iPhone and the Mac’s Slow Slog Towards iDeath

Wishing to learn more about his chosen business, Hiroshi Yamauchi braved the perils of intercontinental travel to visit the home of the world’s largest manufacturer of easily randomized two-dimensional representative cardboard. Perhaps expecting a huge manufacturing facility, Mr. Yamauchi was disappointed to discover that America’s largest manufacturer of playing cards occupied a single office, and a small one at that. It didn’t take long for Mr. Yamauchi to realize that even if his company came to dominate the playing card market, they wouldn’t exactly be major industrialists. Which explains why Nintendo gave up making playing cards, but can also tell us something about the future of Apple.

Apple, everyone will recall, changed names from the informative but increasingly inaccurate “Apple Computer” to the accurate but completely unrevealing “Apple.” The quick reaction was, “Omigod, Apple is giving up on computers.” A notion that was immediately countered by Apple Exec Phil Schiller who said, “We sell Macintoshes and will continue to do so and are very happy with that business.” Thank goodness for that.

Or maybe not, as the Mac hasn’t always been a cash machine for Apple. A lot of folks remember the mid-nineties when Apple was burning through cash like a dot com era online pet store. Judging by Mr. Schiller’s statement, should Vista or Linux suddenly start a Windows 95 style beat down on OS X, the faithful will suddenly undergo a quick transformation from an active OS X user to a person who remembered when Apple made home computers. 

How likely is that scenario? Vista is finally here and people are running OS X on generic PCs with the help of virtualization products, so it is easy to imagine that the days of the Mac are short indeed. While that conclusion is seemingly logical, it is also erroneous. The surprise with the switch to Intel wasn’t that people didn’t want to run OS X on generic hardware, but how badly people wanted run Windows on Mac hardware. Keeping the lessons of the last year in mind, it is obvious that people want the Mac experience, they want supposedly overpriced laptops, they want the aura of cool that surrounds Mac users, they want the image of being someone with enough disposable income that they can afford a Mac, and they want the whole Mac package, but they want it with a side of Windows.

The Mac is safe from the effects of the “cheapest possible computer” syndrome. What the Mac isn’t safe from is Apple and the biggest threat to the platform since Sun was poised to buy the entire company: the iPhone. Apple’s goal for the iPhone is a seemingly underwhelming 1% of the cell phone market. That unimpressive number becomes a very tough target to hit when it is recast in terms of smartphones only. The truth is that Apple isn’t competing in the smartphone or the regular cell phone market. Apple is competing in the “phone so cool it will get you laid” market, and while the iPhone may be pricey, it is a ton cheaper than a Ferrari.

In short, the iPhone will do very well, and the better the iPhone does, the worse the news is for the Mac. If Apple hits its sales targets for the iPhone, the profit derived from the Mac segment will be roughly equal to the iPhone segment. If Apple can keep the hype machine running (and if there is one thing Steve Jobs has mastered it is how to push the buttons on the hype machine) for two years the sales could be phenomenal when the iPhone is no longer exclusive to Cingular.*

If the iPhone is a smash hit, a self-perpetuating cycle will be set up. As the profits from the iPhone increase, Apple’s attention will become more squarely focused on the iPhone and the cellular market. The more talented engineers will move to the iPhone and the talents that make the Mac what is will be busy making the iPhone even better. Apple isn’t a company like Honda that

makes a large variety of tenuously connected devices, Apple is a company that believes success comes by maintaining a narrow focus on only the most important aspects of the business. Success of the iPhone could easily change what the company sees as the integral parts of Apple.