Apple Could Challenge Microsoft for Desktop Dominance. But It Won’t

Steve Wildstrom / June 19th, 2013

Apple’s opportunity to dominate desktop computing probably disappeared the day in 1981 that IBM shipped the Personal Computer. Apple’s first attempt at a “business” computer, the Apple ///, was a technical and commercial flop. The anti-corporate “computer for the rest of us” marketing pitch that accompanied the introduction of the Macintosh in 1984 went over badly with business at a time when businesses were buying most of the computers.

The argument, occasionally still heard, that the better system lost is arguable at best. The Mac was a huge usability breakthrough, but in the early years, the graphical user interface demanded more than the hardware could deliver. Microsoft made a major leap with Windows 3.0 in 1990 and by the mid-1990s, when consumer sales became really important, Windows 95 and Windows NT were moving ahead of the aging Mac OS. Mac continued to slip as Windows forged ahead and it wasn’t until Apple’s big switch to Intel processors in 2005, along with increasingly powerful and stable versions of OS X, that Apple had a real claim to equality, let alone superiority.

But the divergent directions indicated by Windows 8 and OS X Mavericks change everything. Although it was Steve Jobs who began talk of the post-PC world when he introduced the iPad in 2010, it seems like it is Microsoft that has bought into the idea. The attempt with Windows 8 to design an operating system that spans traditional PCs, hybrids, and tablets has resulted in a sub-optimal experience on both. With Windows 8.1, Microsoft seems on its way to fixing some of the worst problems of Windows 8 (and its ill-begotten sibling, Windows RT) on tablets by eliminating some, perhaps most, of the need to drop back into Desktop mode to accomplish key tasks. But only relatively minor changes are planned for Windows 8 on a traditional PC, an experience that leaves many users longing for Windows 7.

Mavericks, by contrast, marks Apple’s renewed commitment to the traditional PC, a commitment that had been at least a little in doubt with the surge of iOS features into Lion and Mountain Lion. Except for improved notifications, an idea that borrows from and builds on iOS, the big changes in Mavericks are Serious PC Stuff: A new tabbed interface for the Finder, tagging for better file location and classification, major under-the-hood changes to cut power consumption, and greatly improved support for multi-display setups. Along with a badly overdue, but radical and exciting overhaul of the Mac Pro, Apple is telling Mac users, “We’ve got your back.”

Mavericks, by contrast, marks Apple’s renewed commitment to the traditional PC, a commitment that had been at least a little in doubt with the surge of iOS features into Lion and Mountain Lion.

Apple is now in a position to claim clear superiority in traditional PCs. The new MacBook Airs (pictured) are the first computers to ship with Intel’s next-generation Haswell processors and through a combination of close work with Intel and a lot of software fine tuning, Apple is able to beat the industry by a wide margin on battery life–something made possible by complete control of hardware and software. I expect Apple will do equally well with its MacBook Pros and iMacs this fall when Intel ships the rest of its Haswell line.

Macs could rule the world. Apple’s market share has been rising as Windows PC sales have fallen sharply while Mac sales have been mostly flat. I expect this trend to continue and for Apple’s share to rise. But–in partial answer to the question raised by John Kirk earlier this week–I don’t expect Apple to go after the mass market still dominated by Windows.

The reason is simple. According to NPD, the average selling price of a windows PC at the end of last year was $420.1 The cheapest Mac is a $599 mini, and the cheapest laptop is a $999. Apple will cheerfully sell you an iPad for as little as $329 and provide a first-rate tablet experience, but there is no way it can provide what it regards as a satisfactory Mac experience at the price most windows machines sell for.2

The great bulk of buyers is unable or unwilling to spend what Apple commands, and Apple is unwilling to cheapen its products, slash its margins, or both, to meet the market. As a result, Apple will settle for modest gains in share .

This does not mean, however, that Microsoft is home free to at least hold on to its share of a shrinking market. The real threat could come from the bottom, from Google’s Chromebook. Chrome OS, whose only application is the Chrome browser and which depends on web apps (key ones modified to work offline) to do anything, performs well on hardware far more modest than required for Windows or Mac OS. For users with relatively modest needs and good internet connectivity, a Chromebook is a low-cost viable alternative to both a tablet and a Windows laptop. And it will only get better as Google converges Chrome OS and Android, potentially bringing a richer store of apps to Chrome.

These days, the fact that Apple is not coming after them as hard as it might is cold comfort to Microsoft.

