Mazel Tov for the HP-Compaq Wedding
By Charles Haddad
I grew up in the bagel belt of suburban northern New Jersey, a place where every major turn of world events was interpreted through a simple question: "Is it good for the Jews or bad for the Jews?" We in Jersey knew that while the Jews might cast a long shadow on the world stage, they are a small and fragile community.
Ditto for the Mac, I think. While Mac lovers are relatively small in number (25 million vs. 100 million-plus PC users), our community casts a long shadow. That's why, in considering Hewlett-Packard's bid for Compaq, I hear myself paraphrasing the simple question from my childhood: "Is it good for the Mac or bad for the Mac?" On balance, I've concluded that the marriage of HP and Compaq, if consummated, would indeed be good for Apple and the Mac. Here's my reasoning:
Forget all the heat between Apple and Dell Computing. The truth is: They aren't really big competitors. Dell sells online and through catalogues, its primary customers are companies and businessmen. Although Apple's online sales are growing smartly, the company still sells largely through retail outlets. Its customers are home users, students, and artists. And that pits Apple directly against HP and Compaq, which dominate the consumer market for PCs. That's especially true in retail outlets such as CompUSA. These two giants gained such a chokehold on the retail distribution pipeline in the late '90s that they squeezed out such once-powerful competitors as IBM and Packard Bell.
If HP and Compaq wed, odds are good that one of these well-known consumer brands in PC retailing will disappear. That thinning of the marketing clutter should help elevate Apple's already lustrous brand name among consumers. By this time next year, shoppers at CompUSA could have only three choices: HP, Sony, or Apple. I'm not suggesting that loyal Compaq fans will suddenly switch to the Mac. But first-time buyers might be more likely to seriously consider a Mac now that the choices have been narrowed a bit.
The demise of Compaq (assuming it's the brand that goes) might also free up shelf space in big retail stores for Apple products. Today, Macs are typically crammed into a back corner of CompUSA. The situation is so bad that Apple has tried to remedy it by starting its own, branded chain of outlets. While these Apple stores are a gamble worth taking, the company still needs a presence in the places where most people buy computers.
The merger might also bury the hatchet in a savage price war. HP and Compaq greeted the collapse in consumer demand this year by slashing prices. The tactic has wounded both companies, while helping Dell, an efficient cost cutter. No wonder HP and Compaq have decided to embrace one another rather than keep on fighting.
In this war, Apple has tried to play Switzerland, an oasis of price stability. The strategy has worked to some degree, keeping Apple's margins relatively healthy. Still, the company has not gone unscathed. Eighteen months ago, Apple's computers sold for roughly the same as PCs. But today, a Mac on average is twice the price of a comparable HP or Compaq. That has to hurt Apple's ability to attract first-time users, the key to expanding its long-stagnant installed base. If PC prices stabilize and then drift back up, Macs will look more attractive to price-conscious comparative shoppers.
The best news about the potential merger, though, is in what the heads of HP and Compaq are saying about it. They profess a desire to scale back, if not exit, the PC business. The merged company will mimic IBM, which turned to selling computer-based services after HP and Compaq forced it out of the retail PC business. This me-too strategy sounds a bit pathetic, but don't knock it. It could be a bonanza for Apple.
HP and Compaq would be leaving the PC business just as it's about to take off again, I believe. Both Apple and Microsoft are working hard to reinvent computers as all-purpose digital hubs. Already, you can now use a Mac or a PC to download, store, and organize music off the Web. Soon you'll be able to do the same with movies and all kinds of data, such as schedules, addresses, and presentations.
SPACE TO GROW.
The process will be two-way, with users uploading to, and downloading from, the Net through a PC to a smaller portable device. When that day comes, the PC will rise again, defying all its critics. And if HP and Compaq exit the business, that will leave a big vacuum for Apple to fill.
So, to paraphrase my usual response to my Russian grandmother's perpetual question, the merger of HP and Compaq is good for the small and fragile community of Mac lovers I'm so happy to be a part of.
Haddad, Atlanta-based correspondent for BusinessWeek, is a long-time Apple Computer buff. Follow his weekly Byte of the Apple column, only on BW Online
Edited by Thane Peterson
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