Minority Report: Apple staying in the minority?

There are worse things that could happen...

The Mac market-share debate continues to rage but these days, argues Seb Janacek, with the widening of the Apple portfolio and the company reporting best-ever financial results it is largely irrelevant.

Predictions of Apple's imminent demise used to be a common event in the technology world. Thankfully, those predictions seem to have come to an end. Partially because - love it or loathe it - the company continues to produce interesting and agenda-setting technology and partially because the arguments were getting rather tedious.

The other perennial favourite for industry watchers is whether the company will ever grow its minority share of the personal computer market (as opposed to the 'PC market', which for the terms of this article is based on what was once referred to as the classic Wintel IBM PC), largely estimated as being between two and five per cent.

The fixation with Apple's market share has dogged the company since the early 1980s, with advocates arguing that it didn't really matter and Mac opponents arguing that it provided incontrovertible evidence that the company was in its final death throes.

The company has enjoyed a sustained period of health in recent times, with both its core Mac business and its iPod product set enjoying record sales, putting an end to speculation over its imminent collapse. However, the market share debate remains a barometer of industry success for many and will clearly never go away.

According to recent research from Gartner, around 57 million PCs were sold worldwide in the first quarter of 2006, representing an increase of just over 13 per cent over the same period last year.

According to the research, during that period Apple's minority share of the worldwide market slipped from 2.2 per cent to just two per cent. Meanwhile, the company's market share in the US sits at 3.6 per cent - a drop of 0.2 percentage points from the first quarter of 2005 - though Gartner's data indicates Apple gained a 0.1 percentage point share over the fourth quarter of 2005. The figures are a little surprising, especially when you consider 2005 was a record-breaking year for the company and that the media was replete with comments about the so-called 'iPod halo effect'.

There are a number of problems with defining a company's success and growth by its overall share of the global PC market, particularly with Apple.

The first problem with the market share argument is actually about how one measures it. It's simple enough to look at new computers bought quarter-on-quarter; it's somewhat more difficult to make accurate predictions on the installed, existing user base.

Macs tend to have greater longevity as computers than PCs. People still use three-, five- or even 10-year-old Macs that carry on cheerfully doing the jobs they were bought to do. Macs sustain their value better than Windows-based machines and it is not uncommon to see four-year-old Macs commanding equivalent or higher prices than brand new PCs. If existing users are holding on to their machines for longer then the total number of existing Mac users will not be truly reflected just by new sales, which are likely to be slower sales than for Windows machines. The true installed share figure is likely to be considerably higher.

Another misconception relates to the old tendency of pitching Apple against its old rival Microsoft and comparing Windows dominance over OS X or OS 9 users. The problem here is that it's not comparing like with like. Apple makes the majority of its profits through high-margin hardware sales; Microsoft makes most of its money from software.

A more effective measure of Apple's success could be measured by comparing its fortunes to those of other PC hardware vendors. There's no doubt the company comes up short against the sales figures of the likes of Dell, HP and Lenovo.

This is largely down to the fact Apple has no tangible presence in the enterprise, as a low-end, bought-in-bulk business machine, where Windows and Linux rule.

In truth, Apple doesn't really truly compete with Dell, HP et al. The Apple product offering is fundamentally different and is marketed accordingly.

Its PC vendor 'competitors' all do battle on the same playing field, producing similar boxes running much the same software for roughly the same price. The Mac's position in the market is as a high-end computer, although its prices don't always reflect this. The Mac's not strictly niche but it is an alternative to a Windows PC alternative and specifically marketed at particular demographics. The selling point of each new Mac is usability and quality, with software tied in with hardware. It's the sum of its whole not the sum of its parts.

Apple doesn't operate in the intensely competitive low-cost computer market because if it did it would risk diluting its brand and would have to compromise on product quality. Besides, a customer who bases purchases on lowest cost isn't the most attractive target for a company.

The Mac Mini was the company's foray into the lower-end computer market but the recent Intel versions pushed the price above beyond what would be deemed reasonable for an entry-level computer sans monitor, keyboard and mouse. The Mini is more likely to move to occupy the position in the Apple product line occupied by the spectral media centre device. It's already made significant claims on the space.

However, the key problem with the market share argument is that it takes a cross-market view on Apple's sales, when the company doesn't compete in many important sectors - the low-cost business PC being the crucial one.

The well-worn metaphor when discussing Apple's market share is to compare it to BMW. Both companies produce higher-end goods and have brands associated with quality products. Both occupy a relatively small space in their respective markets but do well for themselves within that space. It's difficult to think of another industry with a bigger preoccupation with the idea that biggest is best than the computer industry.

And what of the iPod halo effect? It seems to be alive and well - the company reported its highest ever revenues and profits in 2005. CEO Steve Jobs described 2005 as "the best year in Apple's history", with 68 per cent year-over-year revenue growth and 384 per cent net profit growth. Tellingly, in addition to sales of iPods, Q4 2005 saw Apple report a 48 per cent increase in Mac sales over the corresponding period the previous year.

The majority of people who switch to the Mac based on positive iPod experiences are average consumers. It's somewhat implausible to expect the individual responsible for purchasing computers for the enterprise to make the switch to Mac based on a positive experience with an iPod Nano. But for global sales of PCs this is where the numbers add up.

An analysis of Apple's performance in the consumer market, where it is currently directing the majority of its marketing, would prove more interesting than judging it by worldwide sales figures in markets where it doesn't compete.

Another key factor to consider is that the last 12 months have represented a transitional period for the company's line of computers as it migrates its Macs to Intel processors. The company has admitted there has been a pause in Mac sales while customers wait for the Intel machines to be rolled out.

The next 12 months should be more interesting for Apple. It will shortly have a complete product offering based on Intel - the crucial MacBook laptop range is there already. With Windows Vista still hobbling towards rollout and Leopard (the next version of Apple's OS X) ready to pounce, the company has its best chance for years to win over new customers in its key markets.

Does the fact Apple has a minority share of the market really matter? Not really. Clearly it matters a hell of a lot to Steve Jobs and the Apple executive team but the bottom line is that Apple is a company selling a lot of computers and boasting healthy financials.

It's also a company whose products help influence the evolution of personal computing with many imitators, both in software and hardware, hanging on to its coat-tails. And it's also a company that has recently turned in quarter after quarter of healthy profits and sustained growth.

That's what really matters to the company's stakeholders and customers. It's not about how big your market share is, it's what you do with it.