Apple: 2 Steps Forward, 49 Back October 15th, 1999 This week was a very strange week, to be sure. The news from Apple was largely outstanding. Apple beat the Wall Street estimates soundly, Apple’s stock bounded back into the US$70 range, new iMacs have been ordered in larger quantities than the original iMac, the iBook has turned out to be the success that the Mac community deemed it would be, and Apple turned in their 8th straight profitable quarter. Seems pretty nifty, but there was another development that was not quite so nifty. It also just doesn’t make sense, but first let’s give the background. Apple was faced with hard decisions surrounding G4 availability in its very popular new PowerMac G4 product line. Motorola was having production problems that prevented them from shipping as many 400 MHz and 450 MHz G4s as Apple needed. Then, to make matters worse, they started having quality problems with the 500 MHz processors. Those quality problems would see the 500 MHz G4 delayed for many weeks, if not longer. Let’s give Motorola credit here too. They moved aggressively to try and shore up these problems, going so far as to work out a deal with IBM. That deal has IBM manufacturing the G4 according to Motorola’s specs, thus bringing in far more production capacity than could happen otherwise. Motorola also made an effort to show a faster G4 in the face of mounting criticism that the MHz rating of their processors was lagging behind Intel and AMD. As annoying as it is, new product lines do have snafus. So Apple was facing a fairly large problem. They could not get enough chips to fill existing orders. This is not a good thing. Not only did it cause Apple’s 4th fiscal quarter to come in much lower than it otherwise would have, large backorders can frustrate customers. It is also a problem that Apple has so often had in the past. Not wanting to look like it was returning to its old ways, Apple sought another solution. In marches another problem. DRAM prices have gone through the roof, and this left Apple with higher production costs on their entire product line. So what’s a computer maker to do? I guarantee you one thing, a computer maker should not do what Apple did. Apple's solution was two-fold. The first element was to reduce the three configurations on the G4 product line by 50 MHz each in order to address the G4 supply problems. The second was to keep the prices the same for the three levels of products (Good, Better, Best) in order to address the DRAM pricing pressure. The first solution leaves Apple with a professional line that starts at 350 MHz. This is absolutely ridiculous. For one thing, it offers little mental incentive to upgrade from a G3 that is in the 300-500 MHz range, though it would be slightly faster. For another, it makes Apple appear to be way behind the curve to the buying public. If you are not already a Mac user who is savvy about the G4 and its benefits, the choice will be obvious. For US$1319 I can buy a comparably equipped 500 MHz Pentium III from Gateway (Gateway’s online ordering system does not allow one to link to a configuration once chosen, but I shopped for a comparable machine in all aspects), or for US$1599 I can buy a 350 MHz PowerMac G4. Now I am a believer in the Mac and faced with the necessity of buying a new computer, there is only one way I would go. But for Bob the new computer buyer, or Bob the Windows user, that choice is just as clear, but it goes the opposite way. Besides, can you imagine the hell Bob’s friends would give him for buying a wimpy 350 MHz processor? The perceived value is just not there. Like it or not, the Wintel consortium has convinced the world that MHz matters. On the other side of the equation is the fact that Apple’s customer base that was already considering buying a new 400 MHz or 450 MHz PowerMac G4 is now faced with the perception, and the reality, of paying from US$300 to US$1000 more for the same model that they were considering before Thursday’s announcement. That’s a lot to swallow. Can you say bean counter? I don’t mean to slight Apple’s CFO, Fred Anderson, with that epithet. I have great respect for his abilities and the work he has done at Apple. However, there is a mindset that is stereotypically associated with accountants in which they make decisions that are logical and make sense according to the numbers. In the real world, those decisions often do not make sense to the buying public. While I do not have the faintest idea as to which individual or group of individuals was responsible for the decision to work the G4 product line the way they did, it was definitely not anyone who is in touch with the way consumers think and feel. Then Apple added insult to injury by canceling existing orders placed before Apple made their changes and "invited" customers to reorder their computers. The arguments used above were suddenly forced not just on potential customers, but on the very customers that had already committed their funds to Apple in the first place! This was a customer relations catastrophe that has already made it to the mainstream press in only one day! The letters we received at The Mac Observer were among the most vitriolic we have ever seen. It is difficult to imagine who at Apple woke up one day and said, "This is a good idea!" To be fair, there is a good chance that no one actually liked the idea, but it was still authorized by someone with authority. Apple was certainly between a rock and a hard place in dealing with these issues, but their solution is just plain wrong. It is my opinion that Apple should have tackled these issues in a much simpler fashion. They should have lopped off the high end 500 MHz model until that processor was ready to ship, and raised the price on the 400 MHz Yikes! based model and 450 MHz Sawtooth models to compensate for higher DRAM prices. The buying public could much more easily understand a price hike related to higher RAM prices than it can the current plan. If Apple felt it needed a three-tiered solution, they could have offered a midrange system that was either a 450 MHz Yikes! model, or a 400 MHz Sawtooth model. In either event, Apple customers would have been much happier. And they should never have considered, even for one second, canceling existing orders. Those orders should have been honored no matter the cost. While accountants might cringe at the idea, Apple can not afford to alienate any of their customers. Of course, cynics will point out that Apple is a monopoly within the Mac world and that they can afford to anger anyone they want. While this is true to an extent, people do still have a choice of going Wintel. On the positive side, it looks as if Apple may have changed their position on the existing order situation. We have received reports from Apple customers who say their orders have been reinstated. Apple is unfortunately not ready to make official comment as of this writing, but we can only hope this is true. If so, Apple will have demonstrated that their customers do indeed matter to them. The continuing fallout from this will be minimal if they move quickly. Your comments and hate mail can be sent to [email protected].