 

 

  1. NPD data probably understate the average somewhat because the firm measures retail sales, missing the often more expensive units sold directly to enterprise buyers. []
  2. I don’t mean to perpetuate the myth of an Apple premium. On an equal feature basis, Macs are no more expensive than Windows systems. It’s just that Apple only sells top-of-the-line products. []

Steve Wildstrom

Steve Wildstrom is veteran technology reporter, writer, and analyst based in the Washington, D.C. area. He created and wrote BusinessWeek’s Technology & You column for 15 years. Since leaving BusinessWeek in the fall of 2009, he has written his own blog, Wildstrom on Tech and has contributed to corporate blogs, including those of Cisco and AMD and also consults for major technology companies.
  • FalKirk

    “(I)n partial answer to the question raised by John Kirk earlier this week–I don’t expect Apple to go after the mass market still dominated by Windows.”

    Neither do I. My argument was more that Apple would dominated the high end of the PC market while the low end of the market might go away as consumers move from bottom-of-the-line PCs to top-of-the-line tablets.

    You make a great point regarding Google’s Chromebook. With Apple PC’s taking the high-end and tablets taking the middle and Chromebooks taking the low end – their may be no place for the Windows based PC to rest easy.

    • steve_wildstrom

      Indeed, Walt Mossberg’s column yesterday cites an NPD report that the MacBook Air outsold all Ultrabooks combined in the U.S. during the first four months of 2013.

      I don’t think Chromebook sales are very large yet, but I expect them to soar now that you can get a decent if not great unit for $200-$300.

      • Glaurung-Quena

        “I don’t think Chromebook sales are very large yet, but I expect them to
        soar now that you can get a decent if not great unit for $200-$300.”

        I think you’re wrong on this point. A chromebook is going to be either someone’s primary or (one of) their secondary computers.

        Secondary: aside from a tiny market of technonerds and travelling writers, I don’t think many people are going to be interested in having a secondary keyboarded computer when they can get a tablet instead.

        Primary:

        First, Chrome OS has a long tail problem. No matter how many functionalities Google builds into ChromeOS, everyone who’s owned a windows or mac PC in the past is going to have at least one app that they consider must-have (even if they only use it rarely), that they cannot get anything like its functionality on ChromeOS (family tree app, recipe app, D&D mapmaking, model train collection managment, whatever). Even if there’s a web app for doing whatever it is they need, will it be able to import their data from the obscure shareware win/mac app they’ve been using all this time? Highly unlikely.

        Second, there’s the tablet/phone base station problem. The number of Icloud users lags well behind the number of IOS users. Lots of people are going to still be needing Itunes to back up their devices, or to maintain their media library (unless I’m mistaken, icloud’s utility goes down quite a bit if you haven’t bought every single item in your collection from Apple’s store). And Itunes isn’t exactly available on ChromeOS.

        Third, there’s the media collection problem. Just about every model of chromebook has a paltry amount of local storage. Again, cloud storage isn’t for everyone. Especially if you have years worth of media and don’t enjoy fast upload speeds, getting your entire library of photos/music/videos/comics/whatever uploaded can be a daunting task. Also daunting can be recreating the organization you’ve already created on your computer on the cloud service. They could get a chromebook and a NAS box… but since they’re going to need a keyboarded computer anyway, why should they buy both a computer without storage and an expensive box, when they can get a computer with lots of built-in storage for less?

    • Defendor

      “With Apple PC’s taking the high-end and tablets taking the middle and
      Chromebooks taking the low end – there may be no place for the Windows
      based PC to rest easy.”

      I don’t see it that way at all. There is functional strata and a pricing strata.

      In the functional strata:

      Home base laptop/pc: This is still where you compose documents, have larger amounts of storage, more computing power etc… This remains important. There is a pricing strata within this, Apple rules the high end and profit share, but the market share still remains 90% Windows. Market segmentation is almost irrelevant to Microsoft, they make almost the same cut from a low end PC, as a high end PC.

      Tablets: the next functional strata. Where you have new more enjoyable consumption model, with more limited composition/storage options. Currently Apple has the trifecta dominating the high end, profit share and market share. Windows is struggling for relevancy here.

      Chromebooks: A small subset functionality. Either of the above strata can duplicate this functionality. Chromebooks lack the more enjoyable usage model of tablets for consumption, and lacks the greater storage/computer power of homebase. IMO this is an all but irrelevant niche that will be dwarfed by the above two for the foreseeable future.

      It really comes down to tablets vs PCs. PC market is currently being disrupted and eventually there will be some new steady state, where PC sales stop dropping and Tablets reach saturation, and they annual rates stabilize. PC sales will still be a HUGE market, and it will still be dominated by Windows PCs.

      Windows still plays are large part in the functional strata, and while the market is shifting, this remains a huge and important segment.

      • steve_wildstrom

        I think you are underestimating the potential of the Chromebook. It can supply a substantial fraction of a desktop OS’s functionality at a significantly lower price (assuming, as always, that connectivity is not an issue.) It’s not going to replace a PC for compute-intensive tasks, but can do very well at most things that consumer and educational PCs are now used for.

        • dr.n

          Thats what they said about Netbooks until iPad came along.

