The future of the Macintosh business

I would like to talk about yesterday's Apple announcements, but I'm going to reserve my judgments of the three new products that Apple actually announced, until I've had time to play with them.

Instead, I'm going to delve into why I think that yesterday's presentation will go down in history as one of the more seminal talks in the history of the Macintosh, and of Apple Inc.

The publicly available portion of the presentation clocks in at just shy of an hour. Steve Jobs & co. spent fully half of that time simply talking about the health of the Macintosh business, and gave fresh details about how they design and engineer their products. To summarize: Apple's Macintosh business is strong, and getting stronger with each passing quarter. Apple presented a list of advantages for Wall Street to consider, as to why Apple's proprietary approach of making the both the hardware and the software for their machines not only has legs, but will be profitable well into the future. Apple has the design capability, engineering capability, manufacturing capability, and software capability, to differentiate Macintosh portables from the rest of the market, and hence claim a significant stake of the market for high priced, fully-featured notebooks.

What wasn't mentioned, at all, was the future of Apple's Macintosh desktop business. And the implication was that the future there is pretty grim.

When purchasing a desktop PC, things like design, power consumption, ergonomics, etc. don't really matter. Desktop PCs differentiate themselves either by how expandable they are, how powerful they are, or most often, simply on cost. Apple has been competing in this market for as long as it has existed, but the level of innovation that they can bring to desktops pales to what they can bring to notebooks. Even worse, it isn't clear that innovation in the desktop arena translates to higher sales of higher margin products.

The notebook space is totally different - in this market, consumers care a whole lot about design. Not only how the product looks, but how much heat it generates, how long the battery last, how well the wireless performs, how much it weighs, how durable it is, how bulky it is, etc. Apple is putting on a clinic for other companies in these areas, and they are quite reasonable for being bullish as towards the future of the Macintosh notebook business.

To put it another way, while one thrust of yesterday's presentation was to introduce three new products to the world, the main thrust was to say "the future of the Macintosh business is notebooks". This implies that at some point down the road, Apple is going to exit the desktop market. Just as they have shed legacy ports (ADB, Firewire) and technologies (Floppies, Zip Disks, etc.), they will also shed the desktop business.

And while this will be annoying as hell for those of us who prefer desktop machines, it will be like everything else with Apple - either you go along with their way of doing things, or you don't.

The one Apple has a problem here, however, is with the so-called "Pro" market. Those customers who do intensive video editing (Final Cut Pro), photo editing (Aperture), or sound editing (Logic Studio, Pro Tools). Those customers typically need far more storage and bandwidth than even Apple's highest-end MacBook Pro can provide, or will be able to provide for the foreseeable future. So how will Apple retain these customers, and their business, if they no longer make the Mac Pro? They will either try to convince these customers that the MacBook Pro is good enough, or they'll do something radical.

Tangent: how Apple could successfully license Mac OS X to commodity PC vendors

In playing with the Hackintosh stuff (hacks that allow running Mac OS X on commodity PC hardware), it became clear that for all of the hackery, that Mac OS X actually runs pretty well on non-Macintosh PCs. Further, I don't think that an insurmountable engineering effort would be required to make Mac OS X work just as well on PCs as it does on macs. Thus, it isn't engineering factors that have kept Apple from licensing Mac OS X to vendors such as HP, but rather it has been concerns over competition.

One of the painful lessons that Apple learned from allowing cloners to enter the Macintosh business was that the clones would compete for Apple's own customers, and steal profits from Apple. And this is still true today - if I had the choice of buying a $2300 Mac Pro with 4 cores, or a $1000 HP desktop with 4 cores, which would I pick? Apple doesn't want to be in cutthroat part of the PC business that races to the bottom, competing soley on price. Apple, in fact, does so much of their own design, engineering, and R&D, that they couldn't survive in this sort of market.

But, there is a way in which Apple could license Mac OS X, and everybody could win. If Apple were to completely exit the desktop market (killing the Mac mini, the iMac, and the Mac Pro), they would then be free to license Mac OS X to PC vendors like HP, but to be run on desktops only. The idea being that sales of desktops don't impact the sales of notebooks, and that Apple would be able to still serve the niches that require desktop computers, without the manufacturing, marketing, and R&D expenses associated with that dying business.

I keep bringing up HP because Apple would need a partner that:

Doesn't make machines that totally suck,
Has a capabilty of doing some in-house design and differentiation, and
Has a software engineering capability, to write and maintain drivers for hardware that Apple doesn't support.

HP fits the bill for all of these points. Plus, Apple has a pretty decent working relationship with HP (remember the iPod+HP?).

While it's great to postulate, it isn't clear if this will ever happen. But it's about the only way that I ever see Apple licensing Mac OS X to run on non-Macs.

Back to the regularly scheduled article

What Apple didn't say yesterday is when they would exit the desktop business. I think that so long as Apple's desktops remain profitable, they will continue to make them. We'll certainly see a refreshed iMac and Mac Pro, potentially at January's MacWorld Expo. The fate of the Mac mini remains uncertain, unfortunately.

But as always, Apple is once again leading the PC market in this area, and it'll be interesting to see how they go forward. At some point, they are going to take all of the market share that they can among customers who want to spend upwards of $1,300 on a 13" or greater notebook. And when that happens, maybe it will be time for Apple to add a 4th leg to that stool...

-Andy.