Hey, Apple: Think Smart!

Apple Computer is well known for its “Think Different” slogan, but that doesn’t mean the company thinks smart. If anything, Apple’s recent launch of the revamped iMac demonstrates there’s not much thinking going on at all in Cupertino—that is unless the company is trying to write the textbook on how to totally screw up an extremely important new product launch. If that’s Apple’s idea of thinking different, well, congratulations on a job well done because it’s looking like the new iMac’s launch debacle will be more talked about than the fate of the ill-fated Cube.

Apple’s problem: The iMac product shortage. Financial analysts and some media outlets have taken note of the crisis—and I must state firmly that it is a very serious crisis. This is no typical product shortage brought on by high demand for a hot, new computer. Worse, the timing of the shortage coupled with the importance of the new iMac to Apple are major disasters that could have been avoided. Strongest sales usually take place right after a product’s introduction, a phenomenon that typically cannot be recovered at a later time. In characteristic fashion, Apple is silent about the shortages, instead touting 150,000 early orders. (For the record, an Apple retail store representative on March 3, 2002, said the number had increased to 200,000.) 

Many of the people who really want the new iMac can’t buy one, which might be acceptable if production was unable to meet extraordinary demand. This, unfortunately, does not appear to be the problem. Apple had been planning for the release of the new iMac for a long time, even to the point of securing a Time magazine cover story concurrent with the the product’s announcement. If anything, Apple should have had tens of thousands of iMacs to ship immediately. Instead, the company announced it would stager the release of the three iMac models over three months, with the first one available not the day of introduction but about three weeks later.

Apple started shipping the high-end iMac, sporting a DVD recording drive, the last week of January, but with the online Apple Store warning of as much as 5-week delivery delays. Not only is there a huge backlog for the top-end $1,800 iMac, but dealers report the mid-range and entry-level models also will be delayed. The $1,500 iMac had been scheduled to ship in February and the $1,300 model this month, but several dealers said they had been told privately not to expect either model before April. (The online Apple Store puts delivery at 3-5 weeks on the two most expensive iMacs and 5-7 weeks on the entry-level model.)

On March 3, 2002, the Apple representative at a local-area CompUSA acknowledged both models would miss their scheduled release dates and that he did not expect them “for a couple of more months”. A salesman at one of the two local-area Apple retail stores confirmed the delay—due to “production problems”—adding that his store had not been given new availability dates. By coincidence, I visited the CompUSA on the same day as a big anniversary sale, where the store had assembled an astounding number of new iMacs for the event: 13. The Apple representative noted that these were the first iMacs received since the original six following the product’s Jan. 7 launch. Wow, a whole six. Apparently the store had 18 people on a waiting list, who would get the pickings from the anniversary sale, if any. I saw three iMacs sold my first 10 minutes in the store after opening.

At retail, Apple predominately sells through CompUSA, local Mac dealers, and its 27—OK, 28 on March 9—company-owned stores. Now, assuming CompUSA—the nation’s largest computer store chain—received six machines at its about 250 locations carrying Apple products, that works out to around 1,500 iMacs received for sale between the end of January and the beginning of March (That’s being generous by not counting the three additional weeks from the new iMac’s launch). Apple retail stores apparently fared better than CompUSA. One of my two local stores had sold “several hundred” iMacs, with three models on hand but reserved for the waiting list, according to an Apple salesman. Now, assuming the 27 Apple retail stores had received 300 iMacs—and I think this is an awfully generous projection—that works out to another 7,100 computers. None of this takes into account catalog merchants, Mac dealers, or the online Apple store, which alone accounts for about 40 percent of sales. In a Feb. 27 research note, Merrill Lynch analyst Steven Fortuna said based on reports from Apple’s Taiwanese manufacturer, about 5,000 units had been produced in January and between 5,000 and 10,000 in February. The conclusion is clear: Apple has taken a lot more orders than it has delivered or is likely to over the next month or even more unless production ramps up significantly in March.

So, what’s the big deal?
The new iMac is perhaps the company’s most important computer introduction in about five years, which in dog or computer years could be multiplied by seven. Apple CEO Steve Jobs hit his first homerun with the company he founded was ousted from and returned to nearly four years ago with the launch of the original iMac. Cool design, smart ergonomics and inclusion of a critical Mac OS upgrade made iMac a near instant success. (For the record, Apple sold about 6 million iMacs over the next three years—800,000 during the first 139 days.) That success forced PC makers to “rethink” their bland beige box approach and also launched a two-year trend in translucent product design. Hell, even I bought an iMac, which turned out to be a computing-life changing decision. Every computer I’ve bought since was a Mac, including a couple more iMacs, plus a few PowerBooks and Power Macs.