          Yesterday a story about Nexus 7 was floating around
          about how after 1 years the device is slow as molasses.

          If Google combines Android and Chrome, you still get NaCL which is compiling legacy code into the browser. Talk about non-native.
          This not even talking about HTLM5 vs. Apps.

          • steve_wildstrom

            What doomed netbooks? The systems lacked the power to run Windows and windows applications well. The displays were too small for the applications or the OS. The keyboards were awful.

            In a sense, the Chromebook is a netbook done right. They typically have larger screens and better keyboards. More important, they have software that performs well on small displays and modest processors.

          • dr.n

            ChromeBook already bogs down with few tabs.
            Idea that you are going to add Android’s JVM
            as well. will bloat it to level of Windows.
            Along with LLVM as well WebCL as well all
            the other kitchen sinks that Google wants like Dart.

            Android already takes twice as memory as IOS.

            Google can only give away this stuff until its growth rate slows down then what. It will have to compete with its OEMs. deja vu.

        • DesDizzy

          Steve, unfortunately you are thinking with your US hat only. Much of the world that needs “cheap” have very poor/unreliable internet connections. This is the problem with the chromebook idea.

      • Rich

        “Windows still plays a large part in the functional strata.”

        If you’re talking about computers running Windows 7 or earlier, yes, but those computers aren’t making any money for Microsoft. If you’re talking about Windows 8, then mostly no, since even the business market has largely rejected it. Don’t be fooled by Microsoft’s numbers on sales of Windows 8. They’re quoting sales to PC manufacturers, who have no choice but to buy MS. I’m talking about Win 8 in use in the enterprise, and that’s what counts.

        Around 2000 Microsoft began to lose their grip and since then they’ve been slip-sliding away.

        • Defendor

          What alternative do desktop/laptop buyers have to Windows?

          Windows still holds ~90% of the worldwide desktop market. There really isn’t much alternative. Linux is viable for about 1% of users. Apple sells to the other 9%. Unless Apple introduces lower priced models, this is unlikely to shift.

          The desktop/laptop market a heavily saturated market and discretionary dollars shifting to tablets is slowing sales. But eventually the tablet market will saturate more, and pc market sales fall will stabilize and we will have some kind of equilibrium.

          Microsoft will still hold the vast majority of that PC market.

          • Rich

            You’re asking the wrong question. You should say “What alternative do desktop/laptop buyers have to Windows 8?” and the market’s answer is “We won’t buy computers with Windows 8. If we’re a business, we’ll stay with Windows 7; if I’m a consumer, I’ll buy a tablet.” The company made an egregious error with the design of their flagship OS and the market is saying they don’t need it.

            Will Microsoft admit they messed up and change Windows 8 so greatly that it becomes a desirable product? Not likely because MS is controlled by two people whose recent statements make it clear their concepts are frozen in the past. It’s like they’re in a boat on a lake after the temperature has dropped to minus 40 degrees. They’re not going anywhere but their customers are moving on.

          • Defendor

            I think I already addressed this. Tablets are drawing more discretionary dollars NOW, because they are a new unsaturated niche. But once the market stabilizes people are still going to want/need PCs for more significant productivity usage.

            I have a friend with 2 tablets and he bought a new PC around Xmas for HTPC usage. Another tablet isn’t going to cut it for HTPC usage.

            Another friend has one tablet and is looking and getting a new PC for a performance increase. How is another tablet going to give him the performance boost he is looking for. How is going to give him much different than what he has now?

            Another couple bought a laptop to do productivity/photo work on.

            They all went with/are going with Windows 7. MS gets the same money if you buy 7 or 8.

            My close friends are still buying PC/Laptops and not a single one has switched to Linux/Mac. Most have tablets as well.

            Once you have a tablet, you aren’t going to put off buying a PC you need for another tablet.

            IMO it is a huge mistake to assume tablets are going to displace desktop/laptops. They are in addition to desk/laptops, not replacement for them.

          • DesDizzy

            Defender, you make a valid point. However, the more insightful question is what percentage of the overall PC market is business and what percentage is home. If the percentages pan out at 60/40 conservatively or 80/20 the MSF has a bleak future during this “disruption” period.

          • Bill Smith

            I suggest that your friend buy an Apple TV for $99. Dolby Digital 5.1 Surround Sound, Hulu Plus, NetFlix, iTunes Radio, extremely quiet compared to almost any x86-based HTPC. Also, you can AirPlay games from your iPhone/iPad/Mac. No viruses to worry about. Easy to buy content.

            I used to be constantly on the prowl for the ultimate HTPC. Without realizing it, I found it…and it’s cheaper, smaller, more power efficient and quieter than anything I’ve had before.

