Windows dressing isn't the Apple way

Innovation means profits, and quality still comes before quantity, the computer group's legendary boss tells Stephen Pritchard

Of all the global companies making PCs today, just two make money. Few would be surprised that one of these is Dell, the Texas-based manufacturer that pioneered the idea of selling direct to its customers. But who would guess that the other is Apple Computer? Globally, it accounts for fewer than 5 per cent of computer sales, and in some markets its share is even lower.

Outside its established core industries of media, design, education and some corners of research, Apple hardly makes a dent. But if it can make money selling fewer computers than Dell, IBM, HP, Fujitsu or NEC, should its executives care?

"We would like to see our market share grow," Steve Jobs, Apple's chief executive, admitted to The Independent on Sunday last week at the Apple Expo held in Paris. But he argued: "Our strategy is to innovate. We are the innovator of the industry. Most of our competitors try to copy us. Our strategy has worked really well for us."

Others agree. "Apple is not going to be a vendor that can buy market share, or one that can easily enter new markets," suggests Ranjit Atwal, PC industry analyst at the research firm Gartner. "It is concentrating on its existing markets, and on making sure its average selling price and revenues make it viable. Volume isn't its game."

Even so, Apple wants to be taken seriously in business markets. It launched dedicated, rack-mounted servers to industry acclaim. After a few years of appearing more interested in consumers than businesses, Apple has come back strongly with its new G5 professional desktop.

To call the G5 a PC is some- thing of a misnomer. It uses the 64-bit processing found in high-end workstations and ser- vers, but comes with Apple's graphical interface and goodies - such as a DVD recorder, digital audio connections and fast ports for peripherals - that are straight off the shopping list of the video editors, musicians and designers whom Apple needs to stay loyal.

With 100,000 G5s ordered even before the launch, it seems to have it right. The aluminium-boxed machine has won the plaudits of the press. A new PC from IBM or Dell would never generate those column inches.

The company has always had an enthusiastic following. At Apple Expo, Mr Jobs demonstrated the G5s, interface tweaks and video conferencing, all to rapturous applause. The cheers that greeted a new Powerbook portable went off the scale. But the challenge is to win new converts to its way of designing a computer. After all, unlike 90 per cent of the computer world, it does not run Microsoft Windows. So Apple has three tricks to hand: Unix, portables and a personal music player.

Unix is important for Apple because it is an "open" standard. Previously, while Micro- soft made its operating system available to any computer maker that would pay its fees, Apple kept its own Mac OS a tightly guarded secret.

It is very different now. The processors in the G5 come from IBM, and Mac OS X is today built on Unix. Unix is a close relative of Linux, which in turn is starting to give Windows a run for its money.

With Unix, Apple is gaining support from software developers who had either abandoned the Mac or never written for it. IT managers are also keen on Apple because they understand Unix. But it is the company's portable devices that are doing most to persuade people to try Macs for the first time.

Apple may have a small market share in desktop PCs, but it is the world leader in another area. Sit on any commuter train, from San Fran- cisco to Tokyo, and count the number of personal stereo users wearing neat, white headphones. These are iPod users. Apple's MP3 player is a triumph of industrial design.

The company sold 300,000 in the last quarter and Mr Jobs admits that Apple cannot make them quickly enough to meet demand. Astutely, the iPod works with PCs, not just Macs; Dell has even sold the IPod on its website. And, according to Jon Rubenstein, Apple's senior vice-president for hardware, it does help to sell the Macs. "The iPod is a natural extension of our strategy of making the Mac a digital hub. It has certainly driven sales, though by how much is impossible to quantify."

Laptops are Apple's third strategic weapon. In the last quarter they accounted for 42 per cent of sales, against an industry average of 25 per cent. And portables attract higher margins than desktops. Mr Jobs expects them to account for more than half of Mac sales - possibly within the next 12 months.

And, he says, Apple will continue to innovate. He describes it as the only remaining vertically integrated com- puter company. It designs the hardware, produces the operating system, writes application software - from email utilities to video editing programs - and provides services like the iTunes Music Store, a legal music download service, to tie it all together.

"Apple is trying to differentiate itself from the other PC companies," says Mr Atwal at Gartner. "It is not quite a question of shaking off its image as a PC vendor, but it does want to be known as a company that provides entertainment." ITunes, he adds, is a logical extension of that strategy.

Apple hopes to launch a Windows version of iTunes by the end of this year, and seems happy to part Windows users from their money. But for Mr Jobs, the heart of the company is still the Mac. And the machine is intended to be more than just a tool. Apple wants people to be proud to own a Mac.

If this means putting innovation ahead of market share, Apple executives are happy with that. They point out that the company has more market share in PCs than BMW does in cars, and BMW is not criticised because Ford outsells it.

"If you went to BMW and asked them why they don't outsell the Ford Taurus, they would say they don't want to make that sort of car," says Mr Jobs. "Apple has 25 million customers around the world, and our goal is to give them the best personal computer that we can, with the best operating system and some of the best applications."