Apple’s $399 Plan to Win Consumer Market in Summer 2012

The complete destruction of the consumer PC market in the US and Europe is well within Apple’s grasp and will begin to unfold next summer. There is nothing that Intel, Microsoft or the retail channels can do to hold back the tsunami that was first set in motion with the iPad last year and comes to completion with the introduction of one more mobile product and the full launch of the iCloud service for all. The dollars that are left on the table to defend the onslaught are too insufficient to put up a fight. Collapse is at hand.

In the military realm there are plenty of examples of Wars that continue seemingly forever with no side able to gain the upper hand and then in just a matter of months – a sudden collapse due to lack of fighting men, shortages of food and armament and finally a realization that there is no home front left to defend. The American Civil War demonstrated no clear winner until late summer and fall of 1864, when General Sherman marched on Atlanta and then to Savannah, presenting the city to Lincoln as a Christmas present. Along the way he destroyed everything along a 50 mile wide by 250-mile path. Farms, crops, railroads, plantations and the railroad distribution channel were taken out leaving the confederate soldier with nothing to carry on the fight. Suddenly, a collapse.

The full range of Apple products in combination with the ever-expanding number of Apple stores (there are 339 worldwide stores with 56 more coming on line) is sucking the oxygen out of retailers like Best Buy who wonder what they will sell under the big roofs. PCs themselves were never a big profit center for the retailers. It was the accessories that offered huge profit margins. Things like mouses, carrying cases, earphones and especially service agreements were the money winners. But with customers now going to Apple Stores or Apple online, the accessory business moves to Apple. Without this business retailers cut back on the number of PCs they have on display which leads to a distribution problem for PC makers and a natural decline in PC sales.

But this is the least of the worries for PC makers and companies like Microsoft, Google and Intel because in one year Apple will split the MAC Air line to introduce a new product I will call the MAC Air – iCloud. Using the same skins as the MAC Air, the new mobile product with come with an A6 processor and an integrated 3G or 4G wireless solution for access to iCloud from anywhere. The underlying hardware will be similar to what is in an iPAD but with perhaps a little more DRAM to handle productivity Apps that are delivered to the device from the remote iCloud Servers that are x86 based. The MAC Air iCloud is a rendering machine for Office Apps that don’t run on the A6 processor. All other iOS apps will be available to the mobile device.

There are many rumors that Apple will switch the MAC Air to an A6 next year, but this will not be the case. Apple is not ready to take this step, yet. It will open the MAC Air business for bid between AMD and Intel with the bet that the processor cost will decline from $220 today to $75 by mid next year. Look for Intel to hold the business but give Apple the price break it needs to drop entry level MAC Air to $799 from $999 today. The volume will increase dramatically, killing off what is left of the $500-$1000 PC market.

The MAC Air – iCloud will come out at a $399 price for consumers that agree to pay a $25 per month service for at least 24 months in order to gain access to the Office Apps and storing data files on the cloud. Like the iPhone service plans, this one will pull in many customers that may have previously chosen a PC. If you look at the Best Buy data on their web site, the high volume runners all sell for <$449 and the majority sell for $349 – $449. This is the sweet spot of what is left of the consumer PC market. This is why Apple will stick their MAC Air iCloud right in between at $399.

For Microsoft and Intel, this is the end of their consumer market and the business model that sucks out the majority of the dollars. Microsoft still demands $30 per PC O/S royalties and Intel and AMD look to get at least $50-$60 per PC for the processor. With Apple moving customers over to iCloud they get to reap the margins of the entry level consumer who wants to join a better ecosphere that is more secure and offers better mobility and in the end much better, hands on customer support.

I have been in an apple store several times in the past few years for technical issues with my phone and MAC Book Pro. Aside from the time I accidently dropped a phone in a cup of water, Apple has offered free technical store and an iPhone replacement. It was only recently that it dawned on me how smart Apple is in their approach on service and in the end this draws in more customers that will pay more for the Apple protection.

Apple will coddle users even more with the iCloud based mobile devices. The retailers don’t stand a chance, which means the PC makers will see distribution channels shrivel. Microsoft, Google, Intel and the rest of the PC supply chain have to think of how to change their business model that gets them as close as a handshake away from their customer.