Saturday, May 20, 2006

The Reason For Apple's Resurgence

Over the past couple of years a growing stream of business and technology media have been extolling the many successes Apple Computer has been achieving in the marketplace. And, while many of these pundits have hit on most of the great moves executed by Apple's management, I have not seen one piece published anywhere that has drilled down to expose the one, simple fundamental reason that Apple is blossoming.

The reason? The overall cost of computers as a percentage of the consumers' earnings has steadily plummeted down to a point where the actual difference in price for a Windows versus and Apple system has become irrelevant. Click on the below chart to see a larger version you can actually read. Then, come back here and let's talk a bit about what those numbers mean... not just in the Apple vs. Microsoft war, but to the manufacturers of all manner of consumer electronics products.

PC & Apple Prices vs. Family Income
Click Image For Larger View

This chart shows historical price points that loosely represent the total price a consumer would have had to pay in the years shown to get a fairly basic PC or Apple computer system... entry level desktop or notebook, and display/printer. Don't fuss with me about the precision of the numbers, please. Recall I used the word "loose." And, from here forward, I will state all prices and income values as CPI/inflation adjusted to 2005 values, in US dollars.

In 1980, a PC system cost about 25% of a family's yearly income, and an Apple system about 35%... explaining why the first wave of PC adoption circa 1980's was principally in the business market. The increased worker efficiencies gained by using the PC was something that could be quantified and justified as a business purchase, but pre-internet home users were rare. So, with Apple's machines aimed squarely at home users and the PC machines aimed straight at businesses, it is obvious why Apple began bleeding market share throughout the 1980's.

By 1990, prices for entry level PC or Mac systems dipped below 10% of the typical family income, and home user adoption began to take off. But, Macs were still more expensive than PCs, and most consumers then buying their first home computer were doing so from having used the machines at their jobs, so they were more inclined to buy a Windows based machine for home use, too.

Since 2000, prices for either Windows or Mac based computer systems have plummeted, both in absolute terms, and in relationship to family income. In fact, the relative cost-to-income percentage dropped by greater than a factor of ten since the early 1980's. This decade has ushered in a new era where PCs of any sort are a truly minor expense to the vast swath of buyers.

PCs And Macs Are Both Negligible Expenses Now

PCs are nearing a point where complete systems can be bought for 1% of annual income, or even less. And, this makes the price of these products less relevant than ever in the buying decision. Consumers and businesses alike are now looking more closely at the attributes of the computers they choose... at attributes other than price.

Because prices for computers in general are so easily affordable to consumers and businesses, buyers are pausing and are more likely to buy the one that looks the coolest, has the extra features, or has the hipper brand image. And, they are already showing their preference for good-looking, easy-to-use, status-branded products. After all, if the "step up" system is only an extra 0.2% of your yearly pay, why not buy the sexier product?

Apple has fought for its livelihood historically by making sexier products than the Windows world has offered. In fact, in both software and hardware, Apple's primary business advantage is its intense focus on industrial design and user experience... two areas historicaly neglected by Windows PC makers. So, Apple is winning a swarm of new customers. But, all of that is really just background for my next point.

All Consumer Electronics Are Cheap Now

It's not just computers that have been steadily declining in price as a function of disposable income. All consumer electronics products have become so easily affordable that price is rapidly becoming a non-factor in the buying decision. And, it is the companies across this market space that are focusing on non-price attributes that are seeing huge growth. Motorola's march back to market leadership in the cellphone arena is just one good example. Their sexy phones are similarly priced to the many non-sexy options, and all cellphones are so easily affordable now, that choosing the sexy option is a no-brainer for a fast growing block of mainstream buyers.

CE Manufacturers Need To Wake Up

As price diminishes even further as a buying factor, it is the companies that fully embrace user experience and industrial design that will emerge as new market leaders in the coming decade. Music, video, and communication products are all priced for the masses, and will continue to be priced even lower as mass market technology production becomes even cheaper. Investing a wee bit more effort on making a product look great and work easily will steadily differentiate the winners from the losers in this new era of non-price based buying.

Apple has always emphasized user experience and product design. Motorola may be learning to do the same thing. Other companies are shifting their attention to these non-price factors: Even Dell has announced a corporate mission to offer better looking machines. For fans of gorgeously designed electronics gear that just works without any hassle, the next several years will be a playground of slick and sexy new toys. And, the ranking of market leaders in all of these consumer electronics sectors is going become a scrambled mess. Traditional sales leaders will falter, newly emerging combatants will rise. And, along the way, the average consumer is going to have a steadily growing array of hot, sexy products to tempt their wallets.

The reason for Apple's resurgence is the same reason that can drive any other consumer electronics maker straight to the top of their category... if they are just smart enough to deemphasize price and put more effort into people-pleasing, beautifully designed and packaged gear.

I can hardly wait to look back from ten years hence and to see who got smart and made the most of this fundamental shift in market and product priorities. What a thrill it will be to watch the concept of "industrial design" become the major marketing theme rather than "price."


Blogger Choux*Pastry*Heart said...


9:12 PM, May 20, 2006  
Blogger fixyourthinking said...

I agree the cost equation is out of the picture, it has come down to design, but something you missed ... it's come down to MYSPACE.

Everyone wants to identify with a group nowadays. This is the reason myspace is so popular. And likewise, the iPod ... no cool kid has a Zen. The Mac Community is just that ... we are family ... we are the FAR greater a community than myspace could ever hope to be.

8:42 AM, May 21, 2006  
Blogger Jack Campbell said...

A reader asked where I got the income numbers used here. They came from here.

9:04 AM, May 21, 2006  

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