Business Week


Business Week: February 5 1996
Department: Cover Story

Meet Michelle L. Whitson, Apple Computer Inc.'s worst nightmare. A real estate agent in Pinole, Calif., Whitson is the kind of consumer who has always been easy pickings for Apple. She wanted two computers: one for her husband and herself and another for her three school-age kids. After weeks of research, she decided on a Windows PC for the parents, because that's what they use at work, and a Mac for the kids, because that's what they use at school. But after Apple announced a $69 million quarterly loss and another reorganization plan on Jan. 17, she crossed Apple off her list. ``I can see future directions for the PC, but I can't see it for the Mac.''

For the first time, a crisis at Apple headquarters is creating a crisis of confidence in the market, and that's a terrifying situation for Apple executives. Such doubts cast a pall over Apple this past Christmas. Store shelves groaned with ``Wintel'' machines--PC clones based on Intel Corp. chips and running Microsoft Windows. They sported the new Mac-like Windows 95, below-Mac pricing, and the choice of a kazillion software packages. ``More and more, consumers are playing it safe with the PC,'' says home computer analyst Andy Bose of IDC/Link in New York. ``The Mac still has a certain magic, but consumers are increasingly in a Wintel state of mind.'' Price cuts of up to 25% in November and an army of 1,300 Mac fans deployed in stores failed to sway consumers. Worldwide PC shipments rose 25% in the fourth quarter, but Macs were up just 12%--in the U.S., a pitiful 4%. In sum, Apple took a giant step backward in the home-PC market.

WINTEL WONDERLAND. Among corporations, where flip-flopping marketing strategies long ago undermined confidence in Apple, it's getting harder for Mac lovers to hold their ground. Gary Kleinman has been the kind of customer Apple could count on. He runs an imaging lab for Walt Disney Pictures & Television and loves the Mac's multimedia powers. But now, he's looking at Microsoft Windows NT because some programs he needs aren't coming out in Mac versions. ``The question never came up before,'' says Kleinman, ``but now it has: Should we invest in Apple for the long term?''

Some of Apple's big accounts have already decided--against. U S West, Deloitte & Touche, and Electronic Data Systems are all drifting away from the Mac for their desktop systems. ``We want to pass data back and forth with our clients, and they have PCs,'' says EDS technology consultant Norman Weizer. At Deloitte & Touche, only a small pocket of graphic artists will continue to use the Mac. ``By the end of next year,'' says Deloitte partner Ken Horner, ``Mac use by our professional staff will be down to zero.''

Corporate buyers continue to lose reasons for buying Macs. The latest: It's no longer cheaper to own one. A big selling point for Apple was that despite higher sticker prices, the cost of using Macs was lower when you factored in software and customer support--which was substantially cheaper because Mac users don't need as much training. Apple always led a Gartner Group cost-of-ownership survey. No more. At $41,439, the five-year cost of running a Mac makes Apple No.3 behind Window NT and Windows 95 PCs, according to Gartner.

How does Apple plan to reverse its slide in business accounts? For starters, Apple USA President James J. Buckley says he'll get out and press the flesh. ``We need to get on some planes in the next few weeks and visit our key customers.'' He's also going to hire new vice-presidents to focus on corporate and small-business accounts. Then there's Operation Rainbow, a plan to burnish the Apple image. ``The brand is bloodred and dripping now,'' says Satjin Chahil, senior vice-president of marketing. ``I want the rainbow back.''

Even if new business customers prove hard to snag, Apple does have a constantly replenished supply of Mac zealots, thanks to its 60% share of the K-12 education market. Take 15-year-old Dan Golden of Berkeley, Calif., who lusts for a Power Mac to do homework, make videos, and do 3-D modeling of mountain bikes. He's been pushing his dad to buy a $2,200 Power Mac to replace the family's 1994 Performa. One ploy: a Power Mac picture on dad's dinner plate with a note saying ``Chew On This.'' Would Dan consider, say, a Pentium PC instead? ``Almost all my friends use the Mac, except for one girl--and she's weird, anyway.'' If Apple could only clone Dan.

By Peter Burrows in San Francisco, with bureau reports

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Copyright 1996 The McGraw-Hill Companies. All rights reserved.

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