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"Switch" Hits from Apple's Sales Supremo

Thousands flocked to the Big Apple July 18-20 for Macworld, the annual Lollapalooza of Macheads the world over. They watched CEO Steve Jobs unveil the latest in Apple computer advances. Among this year's attractions: the new iMac with a 17-inch, flat-panel monitor and new software that lets PC users sync Apple's way cool iPod with Windows machines.

The one big downer of the show? The announcement that Apple would shortly start charging an annual fee for use of its now free online iTools suite of software. Meanwhile, there was sobering news on the stock market. Jobs & Co. watched Apple (AAPL) shares fall 13% on July 16 after announcing earnings of 9 cents a share, or $32 million, on revenues of $1.43 billion for the quarter ending June 29. That was in line with expectations, but Apple CFO Fred Anderson warned of a weaker quarter ahead.

It's one thing to wow the true believers at Macworld and another to boost sales in the broader market, especially during a tech downturn. That's the unenviable job of Phil Schiller, Apple's senior-vice president for worldwide marketing and Steve Jobs's sales chief. On July 18, Schiller talked to BusinessWeek Online Technology Editor Alex Salkever about some of Apple's innovations, it's long-simmering feud with Microsoft, and its campaign to convert Windows users. Here are edited excerpts from their conversation:

Q: You introduced iPod for Windows at this Macworld. Why?

A: We've always said our goal with the iPod was to make the world's best music device, and that means bringing it to Windows customers. We think that [after] these Windows users [buy] their iPods, they'll start to understand what Mac users love about our products. And maybe some of those Windows users, the next time they buy a computer, will at least consider an Apple product because they've had a good experience with the iPod. So it's an opportunity to help grow our Mac business.

Q: You've mounted a big ad push to convert Windows users to OS X. Some Apple watchers are saying it hasn't had much of an effect.

A: I have no idea how anyone makes that determination if they don't have any data from us to make that assumption. The campaign started in June. It's now July. [Results from] advertising campaigns aren't measured in weeks. You need to be patient with a great marketing campaign. And, frankly, we're really pleased with the response to date. A lot of Windows people are writing us and saying "You finally convinced me." Thousands of people have sent switcher stories to us.

You can also measure the effectiveness of the campaign by the traffic it's generating on our Web site. As you know, the switcher ads ask people to come visit In the month since we started doing the campaign, we have had 1.7 million visits to our switch Web page. Over a million have been Windows users.

We're also hearing a lot of anecdotal evidence from our Apple stores. They're seeing a significant increase in the number of customers...saying they're at the store because of the switchers campaign.

Q: People are asking why you're charging so much for Jaguar, the new OS X update.

A: We came out with OS X 10.0 in May, 2001, at $129. That's our usual price for paid upgrades. Last fall, we came out with 10.1 Normally, we would decide to charge $129, but because we wanted to help the adoption of OS X, we made it free to our customers. Now, with 10.2, it's $129 again, same as it always has been. I think a year and a half before charging for an upgrade is very reasonable. And we included 150 new features in Jaguar. That's a lot for your money.

Q: But people are conditioned to big Mac releases coming out every three years or so, no?

A: Actually, that's not true. If you follow the path over the last five years, there has been a major paid release approximately once a year, and a minor release that we didn't charge for on a half-year increment.

Q: Looking at the features available in Jaguar, it looks like Apple could be knocking the legs from under some of the really innovative software companies supporting Macs. For example, the next generation of your Sherlock Web tool looks remarkably like the Watson tool from software company Karelia. And your upgrades to the Apple mail client could hurt Bare Bones Software, which makes Mailsmith.

A: It's funny to talk in the same conversation about charging for a release and then, on the other hand, why you put so much software into your release. And both examples you gave are companies that followed our path and made versions of software Apple had already done.

Apple did its own mail client before Mailsmith. We've been doing mail for over a decade now. Apple did Sherlock as an Internet search-and-channels tool before Watson. I would point out that Apple has always been a software developer, from the original Apple II to MacPaint to Claris E-mailer to Filemaker. That is a part of our business. Still, on Mac OS X alone there are over 3,500 applications. We make about 10. We're not exactly getting into a lot of other peoples' software businesses.

Q: How would you respond to comments from Microsoft that, perhaps, OS X adoption should be happening a little faster (see BW Online, 7/24/02, "Where Apple and Microsoft Part Ways")?

A: I certainly respect their opinion. But I don't agree with it. We're now at 10% of the active install base of all Apple users, many of whom can't use OS X because they have an older machine. Our goal is by the end of the year to hit close to 20%. That's a phenomenal rate of adoption of an entirely new operating system. No one else has done that in this industry.

Q: There have been questions about the high price of Microsoft's Office product for OS X and the low volume of sales. Should Microsoft consider dropping the price?

A: If they're concerned about the volume they're selling, I certainly think that's one of the things to look at. In a tough economy, with the price of a computer continually migrating downward, if you're spending $1,000 or $1,500 on a computer, you don't want to spend $500 on a software package. That's a challenge they have.

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