Talking convergence at Macworld
Apple is far and away the most important force in Gizmoland. Can it stay on top?
NEW YORK (FORTUNE) - It's almost comical, really. More than 200,000 gadget freaks and assorted hangers-on flocked last week to Las Vegas to see the latest in home electronics. Untold bad hot dogs were eaten. Miles of flat-panel TVs were displayed. Microsoft, Yahoo, Intel, Google and the like slugged it out for snazziest future product offering honors.
Yet for all that, the most important event for the combined consumer-electronics and information-technology industries happens Tuesday, when Steve Jobs takes the stage at the annual Macworld love-fest in San Francisco.
Think about it. Tiny Apple (Research), the company with a single-digit share of the personal-computer business, an also-ran in the mammoth market to supply big businesses with their computing needs, a non-player in cell phones, home stereos and televisions, is far and away the most important force in gizmoland.
Other companies talk about "convergence," the mythologized coming-together of devices in your living room and your den/office. Apple goes out and creates the products that make them happen. No one talked about PCs being fun before the Mac. Heck, before Steve Jobs, it didn't occur to PC makers to add color to their humble globs of plastic. MP3 players existed, of course. But before the iPod they were a niche product, not a fashion statement.
So what will Jobs do Tuesday? Here's how Macworld works. Jobs will appear for his keynote address wearing faded blue jeans and a black mock turtleneck. Slowly, methodically, he'll debut the latest tricks in Apple's' bag. Speculation is focused on an iPod Shuffle with a screen, on (finally) an Apple iPhone, on a smaller, cheaper version of the wildly successful iPod Nano, and, in the most likely category, on a series of Macintosh desktop and portable computers using Intel chips.
What's interesting about the products Apple choose to show off at Macworld is that they're always a generation ahead of the competition, even if Apple didn't invent the product category. Citigroup analyst Rich Gardner notes that last October, when Apple debuted a 2 gigabyte iPod Nano with a color display, it cost the same amount as an offering from Sony with half the capacity and a monochromatic screen. Whatever Apple shows, the competition quickly will be playing catch-up.
Apple also seems to know better than the rest how to market its wares. When attendees left last year's Macworld, where the Shuffle was introduced, San Francisco streets already were peppered with Shuffle ads on billboards, bus stops and banners. You couldn't escape the hype. You simply had to embrace it.
Consider, also, how Apple has mopped up as a retailer while the rest of the industry has flopped. Sony dabbles with Sony Style stores that are careful not to compete with Sony's retailer partners. Gateway tried to mimic Apple but ended up shutting down its stores altogether. Apple, on the other hand, has built its sleek stores into a major part of its business.
"Apple is first and foremost a user experience story," writes independent analyst Pip Coburn in a recent research report. He notes that as of September, Apple's 124 stores accounted for 17 percent of Apple's revenues and that 50.7 million people had visited Apple's stores. Talk about unique visitors (a common online measurement of site usage). Still, Coburn, formerly a strategist at UBS, thinks Wall Street underappreciates Apple's retail strategy.
Interestingly, there's even a bit of negativity around Apple's richly priced stock. At $76, it's up about 10-fold since early 2003. Commenting on two expected software offerings from Microsoft, Citigroup's Gardner writes: "Our first look at Vista and Windows Media 11 suggests that these products should substantially close the gap with Mac OS X and iLife in a number of key respects." How funny. Microsoft is closing the gap with Apple, and so investors ought to be concerned, Gardner suggests.