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Commentary: Will Apple regain momentum?

To succeed in the long term, Apple must deliver on the new products promised by CEO Steve Jobs and provide the value and features that consumers want.

Although Apple's third quarter was slightly under analyst estimates, the market is exaggerating the company's supposed "financial troubles."

The company will likely face two

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Apple stock drops again
to three more soft quarters, but Apple is still profitable. To succeed in the long term, however, Apple must deliver on the new products promised by CEO Steve Jobs and provide the value and features that consumers want. And no one should count Jobs out. He is very innovative, and Apple has a knack for coming back.

During the past few years, Apple has been successful by delivering innovatively styled and performance-rich systems--albeit at a premium price. These systems appealed to the Macintosh faithful and gained the attention of the broader consumer market. However, Apple has largely saturated the devoted Mac base with new systems and is facing increased competition from other vendors that are delivering more appealingly styled systems.

Apple is basically a consumer and niche market supplier that does not play in the larger corporate market. It is also losing ground in the education market, where it was once a leading player. Part of that problem is that Apple is focusing on performance and style, while people are becoming more concerned with better manageability. PC vendors have an edge in this respect, and Windows-based systems, especially from Gateway and Dell Computer, have gained significant ground in the education market.

We believe Apple is currently competing on the wrong ideas. It is still focused on the market of the late 1990s, when performance and industrial design became a differentiator for sales. And the company lacks a strategy to exploit changing consumer desires for the new decade.

Apple may also have taken a wrong turn with its Cube in the consumer market. It lacks any removable media or CD-RW capabilities at a time when consumers increasingly desire the ability to create their own CDs. In addition, consumers are focusing more on price and value and are less willing to pay a premium for unique style. Apple is responding to this by initiating a $300 rebate on the Cube. However, this does not fully close the gap and does not address the lack of key features.

In the emerging handheld and computer appliance markets, Apple has been noticeably absent. Its spectacular failure with the Newton has made it wary of re-entering the handheld marketplace. Apple's ability to deliver innovative products in these markets that appeal to the Macintosh base and expand its appeal to the broader market are key to its long-term success.

The real question for Apple will be whether the new products that Jobs is promising will meet the changing desires of the marketplace when they appear, probably in mid-2001. If Apple adds key features of interest to consumers (for example, CD-RW drives and larger monitors), addresses the manageability issue, brings out a faster high-end machine that can match high-end PC price/performance and, most importantly, introduces a strong competitor in the under-$1,000 price range, it can bounce back in the consumer market.

Business and education users should push Apple hard to address manageability and to focus more on price/performance. Consumer users should look for deep discounts on the Cube or adopt a wait-and-see posture, awaiting the introduction of new machines in the spring of 2001.

Meta Group analysts Dale Kutnick, David Cearley, Mike Gotta, and Val Sribar contributed to this article.

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