Jobs bets Apple’s future on a digital core

It used to be easy to crow that Apple had lost the corporate sector, was barely making a dent in the home and only had its...

It used to be easy to crow that Apple had lost the corporate sector, was barely making a dent in the home and only had its publishing and design market stronghold to cling to. A trip to PC World might undermine that argument as the Mac starts to get serious about retail.

Last month, Apple announced that PC World would be launching dedicated Mac areas in ten of its stores. Based on performance, there is a chance that the number of stores running the jazzed-up Mac Ecosystems areas could expand.

The vendor has been pushing its store-in-a-store approach across Europe over the last few years and has gained experience working with some of the largest retailers in France, Italy and Germany.

Pascal Cagni, European director at Apple, knows a fair thing about retail due to his former experience at Packard Bell. He is fully aware that Apple has not been consistent in UK retail in the past.

“With this channel, you have to have a strong retail partner to broaden out the customer base,” he says, adding: “For a brand like ours not to be there in retail, you would have worries. We are working with retail and have new price points to drive to a larger audience in the consumer space.”

He claims Apple has put together a limited number of effective partners (see box) and has managed to secure a relationship with PC World, the largest computer superstore chain in the UK.

The retail activities run in conjunction with Apple Centres — traditional dealers that sell and stock iMacs and the rest of the range. On top of that, the online direct-selling Apple Store completes a comprehensive retail channel.

Cagni makes it clear that traditional dealers are vital in the efforts to get retail products out to a wide audience and it will try to expand the channel this year.

Getting ahead of the game

The brand Cagni talks of is the iMac, which has managed to put Apple back on the consumer map and get the company back on track financially.

Now entering its third generation, the latest iMacs come in Dalmatian Blue, with white spots on a blue background, Flower Power, with flowers etched onto the familiar plastic casing, and Indigo.

Where the latest iMacs differ from their colourful predecessors is that they all come with CD-RWs. This is part of the belief that Apple CEO Steve Jobs has that the next stage of the personal computer evolution will be based around digital content.

Over the past few weeks, Apple has grabbed a few headlines off the back of the Napster coverage because of its decision to make copying music easier with its iTunes software. The free program makes burning music easier than most other products currently available.

On top of that, Jobs has spent the past month or so at Mac World in San Francisco and Tokyo, displaying its iMovie software which enables video images to be manipulated.

Where Apple is trying to get slightly ahead of the game is in the emerging world of DVD recording. To follow the theme, iDVD software has been released, which gives users the chance to compile and make DVDs using their own video and other clips.

The vendor is proudly showing off its Superdrive, which can play and burn CD-ROMs as well as DVDs. Although only currently available in the latest line of G4s, you can start to see the direction in which the vendor is heading.

The market for digital products is exploding and the manufacturers of digital cameras and the associated inkjet printing products are enjoying substantial sales. It is starting to be something you can base your business on in the printing world.

Rob Clarke, head of business development at Epson, claims the market for digital cameras is driving a large number of inkjet products. “There is a tie-in with digital camera. That is still a very strong story and is an area of the market where there is still money to be made,” he claims.

Turn to another side of the market and demand for MP3 is phenomenal. When the court date was announced for the Napster, the traffic on its site grew to unprecedented levels, with an estimated 500,000 users downloading songs in February.

Despite various offers being made by Napster, the courts may succeed in shutting down the music Web service. But the MP3 movement is now unstoppable and iTunes has been released from the start offering compatibility with 25 CD burners.

Battling it out

The next big market should be video and films. The film industry is doing its best to find ways of controlling its copyright, but it is likely to find, as the music industry has, that the technology is out in the public domain and fighting it is a losing battle.

Apple is heading in the right direction — if you believe the analyst predictions for where markets will grow — but it is not all plain sailing.

The hardest battle it might have to face is a sceptical public. Despite the alliance with Nvidia, which has given Apple a slight advantage with the exclusive launch of GeForce 3, there are still not as many games for the Mac as there are for the PC and there is a reluctance on the part of some users to buy a machine they don’t use at work. Some people still remember getting their fingers burnt with the Performa range last time Apple tried the home market. A decision to kill off the range and move users to Power PC left some of them feeling confused.

Former UK country managers have held different opinions about the retail channel and the need to partner with the Dixons Stores Group. Lack of service from the large PC retailers is something Apple has tried hard to avoid in the past.

The PC World link-up is based more on realism than a lofty idea of the ideal shopping experience. Users who have bought the iMac are contented that they have chosen something worth having and see Apple staying a name in retail for some time to come.

“Apple has to be there. You have to have more than one platform and the Mac is a sound alternative to the PC,” claims one iMac user.

Purchasing from PC World is not for everyone. The user we spoke to claims that service from a traditional dealer would have been superior to that received at PC World.

However, for a vendor requiring market share, it is reckless to ignore the retail leader. Despite its reputation and the battering it takes from consumer programmes such as Watchdog, it still has a large market share.

A source at a vendor trying to get its products into PC World claimed that for the three major PC brands in the stores — Packard Bell, Compaq and Apple — the terms and conditions laid down by the retailer might be stringent but the benefits of being in the stores outweigh that. “Look at the DSG market share. The benefits of being in there are obvious,” he claims.

PC World is all about making money and retailers are not the types to stock a product based on sentimentality. Simon Turner, managing director of PC World, helped launch the Ecosystem concept in its Croydon store and has been impressed with the demand for iMacs and G4s.

“We were surprised how many G4 Cubes we sold. We sold more than we expected,” he says.

For the time being, Turner is prepared to back a rejuvenated Apple, still basking in the success of the iMac. But some observers claim if the numbers don’t add up, the retailer could cut links.

One source attending the launch of the first Apple Ecosystem at PC World in Croydon claims that all the retailer has done is double the amount of space given to Mac products. “Last week it had one island unit, but now it has two,” he says.

Cagni recognises that Apple Centres are still vital in offering an alternative shopping experience to PC World and he claims it will continue to expand and nurture its existing dealer channel.

But the channel has been through a lot with Apple and has seen shifts of emphasis with retail and the Web. The Apple Store on the Web sells a lot of product in the US and is a growing channel for selling product in the UK.

One source suggests the decision to sell over the Web creates a conflict that some retailers could find increasingly hard to live with. “There has to be a conflict if you are selling something via e-commerce, which could also be sold through high street retail,” he claims.

He adds that for most retailers and vendors, there still needs to be some ironing out of a strategy and revenue model to ensure a Web presence does not upset the retail channel.

But that is an issue for the future. The top priority for Apple is to improve its position in the retail market and build on the success of its iMac. The impact of brightly coloured, highly designed machines has been massive, but the challenge is for Apple to keep developing fresh products and not rely on a single model.

Relationships like the one with PC World indicate there is a move by the vendor to sacrifice some principles to gain sales. If it can build its market with out upsetting the traditional dealer base, it could be good news for the channel, and if it can continue to develop must-have products at a reasonable price, it could mean positive things for Apple. Jobs’ vision of a digital future sounds good, but it is far too early to claim for certain that people will think digital and then think Apple.

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