Cupertino, it appears, gets the big picture

Back in June 1991, when Apple was making its first moves toward entering the consumer market, we predicted it would merge its superiority in user interface, product design and system-level tools such as QuickTime with the consumer electronics industry’s deep understanding of mass markets and miniaturization (see Vol. 1, No. 1).

When its chairman, John Sculley, took the podium at the Winter Consumer Electronics Show last month, it was clear that Apple had indeed realized that digital media and digital technology are the directions that the world is taking. Now Apple must find a way to ride the tide to success.

Best is not enough. Apple is on the same kind of cusp as it was in 1983, just before it introduced the Macintosh. What Apple didn’t know in 1983 was that being ahead of your time doesn’t earn you sufficient points to justify either an exorbitant price tag or insufficient marketing or focus. We hope that it has now learned that lesson.

If it has not learned, then no matter how fabulous its new consumer products are, it will fail. And it will not have the grace period that was somehow miraculously granted the Macintosh.

A CONVERGENCE STRATEGY

Standards for rich media. Apple hopes to take advantage of the convergence of computer and consumer electronics industries by moving to bridge the two markets. To do so, it must lead the charge to establish common “rich media” standards that span the full range from consumer entertainment to hardcore business applications.

If Apple can play a central role in developing these standards (and we see evidence that it is), it can also play a leadership role in both industries. But to take that central role requires cooperation of everyone from IBM to the major Japanese consumer electronics manufacturers.

Leveraging its expertise. Apple has unique expertise, experience, market position and sensitivity that it should be able to leverage into “convergence products.” The first generation of Apple consumer products will be low-cost Macs with built-in CD-ROM drives. To be sold through consumer electronics channels, these are promised before the end of the year.

This is a logical step for Apple as a computer company. Macintosh has always been the personal computer best suited for use by nontechnical people. Apple still has the best low-cost hardware/software platform for interactive, graphic-intensive applications. And schools are eating up the new low-cost Macs–vitally important to the home market, since parents like to buy kids what’s in the schools.

Apple also has tremendous image and brand recognition, even among consumers who have never used a computer. And Sculley predicts an “incredible explosion” of CD-ROM titles for personal computers this year. This, in turn, should help build the market for multimedia computers and “players” (equipped to play titles, but not for general-purpose computing tasks).

ENTER THE PDA

The next step, promised for early 1993, is bolder — and therefore bound to be far more controversial. As Sculley announced at CES, Apple is at work on families of special-purpose computer-based devices, with special emphasis on small size, easy portability and wireless communications to link them to the rest of the world.

Sculley calls them Personal Digital Assistants, or PDAs. Specific types of PDAs he mentioned include palmtop “executive organizers,” players for electronic books and multimedia players.

Apple will develop PDAs in conjunction with other, probably Japanese, firms. They may be marketed both by Apple under its own label and by the other firms under their own names. In fact, Apple recently acknowledged that it is in discussions with consumer giant Sharp, which makes the Sharp Wizard. It is speculated that this is exactly the kind of deal Apple and Sharp are devising.

Initially, these PDAs will be rolled out in the U.S., but Apple clearly believes that the opportunities are global.

These sorts of products will move Apple into the consumer markets, but they will also create some interesting situations. Cooperating with Japanese vendors is key to designing and building miniaturized products, as well as to establishing media standards for the consumer and computer industries. But Apple will certainly end up competing with its partners, in much the same way as Ford competes with Mazda with different versions of its jointly developed cars and trucks.

ATG AND KALEIDA: THE CONNECTION

For some time now, Apple’s Advanced Technology Group (ATG) has worked on inventing underlying technology for use in future Apple products. The hard decisions are –and will be — how to bring some of that technology to market, where and how to form partnerships with other companies, and how to generate broad support for the media, data and system software standards that are needed.

A partial solution to the problem was to form a new division, the Advanced Products Group led by Larry Tesler, to aid in technology transfer. Another part of the solution was the decision to form Kaleida, the joint venture that at this point is only between IBM and Apple (although we do not think it is unlikely that other partners and/or owners will join eventually).

What’s not clear yet is how much of ATG’s technology will be transferred to Kaleida and how much Apple will retain. The objective is most likely to put essential foundation technologies into Kaleida, but to keep some of the implementation technologies for Apple and Apple’s joint venture partners.

But it is vital that Apple not short-change Kaleida. Apple recognizes that, unlike Microsoft, it does not have the power to set standards on its own. It cannot succeed if it is technically isolated from the rest of the emerging digital world.

Apple’s whole strategy hinges on broad acceptance of the technologies that grow out of what it is doing. This means that Apple can succeed only if Kaleida succeeds. Apple has to put enough technology into Kaleida, and make that technology available broadly and fairly enough, to rally key computer and consumer electronics companies to the cause.

COMPELLING PRODUCTS?

The biggest challenge will lie in the specifics of defining, implementing and marketing products that people really want to buy. Will PDAs serve real and unmet needs? Will they have the right combination of design, functionality and price to be compelling? And will Apple be able to market them?

Meeting real needs. The question of demonstrable benefits is the core one. Every successful new consumer electronics product we can think of provided benefits that were immediately obvious and required no real explanation. A product that must be explained is likely dead on arrival.

It’s too much to hope that any of the early crop of PDAs might offer the kind of overwhelmingly obvious benefits that fueled VCRs, CDs, desktop copiers, fax machines and cellular phones. But we hope that at least a few of these devices will prove to be really useful for a reasonable number of people.

There are bound to be some duds as well. We are all still groping for what people really want from all this neat technology. Some of our early guesses are almost certain to be wide of the mark.

Sex appeal. Apple should be on firmer ground with design and packaging. If it knows anything by now, it should know how to make complex products accessible to nontechnical people and how to package its products in an appealing way.

Marketing, the final frontier. If the benefits of its new devices are obvious, and if they are attractive and well-priced, then Apple should do well. It has excellent brand name recognition for the kind of products that PDAs purport to be. However, if the benefits must be explained at all, it is hard to see how (or why) Apple will succeed.

Judging from the generally poor job that it has done in explaining the benefits of Macintosh, Apple doesn’t appear to have any more magic in this regard than the companies that are already serving the consumer market.

AN ORGANIZATIONAL CHALLENGE

The final challenge for Apple will be organizational. Though no announcements were made by press time, it appears that Apple may set up a separate company for its consumer products.

In a company with a long history of intra-company, inter-divisional rivalry and wrenching reorganizations, this will not be a trivial undertaking. One of the lessons that Apple is doubtless learning from Kaleida is that it is very difficult to find qualified executives to lead such a division.

So, there are certainly enough risks and enough challenges to this course to keep anyone awake nights. However, we believe that Apple is headed in the right direction. Bridging computers and consumer electronics is Apple’s best chance to become a truly important company in the coming decade. It is also its best chance to play a significant role in shaping the evolution towards a digital world.

Jonathan Seybold and Denise Caruso