Apple: The iPod Company That Happens to Make Computers? The Numbers Say “Yes”

When Apple released their results for the first quarter of 2006 people oohed and ahhed over the number of iPods sold while fretting mightily over Apple’s very conservative guidance for the second quarter. The less than enthusiastic guidance is based on Apple’s fears that the market for non-Intel based Macs will be soft and negatively impact earnings. The quarterly sales of Macs may be interesting to stock analysts and day traders, but most of Macdom is populated by big picture folks, people more concerned with the longer view than any single fiscal quarter.

For those interested in the big picture the quarter’s results are not bereft of interest. In fact, it was Apple’s most interesting quarter since Mac sales outsold the Apple II for the first time in 1987. This quarter’s not unanticipated revelation with long-term consequences? For the first time, the iPod accounted for substantially more revenue than the Mac. In cold hard numbers: the Mac brought in a substantial 1.724 billion dollars while the iPod brought in a staggering, for Apple, 2.9 billion dollars. In terms of total revenue the iPod and the closely associated “Music related Products and other Services” revenue accounted for nearly sixty percent of Apple’s income.

At this point, it should be noted that Apple fans are enraptured by the iPod’s market dominating success. Every slight against the Mac, every school contract lost, every Apple derivative feature found in Windows can now be tempered with the knowledge that Apple is coming to sell iPods and kick ass….and they run out of iPods a lot. Those warm feelings towards the iPod should be tempered with the realization that market dominance, as displayed by the iPod, usually ends up depriving consumers of otherwise nifty products and that, with the revenue streams switched, Apple is going to have to focus their efforts more on the iPod and less on the Mac.

When the realization that Apple is now more of an iPod company than a computer maker finally hits home, many are going to remember the quick ride the Apple II took to oblivion once Apple realized Mac sales could support the company. Don’t expect that to happen to the Mac, the cases are substantially different. Apple knew the Apple II was unsustainable and had been looking for something, anything to replace the lost revenue. If the past five years has taught Apple anything, it has taught them that the Mac is a viable profit center in its own right.

With that dire scenario dismissed, one is left to wonder if the Mac won’t still won’t suffer from institutional disinterest. With the iPod bringing in the lions share of the revenue will the most able employees and managers be shunted to the iPod division (created in May of 2004) leaving the Mac side to languish at the hands of second rate Apple employees and less able managers?

Now is the opportune moment to realize that the differences between the iPod and, say, an iMac aren’t as great as you might believe. Sure, the iMac is much more powerful but both devices are, in essence, a computer. You can install Linux on either, both have processors, RAM and storage and both rely on programs to do anything useful. The differences come down more to how the unit is intended to be used than any fundamental reason why an iPod couldn’t be considered a portable computer. To better illustrate this notion take a look at an Xbox. The Xbox runs a modified version of Windows 2000, features an Intel chip, a hard drive and a CD ROM. Yet, for all the obvious reasons the Xbox is just a computer in a black box, most people consider the Xbox a gaming console. Call it a triumph of marketing, digital devices are defined more by what the manufacturers tell consumers the device is for than their actual capabilities.

With little more than intent, power requirements, and form factor separating the iPod from its desktop cousins it becomes easy to see that there is a lot of overlap between the two ostensibly walled off product lines. Pretend you’re Steve Jobs and you’ve decided, in a fit drunken hubris, to mistakenly release a living room computer. The computer will be able to store some DVDs, output Hi-Def to your TV and include full PVR functionality.* In essence, the machine will be a stylish version of Windows Media Center. You have an option, do you call it “MacTV Pro” or do you call it the “Video iPod” and stick a scroll wheel on the remote?

The answer is pretty clear, and Steve Jobs gave a hint at MacWorld when he said they were trying to get the Mac names back into the Mac line (here it should be noted that by putting the Mac back into the Mac line you are also saving the iPod line from being confused with Macs, heady move Steve). The only rational option is to associate the device with the iPod. The fictional, in this case, device may be a full-fledged Mac in every way, but consumers are obviously hesitant to buy Apple computers when pitched as computers. Calling it an iPod of some sort frees it from the usual compatibility and price objections and puts it in a different class than a computer, a class consumers are much more receptive to.

The biggest trick for Apple, the trick they have to pull off if the “Halo Effect” is ever going to come to fruition, won’t be pushing Mac sales through the roof but convincing consumers that the computer they are buying is really another form of the iPod. With that in mind there’s no reason to worry about the Mac, as always it will be the platform that exercises Apple’s muscles of innovation while the iPod will be the division that puts Apple’s marketing strategies to the test.

* A device like this, even called “iPod living room” (or some such twaddle), would be a bad idea.