Apple tries to woo Windows defectors

In the wake of a $1 billion Windows XP marketing campaign, all eyes would appear to be turned away from Mac OS X 10.1.1, the new operating system Apple significantly upgraded in September.

But the Cupertino, Calif.-based company is convinced that Windows XP's endorsement of technologies that first appeared on Macs--802.11b wireless networking, CD burning, DVD playback, movie making, and easy retrieval of digital camera images, among others--will help Apple system and software sales.

While Apple says that the differences between the two operating systems are greater than ever, at first blush consumers will see many similarities between the two products. The deciding factor may come down to the deftness of the marketing Apple employs to woo back customers who once used a Mac.

"There are lots of Windows users who used to own a Mac," said Phil Schiller, Apple's vice president of worldwide marketing. "We're starting to see a combination of things getting those customers interested in our platform again."

Without question, Apple faces an uphill battle against Windows PCs, even as Microsoft's most significant operating system since Windows 95 storms the market. In the third quarter, Apple captured a mere 4.5 percent of the U.S. PC market--up from 4.3 percent a year earlier--according to market researcher Gartner Dataquest. But from its low market share, even a couple percentage points could represent huge gains, analysts say.

"There's no place to go but up, and small gains could be a significant number of users," said IDC analyst Roger Kay.

"There is certainly an opportunity for them, given 95 percent of the market is not Apple," agreed Charles Smulders, a Dataquest analyst. "The question is, will the value proposition Apple is providing be enough to persuade users to switch to the platform?"

Selling that value proposition could be tough in a weak economy, where PC sales are sluggish at best. During the third quarter, U.S. PC shipments plummeted nearly 19 percent year over year, according to Dataquest, which expects little upturn in the fourth quarter.

"Obviously, the current market is very difficult, and people tend to be more value-oriented," Smulders said.

For value shoppers upgrading their operating systems, Mac OS X seems to be the more logical choice. The single $130 version applies to both consumers or businesses. Windows users looking at XP can upgrade to the consumer version for $100, but the full consumer version or business upgrade costs about $100 more, and up to $300 for the full professional edition. Still, that comparison doesn't benefit potential Windows converts who would have to buy a new Mac, not just a new operating system.

Comparing systems on perceived value can be difficult. Gateway, for example, sells a 1.1GHz Celeron-based PC with 128MB of RAM, a 20GB hard drive, a CD-RW drive, external speakers, Windows XP, and a 15-inch flat-panel monitor for about $1,000. For the same price, Apple offers an iMac with a 500MHz PowerPC processor, an integrated 15-inch monitor, Harmon Kardon speakers, a 20GB hard drive, a CD-RW drive, and Mac OS 9.2.1 and 10.1.1. The iMac's extras include wireless networking capability and two IEEE 1394--or FireWire--ports. But many consumers might consider the Gateway PC's flat-panel monitor a premium bonus.

Value shoppers won't be the only people hitting the stores this holiday season. "There is a strong repeat buying market, and Apple clearly has the potential to pick up Windows sales there," Smulders said.

Schiller agreed.

"While people are price conscious right now, many people this holiday season are more likely to be buying that second or third computer," he said. "These more knowledgeable shoppers will be more interested in the forward-looking technologies."

Digital lifestyle
Apple believes that many of these buyers crave style and entertainment, and a good portion are former Mac users gone to Windows. The company estimates there about 25 million active Mac users, with millions more former consumers--either through school use or as former Mac owners.

"Many people are facing the decision whether they want to upgrade their machine to a new version of Windows," Schiller said. "If they're going to buy a new computer and a new operating system, that's an opportunity for them to look at the Mac as well."

Mac OS X 10.1.1 is the centerpiece of Apple's come-back-to-the-Mac strategy, acting as what Apple CEO Steve Jobs calls the "digital hub" for PCs, digital cameras and camcorders, MP3 players, and for making movies or burning DVDs.

"Apple is differentiating itself with this concept of the digital lifestyle and the integration of digital products," Smulders said. "There are clearly different value propositions between the Apple and Wintel platforms."

But through its PC partners, such as Gateway and Sony, Microsoft is communicating a similar digital lifestyle message about Windows XP, which sports many new features Apple touts in Mac OS X. The companies are delivering a strong message that Windows XP is best for making movies, listening to digital music, or working with digital images.

Still, rather than hurting Apple, says NPD Intelect analyst Stephen Baker, there will be some benefit to Mac sales.

"If anything, the advantage will be to Apple, because there will be traffic generation across the board because of Windows XP," Baker said. "That raises everybody's interest in buying computers and computer products, and Apple will benefit from the trickle-down effect. The confusion between the two OSes will be minimal."

Not surprisingly, Schiller agrees. "People are saying, 'If Microsoft says these things are important, maybe we should be looking at Mac OS X because it does it better,'" he said.

Tom Grigsby, a technology manager from Rockville, Md., favors Mac OS X over Windows XP.

"I went to the (Washington,) D.C., (Windows XP) launch at the U.S. Air Arena and was somewhat impressed with the demo," he said. "I won't be installing it anytime soon, since I'd have to upgrade hardware. The next upgrade will be with a Mac."

The cool factor
But the differences between the two operating systems are what Apple and some Mac enthusiasts see as crucial to wooing back consumers. Mac OS X 10.1 is based on Unix, which could court another market of former Mac users: creative professionals who moved from Macs to Unix workstations.

Bob Young, a Mac enthusiast and multimedia producer from Arlington, Va., recounted wooing "a friend who is a Windows tech guy for a major financial government agency" to Mac OS X. "He liked the look, the use of Unix, and the potential of the new system. He liked the marketing approach that Apple was using."

Other Mac differences from Windows XP include full Java 2 support, full MP3 support, and broad networking compatibility. Mac OS X 10.1.1 also integrates into a broad computer and peripheral sales strategy, including what Apple refers to its "i" products: iMovie, iDVD, iTunes, and the new iPod MP3 player.

Schiller said that until recently, most people couldn't see much difference between Macs and PCs. "It used to be from 20 feet away in a store, you could tell the difference of a Mac from a PC by what's on the screen," he said. Then there was a period where it got really hard to tell the difference...That was really hurting Apple and the Mac platform.

"With X it's getting obvious again from further away that these are very different operating systems with different philosophies and different tools with them."

Macs certainly stand out aesthetically from many PCs, which have changed little from the beige box era of computing. Apple professional systems are silver, gray and translucent, while consumer iMacs are translucent colors such as indigo. Mac OS X 10.1.1's user interface, Aqua, sports stoplight-colored Window icons and true 3D shading that contrasts with the look of Windows, which has changed only modestly since Windows 95.

NPD Intelect's Baker believes Macs can stand their ground against XP PCs in part because of the "cool factor" surrounding the products and "because so much of what Apple does is distinct to Apple." This could be crucial to wooing multiple PC buyers looking for something different.

Praise for Mac OS X comes from some unusual quarters. "I've got to tell you, OS X is really cool," said Kevin Browne, general manager of Microsoft's Macintosh Business Unit. "You kick the tires a little bit; you get some of it. Apple has done a really nice job with this product."

On Monday, Microsoft is set to release Office v. X, a version of the productivity package for OS X. Apple sees Office as important for advancing its ranks further into the professional market and to helping woo Mac deserters back to camp.

"If you've been on the Mac and gone to Windows and want to come back to the Mac, you've probably been using Office on Windows," Schiller said. "You care about whether Office on the Mac is really good and really compatible with all your files. So we really have to educate people about that."