The Hindu : Business : Apple bets on consumer electronics business

Online edition of India's National Newspaper
Monday, Apr 26, 2004

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Business

Apple bets on consumer electronics business

STROLL THE corridors and the atriums on Apple Computer's corporate campus these days and you will notice something missing. Gone are the posters and graphics accenting the company's sleek personal computers. In their place, in the main lobby, is a striking, three-story-high billboard celebrating Steven P. Jobs' brand-new billion-dollar consumer electronics business — the iPod digital MP3 music player.

In just two and a half years, Jobs, Apple's chief executive, has managed to take a well-designed hand-held gadget, add software connecting it to Macintoshes and Windows-based personal computers and convince the recording industry that he has found an elegant solution for ending its nightmare of digital piracy. In doing so, he has shifted the emphasis of Apple from what made it famous — hip, even lovable computers — to what he hopes will keep it relevant and profitable in the future: products for a digital lifestyle.

In fact, the wild success that Jobs has enjoyed with the iPod may have come in the nick of time. For all the acknowledged design and ease-of-use advantages of the Macintosh, Apple's overall PC business is still growing more slowly than that of its Microsoft and Intel-based competitors.

Moreover, it was obvious at the Consumer Electronics Show in Las Vegas in January that a horde of consumer goods and computing companies is preparing a fresh assault aimed at bringing computerised gadgets into every nook and cranny of the home. In particular, two powerful Apple rivals, Sony and Microsoft, are betting that Jobs is wrong when he says, "It's about the music!" Later this year, both companies plan to release more expensive, hand-held combination video and audio players that their executives hope will blow the iPod away.

So will Apple eventually be overwhelmed by its bigger, better-heeled competitors? Throughout the technology world, there seems to be a simple, uniform answer to that question: Never underestimate Steve Jobs.

With roots both in Silicon Valley's digital culture and the 1960's counterculture, Jobs has long been an arbiter of what is cool in technology, much like a real-world version of a trend-spotting character from "Pattern Recognition," one of the cyberpunk novels by William Gibson.

And, helped by his growing prominence in Hollywood through his second company, Pixar Animation Studios, Jobs has attained a level of influence over how life is lived in the digital age that is unmatched by even his most powerful computer industry rivals. "He is the Henry J. Kaiser or Walt Disney of this era," said Kevin Starr, a culture historian and the California state librarian.

Since returning seven years ago to Apple, the computer maker he helped to establish in 1976, Jobs has created a fusion of fashion, brand, industrial design and computing. He has opened a chain of 78 retail stores to showcase Apple's consumer-oriented designs and to surround the company's computers with an array of digital consumer products. The stores themselves have become another billion-dollar business, a feat all the more impressive considering that one of Apple's chief competitors, Gateway, failed with a similar retail strategy during the same period.

As a result, Apple is acting less like a computer company and more like brand-brandishing, multinational companies such as Nike and Virgin. The success of the iPod is also the clearest indication that Jobs, if he is to complete his mission of revamping Apple, will ultimately win not by taking on his PC rivals directly, but by changing the rules of the game.

Indeed, the Apple that is starting to emerge may be a harbinger. The company's growth may no longer be defined by its PC market share, now a declining sliver of the PC industry, but instead by Jobs' ability to create new consumer markets.

Jobs, who says he has a 70 per cent share of the market for legal music downloads and a 45 per cent share of the MP3 market, sees the shift as sweet vindication. "We're getting a chance to see what Apple engineering and Apple design can really do once we get out from underneath the 5 per cent Macintosh operating system share," he said.

To some people in the industry, Jobs, of late, has even outshone his old nemesis, Bill Gates of Microsoft — not in market share, of course, but in innovation. "Both Bill Gates and Steve Jobs arrived with the idea of digitizing the world, but Gates has lost his way," said George F. Colony, the chief executive of Forrester Research, a computer industry consulting firm. "Despite all of his warts, Jobs has kept the dream alive, whether it's movies, music or photos. I call him the digitiser". Two striking figures in Apple's most recent quarterly financial results, announced on April 14, underscore Jobs' new approach. In the last three months, Apple has sold 807,000 iPods, surpassing for the first time the number of Macintosh computers it sold (749,000). At the same time, revenue for products other than Macintoshes reached 39 per cent of the total of $1.91 billion for the quarter, more than double the percentage two years ago.

"It's fascinating that the company is morphing into something else," said Charles R. Wolf, a Wall Street analyst at Needham & Co., adding, "Jobs is absolutely brilliant in understanding consumer products".

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