Contributed by Kevin Ledgister | osViews This article was syndicated under osViews' Open Content License. January 3, 2005 4:01 PM

I don't publish rumors but I do sometimes comment on them or the concepts that they represent. The $500 Mac rumor has really fired up the Mac community because it could possibly double the iMac market share and push the share price way up. This demands comment.

The PC Buyer

One of the biggest objections to PC iPod users switching is price. The iMac was introduced as the perfect partner to the iPod and no doubt, Apple intended it as the crossover product for iPod users who have PCs. However, purchasing an iMac and all the software to make the switch is equivalent to purchasing two PC's in many buyers' minds. While many Mac users are sophisticated enough to realize the hardware and software differences that add up in the value equation, it is rare that a purchasing decision will account for all of those factors. It is doubtful that many PC buyers would even understand what these factors mean.

Most PC buyers today are not buying their first PC. They are purchasing a replacement unit or adding PC's to their household. This continues to bolster the argument that a $1,299 iMac falls outside the economic consideration of most of those who need to leverage existing investments in hardware and software.

Another consideration is the psychology of most PC buyers. They like safety in numbers and ubiquity even if it means a terrible product. Many people would switch if switching was popular or perceived as a growing movement. Even fewer people consider the Mac because they are not visible in the stores where they shop. The iPod and PC is visible, but the Mac is not. A $500 Mac could be sold along iPods in stores that would not carry any other Mac product.

The Market

Consider this quarter where it is expected that somewhere between 4-5 million iPods will be sold. If Apple could switch 20% of those consumers beyond the usual Mac buyers, that is 800,000-1,000,000 new Mac users would virtually doubling their market share and be a huge shot growth spurt for the company's install-base.

When Apple ran its Switcher campaign, if the company were to have had a $500 Mac plus a cost effective monitor option, the campaign would have been a lot more successful. Apple generated a ton of hits on their web site but didn't convert as many as some observers had hoped. Still, it gave credibility to the concept of switching. Now, Apple just needs to meet the price points of those that are at least slightly curious to make it happen.

One of the concerns with a lower priced offering is that it will affect sales of higher priced products. While there is always some of this occurring in any full fledged product line, it is always easier to sell a higher priced product to an existing user than a new user. It is easier to up-sell an eMac user to a Power Mac because their needs have changed than to sell a PC user in the same predicament.

The Problem of Profitability

Apple knows that their market share could double overnight with a $500 Mac but the historic problem has been profitability. Most margins at that level are razor thin and sometimes the quality is sadly lacking. Apple doesn't need to compete with the cheapest PC systems out there. They only need something that attracts their iPod customers.

The rumored specs notwithstanding, Apple has lots of recent hardware at its disposal that can bring the price down. Reuse the iBook logic board which increases volume and lowers the price. Such cost saving strategies would all but totally do away with the need for huge R&D expenses to develop new boards. iBook prices could be lowered and R&D could be spread over a wider range of products.

I would expect that Apple will need to have an affordable monitor that can attach to the aforementioned $500 Macintosh. Their current monitor line starts at $799 which would cost more than the computer itself. Could Apple design a stylish 17" CRT wide screen monitor for $299 with a DVI connection? This would give users a reason to buy an Apple branded monitor adding up the total dollars to the eMac range.

Suddenly, we're no longer in low-end territory but we have the low-end buyer's attention.

Putting the Brakes On

Before we all get too excited, Apple has recently stated that it has made a conscious decision not to enter the low end computer market. Instead, they want to focus their efforts on higher-end hardware products and their software solutions.

However, a $500 Mac plus a $300 Apple monitor is not low end territory. It is eMac territory, an area where Apple is happily selling right now. For someone with an existing monitor, a $500 has the same price as an iPod Photo.

I don't know if Apple will release the rumored product or not but here is my vote that they do so, and soon. If they do so at Macworld in January, 2005 will most certainly be be the year of the Mac.