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Daniel Eran

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photo Apple Bites the Hands that Picked It
Like the mythical phoenix, Apple Computer experienced a miraculous revival from a pitiful heap of ash in 1996 to become the profitable, premium MegaBrand and industry trendsetter it is today. Apple didn't do it alone; in fact, the Apple of 1996 didn't do it at all.
It's almost hard to remember that in 1996, Apple Computer was a boring, lifeless sack of crap. It had no direction or exciting goals left to pursue. The Mac's System 7 software was stagnant, and nebulous partnerships to replace it (Pink, Taligent and CommonPoint; Copland and OpenDoc) were all obvious dead ends at that point.

Apple alienated their developers by announcing, and then discarding, strategies before anything was delivered. Even worse, Apple killed some development plans shortly after their release, immediately after pushing their developers to expend resources on supporting the aborted technologies.

Hardware of the period was perceived to be overpriced and underpowered. A family of Newton PDAs were interesting to play with, but too big and expensive to be practical. The Platinum G3 Macs and heavy black PowerBook G3s were nothing special, and certainly not state of the art. Two years of experimenting with Mac clones had hurt Apple's own sales, while failing to increase Mac market share and introduce innovation.

Apple's dramatic turnaround was largely accomplished by acquiring NeXT, which introduced market driven focus to the company. Up to that point, Apple had become a collection of intellectual playgrounds managed by dittohead bureaucrats.

For all the brains and discipline that NeXT injected into the old Apple, it was not NeXT that allowed the company to survive through years of difficult transition. What really saved Apple was the Faithful. And it was Apple's reseller network that quietly provided service and support for the Faithful, mitigating contention and keeping them happy customers, ready to return for more Apple products.

Apple had toyed with selling their products everywhere from Sears to "stores-within-a-store" at CompUSA, tried out TV infomercials and even laid plans for its own chain of urban cybercafes. But Macs were only getting serious sales through Apple's authorized resellers who, unlike Sears, kept their Macs on display, powered on, plugged in and functional. Apple Specialists handle warranty work and on-site service, run repair shops and provide knowledgeable sales staff who can answer customers' questions in person. Other resellers mostly just provided blank stares and pointed potential customers toward higher profit PCs.

Apple dealers often handle Apple computers exclusively. It certainly isn't because of fat profit margins. Even high volume dealers' margins are razor thin. In California, the state makes more in sales tax on a new Mac sale than a dealer makes in profit. Any Apple Specialist could make more money selling and supporting generic PCs.

Apple's network of dealers have hand picked Apple. Having made the choice to expend significant investment to support the company, dealers are not in a position to drop Apple and move elsewhere if selling Apples become difficult. Why would dealers pin themselves and their success to a company that has a history of erratic behavior? Because Apple's dealers are part of the Faithful.

Knowing that, it's bitterly ironic that Apple is now under fire from a cross-section of its dealers. They charge Apple with fraud, breach of contract, false advertising and unfair competition. Central to the unrest is Apple's recent initiative to roll out its own line of stylish retail stores.

Complaints started when Apple began direct sales through its Apple Store website. But established dealers really got worried when Apple released plans to open an array of boutique Apple Stores around the United States. The company assured dealers that the new chain of corporate Apple Stores would not replace the dealer network, but rather increase sales and demand for Macs, and help generate a positive brand for Apple products.

In just a few years, Apple Stores have proven to be very successful for the company and the Macintosh brand. Direct sales are a clear benefit to Apple, since they don't have to pay out commissions to dealers. Additionally, the stores allow the company total control of product placement. Everything about Apple Stores, from the wood in the floors to the lighting, location, placement and angle of each product, is the result of exacting marketing research in how people react and respond to precisely articulated commercial messages.

Already, entire chains of exclusive Apple dealerships have folded in the Apple Store's wake. ComputerWare in San Francisco went into bankruptcy and was bought out by Apple Specialist Elite Computers, which later folded as well. Last year Macadam, another San Francisco Apple retailer, brought suit against Apple, partly related to Apple's invasion of authorized dealer's markets through direct sales. Apple quietly terminated Macadam's reseller agreement last summer. Apple now has a handful of its own Apple Stores surrounding San Francisco in the affluent suburbs, and its first store in the City is now under construction, in touristy Union Square.

It's hard to expect Apple to hand cash to dealers to sell products they can sell directly on their own, more efficiently and at a higher profit. However, Apple is not telling its dealer network that they are now obsolete and that they need to find other things to sell. Rather, Apple has been encouraging dealers to invest heavily in selling Macs and make new commitments to higher sales quotas. At the same time, Apple is trimming its dealers' perks and profits. But far more disturbing is the story Apple Stores are giving their customers.

It is becoming a common practice for Apple Stores to tell customers who bought their Mac from an Apple authorized dealer that they are out of luck and refuse them warranty service. In one example, an Apple authorized dealer gave the following account of a woman with a brand new Powerbook that died while she was traveling:

"She took it into an Apple Store and was told that there wasn't anything they could do because she bought it from a reseller and not the Apple Store. The employee then proceeded to berate resellers in general and encouraged the customer to simply force us to accept the PowerBook in return and buy a new unit from him on the spot. When she resisted and asked again if there wasn't anything they could do, the employee said they might be able to send it away for repairs (which really pissed off the customer because just minutes before he said he couldn't) but that it would probably take seven to ten days. If she had bought it from an Apple Store they could repair or replace it on the spot right then."

Whether unintentionally spreading misinformation or being deliberately deceptive in misrepresenting the relationship between Apple, Apple Stores and Apple's authorized resellers, this kind of behavior serves to weaken Apple's brand and destroy customer satisfaction and loyalty. It's unreasonable to expect Apple to give up on its Apple Stores or not to compete in any way with its existing channel partners. However, the company should commit itself to honest and fair competition, and train its Apple Store employees to be professional and up front in dealing with customers, regardless of where they buy their Apple equipment.

Further, Apple needs to recognize the value of the services provided by authorized resellers and Apple Specialists, who unlike the Apple Stores, are equipped to handle repairs and warranty work and have a long history of working with Apple's customers. Apple Stores are great for people who shop the Gap, but they don't provide the array of services and knowledge required by Mac professionals who demand something more along the lines of a private shopper at Macy's.

By biting the hand that picked it, Apple will not only lose a valuable resource and partner in the industry, but also do its customers a gross disservice. It's time for Apple to think different.


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Articles Copyright © 2006 Daniel Eran. All rights reserved.
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