E-BUSINESS SPECIAL REPORT
Apple in 2008

If industry influence trumped such traditional economic considerations as market share, Apple (Nasdaq: AAPL) probably would be the top computer manufacturer.

Bryan Chaffin, publisher of The Mac Observer, told the E-Commerce Times that Apple has wielded more influence than its market share warrants ever since the first Mac was introduced -- and that power has done nothing but increase since the return of Steve Jobs.

Indeed, since Jobs retook the reins in 1997, the company has revolutionized PC and notebook design. It also has brought innovation to the consumer electronics sector with the iPod, which is synonymous with MP3 players, much like Sony's Walkman was synonymous with portable cassette players nearly 25 years ago.

Now, Apple is moving into digital distribution with its iTunes Music Store launch. With all of the changes occurring at Apple and in the PC space in general, we at the E-Commerce Times wondered: Where will Apple be in five years?

Integration Masters

Adam Engst, publisher of Mac community newsletter TidBITS, agreed that Apple's impact on the PC industry has been tremendous. He told the E-Commerce Times that the secret of the company's influence is its continual ability to integrate.

"Look at the graphical user interface, the mouse, the CD-ROM, onboard Ethernet, USB, AirPort wireless networking and so on," he said. "In each of those cases, Apple took a technology that existed already and by pure force of will made it standard on all Macs.

"In each case, the PC industry followed suit some time later," Engst noted, "but without Apple pushing the boundaries (and in some cases, as with AirPort, the price points), it might have taken much longer for the PC industry to settle down on a standard."

He added that he thinks Apple will continue to innovate with digital media, including video, and keep pushing the envelope of mobile devices, particularly in the area of industrial design.

Blessing and Curse

Ryan Jones, senior analyst for media and entertainment strategies at the Yankee Group, told the E-Commerce Times that Apple is unique among PC manufacturers in that it provides users with what he termed "the whole hog." In other words, Apple produces all of the components -- hardware, software, content and services -- of the value chain to deliver a complete digital media experience.

However, Jones cautioned that Apple's tightly integrated ecosystem is both its foremost strength and its biggest weakness.

Traditionally, he explained, larger PC OEMs (most notably Microsoft (Nasdaq: MSFT), with its Windows OS) have adopted and mass-marketed Apple's innovations, leaving Apple still a niche player in the PC space.

"It remains to be seen whether quickness will offer [Apple] an advantage [in digital music distribution] or whether the lumbering giants will take over," Jones said.

Apple's Digital Savior

Nevertheless, according to Jones, digital media will turn out to be Apple's savior for two reasons: Consumers are hungry for it, and Apple offers the most user- and consumer-friendly products in the marketplace.

Charles Smulders, desktop computing analyst at Gartner (NYSE: IT), told the E-Commerce Times it is clear that Apple is moving away from positioning itself simply as a computer supplier by offering a diversified portfolio of products and services. He said the company must continue on this course in order to flourish.

In fact, he said Apple's market share will continue to trend downward, as it has over the last 10 years, if it remains a traditional computer company.

Fast-Forward Five Years

In a recent Yankee Group research note, Jones predicted that by 2007, Apple will grow its market share from its present 5 percent to about 8 percent because the "PC Media Center" market has such momentum.

Meanwhile, The Mac Observer's Chaffin said he believes Apple will be solid, stable and profitable in five years, both because of its leadership in digital media distribution and integration and because users are increasingly open to alternative operating systems.

"Macs will no longer be a crazy niche market full of zealots and rebels, but will instead be a healthy alternative platform, one among several," Chaffin said. "The more successful Linux becomes, the more the Mac becomes another alternative to Windows (and vice versa), which is a huge mind-shift. That will pay enormous dividends to consumers, no matter what platform they are using."