| Wednesday, November 5, 2003 |
15:43 - Power Computing all over again
http://www.thinksecret.com/news/specialistchanges.html
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It's not like Steve hasn't done this before. It's not nice, but it's also not unlike him.
Apple is changing the terms under which third-party licensed Apple Specialist stores can do business. Again.
Despite some 150 independent Apple dealers increasing their business almost 20 percent in the last year, Apple will announce Monday that it is firing many of its Representative Apple Executives (RAEs) across the U.S., replacing them with existing inside phone liaisons and upping the dealers' requirements to achieve certain discounts on equipment by as much as 40 percent. Details of the new strategy for dealing with independent Apple Specialist dealers will be outlined Monday during an online webcast, numerous sources close to the company have confirmed to Think Secret.
Under the new plan, Apple will be cutting the "majority" of ten RAEs and has already fired a number of the reps. Some RAEs, who have yet to be dismissed, have already quit and are putting in less than the customary two weeks notice. Think Secret has spoken to two out-going reps, who were not surprised by Apple's move to cut back the Specialist program. "The handwriting has been on the wall for well over a year," said one RAE, who asked not to be identified. "Anyone who didn't think this would be the next move simply wasn't listening or noticing the signs."
In addition, Apple will be increasing the rate at which Specialists must sell extended warranties with every Mac computer sold, sources report. If a dealer does not attain an 'attach rate' of 40 percent or more, it will not qualify for discounts of as much as 20 percent on demonstration equipment. It is also expected that Apple will be strengthening its requirements for a dealer to stay as a Specialist and will announce a new, revamped three-tier structure that will make it more difficult to achieve discounts and other added dealer benefits.
Marcus, who works at one of these Apple Certified Reseller businesses, has told me numerous times about the nefarious ways of Apple's dealings with them-- unfair gouging in parts ordering, preferential timing and quantity on newly released items being given to the official Apple Stores instead of the independent dealers, bizarre requirements for how much of what must be sold-- to the point where I have to wonder exactly what business case can be made for being a third-party Apple dealer in the first place. Especially since Steve started opening the Apple Stores in malls everywhere:
"Since the opening of Apple retail stores, our business has fallen off dramatically and I defy Apple or any independent dealer to deny that," said one dealer in the central U.S. "They promised us Apple retail stores and the online store wouldn't be competition. They have turned right around and lied to us and they compete with us each and every day. Whatever they announce on Monday won't be good for independent dealers. They'll simply cut back more on the support they give us."
And here's the followup details:
To attain the best possible pricing, Specialists will now have to meet higher goals in a number of key areas -- primarily monitor, software and Apple ExtendedCare product warranty sales. For instance, Specialists will now have to have an 'attach rate' of 60 percent for warranties with each Mac CPU sold, up from about 40 percent, sources report. In addition, dealers will have to have an attach rate of 60 percent on Apple monitors (up from 50 percent) and sell $100 of Apple software, not including OS X, with every system sold.
Dealers Think Secret spoke to were anxious to discuss their reaction to the Apple announcements, but none were willing to let us use their names for fear of repercussions.
While the attach rate has increased, dealers admit the goals have always been a requirement. "But now they're going to make it much harder for me to maintain my dealer status," said one west coast Specialist. "I'm going to have to make some difficult decisions about what I buy, when I buy, and who I buy from. The repercussions could ultimately decide if I stay in business or not."
Yes, that's not good for the dealers.
Marcus says that one of his co-workers sees an upside-- that if the new requirements can be met, this means potentially more money on the table for the dealers. But that's only one voice in a chorus, most of which see the writing on the wall, which is this:
Apple wants to put the independent dealers out of business, and get all the retail traffic through its own directly owned stores.
"This will be bad for customers, ultimately bad for dealers like myself and in the end, bad for Apple. By then, it will be too late," said another dealer, based in the central U.S. "It might not look like such bad news to customers or to Apple now, but in the future, I think it will be very bad for everyone."
But then, Steve did do this before, killing the clone market as soon as he returned to Apple in 1998, putting Power Computing out of business and killing the Mac-clone wings of Motorola and UMAX. That was quite the controversial move in its day, and few would deny that it's been one that's had mixed results in the marketplace-- but for the intangible ideals, like perceived quality, product unity, and serviceability, Steve has managed to steer the company toward his own maniacal goals while still somehow keeping the company profitable. And for those customers who see Macs the way Steve sees them, it's victory and vindication.
Remember that in 1985, Jobs was forced out of Apple because John Sculley (whom Steve considered to be a bonehead about computers, his background being in selling Pepsi) thought him to be a menace to the business. Overbearing, perfectionist, one of those dictators who never sleeps because he knows what's best for you-- Steve insisted on keeping all the Mac technology in-house and going it alone. But after Steve was forced into exile after a failed coup attempt against Sculley, the first thing Sculley did-- apart from firing 1,200 Apple employees-- was to license key Mac OS GUI code to Microsoft in exchange for a pledge to keep making Word and Excel for the Mac. And we all know where that led.
One has to wonder-- okay, sure, Jobs' monomania is really volatile and dangerous. But isn't the alternative worse?
We've seen Apple leap back to the forefront of both the public imagination and the tech press in the five years since Steve returned to Apple and went on his Clone War, heaving out the unimaginatively numerically-named, lackluster Macs of the day and replacing them with the gobsmacking iMac. It's tempting not to notice that Jobs' moves in that time haven't just been related to Mac hardware itself; but, indeed, just about every single change he's made has been toward more consolidation of assets and infrastructure. Let's take a look at some of it:
The online Apple Store. Launched in the heady days of Amazon's revolution and built on top of the gulp-worthy WebObjects, this was a direct-marketing coup that netted Apple a ton of mail-order sales that had previously been going through warehouses and catalogs.
