production of new PowerPC designs. The architecture is capable of a lot more.

Finally, Apple is no longer making a machine suitable for the high-end professional. Specifically, in cutting back the slots on the high-end machine from six to three, expansion and future adaptability have been severely curtailed. This may sound strange, given that I just extolled the virtues of the slotless G4 Cube, but the needs of a professional are quite different. A couple extra video display cards for multiple monitors plus a high-speed SCSI card can fill the three slots fast, leaving no room for future cards, such as one supporting the upcoming high-speed USB standard.


Do I still believe in Apple? Absolutely. I believe in the technology, and I believe in the company's future. I've bought two new G4 machines for my kids in the last month. I'll buy a new one for myself the moment I can get one with more than three slots. (Until then, I'll continue to use my Mac 9500.)

Apple is once again down, but hardly out. Steve will make some adjustments, and the company will go on. As for the future, should the Justice Department prevail in its efforts to clip Microsoft's wings, Apple will have a real shot at regaining the market share it has deserved. Even if that doesn't happen, never underestimate Apple or Steve Jobs. They are still powerhouses of innovation and nerve.

Reader Responses

Microsoft Motivations & Apple Marketing


I interpret what you’re saying is that MS keeps Office, therefore Apple, alive as a symbiotic act of self-preservation. I would inject a different motivation into the mix.

MS couldn’t kill Office if it wanted to. There is no business reason to do so that MS could use as a defense. It would be on its face and in fact an abuse of market power that would make the browser war seem like a schoolyard slugfest. Office for the Mac makes millions for MS. The only reason to kill it would be to kill Apple. Couple the Justice Department with a few million activist Macheads, and MS has a problem it can’t talk its way out of.

The missing message of Apple’s marketing, to me, is and has always been the bean-counter’s message. Logical, irrefutable reasons that a corporation might choose the Mac over Windows. Plain, gray ROI studies, backed by case studies. I’m not sure that corporate America cares that it’s now available in Sage. They still need to be convinced that it’ll help them be more profitable.

On the other end of things, Apple’s users in the publishing and media markets are driven by the need for ever-faster machines. And Apple’s sales growth has always been driven by upgrade cycles. Moto is killing Apple right now.


Missing Slots


Good to see [the lack of slots] brought to the surface, as it hasn’t been mentioned at all in the media for quite some time, but remains a major limitation for the bulk of our high-end Mac based clients.

Your comments about the perceived power curve is also right on target, especially when the dollar decision makers (management) are involved, looking principally at 1GHz (with six PCI slots) versus 500MHz and three slots and the costs. While few if any of our content creator/designers would ever switch to PCs, it is getting more difficult to convince management to continue investing in Apple.

In fact, several of our large clients are now looking seriously at Mac OS X from the standpoint of what the total costs will be to implement it, (learning curve, working through compatibility issues, software updates, etc.) versus the costs to involve Windows NT or 2000 and “1GHz” PCs, including possibly dual-processor PCs and its learning curve and software costs. These firms already have PCs in place, supporting accounting, project management and other non-graphic design functions.

While I also believe in the Mac technology and the company, it is getting very difficult to make a living as a dedicated Mac support firm, when Cubes and colors are not what our customer base wants, inorder to improve their productivity... not to mention long time desktop publishing folks, many who transistioned from the drawing board to the Mac IIfx and all major upgrades since, but now feel abandoned by Apple.

I hope that 2001 brings the hardware we’ve been waiting for.


Apple in a a Microsoft-free world


I’m a little more optimistic on the “Apple Needs Microsoft” front than you are. I almost never use any Microsoft product in my day to day work with various clients, and few of my clients use much Microsoft stuff either. One thing that I find very encouraging is that new BROWSERS are coming out! That HAS to be the toughest row to hoe that there is - but iCab is almost ready and I use it now by preference. IE 5 is just too unstable and crashes too often, Opera is coming along and even the Mozzilla project may yet produce something (their preview was the fastest browser I’ve ever seen).

