There has been much in the press about us in the past few weeks, not very
much of it good. Some of you have read Dr. Terry Crane's letter to
education customers, so take that as an official statement from Apple. I'm
not a nationwide spokesperson for Apple, I'm just a field engineer who's
been around a while. What I have to say shouldn't be taken as gospel, but
I'll do my best to repeat here things I heard offical spokespeople say, and
try to answer some of your questions as best I can recollect the history
that brought us to these positions.
1) Alice Smithson wrote: "I also heard that apple sold out. Is this true?"
Naturally I assume Alice meant that a change of control had taken place at
Apple, what the press usually refers to as a purchase by another company.
Step away from education, and look at the legal side of a publicly traded
company. Apple can't "sell out" -- in terms of initiating a sale of
ourselves. But anyone can buy Apple, or any other company. Most of your
retirement accounts own us, as a matter of fact. The board of directors
has a fiduciary responsibility to consider any offer tendered, as it is
their job function to ensure the stockholders a reasonable return on their
investment. Sometimes this leads to agreeing to a sale, other times it
means a difficult decision to not recommend that stockholders accept the
terms of the proposed sale. Apple has not sold out. Apple has not been
bought out. The board has publicly stated Apple is not for sale; though we
all know that means they are discouraging suitors from making offers,
rather than trying to tell you that you can no longer trade our stock on
the stock market!
2) The issue of Apple's decision to create protected markets for education
dealers is rooted in the era when slim and slimmer margins are reducing the
service that can be provided to customers. What we recognized a number of
years ago was that with margins coming down, dealers were reducing their
staff to remain profitable. Those staffing cuts meant they were unable to
field knowledgable people to assist, consult, and answer questions. Looked
at in market terms, we can phrase the cause a couple of ways: Educators
weren't willing to pay for that support staff, so the support staff went
away; or, the support staff wasn't providing a service you felt justified
the price; or, your purchasing agents went to bid on product, and naturally
accepted the cheaper bid from a company with less or no support
infrastructure and costs. My recollection is we spent a year or more
warning our dealers that bundling service for free (in the price of the
hardware) was going to hurt them hard. Not many listened, many went out of
business though. The situation only degraded. We had been paying dealers
to work with education customers, only to find out that some dealers were
using those funds to give kickbacks to customers, which put us at serious
legal risk because your institutions are publicly funded. So the great
idea, and one that passed legal scrutiny, albeit in your opinion an
unfortunate idea, was to prepare contracts with all our dealers
specifically describing the institutions in specific areas they couldn't
sell to. I believe this is the major departure from constraint of trade:
however it's worded we're saying "you agree to sell Apple product to all
customers except publicly funded educational institutions" -- I don't have
the exact wording of what MacMail/MacMall/MacXYZ would have signed, and I'm
no lawyer -- I just hope that's close enough to be of use. We then asked
interested dealers to submit proposals on how they would invest in the
education market. This is something your purchasing agents can't do --
and, I know, we could argue the merits of requiring dedicated investment in
your market into our old age. MacMall or anyone could have submitted
proposals, I'm pretty sure. But only those who did were considered.
Personally, I still encounter anger over this aspect of the process by
those who didn't submit proposals, and I don't understand why someone who
doesn't even act takes out their anger on us! In any case, we accepted
proposals from those who looked to make the best long term investment,
because we want to succeed, and we want education to succeed. We monitor
these agreements constantly, holding our education sales agents to their
investment plans. This is why, I hope, you still see us and our agents on
a regular basis, either at your site or at reasonably local events. When
was the last time you saw a PriceCostco presence at your local educational
event? Not to pick on them, please, as I shop there all the time.
Where I think you can be legitimately mad at Apple is in our seeming
inability to educate you about the value we build in to a computer, which
would hopefully translate into a few dollars more purchase cost. The 10
year longitudenal ACOT studies. The direct customer feedback we accumulate
every day in your schools that influences our product design. The teacher
councils we assemble to evaluate the curricular software available, culling
the best for inclusion, with example plans, etc. into bundles. The testing
we do on all this software to ensure it'll work together in your classroom.
3) Karen Portle wrote: "Apple has dictated to us that our only choice for a
dealer is one that is in a city an hour away. Because of that business
decision, the Apple dealer here in town went out of business."
