OT...The Second Coming Of Apple [bolds are mine]
12/20/2004
Dow Jones News Services
(Copyright © 2004 Dow Jones & Company, Inc.)
By Tim Hanrahan And Jason Fry
Of THE WALL STREET JOURNAL ONLINE
NEW YORK (Dow Jones)--Apple Computer Inc. (AAPL) has been reborn - and now it's on the verge of a renaissance.
Yes, we know Apple's share of the PC market remains little more than a rounding error: According to market-research company International Data Corp., its share of PC shipments hovers around 2% in both the home and commercial sectors, with more than half the commercial numbers coming from educational sales. But we see a confluence of events that we think will substantially change some of those numbers, ushering in an Apple tidal wave that will remake the home PC landscape.
Like a lot of commentators, we grew up during the Apple-Microsoft holy wars, in which you were either a Mac person - caricatured as an arty, anticorporate granola - or a Windows person - a troglodyte with a high tolerance for crashes. The idea that one could be both? Borderline perversion.
In those early days, hardware and software standards all but ensured the camps stayed apart. File formats for documents were different, and you'd have as much luck hooking a Mac up to a Windows network as you would using it to communicate with an alien spaceship. (Oh, wait, that worked in "Independence Day.") Like a lot of computer users of the time, we wound up as Windows people by default: Our friends and colleagues had Windows PCs, so if we wanted to share documents with them, we had to have a Windows PC too.
But that hasn't been true in years. The file formats most people use in their daily computing lives are now standard and universal, and Apple and Windows machines co-exist happily in countless corporate and home networks. As time marches on, fewer and fewer computer users remember Apple's Soviet-leader-style parade of leaders or care about ancient debates over who ripped off the graphical user interface from whom.
Steve Jobs's 1997 return to Apple restored the company's business focus and revived its reputation for making easy-to-use products with great style. That's the one-two punch that powers Apple's legendary brand, and without it none of what's followed would have happened. But the first big wave hinting at what's coming wasn't the iMac or the G4 Cube - nice machines that signaled the company was here to stay, but weren't the stuff of revolutions. It was - and is - the iPod.
For all intents and purposes, the iPod is digital music. Apple has more than 90% of the market share for hard-drive-based digital-music players, and both the iPod and iPod Mini are in short supply this holiday season, and with good reason. The iPod embodies everything Apple's always claimed to be: Its cool design makes it a must-have accessory for hipsters, and its ease of use makes it the default choice for newcomers intimidated by digital music. With the success of the iPod mini spinoff, other ideas are generating excitement: While Apple has rejected the idea of a video-player iPod, other rumors being batted around with varying levels of credibility - include an iPod that uses flash memory, a satellite-radio iPod and even an iPod/iTunes phone.
As Apple keeps innovating, its challengers keep competing like engineers, thinking that advantages in storage capacity or battery life can make silk purses out of ugly, hard-to-use sows' ears of machines. When people would rather spend more than $130 above list price on eBay for your product than buy someone else's comparatively priced or cheaper product, you own the category. (Even a holiday endorsement from Oprah Winfrey hasn't appeared to help Dell Inc.'s (DELL) DJ music player dent iPod's dominance.)
The iPod has drawn well-deserved raves, as has the multimedia suite of iTunes, iMovie, iPhoto and iDVD. Still, the company's share of the desktop PC market has remained stalled, leading some to wonder if Apple isn't rmorphing into a digital-entertainment company, with the computers that made it famous becoming an afterthought. To us, that's a strange way to look at it. After all, home computing itself is morphing into digital entertainment, with all the usual suspects trying to provide software and hardware for managing music, photos and movies and marrying the PC with various pieces of consumer electronics. While nobody's found the perfect formula just yet, so far Apple's done a better job than anyone else has.
Right now that success has meant big gains for Apple stock but hasn't translated into a big jump in sales of Apple PCs - but iPod's success is part of the reason that jump may be coming. One of the more-interesting bits of recent speculation has been about the "halo effect," which holds that the runaway success of iPods could drive sales of Apple computers: In a Piper Jaffray survey conducted last month, 6% of iPod users said they'd moved from PCs to Macs after buying the digital-music players, and another 7% said they planned to do so in the next 12 months. We believe in the halo effect: While there are always some people making such the PC-to-Mac switch, we think the iPod is making many more people consider a move to the Mac world. Its success has meant Apple products in what were once Windows-only homes, paving the way for other products - where iPods lead, wireless-networking products tend to follow.
Still, iPods and wireless networking are on the periphery of digital entertainment, whose center remains the Windows-dominated PC. Apple's operating system and machines are generally hailed as superior to their Windows counterparts, but much as it'll pain the Appletistas to hear it (again), that superiority isn't enough to cause enough people to switch camps. For things to truly change, there has to be a fundamental and widely perceived problem with Windows, one that goes beyond geekspeak about operating systems.
Guess what? There is such a problem. In fact, it's the biggest issue in tech today: the drumbeat of viruses, spyware and other maladies that plague Windows and are practically nonexistent in the Apple world. It's true that this perceived immunity is partially a reflection of Apple's small market share, but that won't matter to consumers tired of computing anxiety and pain. Sure, it's a lot to ask folks who've lived in the Windows world for years to switch - Apple tried that campaign a couple of years ago, with little success. The difference between then and now is that the combination of Windows' security woes and greater familiarity with Apple products, a combination we think will be what Apple needs to unlock that market. It's happening slowly right now, but it's happening, and it'll gain momentum in the months to come. While it won't alter the commercial-PC landscape at first, it'll put Apple in a position to consider whether it wants to try to make inroads into that market as well.
If we can channel our new "Return of the King" DVDs, the board is set and the pieces are moving. The endgame's a ways off, but we think we it'll be a shocker: the second coming of Apple as a home-computing power.
(Are we right about Apple's computing renaissance, or have we finally drunk the Kool-Aid the Appletistas have been offering us all these years? Write to us at realtime@wsj.com, and we'll post selected comments this Thursday. If you want to share your thoughts but don't want your letter published, please make that clear.)
-Write to Tim Hanrahan and Jason Fry at realtime@wsj.com
(END) Dow Jones Newswires
12-20-04 0834ET
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