  • benbajarin

    I also believe Apple’s share will grow, probably healthily over the next few years. Consumers who need PCs and know it, will be willing to spend up, consider it an investment, because they know they hold onto it longer. I actually thinking a premium device and pricing strategy is the best way to grow share at this point due to that fact.

    And Apple’s vertical strategy will let them do things competitors can’t, which will help make the overall cost feel more like a smart investment.

  • lucascott

    I think Apple could totally challenge Microsoft. The real difference in the companies is that Apple doesn’t generally look at enterprise etc as THE key focus, anymore than they look at the Creative Pros. They focus in a more general audience with a few power tricks, plug in support etc for the smaller groups.

    Whereas MS is totally trying to court businesses and many decisions seem to be directly tied to that effort

    • steve_wildstrom

      Except that enterprise customers don’t want Windows 8, now or ever. All they see when they look at it is a massive training headache.

  • dr.no

    real issue is PC desktop market hasn’t had a killer program since late 90s.
    everything has migrated to other platforms.

    Microsoft no longer has gravitas to even push a new API onto their developers. Just look at LLVM and OpenCL, C++11, etc.
    Microsoft is falling behind.

    Even Xbox1 might not save them as they have bet the horse on TV instead of games. PS4 pre orders are already sold out.

  • GeneralmotorsGravytrain

    What a joke. Apple’s share price is still falling as investors bail. Wall Street sees this company going down in flames. I’m not sure what the Apple community sees for the company, but Wall Street sees something far different in Apple’s no-growth future. Whatever Apple pursues appears to bring its downfall that much faster.

    • Rich

      Not worth answering.

  • diddler

    Apple wouldn’t license their OS to third parties even when on the verge of bankruptcy, so they never will now. I think you can argue whether this would have led to greater profit or market share, who knows, but they are clearly happy with the current situation.

    Linux should by now be the dominant desktop OS and it odd to me that it is not. As far as I can see though it is Linux all the way down now and we will see the Microsoft years as an interesting anomaly. I still don’t get Chrome OS, but I haven’t used it. I would have thought pure Android would have been the more natural platform to push. We are now starting to see a few Android/Windows hybrids and an interesting all in one from HP running Android. I fully expect to see this trend continue. I am partial to Apple’s products, but Android on the desktop or laptop and laptop/tablet makes a much more compelling alternative to Windows for me.

    • steve_wildstrom

      Apple’s licensing of Mac OS was one of the things that brought the company to the brink of bankruptcy. In the early 90s, then-CEO Michael Spindler began a licensing program. Licensees including IBM, Motorola, and by far the most successful, a startup called Power Computing. The problem was that Power Computing was turning out computers that were both better and cheaper than what Apple offered and they grabbed market share without expanding the overall market for Macs, so it was all at the expense of Apple.

      The Mac at the time was transitioning from the original PowerPC processors to the G3 and the Mac clone licenses covered only PPC systems. Jobs, newly returned to Apple, refused to license Mac OS for the G3 and that was the end of the clones.

      Linux never took off on the desktop because no one ever put in the effort to make it a great, or even an acceptable to most people, user experience. Of course, Google has probed that was possible by building Android and Chrome on Linux, while Apple built OS X on a cousin, BSD Unix. (Today’s Windows, by contrast, traces its kernel lineage to the other great OS of the 1970s, Digital Equipment’s VMS.)

      • Defendor

        “The Mac at the time was transitioning from the original PowerPC
        processors to the G3 and the Mac clone licenses covered only PPC
        systems.”

        I don’t remember any such technicality. Jobs came back and he killed the cloning program. Apple bought out Power Computing, for $100 million, just to shut them down.

        If they could simply use some technicality on a processor upgrade, they wouldn’t need to buy out Power Computing.

        • steve_wildstrom

          My source on the G3 issues (back in 1997) was Steve Khang, CEO of Power Computing. The legal situation was complicated for a bunch of reasons, including the fact that IBM and Motorola had been given “perpetual” licenses. The purchase of Power Computing was a way to end the threat of litigation. The actual price was $110 million, but all but $10 million of that was Apple stock, a very easily given away commodity at the time (I don’t know what happened to that stock but it would be worth a staggering amount today.)

          The whole affair did poison Apple’s relationship with IBM and Moto and the set the companies on a path that led to Apple’s eventual switch to Intel processors.

          • DesDizzy

            Thanks for the industry insight Steve.

  • jameskatt

    Apple won’t challenge Microsoft since it is satisfied with being the underdog. And it is satisfied with taking the high end of the market. And avoiding challenging Microsoft means Apple avoids charges of being a monopoly.

    • SPM

      Apple isn’t an underdog – it is a lot bigger than Microsoft which went from being an 800 pound gorilla to an obese 800 pound chimpanzee.

    • Hosni

      I believe that Apple won’t challenge Microsoft both because it wouldn’t be profitable to do so and because Apple’s focus over the past decade has been on MOBILE computing.

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