Software. Before Jobs' return, Apple made almost no software other than the Mac OS. There were little utilities and graphics tools, but nothing you'd find in place of prominence on a shelf-- they'd even spun off their applications division into Claris, years earlier. Now, though, Apple was writing all the software that you'd ever need, in a complete turnaround: iTunes, iPhoto, iMovie, Final Cut Pro, DVD Studio Pro, and (most recently) a huge suite of high-end digital-video tools designed to take on the likes of Avid. Now they've even got their own Web browser, Safari, and their own e-mail app and PowerPoint-compatible presentation software. Can iWorks be far off?
Glass-and-mortar retail stores. It was quite a gamble, but who can say the stores haven't paid off? The first stores in California and Virginia had lines that stretched out into the parking structures on opening day, but nobody expected that to last. To everyone's shock, it did. The lines for buying Panther at the Valley Fair store led halfway around the ground floor of the mall.
Digital music. Nobody, but nobody, expected the iPod. And few expected that it would take off. Yet it did; and now it's the world's #1 digital music player, whether for Mac or PC, and the buzz says that the whole point of the iTunes Music Store is to sell iPods now, not to sell music. (iPods are a bigger cash cow.) Apple could have partnered with someone like SonicBlue or Creative to sell a cool Apple-designed player, or they could have brokered a deal with the labels to become a major investor in an independent online music store-- but they didn't. They took it all in-house, with their own new codec, their own in-app store (versus a Web page), and their own contract terms with the labels.
The G5. Everyone knew Motorola's G4 was doomed to mediocrity and a premature end-of-life, but everyone similarly knew that Jobs wouldn't go to Intel unless he were being fed into a plastic shredder feet-first by Saddam's goons. There was always "Marklar", the rumored x86 build of OS X-- but that was always a last resort, and Steve would try anything first. And he did: Apple and IBM co-designed the G5, tacking Altivec instructions onto a stripped-down POWER4 core, and co-investing in the new fab plant that's now turning out the chips that may one day be used (giggle) in Xboxes. Apple's solution to a flaky external chip supplier? Do the chips its damn self.
Even little mini-storms like the one over Sherlock and Watson have been arguments over Apple consolidation versus the long-standing, traditional third-party innovation among the Mac market. Watson was designed as an adjunct to the then-Spartan Sherlock-- an XML/SOAP-based front-end to a lot of useful Web services, like yellow-pages/maps, movie tickets, translation, flight schedules, and so on. But shortly after Watson started taking off, Sherlock 3-- built into Jaguar-- was announced, almost an identical product in function and design to Watson. Karelia and its developers (understandably) took exception to Apple's blatant disregard for the sovereignty of the third-party shareware developer... but the argument was also made that Apple should be able to integrate this kind of functionality into the OS if it wants to. Today, Watson still exists in its role as an augmentation to Sherlock, with a few channels that Sherlock doesn't have-- but Sherlock now integrates the dmoz directory, with dozens of third-party channels designed for Sherlock... and not for Watson.
I must admit that it's intoxicating to have all your functionality right here, in one box, from one vendor. Part of the physically pleasing nature of the Mac today comes from admiring its polish, with everything thought of from the lowest OS levels to the topmost specialized applications, with nary a checkbox out of place, without even a default setting I feel like changing. iTunes wants to organize my MP3s for me? Fine! Great! Go nuts! Mac OS X wants to hide extensions per-file rather than always showing them, like in the past, and relying on Type/Creator codes? No problem! I like the new way now. Exposé comes attached to F9, F10, and F11, enabled right out of the box? No complaint here!
This is apparently the mindset that Steve is banking on, that he hopes to instill in the users. Sure, it's megalomaniacal. It's what we always expect to see out of Microsoft-- but Apple and Microsoft are quite reversed in their roles from how we always expected them to be. Apple was always the hands-off good-guy, remember, with the vibrant user community developing cool apps (like Hotline, which was Napster five years before Napster existed) and the thriving third-party dealer network; whereas Microsoft was the stern dictator, gathering all pawns to its gloved hand, decreeing the terms by which you must obey the Master or else. The situation could hardly be more the reverse today-- Microsoft's Windows Media engineering lead said of the iTunes for Windows release that "Windows is all about choice", claiming that no Windows users would opt voluntarily for Apple's closed-house software-design tactics.
Well, that seems to have been wrong too.
And now Apple is making the final moves to bring all retail sales under the corporate umbrella. With that, the monolith will be complete-- and I think it's entirely possible, given Apple's track record on decisions like this, that the consumer will actually benefit. Apple's built a business on defying the conventional economic wisdom of monopoly and complacency and closed-shop infrastructure, succeeding precisely where everybody said they were particularly doomed to failure. Who's to say that they can't succeed brilliantly even after totally killing the venerable independent Mac reseller market?
Nobody, however, will claim that it didn't make people really mad in the process-- that it didn't betray all the people who had dedicated their lives to the Mac, who had pledged their firstborns and guzzled the ol' bug-juice, who had banked their mortgages on running the nice little Mac shop on the corner. Nobody will say that Apple stiffing these folks is the honorable thing to do, no matter how good it might look on paper.
But that's Steve for you.
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Brian Tiemann
