Will Apple's Big Marketing Campaign Work? It's Doubtful.

Apple's Mac market share will take a hit in March due to the launch of Vista. That in turn will raise questions about Apple's halo effect strategy, said Piper Jaffray analyst Gene Munster.

In a research note, Munster said that based on his "50 retail checks" he expects Mac market share to fall from 2.5 percent in December to 2.3 percent in March.

"Given this would be the second consecutive quarter Apple will lose market share, there will be debate as to the strength of the halo effect," said Munster.

Munster's current call is that Apple's halo effect–which dictates that folks who buy an iPod will also buy other Apple products–"is still strong" and Mac market share should rebound in June as early Vista demand fades.

Nevertheless, Munster reveals some interesting cross currents. Munster surveyed 50 Best Buy stores and came away with the conclusion that Vista sales have not met expectations but have increased PC sales. According to Munster, 80 percent of the Best Buy stores surveyed indicated they sold less Vista than they thought. All 50 stores also had full stock of Vista and only one sold out (Vista Ultimate). Of these stores, 72 percent indicated PC sales increased.

My translation: Consumers aren't buying Vista upgrades in a box. But PCs with Vista installed may be moving off shelves. Bottom line: It's hard to conclude Vista isn't selling based on shrink-wrapped box sales.

What's unclear is whether any of those additional PC sales are going Apple's way. Short term, Apple takes a hit, but long term may gain.

This logic sounds a bit fuzzy, but here's Munster's argument:

"Due to pent-up demand for PCs with Vista pre-installed, we anticipate a spike in PC sales during the Mar-07 quarter, which could put downward pressure on Mac market share. We also anticipate a general increase in computer sales, including Macs, as customers consider several options for their computer purchase."

So perhaps there's an opportunity for Apple. Munster said:

"Apple is recognizing its opportunity to gain mind share with consumers. The company views this season of Vista-related computer purchases as an opportunity to sell more Macs. Around the time of the consumer Vista launch (1/30), Apple initiated several strategies to attract Vista customers toward the Mac. In an email to registered iPod owners with PCs, Apple asked customers: "Upgrading to Vista? Think Mac." Apple also launched national TV ad campaigns in the US, UK, and Japan criticizing Vista's difficult installation process and frustrating security features. The retail stores will also be used in an effort to monetize the Vista opportunity as store employees are emphasizing the fact that Macs run both Mac OS X and Windows."

The big question is whether any Apple's marketing will work. My hunch is that it won't. There are PC people and there are Mac people–although folks are becoming increasingly bilingual. Meanwhile, I don't buy the halo effect. If iPod purchases led to new Mac owners Apple would have more market share by now.

More important to Mac's market share will be the summer launch of Mac OS X Leopard in the spring. That launch is likely to drive demand for Macs. However, get ready for increasing noise about the issue Munster raises in the upcoming months. While Apple may have dropped the "computer" from its name, Mac sales still matter to the company's strategy and will be monitored closely.

Comments

[Julian Ivan...:]

Larry, as usual, prefers to stick his head in the sand rather than look at the facts, that Mac sales growth continues at about 30% YoY.

I posted this elsewhere but I'm just going to cut and paste it, in case Larry missed it the first time:

Piper aren't saying Mac sales are going to slow. They're saying PC sales are going to see a short-term benefit from the Vista launch. That doesn't mean that Mac sales growth is going to decline. It means PC sales could get a boost as those who waited for Vista (ie. those who were never going to buy a Mac in the first place) finally do so.

Those who wanted to go Mac are going to go Mac anyway, and will do so irrespective of Vista. So I see no slowdown in Mac sales growth due to Vista, even while I DO agree that the increase in PC sales could see the Mac's market share fall slightly until the initial upgrade surge is over.

A pullback in Mac market share is NOT the same as a pullback in Mac sales growth, if the cause is an increase in PC sales without it being at the expense of Mac sales.

As far as I'm concerned, Piper's note has been misinterpreted and misreported on (surprise surprise). Piper is NOT getting negative on Mac sales. Piper is just pointing out that there could be a short-term negative impact on market share, not sales growth. That's completely different from being negative about Mac sales.

As for the "halo" effect not working, what do you call a rise in market share from 6% of total laptop sales to 12%, Larry? And that was last September. Yes you read that right, Apple increased its market share of all laptop sales to over 12% in 2006. All those consumers who bought iPods (20% of the US population so far) thought - "why don't I get a MacBook instead of a DELL?"