I'll take Karen at her word on that, but what we found in hundreds of
dealerships across the country in that time frame was that the consumers
were becoming more educated about their buying options: They might go to a
traditional dealer to get some questions verified, but then purchased
either at the superstore or through the mail. The advice was free, and the
dealership had to close! It wasn't actions Apple took that precipitated
the change. You don't have to take my word for it: See if your public
library has access to archives of Reseller News for the 1991 time frame.
Their headlines decried the changing patterns. Apple was trying ways to
help keep dealers who focused on education in business: If you know your
customers will purchase through you (rather than through someone who can't
come visit you) after getting your help, you can continue to staff support.
4) Gay Wiseman noted a couple of items:
a) "Apple's expected delivery date for sales to educational institutions
was "8 to 12 weeks" for this machine, and I needed it before that to meet
our funding criteria."
In answer to this, I can only offer up info about how you can use Apple
when needed. Your Apple sales rep can prioritize an order because of
funding deadlines. Your "Apple's education customer service rep" may refer
to what we call the education sales agent. This individual may or may not
know about prioritizing orders, so you just ask them to talk to the Apple
account executive they work with.
b) The 7500 Gay wanted to buy was available immediately through one
channel but not through Apple Education. This is a complex issue we try
hard to manage, and while understanding the dynamics doesn't change your
experience one iota, let me explain the business side here. We Apple field
sales personnel talk with school districts all the time about what you
need, what you'd like, and what doesn't interest you. We work to
understand your funding timelines as well as your purchase preferences and
just plain volume plans. Getting good information here allows us to
forecast the demand for the various models in our product line. About 92%
of what educators buy comes in the category of "LC" labeled machines.
Therefore, the Education division at Apple doesn't request a great number
of PowerMac 7500, 8500, etc. machines. The 8 - 12 weeks quoted probably
indicates that we were awaiting a shipment from the factory and/or were
going to have to "borrow" machines from the business or consumer
"channels." It's highly frustrating for all of us. Apple sold 1.3 million
computers from October through December. Making an inaccurate forecast on
machines in that volume can translate into hugh inventory warehousing costs
on those machines which we were wrong about, as well as the write down cost
associated with letting a superstore or mail order sell them cheaply and
quickly. This Christmas season, we underestimated what the consumer would
buy (they wanted high end, not the low-end Performas we built), so we end
up with a glut of those Performas -- and we can't easily bring them over to
the education price list for about a thousand reasons (market materials,
communicating wild swings in products, etc). We aren't as close to
consumers who buy through the mail (any ideas for us?) as we can be with
the education customers, so it's more likely we'll miss on their side and
not on yours.
5) Madeline Buchanan also had a couple of items:
a) "The selection of Macintosh computers for schools seems to be getting
smaller and smaller"
Actually, this confuses me somewhat -- There are many different
Macintoshes available, but they are really all based around basic hardware
and case designs. What differentiates them is the software and peripheral
bundles (in the case of Performas), the channel they're available through,
and the service that comes with them. So what's available, in terms of CPU
and performance, should be (you tell me) roughly comparable. Not to defend
the 43 page price list, but what's on there is what the majority of school
districts are asking for. We have spirited discussions internally just
because of the regional differences, so I know you may not see what you
want in your particular area. Presumably you have good reasons beyond your
preferences, so it's in our interest to hear those. You may have
discovered the future, and we'd like to be building the right product for
the future!
b) "those that schools are allowed to buy are also those which seem to be
causing the most problems"
When talking with a school district the other day about the rumored Sun
Microsystems "buy-out", one official suggested this would be really good
for Apple because Sun has such a sterling record of quality. I'm not
informed enough to know if that's true or not, so I'll assume Sun has 100%
record in machines that work straight out of the box and continue for, say,
7 years needing no maintenance. I believe it comes down to a problem of
exposure. Again, this doesn't help Madeline (I know because I've been
trying with her specifically :!), but when you sell 1.3 million computers
in three months versus a few thousand (anyone have Sun's sales numbers?),
there are bound to be some that slip through with a problem, or a design
mistake that shows up only after all those computers get hooked up into
incredibly varied environments. I'll stand up and ask you to think back --
the computer industry press rates us as having the highest product quality
rating of any vendor, year after year. But the real world is the real
world, so all the testing we do in our labs and out at selected customer
sites is a best effort to head off problems. You are our customer, our
partner, and our friends; hurting you hurts us, so we try very hard to not
let that happen.
