Apple Europe's chief talks Mac sales

ZDNet France: Less than 3 percent of Net surfers are using Macs, according to a study published by Macworld UK. Is this a viable situation for Apple?

Thomas Lot: That figure isn't exact. Worldwide, our market share ranges between 4 percent and 5 percent -- it's about 5 percent in France, 4 percent in Great Britain and 3 percent in Germany. It's true that as long as we don't command 10 percent to 20 percent, we will remain a niche market -- but you can live happily and make a profit in a niche market!

One could also see things differently: Thirty to 35 million people use Macs -- a number that equals more than half the French population. It's not negligible, especially since all the studies show that Mac users are much more likely to be consumers of services, software, and the Internet. That said, reaching a double-digit market share is clearly an objective for Apple.

ZDNet: An objective of 10 percent market share? With what miraculous formula?

Lot: By innovating, and by integrating innovation with the strengths that a manufacturer can provide. In the field of digital video, for example -- Internet video -- it's a true revolution, and we're there with consumer goods like iMovie and professional wares like Final Cut Pro.

When we introduced colors [to the iMac], USB, or AirPort, we were the first. And see where we are today: Of every 100 iMacs sold, 46 are bought by people who did not have a computer previously; if 23 percent of French homes have a computer, that means that there are 77 that don't. We have room to grow. We regard ourselves as a start-up!

ZDNet: Innovation, certainly, but sometimes you can't keep technological advances coming. Consider the case of the Newton, the first PDA on the market, able to recognize handwriting better than the Palm -- and yet Apple dropped it.

Lot: It's true, this episode is symptomatic of our history, but it reflects Apple's low point, when we were spread too thin trying to do everything: printers, digital cameras, PDAs, computers. ... We canceled the Newton because we recognized that we could not support two operating systems [an office OS and a portable OS].

The other point is that it was aimed at a market that isn't as lucrative [as the PC market]. The market for computers is more than 100 million units per year, while the PDA market is 5 million to 10 million per year. The question is: Which is Apple's true market? And the market we chose is the computer market.

ZDNet: Your strategy also involves a total reorganization of your distribution network. Which direction will it take, now that you are responsible for Apple's entire European operation?

TL: The reorganization of the distribution network started three years ago. It coincided with the arrival of new products, our refocus on the professional market and our re-launch to the general public. It is a question of adapting our network to the products we offer.

The United States and Japan are wealthy countries with only one language and only one legislative body. In Europe, there are different legislative bodies, and each of the states play a significant role. To start with, our plan is to exploit synergies between different countries.

Two years ago, we were among the first -- if not the first -- to base our prices in euros and to have the same terms and conditions across all European countries. The next stage consists of focusing on our three "markets": professionals, education, and the general public. So far, we've created two sales channels -- one for the general public and one for education -- and we are still thinking of the best way to structure the professional part.

ZDNet: How does that translate into sales to the general public?

Lot: We made a priority of specialized distribution channels. In Europe there are today four large players: the French Pinault-Printemps-Redoute (Fnac); the German Mediamarkt; and the British Kingfisher (Darty, But) and Dixons.

We decided to exploit this opportunity. The discussions that we have with Fnac in Paris resemble those we have with Fnac in Portugal, in Geneva, in Milan or Brussels. What we have just done in Paris by refitting Mac spaces at Surcouf [a French retailer] resembles what we're doing at points of sale in Milan, Berlin, and London; the whole package is available at only one point of sale.

That's significant for us; consolidating our points of sale is the best means of making profitability a fundamental element of "the customer experience," which we can only enrich by limiting the points by sale.

Today, in France, we sell one machine out of four via major retail chains. With the "firepower" of our partners, I wouldn't be surprised if that becomes one machine in three.

ZDNet: In the education market, you recently lost market share in the United States. ...

Lot: Precisely, because we've just created a sales force in the United States dedicated to schools and universities, and it has to be fine-tuned. In Europe, we'll also need to do this. Instead of taking a geographical approach, why not have a pan-European approach for each one of these segments? Even if decision-making remains very different from one country to another, all the countries plan to invest heavily within one, two, three, or five years. And the requests of the European countries are rather comparable: the needs for a pupil in Glasgow resemble those of a pupil of in Marseilles, Palermo, Ankara or Warsaw.

ZDNet: And what about the needs of the professional segment?

Lot: We're still seeking the best mix between our retailers; Apple Centers; and our online shop, the Apple Store. ... As with the general public, we want to concentrate our efforts on only a few partners.

Taking into account margin pressures, profitability requires significant volume. Then, because it is better to concentrate on a few qualified retailers rather than to have myriad retailers who know little about the technologies, we have to create sufficient volume.

Today, the true challenge of a professional distribution network is to manage to sell services [such as phone support] that only specialized wide-area networks are able to provide to small and medium-size business.

But certain customers -- especially in the realm of digital video and the Web -- don't need these types of services; they're enthusiasts who know technology and the environment better than any retailer and don't need access to those services. They want a price and delivery, and they don't want to have contact with the sales network. The Apple Store is made for that.

ZDNet: In fact, competition from the Apple Store is causing concern among some resellers. In France, a group of them joined together right after September's Apple Expo in Paris to challenge you about competition from your online store. Up until now, you've remained silent.

Lot: At the time we wanted to know whom they represented, and I want to make a point of telling you that we tried to engage them in dialogue, but they did not follow through.

You know, it makes sense to have competition between networks. That said, the complaints that we receive generally come from resellers who have very weak turnover of Apple products and represent the brand in a completely marginal way.

They claim that Apple's economic equation isn't viable any more, and they're right: It is not viable anymore for people who do not devote enough energy to Apple.

Two years ago, we had 4,000 resellers listed in France, [a number] that does not match our sales levels. I called one or two of them, to lay down the law: They would not sell Apple products any more.

We then decided only to retain resellers who sell at least 500,000 francs' worth of merchandise annually. We have kept about 400 ... and we received only two complaints! Since then, we've reduced the number to 200 dealers. ... By adding about 60 Apple Centers, we now have about 260 professional sales points.

ZDNet: What does it take to become an Apple Center?

Lot: Seventy percent of the computers they sell must be Apple products. An approved reseller who approaches this percentage can become an Apple Center provided that it sells at least 4 million francs' worth of merchandise per year. This volume obliges them to know our technologies and therefore make the customer experience profitable.