Lastly, name me a single instance in the last 5 years when Apple's marketing has failed to work.

To paraphrase Larry's question in this article's headline: "Will Larry ever produce a decent analysis of Apple, its products, or its business prospects? It's doubtful."

2007 Feb 15 05:45 AM

[Michael Church:]

Tommy--

Could not agree more. I have seen your comments around here before. Kudos for calling it like it is.

Everyone loves to harp about the rambling "Macheads". It would appear to me, in this debate, they are the only ones making any sense whatsoever.

2007 Feb 15 10:38 AM

[Tom B:]

Factors militating against increased Mac market share: inertia, ignorance about options in the consumer space.

Factors favoring change: Relative cost of Windows PC's increasing with respect to Macs (this effect will be exacerbated by Vista's absurd system requirements); Trend toward more media consumption/creation (YouTube; TiVo' AppleTV; iTunes)-- this trend should accelerate; computer/phone integration; security issues (Viats does little to allay these concerns).

In my view, the long term trend favors Macs. To be sure, there are deal-killers in Enterprise (the addiction on Outlook/Exchange), but that is such an awful product I DO NOT believe it will be around forever. Roughlydrafted.com speculated on the Outlook situation yesterday.

2007 Feb 15 08:37 AM

[Terrin:]

>

What year was the Cube released? Seriously, that question is a hard one to answer because Apple does not break iPod sales down by model. Without any actual evidence, I think the original Shuffle probably was considered somewhat of a failure by Apple. Instead of a refresh, Apple completely made it over the second time around. There were some news articles around that time suggesting the same, but without Apple numbers, it is hard to say.

2007 Feb 15 08:45 AM

[Julian Ivan...:]

The G4 Cube was launched seven years ago in 2000.

As for the original Shuffle, it can hardly be deemed a failure just because Apple redesigned it for its second iteration. Apple sold millions of them.. more Shuffles were probably sold than the combined total of all other flash MP3 players of a similar capacity. That's hardly a failure by any metric.

Would you call the original iMac a failure, and the one after that, and the one after that, just because the design changed from version to version? :-)

2007 Feb 15 09:04 AM

[reinharden:]

Considering that Apple has raised its US marketshare from well under 3% to more than 6% over the last two years, I'd be hard-pressed to say "Apple would have more market share by now" with a straight face.

They've not done as well in worldwide numbers and that is a concern; however, it's also a reflection that Apple has not chosen to participate in the sub-$500 desktop market or the sub-$1000 laptop market.

Calendar Q1 is always Apple's weakest quarter, so with Vista launching into the mass market in that same quarter, I'm not overly concerned about minor perturbations in market share just yet.

Especially since odds are that Apple will still demonstrate year-over-year unit sales growth of 25%+ even while showing a minor decrease in worldwide marketshare.

reinharden

2007 Feb 15 09:18 AM

[Julian Ivan...:]

That's right. And if you look at the developed Western world rather than including the developing world + Asia, you find the Mac's market share a lot higher again.

Europe in particular is going Mac crazy, with Mac's leading the field in education sales by a decent margin and with up to 19% market share in some territories.

2007 Feb 15 09:25 AM

[Dan Poarch:]

I could wish Larry did one less rep on the Hammer Strength and one more look out the window of the gym. These articles are becoming ludicrous. Is it me or does he have an Apple-negative headline running over Apple-positive numbers?

Reinharden makes a point the I hadn't considered. Microsoft is launching Vista in Apple's slowest quarter. As well, they're the only ones talking about Vista, everyone else is arguing about the merits of the iPhone. In my opinion Q1-2007 means nothing. Q1-2008 is another story. This is situation that has to shake out. The next few years are going to be very different in the PC industry.

Market share is also a huge myth. Macs last longer than PCs, as well, they're used in completely different ways. I'm a Mac Pro. I use only the fastest and the nicest on huge jobs... at work. At home, I haven't bought a Mac in 5 years and I have 3 running in various capacities. I know this may sound dismaying to jocks that sit around and talk about their flashy new computer but the fact is, my home machines are web browsers. Why buy a new one when the ones I have are fine?

I would bet that most PC user's home machine are web browsers as well. Web browsers that break, or that they break, that they replace every 2-3 years because for these users the computer is essentially a consumable. A two-year handbag if you will. Thus, market share predicts buying habits, not mind share or quality or power or, most importantly, consumer confidence in operating systems.