6) Russell Smith wrote: "I service 140 Mac and PC schools and I see
virtually all of them buying new computers in a ratio closer to real world
numbers. In your case that would be a purchase of 120 Wintels next year
instead of the 50 you propose."
While I bridle at the notion that schools aren't "real world", let's look
for a minute at the differences between business use of computers and
education use of computers, for I think you'll find it highly enlightening
and maybe even useful the next time a parent tells you how to run your
business (education) just like they do.
First off, you should absolutely expect to see businesses purchasing more
computers than education simply becausing of our tax laws. A business gets
to depreciate it's hardware over three years -- in so doing they reduce
their tax burden. If they make a $1000 profit, and pay 39% capital gains
on that profit, they owe $390. But if they depreciate $333 of their $1000
computer purchase, they owe $57. I know, they made a lot more than that,
but the write off is still an aspect of their environment they should, and
do, take advantage of. You don't ever get to write off your computer
purchase. So will you be replacing your computer every three years? No.
What's the impact of this? You should expect to see higher sales market
share in business, but in reality they are replacing computers, not adding
to an installed base; compare this to education where every purchase adds
to the installed base. The developers have figured this out, and are
targeting the Macintosh. The press hasn't.
Secondly, schools need a computer that is used all day long, during breaks,
before and after school, for the whole spectrum of computing possibilites.
Kid Pix, Netscape, Excel, PageMaker, Math Blasters, Multimedia
Encyclopedias, Library searches, attendance, mail.... what ever it takes to
make the teacher more productive and the students more engrossed in their
learning. The business use of the computer is incredibly more limited:
Word processing, spreadsheet, some database, and usually one industry
specific application, plus mail, and maybe calendaring. More importantly,
their use of the computer amounts to about 30 minutes total during the day,
understanding those are important minutes. The rest of their day is spent
in meetings, appointments, on the phone, and traveling. The Macintosh
excels at meeting the needs of the school environment, as it does in the
office, but most managers still have this perception that the Mac is more
expensive, so knowing the usage patterns they have with computers they opt
for the "less expensive" Wintel offering de jour.
Thirdly, follow the reasoning: Buy today what businesses are using
(remember, you don't get to replace that computer twice in the next 6
years). Looking backwards into 1990 (6 years and two computers ago)
business was using a 286 with Lotus 1-2-3 on DOS 3.3(?). So in 1996 you'd
be struggling trying to teach them the skills they need in business.
Contrast that with the Macintosh LC you bought then. Sure, you've added
RAM and CD-ROM. But it still runs todays applications and operating
system.
Apple has it's share of warts. I can't claim to know how our new Chairman
and Chief Executive Officer will tackle them, nor when. You can't catalog
the entire machinations of a $12 Billion dollare company (Apple), so we'll
never know if the executives who have been departing over the past year
were the best hope we had or the problem. I can tell you what the press
hasn't followed up on: most of them left for positions of greater
responsiblity in other companies (new startups or existing). That should
speak to the motivation to leave Apple as well as to how they were viewed
by their new companies.
We are very proud that somehow we've engendered a customer base that is
loyal enough to compain to us, rather than go next door and buy a different
product. This highlights the best thing that can happen: that we continue
to talk. Apple to customer, customer to Apple. Tell us where, from your
perspective, we're messing up. We'll listen. Ultimately, it has an impact.
We still will try to manage the complex business of creating the computers
that assist you in your vocation, so it may not seem like we're listening
at times. If it appears this way, ask us why... we had better be able to
describe why, and if you can see a way around the reason we give, come work
for Apple and help! When you think any other computer company has got to
be better than Apple, please remember that the grass is always greener on
the other side of the fence.
I'll close now and bandage my fingertips. Instead of the usual signature
file that says "These views are mine and not those of my employer." I'll
close with what I'd like to see journalists and columnists who tell what
Apple is being dumb about:
"The views expressed herein are not those of someone who has actually
managed a $12 Billion dollar business..."
Respectfully,
Jim
Jim Tobin tobinj@apple.com
Sr. System Engineer j.tobin@eworld.com
Apple Computer, Inc. j.tobin@applelink.apple.com