Apple's Surprising Growth Driver: The Mac's Revival and Its Implications

The first shall be last and the last shall be first. PCs are supposed to be extinct, aren't they? No one would be caught dead with one when phones with bigger screens are available.

At least that's the current myth. But a funny thing happened on the way to the graveyard, especially for Apple fans: the iPhone and iPad have reawakened interest in the Mac. To the extent that Apple's biggest sales gains were driven by a product now 30 years old, ancient by comparison with the age of many of those now clamoring for it.

This is less about the Mac's manifest advantages and much more about the power of brand halo effects as well as the ecosystems they spawn. Whether Apple, Amazon, Facebook, Google or myriad alternatives, there are good reasons why these companies want to wrap you in their warm embrace and never let you go. It's profitable. Customer loyalty breeds product sales at lower marketing costs which means higher margins and bigger bonuses.

Which makes Apple Pay that much more threatening: imagine controlling so many aspects of the customers interactions with the rest of the universe that they are not only unwilling - but unable - to move outside that financial and economic ecosystem. Imagine, indeed. JL

Daisuke Wakabayashi and Shira Ovide report in the Wall Street Journal:

Several factors have contributed to the Mac’s rise: a halo effect conferred by the iPhone and iPad; a decision to stop charging for updates of Mac operating software; high visibility through the company’s retail stores; and Apple’s introduction of the MacBook Air at lower prices.
During a quarter marked by frenzied demand for the latest iPhones, Apple Inc. logged its biggest sales gains with a product heading into middle-age: the Mac.
On the 30th anniversary of the first Macintosh, a 21% jump in unit sales helped Apple’s computer line leapfrog the sagging iPad to become the company’s second biggest-selling product line in revenue terms, just behind the iPhone.
The Mac line generated revenue of $6.625 billion in the quarter, more than iPad revenue of $5.316 billion.
Demand for Macs rose amid falling sales of Windows PCs, giving Apple more than 6% of the global PC market, according to the research firm IDC. That percentage is Apple’s highest market share since 1995, when Microsoft Corp. established its dominance over the computer market with Windows 95. The Mac gained market share in 33 of the last 34 quarters, lifting its share from 2.1% in 2006, according to IDC.

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Several factors have contributed to the Mac’s steady rise in the last eight years: a halo effect conferred by popular Apple devices like the iPhone and iPad; a decision to stop charging for updates of Mac operating software; high visibility through the company’s own retail stores; and Apple’s introduction of innovative designs like the MacBook Air at lower prices than the company usually charges.
Apple also has benefited recently from its relatively greater popularity in developed markets like the U.S. and Western Europe, where consumer demand for PCs has been relatively steady.
Macs, of course, cost considerably more than tablets, so in unit terms tablets still outsell Macs. For the fiscal fourth quarter ended Sept. 27, Apple sold 39.27 million iPhones, 12.32 million iPads, and 5.52 million Macs.
Macs remain niche products. Apple laptops, even after price cuts to two models this year, on average sell for nearly three times the price of a Windows-based notebook, according to retail-store data from market-research firm NPD Group.
Some customers find Apple’s products worth the extra expense. Ali Mirza, a 21-year-old law student at the University of Edinburgh, said he bought a Lenovo Y500 laptop last year after years of owning a Mac. He thought the Lenovo would provide better value because it had higher specifications at a cheaper price. But as problems with his computer piled up, Mr. Mirza decided to go back to a Mac. He purchased a 13-inch MacBook Pro last week.“A computer is more than the sum of its parts,” said Mr. Mirza. “I could get a cheaper computer, but I probably wouldn’t get the same value out of it as I would out of a Mac.”
Apple’s popularity in other sorts of devices has given the Mac a boost. The iPhone, in particular, has breathed new life into the Mac by serving as a gateway for customers who wouldn’t otherwise have considered buying an Apple computer.
“If somebody has a great experience with an Apple product the first time, they are much more likely to buy another Apple product,” said Phil Schiller, Apple’s senior vice president of marketing, noting that “a very large number” of first-time Mac owners purchased the computer after buying an iPhone.
Apple is trying to lure more iPhone users to the Mac by linking smartphone features to the computer. The company recently added so-called continuity features that help Apple devices to work better together. For example, a user can start writing an email on an iPhone and continue writing it on a Mac, switching freely between the two devices.
IPhones generated $23.7 billion in revenue for the quarter.
Apple started to gain market share in 2006 with its launch of MacBook laptops, which had a starting price that was more affordable than its earlier laptops.
Apple also had a hit with its MacBook Air laptop, which went on sale in 2008 and introduced a new category of computers with slim profiles and improved battery life that Windows PC makers have sought to copy.
Price cuts have reduced the MacBook Air’s starting price to $899, more within reach of Windows buyers. Computers in the MacBook Air’s category are the only part of the PC market expected to grow this year and in 2015, according to research firm Gartner Inc.
The company also benefits from heavy traffic in Apple stores where prospective customers can try new Macs.
Last year, Apple stopped charging for updates of its Mac OS X operating system, a change that may prod shoppers wondering whether to buy immediately or wait for fresh features in the next version.
For the fiscal fourth quarter ended Sept. 27, Apple sold 39.27 million iPhones, 12.32 million iPads, and 5.52 million Macs.
Gaining further market share won’t be easy for Macs, particularly now that Microsoft and its PC allies have begun to regain their footing after a historically awful 2013, when total PC sales (including Macs) fell 10%. World-wide sales were down only 1.7% in the three months ended Sept. 30 compared with a year earlier, IDC said.
Moreover, the biggest Windows PC vendors are making sales that, in prior years, might have gone to tablets, including iPads. In the past year, the PC market has gotten a helping hand from new types of Windows computing devices such as so-called convertibles that work as both laptop and tablet.
Convertibles may be tempting people who wouldn’t have bought a PC at all. In surveys of thousands of people who bought higher-end convertible PCs, 48% said they chose the new device over a tablet, according to the research backed by Intel Corp., which makes the computer chips used in nearly all PCs as well as Macs.
In the PC market, “It’s not as boring as it was a couple of years ago,” said NPD Group analyst Stephen Baker. “There’s a little more choice.”
Apple’s competitors also have opened new fronts in pricing. Microsoft last spring started charging PC makers a cut-rate price for a type of Windows software, making it possible for manufacturers to offer PCs for less than $200.
Such rock-bottom prices helped expand the pool of PC buyers who might otherwise have purchased either a tablet, a Chromebook (a stripped-down laptop powered by operating software from Google Inc. ), or no computing device at all, according to analysts and industry executives.