The timing of the new iMac also is critical, because Windows XP’s newest features push hard against the very best Mac OS X 10.2 has to offer, such as easing the use of digital video, camera and music devices. Until Microsoft released Windows XP in October, Apple had the corner on delivering the best consumer technologies—DVD viewing and authoring, moviemaking, and wireless networking, among others—in an operating system also well suited for business use. Apple still has the corner on computer design, but Windows XP puts PC manufacturers in a strong position to offer comparable functionality for a lot less money.

Windows XP PCs sold surprisingly well during the holidays, according to market researchers Gartner Dataquest and IDC, particularly as companies like Gateway, Hewlett-Packard, and Sony capitalized on the operating system’s digital media features in marketing pitches and product designs. Mac enthusiasts might complain Apple was there first offering similar technologies, but these PC companies delivered similar features for a lot less or with a lot extra for the same price. Case in point: The dual 1-GHz Power Mac G4 Apple announced on Jan. 28. Besides the two PowerPC processors, the new Mac packs 512MB of RAM, 80GB hard drive, DVD recording drive, 64MB nVidia GeForce 4 MX graphics card, and Mac OS X for $2,999. For the same money, Gateway serves up the 700XL PC, with 2.2GHz Pentium 4 processor, 512MB of RAM, 120GB hard drive, DVD recording drive, CD-RW drive, 128MB nVidia GeForce 4 Ti-4600G graphics card, Boston Acoustics 7800 five-piece speaker and subwoofer set, 18.1-inch digital flat-panel monitor, and Windows XP. While comparing Macs to PCs is not an Apple to apples comparison, the Gateway’s extras—including a graphics card Apple sells for an extra 250 bucks—would appeal to many computer buyers.

But with the new iMac, Apple had the opportunity to showcase the Mac’s advantages over PCs, helped in part by very aggressive pricing—well, for Apple anyway. The computer’s cool design, where a 15-inch flat-panel display is supported by a swinging arm from a half-dome base, really stands out from PCs on store shelves. Other features showcase Mac OS X and Apple’s very exciting digital media applications, iDVD 2, iMovie 2, iTunes 3, and iPhoto. With iMac, Apple could meet Windows XP’s challenge, while adding cool design and ergonomic features missing from PCs.

That is, if anyone could buy an iMac in the first place. The new iMac was the perfect computer for converting Windows users, particularly those dissatisfied with Windows 98 or Me and considering a jump to XP. Apple had a chance to grab users from PC manufacturers and possibly push above the about 4.5-percent market share the company is stalled at. Even a 1-percent gain would have been phenomenal win for Apple, which claims about 25 million Mac users worldwide. Many of these spontaneous buyers might have seen an iMac, toyed with a display model and decided to buy one on the spot. “Sorry, sir, but we’re out of stock. Would you like to be No. 65 on our waiting list?” Well, it’s good business for Sony, maybe, but at Apple’s expensive. The time to capture these Mac “could-bes” was right after launch, when the marketing hype was strongest and Steve Jobs and the new iMac adorned the cover of Time magazine. Ask any marketer about the importance of turning the hysteria around an exciting new product launch into sales. Once lost, those hype-driven sales cannot easily be recovered.

So, Apple will feel the sales pinch during the first calendar quarter, which closes at the end of the month. That’s one reason why financial analysts are taking note of the product shortage. But how does a company measure lost sales, particularly from Windows users who might have bought the new iMac if Apple had enough product to sell? The larger problem is there might not be any good excuse for the sales crisis. Apple had plenty of time to prepare for what the company touted as a very significant new product. But Steve Jobs, the company’s visionary, turtle-neck wearing chief executive, treats product launches like government secret projects. To limit the chances news of a product like iMac will leak out before introduction, Apple clamps down on who knows what and when. Dealers also are viewed as possible sources of leaks. So unlike other computer companies with stock in dealers’ storerooms ahead of a new product’s release, Apple products trickle out weeks after introduction. This can be disastrous if demand is higher than expected, or, as it appears to be with the new iMac, there are production problems.

This secretive approach is great for Macworld trade shows, where Jobs personally introduces many of Apple’s most important products. But is that in the best interest of customers or shareholders? Maybe iMac’s sales debacle says Apple doesn’t “think different” enough, because the cost of a shortage is lost sales. Apple should hope too many people don’t “think Windows,”—particularly those that had been considering a switch to Macs.

Photo Credit: Tracy Lee Carroll

Editor’s Note: On July 31, 2017, this post was recovered, using Archive.org Wayback Machine, from a snapshot of joewilcox.com. Date is authentic.