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On the face of it, Apple's new push into consumer services amid the protracted computer market downturn is a smart move. The margins on services, after all, are higher than on hardware. But Apple's two new services -- iCal (a calendar program), and iSync (backup software) -- are joining the .Mac (née iTools) suite of offerings, which until now has been free.
Starting Sept. 30, however, .Mac, which also offers e-mail, online storage, backup software, and virus protection, will carry a price tag of $100 per year. When Apple (AAPL: up $0.36 to $14.53, Research, Estimates) announced the service at Macworld this summer, the faithful "didn't understand the move," says Carl Howe, a Forrester analyst. "They thought it was a lot of money."
Not just that; moving from free to paid services has proved treacherous. Why should it be any different for .Mac, especially since some of the services, like e-mail, are available elsewhere for free, and others, like storage, have been a tough sell to consumers? Success is by no means ensured.
On top of that, Apple's timing seems off. Just as its overall market share is hitting new lows -- 2.6 percent, by Giga Information Group's most recent count -- it is forcing an upgrade to OS X even though one of the most popular software programs for Mac isn't yet available for that operating system. And its vital relationship with Microsoft has hit a snag. Apple faces a challenging chapter in its corporate history.
Consider the upgrade. Apple just announced that starting in January, all its new machines will run exclusively on OS X (previously, users could boot up in either OS X or "Classic," or OS 9, mode). While it might seem natural that new computer purchasers would want the latest software, here's the rub: The makers of Quark Express, the popular desktop publishing program that ushers Apple into many corporate markets, have yet to release an OS X version and won't say when one will be ready.
And the matter of Microsoft (MSFT: down $0.13 to $47.78, Research, Estimates) and Apple's always-rocky relationship is not trivial. A key five-year contract between the companies has just expired. In August 1997, Microsoft invested $150 million in Apple and agreed to develop future versions of its Office productivity suite for the Apple OS for the next five years. Microsoft spent a lot of time and money to create Microsoft Office for OS X and reportedly feels Apple hasn't done enough to promote it.
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Microsoft's Kevin Browne complained to News.com that Apple spent "20 times" more money advertising the iPod than it did marketing OS X. Apple CEO Steve Jobs needs Bill Gates & Co. on his side; plenty of potential Mac buyers could make the switch to a Wintel machine if they can't use Microsoft's leading productivity suite.
If the .Mac services don't take off, if Quark doesn't meet the January deadline, and if Microsoft decides not to renew its pact with Apple, 2003 will be a hell of a tough year for the company. With so many fires to put out around him, Jobs is in danger of losing his focus. And that could be about the worst thing for Apple.
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