Potbound Apple and the iPad

Have you taken a look at Apple's Mac market share numbers lately? They're almost unbelievably good. But they also point to a potential crisis for Apple in the not-too-distant future, one that the iPad will almost certainly help the company avoid.

Most of us who've been in the industry for more than the decade have an image of Mac market share: They're a niche product. Love them or hate them, they're boutique merchandise, with a few percentage points of market share. Macs are 5% of all computers as of January, according to NetMarketShare. That's been true, within a few percentage points, for as long as I've been paying attention to those numbers, nearly 20 years.

However, let's take a closer look at those numbers: Apple's sales are skewed to premium PCs, priced at over $1,000. When you look at premium PCs alone, Apple has an astonishing 90% market share. That's right: Nine out of 10 PCs priced at $1,000 or more are Macs.

Update, 11:45 am: Not 90%. See comments below. I checked it out directly with the analyst quoted. While Apple does not have 90% share of the whole premium PC market, it does have a majority share. And the analyst agreed that Apple's saturation of the stagnating premium PC market is a potential threat to the company. I'll have more on this later; meanwhile, I stand by the rest of this post. Read on....

That's great news, right? Apple's booming Mac sales contributed to big profits in the most recent quarter.

However, the market share numbers indicate potential disaster in Apple's future. With 90% market share, Macs have pretty much saturated the premium market.

What's worse, the premium market isn't the sweet spot for PCs. Low-priced PCs, including netbooks, are driving prices down. Indeed, Macs are losing overall market share in the US.

The future of the PC market is in low-priced PCs, a market that Apple has refused to enter. Steve Jobs said in 2008 that he thought netbooks were junk. "We don't know how to make a $500 computer that's not a piece of junk, and our DNA will not let us ship that," Jobs said.

Apple's reliance on the premium PC market, and the overall market's stagnation, leaves Apple at risk of becoming potbound. That's a gardening term for when a plant is restricted and unhealthy because its pot is too small to permit growth. The roots get restricted. Apple faces the risk of becoming too big in a shrinking market.

Apple had a choice: They could just live with the restrictions on the Mac market, and focus energies on the healthy iPhone market.

They could suck it up and start shipping sub-$1,000 Macs -- junky though they might be.

Faced with those two bad alternatives, Apple chose a third: They're attempting to redefine the sub-$1,000 PC market, by shipping the iPad.

The low-end price point, $499, defies Jobs's 2008 statement. He seems to be saying Apple has figured out how to make a $500 computer that's not a piece of junk.

Apple is following the formula it used for the iPhone: Ship a device with a restricted feature set -- so restricted that some of the missing features are baffling to observers, like its missing support for Flash, multi-tasking, and the omission of a camera. But make sure the device executes its features very well.

By redefining the sub-$1,000 PC market, Apple gets to open a new area for growth, while hanging onto its reputation for quality products.

Will Apple be successful in redefining the sub-$1,000 PC market? I think so. The demo looks great. I don't believe other companies' demos and prototypes, but I do believe Apple's, simply because Apple tends to deliver on what it demos.

Moreover, Apple has a great track record of redefining markets. The original Mac introduced the GUI to the mainstream PC market. Skip ahead to the first iMac in 1997, which redefined PC industrial design by making PCs look playful and toy-like. More recently, the iPod redefined the music-player market, the iPhone redefined smartphones, and the App Store redefined mobile software development. When Apple sets out to redefine a market, it usually succeeds.