No "Halo" Effect? Look Again

The success of iPods and Apple stores stopped Macs' market share from sinking lower. And signs indicate even more future converts

Despite all the buzz around Apple (AAPL ) these days, its Macintosh line of computers has lost market share with dismal consistency over the years. Oh sure, there was a brief respite after Jobs & Co. introduced the iMac in 1998. But after that initial bump, U.S. market share has been sliding -- to just 2.8% in the first quarter.

Such middling performance hardly seems to square with all the excitement being generated by Apple's iPod music player, or the stunning stores that are popping up in upscale malls around the country. For years, Apple has argued that the iPod and the stores -- particularly the stores -- would help bring in new Mac customers. So where's the long-awaited "halo" effect?


  So far, it has been minimal, if not non-existent, if you go by the big market-research firms' numbers. But watch this space. For starters, it's too easy to dismiss the impact of the stores and the iPod when it comes to developing interest in the Mac. The fact is, Apple's share would almost certainly be even lower without them. And Apple says roughly half the PC buyers in its stores are first-time Mac customers or returnees from Wintel PCs.

And the halo may grow brighter in the years ahead. Evidence is starting to mount that Apple is positioned to pick up some PC share with consumers. More than 3 million consumers have purchased an iPod since 2001, and millions more are expected to follow suit in the years ahead. Many of these iPods work with Wintel PCs (Apple won't give the percentage breakdown), but many clearly are used with Macs -- particularly among music-loving college students who are driving brisk demand for PowerBook portables.

In a recent survey of likely home PC buyers by the Technometrica Institute of Policy and Politics, 8% of respondents said they intended to buy an Apple. That's second only to Dell (DELL ) -- and up from 5% in May, says tech analyst Constantine Kambanis. "For Apple, that's very good. People have known about Apple, but they're looking at it again for the first time in a long time."


  Many shoppers will find much to like once they take a look. While Windows XP is far more reliable than its forebears, the Mac operating system still has some ease-of-use advantages, say experts. Also, frustration with PC computer viruses is reaching a fever pitch. The Mac -- both because it's built on rock-solid Unix software and because most hackers concentrate their efforts on the far-larger Windows market -- gets far fewer viruses.

While Wall Street analysts have bemoaned the huge investments required to build these pricey stores, they clearly set Apple apart from other PC makers

A quick trip to Apple's store in Emeryville, Calif., gives an anecdotal sense of why the Mac could make a comeback. Just after noon on a recent overcast Sunday, the store was bustling with shoppers, from Mac mavens checking out the latest video-editing systems to Dads with teens drooling over iPods. In the mix were many former Mac-o-lytes who have returned to the fold and some brand new customers.

Geoffrey Nix and Justine Withers have owned an iPod for a few years and decided to return to the Mac fold in 2003 -- partially as a result of their iPod experience. "The iPod is just another sign of Apple's continuing innovation," says Withers, who purchased another iPod. As his daughter eyes a blue iPod mini, San Leandro resident Bob Fox checks out some PowerBooks. "I've used a Mac, but I always get outvoted at home. But for my next computer, I'd like to buy a Mac."

Then there was Tony Carter, an executive from Orinda. He and his wife Maggie have always had PCs at home, but "she's fed up with all the viruses -- and all her friends tell her the Mac is the way to go." After three trips to an Apple store, they forked over $1,700 for a PowerBook with a wireless mouse and other accessories. That's a big premium over Windows PCs, but it'll be worth it if she cuts down time wasted dealing with viruses, he says. "If it works like it's supposed to, I might switch as well."


  What's more, many digerati are using their iPods for more than playing tunes. Digital photographers use them to store pictures so they don't use up all the space in their digital cameras. Then there's data storage. When David Nakayama, a fundraiser who lives in Berkeley, learned that he needed to repair the motherboard in his iBook, he decided to spring for a new iPod -- and use its 40 gigabyte drive to back up all the data on his soon-to-be reformatted hard drive. Did he think about ditching the Mac for a far cheaper PC from Dell or Hewlett-Packard (HPQ )? Nope. While he has a top of the line Vaio notebook from Sony, he says he prefers the iBook. "I'd never go back to a PC."

The stores may be Apple's best -- and most unlikely -- weapon. The chain brought in $270 million in sales last quarter, with $7 million in profit, and the number of visitors to the average store jumped to 5,600 in the quarter, up from 4,300 in the prior year.

While Wall Street analysts have bemoaned the huge investments required to build these pricey stores, they clearly set Apple apart from other PC makers. Carter notes that while other stores offer little in the way of real expertise and lots of sales pressure, it's just the opposite at the Apple stores. "The people here are very helpful -- no pressure at all, but lots of enthusiasm."

Of course, Mac lovers have never lacked for enthusiasm. And there's little question that Apple's high-prices and limited distribution will prevent it from ever being a market-share leader again. But this time, just maybe, that enthusiasm could spread to a wider audience. Hello, halo effect.

By Peter Burrows, BusinessWeek's computer editor, based in Silicon Valley

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