Vista Just One Reason for Growing Mac Market Share

I wrote last time about Apple's small but fast growing market share. It is important to remember that Macs are selling 30% more each year* while PCs are at best doing 15%. All this leads to another important question: installed base. The installed base affects both future sales and third-party development. Both of these are key to the computer business.

I searched around the Internet to find the size of the Mac installed base: 22 million as of March 2007. That isn't too bad, but I couldn't find the same info for PCs. Here we can be creative and assume that, like market share, Macs have a similar installed base ratio of about 3%. If so, there are roughly 733 million PCs in use.

That's a lot of computers to support. No wonder Microsoft makes billions each year.

Anyhow, we can now make some additional estimates. (Sorry for estimating, but we are only going to be interested in the relative size of the numbers. Precision is less important.) I want to get an idea of how often computers are replaced/upgraded.

Out of any population of computer users there will be those who replace a computer every other year, and those who wait 2-6 years. It is likely that most computers are replaced every 2-3 years, so we'll assume that is the largest group and break up the population accordingly. We will also assume that Macs and PCs are bought at the same percentage.

People may argue that Macs last longer, but we'll give PC the benefit of the doubt. We'll also assume that all computers are replaced within six years.

Mac Replacements       Computers
                      (millions)
Every other year   5%     1.1   
Every 3rd year    50%    11.0   
Every 4th year    30%     6.6   
Every 5th year    10%     2.2   
Every 6th year     5%     1.1   
Total            100%    22.0   

PC Replacements        Computers
                      (millions)
Every other year   5%    36.7   
Every 3rd year    50%   366.5   
Every 4th year    30%   219.9   
Every 5th year    10%    73.3   
Every 6th year     5%    36.7   
Total            100%   733.0   

With the population divided up, we can project the number of replacements based on each group's buying practices, e.g., the people who buy every other year have a 50/50 chance of wanting a new computer in any year. The people who buy every 6th year have a 1/6 chance of buying. This gives us a total number of replacement sales needed for Macs and PCs as a portion of their installed base. Obviously PCs with a large installed base will have more demand for replacement computers.

Mac Replacements        Computers    % of    Repl.
                       (millions)  Upgrades  Sales
Every other year    5%      1.1     50%       0.55
Every 3rd year     50%     11.0     33.3%     3.67
Every 4th year     30%      6.6     25%       1.65
Every 5th year     10%      2.2     20%       0.44
Every 6th year      5%      1.1     16.7%     0.18
Total             100%     22.0               6.49

PC Replacements         Computers    % of    Repl.
                       (millions)  Upgrades  Sales
Every other year    5%     36.7     50%      18.35
Every 3rd year     50%    366.5     33.3%   122.16
Every 4th year     30%    219.9     25%      54.97
Every 5th year     10%     73.3     20%      14.66
Every 6th year      5%     36.7     16.7%     5.86
Total             100%    733.0             216.00

While these estimates are probably not very accurate we can make two conclusions.

1. Apple can sell over 6 million computers each year just to keep up with normal replacement demand based on the size of the installed base.
2. There is a huge opportunity for more sales - around 200 million - by getting PC users to switch to Macs instead of replace with PCs.

These relative differences work in Apple's favor. The total number of replacement sales for Macs are so low that no other computer vendor is going to put much effort into stealing customers away from Apple. On the other hand, Apple and every other PC vendor has a huge interest in getting people to switch to their brands. Dell and HP are in a battle to be number one in sales, but even combined (app. 35%) they still leave plenty of market share (65%) for the taking.

Apple has to pick up just a small percentage, say 2% of the replacement sales, and turn them into switchers. That would be 4.3 million new Mac users and just under 50% growth in sales. That would lead to an almost 20% increase to the installed base and one hell of a boost to sales. Wouldn't Wall Street love those numbers?

This is already happening to a lesser degree. It's no fluke that Mac sales are growing at 30% while the PC world is below 15%. Apple has been stealing customers for years. Thank goodness Vista is such a piece of crap. If it weren't, then all the iPods in the world wouldn't make a big enough halo to help Apple. No, this time Microsoft screwed up, and Apple is on the winning side.

Every new switcher is a plus for Apple and a minus for the PC/Windows world. This has a potential for explosive growth for Apple. If the 30% growth so far has been good, what happens as Macs become ever more common and people start treating them like a regular PC replacement - only better because Mac are free of crapware and viruses. Each small increase in the percentage of switchers makes Mac sales grow, and the installed base grows that much faster. The sale of Macs could snowball and start breaking all estimates and predictions.

Is this really going to happen? I won't make any predictions, but the sales trend and market conditions point to this being a likely possibility. Apple is in a strong position as the innovative company, and its ad campaigns are aimed directly at switchers.

In a strange way, all of this energy in growing Mac market share makes this a wonderful time to use Macs. To attract switchers, Apple has made a great selection of products to choose from, and Apple keeps coming up with new ideas. Let's all enjoy the ensuing battle for customer loyalty and expect the royal treatment all the way.

On a sadder note, think about all those poor PC users who are being slowly forced to switch to Vista - or beg Steve Ballmer to keep selling XP. Let's all say a silent prayer that those 200 million souls replacing PCs this year will "Think Different" about their next computer choice.

* Apple experienced 35.2% year-over-year growth in calendar 2005, 19.3% in 2006, and 37.3% in 2007 for an average of 30.6%. Total annual sales: 3.1 million in 2002 and 2003, 3.5 in 2004, 4.74 in 2005, 5.65 in 2006, and 7.76 in 2007.