Apple's Interim CEO Steve Jobs demon- strated some of the showman's flair that made him famous last week when he took the stage at the Flint Center in Cupertino, California, to announce Apple's new G3-based Power Macs (see separate item on page 20) and its intention to sell the machines directly via the Web.
The move came as no surprise to anyone who has been following the recent fortunes of Apple. When Apple bought back Power Computing's Mac OS licence in September, it also purchased core assets of the company, including its infrastructure for direct selling. Power had primarily sold computers via its Web site, although it went through resellers in some countries including Australia. Since the Power acquisition, most analysts have been expecting Apple to go direct at some point.
The online "Apple Store", accessible through Apple's Web site at www.apple.com, gives customers the choice of buying "off the rack" machines configured by Apple or configuring a machine to their own specifications. The move is expected to allow Apple to maintain lower inventories and streamline its manufacturing processes in order to cut costs and increase its profits. Apple is now the only computer manufacturer to offer its core products through the Web as well as through retail and reseller channels.
Jobs said: "for years Apple has successfully offered direct sales to our education customers. Today, by joining retailers and resellers to sell products to the general consumer, Apple will be able to meet the needs of a greater number of customers." He said that the Apple Store will "complement" the existing channel, rather than compete with it, since it will be a "neutral proposition, as far as pricing and product allocation is concerned". What this means is that the prices offered will be full retail prices and the cost savings inherent in the direct model will be added straight to Apple's own bottom line, rather than passed on to consumers.
Apple has only recently put the ink on several partnerships with resellers and retail stores in the US, including the CompUSA line of computer superstores. CompUSA had been scaling back its Mac emphasis, but returned to the fold on the basis of confidence in Apple's new management team. Some commentators suggested that this confidence may prove fragile if Apple offered discounted machines via the Web. IBM and Compaq have both previously tried selling direct through catalogues, but abandoned their plans when they caused too much conflict with channel partners.
One US analyst pointed out that, because such a large proportion of Apple's customers are repeat sales, those customers have less need for retailers' assistance. It would not require much of a price advantage, therefore, for those customers to abandon retailers and resellers in favour of buying direct from Apple.
Australia to follow
At the launch of the Apple-Centres only a few weeks ago, ARN asked Apple Asia-Pacific managing director Steve Vamos whether he thought that Australia would go direct if and when the US parent did. At the time, he described Apple's direct plans as "an experiment" which he would be watching closely, but said that he had no plans to adopt a direct model here.
In Cupertino, however, Jobs announced that direct selling via the Web would become a global strategy. He said that European and Japanese customers can expect to be able to buy online by May-June next year, and a spokesperson for Apple Australia said that local sales via the Web could be expected before the end of 1998.
"This is the '90s," he said, "and businesses have to start doing business on the Net or they will be left behind. Apple is not alone."
He expected pricing on the Web to remain at full retail levels, leaving the reseller channel room to offer discounts and special deals. He did not expect resellers to lose a lot of business to direct sales from Apple, but "obviously there would be some sales that would come [from the Web] that would otherwise have come through another channel".
Fries with that?
Customers will now be able to order their Macs exactly as they want them, rather than being limited to Apple's stock configurations. This is made possible by the introduction of the G3 processor and motherboard, which is a fully scalable technology and can be used in anything from a PowerBook to a minitower. Initially, only the G3-based machines will be customisable in this way, but other machines will be added later.
The nearest Apple has come to this kind of customisation previously has been with the Power Macintosh 9600/350, which was offered to resellers specialising in high-end publishing in a "0-0" configuration, meaning it had no RAM, no hard drive and no video, and these were to be added by the reseller. The difference in the new model is that the G3 machines cross a wider range of price points and customers will be able to select the processor speed they want, from 233MHz, 250MHz or 266MHz.
As long as we beat Dell
In his announcement, Jobs made it clear that he sees Dell Computer as his main rival in this arena. Dell has built a highly successful business selling computers entirely via the Web on a build-to-order basis. By cutting out the "middlemen", Dell has consistently maintained an enviable profit margin for itself.
In recent weeks, a war of words between Jobs and Dell chairman Michael Dell has broken out, with Dell saying that Apple should shut its doors and return its shareholders' money. Another sticking point is Dell's decision to switch from using WebObjects as the underlying technology of its online store.
WebObjects was developed by Next Software before it was acquired by Apple last year, and is to be the basis of Apple's own online efforts. Dell's success with it has been a strong selling point for Apple, but Dell recently announced that it would be switching to Microsoft technology in the near future.