The MacBook and the Cost of Innovation

Tag : floppy disk

In the weeks before Apple introduced the new MacBook laptops, there was speculation that Cupertino's favorite son wouldintroduce a model under $800 and jump into the value notebookcategory, where most of the competition plays today. In fact, ifyou look at the majority of laptops sold in the last two quarters,a very large proportion of them were in the $600-to-$800 pricerange. Conventional wisdom suggested that since the currenteconomic downturn was hindering people from buying upper-end orpremium laptops, surely Steve Jobs would finally release a model in this lower price range to try andentice even more consumers to buy Apple.
PC Magazine 's Cisco Cheng has done an outstanding job of comparing the newMacBooks with similar Windows laptops. He asks, "How much of apremium are you paying for these lusciously thin designs?" This is a valid question, andif you look at the products he lists for comparison, you'll seethat some come in much cheaper yet compare relatively well.
The operative word here is premium —a term that has dogged Apple since Steve Jobs returned to thecompany for his second stint as its CEO. I've been covering Applesince 1979 and have watched each management team struggle to defineApple in a Windows-dominated world, to differentiate the companyand its products. Interestingly, during Jobs's first tenure as CEO,thinking different was already the key mantra; with the originalMac, Jobs and team made a major statement by introducing completelynew concepts in the user interface (the graphical UI, the mouse,and a new kind of floppy disk) and design (all-in-one).
Once the Mac became the preferred platform for desktop publishing,Apple's uniqueness became a major differentiator for the company,making the Mac the computer of choice for graphics professionals,scientists, engineers, and more. In those days, any premium wasgladly paid. But while these innovations propelled Apple to fame,they also turned the company into a niche computer maker—andnot one that could necessarily compete in the everyday market forPCs.
In the early 1990s, Apple made another key technology move: It wasfirst to add a CD ROM drive to a PC, which heralded the age ofmultimedia computing. The new optical drives helped Apple grow thedemand for Macs in markets beyond graphics and engineering, butthis version of the Mac still cost more than DOS PCs, since itdelivered much more than the textual interface and floppy diskdrives that dominated the mainstream PC landscape. During this timeof innovation (and continued premium pricing), Apple was highlyprofitable. But a management shake-up ousted then CEO John Sculley,and the reins of the company were handed over to Michael Spindler.Spindler abandoned the "think different" mantra; he chose tocompete head on with the growing PC market, which had caught up inuser interfaces, optical drives, and software. Apple delved intocloning the Mac, creating Macs that looked like PCs and were pricedlike them as well. The result: Apple lost its footing and was $1billion in the red by the end of Spindler's tenure.
Trying to be like everyone else almost buried the company. The CEOrole was handed over to Gil Amelio, but Amelio's emphasis onnetworking and new designs couldn't pull Apple out of its mire ofred ink. Amelio turned back to Steve Jobs and bought his NextSoftware company and OS—and shortly after that, Jobs was backin control at Apple. To Jobs's credit, he tossed out Spindler's andAmelio's philosophy of compatibility and re-vived his originalstrategy for Apple: being different. Remember the candy-coloredall-in-one Macs? Apple has since owned the MP3 player market, mademajor strides in smartphones, and gained market share against thePC makers. All this by creating products that are easy to use andhave superb integrated software. The company continues to addlayers of differentiation to the Mac platform at the OS and designlevels.
Now take a look at the new MacBooks in this light. Apple very clearly wanted to create a product thatwould be radically different. So the company created a brand-newcase using a precision aluminum "unibody" enclosure—and put inan LED backlight using seamless glass for instant full-screenbrightness. The kicker is the nVidia GeForce graphics processor,which handles graphics five times faster than that in most laptopsand in essence lets the mainstream MacBook double as a seriousgaming laptop.
Apple does create products that carry a premium price, but Ibelieve Apple feels these products add value to the overallpersonal computing experience. While that may seem hard to swallowfor a consumer who wants a lower price, the fact is that when Appleplayed the low-cost game, that strategy nearly buried the company.In the end, Jobs has shown that by creating products that aredifferent and yet still deliver real value, he can keep the companyin the black.
Apple often lowers prices in some product areas. It even took theoriginal MacBook under $1,000, but generally the company strivestoward creating products that bring something new, somethingdifferent, to computing. And I suspect Jobs will continue to pricehis Macs accordingly. If you were in Apple's shoes and rememberedhow the low-cost game produced only red ink, you'd continue downthis same path, too. You'd try to prove that the value Appledelivers makes its products worth the price.
And by the way, Apple is very profitable again. Tim Bajarin is one of the leading analysts working in thetechnology industry today. He is president of Creative Strategies ( www.creativestrategies.com ), a research company that produces strategy research reports for50 to 60 companies annually—a roster that includessemiconductor and PC companies, as well as those intelecommunications, consumer electronics, and media. Customers haveincluded AMD, Apple, Dell, HP, Intel, and Microsoft, among manyothers. You can e-mail him directly at tim@creativestrategies.com.


More Tim Bajarin:
• The MacBook and the Cost of Innovation
• The Disruptive Power of Persistent Connectivity
• Netbooks: Linux, Windows … or Something Else?
• Weak Market = Big Tech Bargains
• Saving Internet Radio
• more