One of my clients is Producer’s Video Auction - one of the largest Cattle Auction Web sites.This is a perfect demo of just how powerful the machines Apple builds are! We’re replacing a Cold-Fusion based system running on Window’s 2000 with an iMac using Acius 4D as both database and Web server. Our load testing has revealed no problems at all - indeed our maximum projected load will be consuming only about 15% of the little guy while giving BETTER performance!

By using the integrated 4D approach we were able to solve our clients problem with about 1/3 of the development budget he’d been quoted for an upgrade to his current system. Thus our shop has never needed to recommend a Microsoft solution to our clients.

Martin, Bill & the Sigma 4 gang
Happy Macintosh Developers.

On Student Discounts


I read your article on Apple’s price decline with interest. As a student, I agree with your assessment of the educational discount. Often times, it does not make up for incentives given by Apple’s resellers.

I am a long time (since 1985) Mac fan and, until recently, Mac user. I purchased two computers this year. One an HP Pavilion, which is very loud, and the second (very recently) a Dell Inspiron laptop. Why the switch? One simple reason: software availability. I need to use geographic information systems (GIS) software for my research. Specifically, I use ArcView by Environmental Systems Research Institute (ESRI). ESRI stopped Mac support for ArcView about one or two years ago. Many of the enhancements over that time period are critical to my work. Had ArcView and all the recent enhancements been available for the Mac, I would have purchased a Powerbook without hesitation. As it is, I am stuck with the Dell, which in many ways is a nice machine, but is lacking in many areas. I am also stuck with Windows, which does most things adequately, but has nowhere near the elegance of the Mac. Also, I can only shake my head with sadness when I think about OS X, which looks like it will successfully combine the stability of UNIX with the ease of use of the Mac interface.

So there you have it. A long-time Mac user and Apple fan forced to Windows against his will. As you pointed out, until Mr. Jobs and Co. can convince more software developers to come back into the fold, people such as myself will have little choice but to “do Windows.”

Finally, I can offer one more anecdotal observation on the state of the Mac on campus, at least my campus. Several weeks ago I passed a large public computer facility in the student union here on campus. In that room were rows of computer. I would guess about 80% Windows (Dells) and 20% Apple. The Macs were even newer G3’s and possibly G4’s. There were many students using the Windows machines. I did not see one person using a Mac. I think Apple is losing mindshare of the up-and-coming computer user, especially ones weaned on computer games.

Michigan State University

Day-Trading Hyenas at the Door


I want to broach another aspect of Apple’s “woes” altogether, its relationship to a strange and volatile stock market. The only stock my 82-year old father owns ( at my encouragement ) is a few hundred shares of Apple. And he bought an iMac last year...his first computer. So the recent stock plunge has been difficult to reconcile with him.

I explain it this way: Nobody on Wall Street or the Web has been saying for the past eighteen months to do anything but BUY more a Apple stock. Nobody has been saying Sell or Hold Off. You can date this intrinsic optimism in Apple to the day the iMac debuted in 98. I tell my father that last week’s stock tanking was a great opportunity for him to load up on more Apple stock,

The sinister aspect to Apple losing $ 9 billion in market value , on paper at least , has a helluva lot more to do with the Day Trading fast-buck after-hours trading crowd than it does with the high-tech industry sorting itself out . Day Traders are the Hyenas of the Stock Market , stalking the great herds like Apple and Intel and Microsoft and Cisco day and night. When they see an opportunity or haven’t eaten for a day or two, they move in as a pack for a kill and a communal gorging , then move on to the next dinner buffet . This is the digital equivalent of the very analog Plains of the Serenghetti.

Frankly, everyone knows Apple has the goods and the skill and the momentum to weather this latest market adjustment. Everybody but the Hyenas , that is. Problem is, they dragged down the entire market.

Apple’s current stock price does not accurately reflect the company’s health or potential. There are some things that even Steve Jobs can’t control. Damn predators.....

Dewey V.

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