Who is the greatest magician? Is it one of the two Davids: Copperfield or Blaine? Or perhaps the American duo Penn and Teller? None of the above. It is in fact Steve Jobs, the boss of Apple Computer.
Last week, at the firm's annual shindig for software developers, Jobs plucked a huge rabbit out of thin air. The rabbit was actually a cat: Tiger, Apple's latest operating system. (You couldn't call a killer product Cottontail, could you?)
The thin air was Apple's puny market share: it has less than 2% of the desktop market. With such a small beachhead, this new operating system should be of little interest to the community of software developers. Developers, after all, want to make profits from writing software. And the Windows market is much larger, and ergo, more profitable than the Apple market.
Not necessarily. Profitability is a function of a number of things, most simply your revenues and your costs. But selling higher-margin products to a smaller market can be a better business than selling low-margin products to a large market. Think of Prada compared to Marks and Spencer. If you can reduce your costs enough, the equation becomes even more attractive.
With Tiger, Apple has introduced a slew of technologies in video- and audio-processing, which are essential as the computer doubles up as a media hub. These make it simple for developers to create digital media applications. In the past, to manipulate sound and video the way Jobs did, a developer needed special (and expensive) expertise that only resided in firms such as Adobe. With Tiger, these features are available to any software developer. In other words, it has suddenly become easier and cheaper to create cool media applications.
What does this mean? For developers whose business is making and selling software, the Mac just got a whole lot more attractive.
The second half of the profit equation is your ability to sell. A smaller market is not necessarily a less desirable market. The game of market segmentation is to divvy up your market into as many small and coherent slices as you can and give that market something for which they will pay extra.
Macintosh users have already segmented themselves. Just the act of buying a Macintosh takes the hard work out of figuring what a particular user wants. A good analogy might be free newspapers against paid-for newspapers. Free papers go to everyone by default. The audience is untargeted so advertising rates are comparatively lower than for paid-for newspapers, which have a self-selecting audience.
In the computer industry, the same dynamic exists. The Windows platform is the default with an undifferentiated audience. The Macintosh user base is self-selecting. As in the media world, there is room for both to make money. Jobs has created a compelling case for more developers to invest in the Mac. He is even keeping Microsoft - whose Mac business unit is a great success - happy. The magic really is working.
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