What if people start deciding that they don't want a computer this year? Not even a laptop. Maybe something they can slip in their pocket that reads email and browses the web? That's all a new computer does for them. Where are they going to go? Consumers universally hate all cell phone shops, Best Buy is a good option but they're all the same and the experience is distracting, so... What about the Apple Store? Apple figured out MP3 players for consumers so maybe they trust Apple to figure out pocket internet too.

I don't know if the iPhone or the iTV or the i[What'sNext] will succeed. But I do know that my scenario sounds a lot better than "I've poured thousands of dollars into my PC and it's not going to do anything tomorrow that it can't do today. So, awesome, I'm going to spend thousands more on it."

Using market share as a benchmark this year will be a serious mistake.

2007 Feb 15 10:33 AM

[Tom B:]

Suppose you're a "PC guy" but come to the conclusion that there's one or two Mac apps that look pretty neat to you. Now, you can just buy a MacBook and dual boot, essentially get a "two-fer". I do not believe the Market has fully grasped the significance of this yet-- not the Stock Market, and for that matter, not the computer USER market, either.

2007 Feb 15 10:51 AM

[reinharden:]

iPod Shuffle - With regards to the redesign of the iPod Shuffle indicating that the first generation was a failure. The iPod mini was the best selling iPod of all time (during its time) and yet it was supplanted by the iPod nano and the mini was completely dropped from the product line.

Apple would rather eat its own babies than let someone else do so.

#####

I personally thought the cube was a brilliant design and had it been priced appropriately I'd have bought several. But I couldn't justify paying more for less. If nothing else, the design work Apple did there paved the way to the flat screen iMac and the Mac mini, so it wasn't a total loss. But I for one wish the cube form factor had lived on... Although if it wasn't such a pain to add RAM to a mini, I probably woudn't complain.

To underscore the point about Mac longevity, one of my primary servers is an upgraded 300 MHz Beige G3 from 1998. It just keeps working. Sadly, with 10.5 on the horizon, I'm thinking about retiring that machine. Amusingly, it replaced a 1989 vintage SE/30 (which was running AU/X 3.0.1 when retired). Two servers over nearly 20 years. Not bad bang for the buck.

reinharden

2007 Feb 15 11:33 AM

[w wong:]

While people awaiting for Vista to get their PC upgrade, lot of the converts (from PC to Mac), indeed awaiting the Leopard (the new Mac OS/X) launch before going to get a new Mac. Though I can said that I represent all Mac converted (especially converted just before Apple changed from PowerPC to Intel processor). Moreover, even adopt Mac does not mean that I abandon PC... and PC still more or less standard tool in the commercial world... and if Mac is still at home usage, certainly, the patient to wait and optimizing the software bundle (instead of buying additional upgrade) will be a reasonable thought. I think it applies to people who are awaiting for the new purchase. I certainly want to get one machine to do both... and I shall wait until the Leopard be available, with the new function to run both OS at the same time... and I may even replace all my old PCs to new Macs (both desktop and notebook). In short, I can see the potentially more upside of Apple but it may be tied to the release of the new OS/X and the promise of delivery the true dual OS capabilities. Microsoft won't be a loser either as people (like me to aim for such configuration) will need to purchase the Vista software... perhaps the real loser will be those doing the PC hardwares..... 2 cents. Wilfred @ Singapore

2007 Feb 15 07:11 PM

[Julian Ivan...:]

Wilfred, you can already run OS X and Windows at the same time, on a Mac. Go to parallels.com - it works perectly! I use it every day. You can do this now - you do not need to wait for Leopard.

Why will you need to buy Vista? Just use Windows XP on your Mac to run the Wondows applications you must use. No need to buy a new Windows Vista.. just use your old Windows XP install disc.

2007 Feb 16 05:54 AM

[Jon T:]

The long and the short of it is that the majority of PC users have NOT been exposed to information that would enable them to make a judgment to affect their purchasing decision.

That is changing, as more comparisons are being made between OSX and Vista, and will happen even more so with the launch of Leopard.

My guess is that there will be a very significant, and sustained, uptick in Mac sales with Leopard. And that is putting aside, new PowerMacs and the launch Universal Binary CS3 from Adobe, which will themselves bring an upside.

2007 Feb 16 05:49 AM

[User 239889:]

This is great news!

2008 Aug 13 07:22 AM