Analysis: Leopard a key part of Apple's business

Much has changed for Apple in the two-and-a-half years since it released the Tiger update to OS X. The company’s iPod music player and iTunes Store continue to enjoy a stranglehold on their respective markets. Apple also moved its hardware over to Intel-built processors and introduced a new mobile phone, the iPhone, that’s grabbed a tremendous amount of media attention.

So amid all that activity, where does its latest OS X update, Leopard, fit in? Don’t be fooled by Apple’s ever-widening business interests, analysts say—the Mac OS remains a critical part of Apple’s overall strategy. And Mac OS X 10.5 in particular figures to play an essential role in the company’s ongoing success.

“Mac OS X is key to Apple’s message of the integration of hardware, software and services,” said Ross Rubin, director of analysis at market-research firm NPD. “Given the focus of integration it’s easy to lose track of the components of that strategy. Without the Mac OS, the computer is just a pretty Windows machine.”

JupiterResearch Vice President and Research Director Michael Gartenberg agrees: “It isn’t quite as flashy in a year that brought us new iPods and the iPhone, but it’s no less important.”

While few would argue about the importance of this OS X update to Apple’s fortunes, how to measure whether Leopard is a success or not is less clear. Apple reported that it sold two million copies of Leopard in its opening weekend, but not everyone upgrades to the next version of an operating system all at once. There’s also the question of factoring in the sales of Macs that come pre-installed with OS X 10.5.

Measuring Leopard

NPD’s Rubin says there are a few ways to judge the success of an operating system. First, you can look a the sales of boxed retail copies. You can also look at the percentage of the customer base that has upgraded after a certain period of time—a figure that would take into account sales of new hardware shipping with Leopard. Finally, you can look at the number of third-party developers that create apps to take advantage and further the platform.

Looking historically at Apple's operating system sales offers some insight into how Leopard might fare in the next couple of months.

According to NPD’s retail point-of-sale data, during the first two months after Tiger’s release, Apple saw a 30-percent increase of unit shipments for OS X 10.4 than it did for OS X 10.3 over the same period. Tiger unit shipments increased by 100 percent over OS X 10.2’s two-month sales figures.

That data comes with some caveats, however. It only includes boxed copies of the OS updates and does not take into account any version of the operating system that shipped pre-installed on a desktop or laptop. Also, Apple has steadily expanded the number of its retail locations since the 2002 release of Jaguar, giving users greater access to view and purchase the software.

With boxed copies of operating system sales clearly on the rise, how can Mac sales affect adoption of Leopard? It should have a huge effect—a look at Apple’s most recent quarterly results shows a dramatic increase in Mac sales.

Apple sold nearly 2.2 million Macs in its fiscal fourth-quarter, an all time quarterly record for the company. In that three-month period, Apple introduced updates to its iMac and Mac mini lines. Not coincidentally, desktop sales jumped from the preceding quarter, up to 817,000 from 634,000. Laptop sales rose from the third quarter as well, with the company selling 1.34 million units in the fourth quarter versus 1.13 million in the prior three months. The fiscal fourth-quarter marked the first full quarter of sales since updated its MacBook and MacBook Pro lines in May and June, respectively.

Eyeing Vista

Apple enjoys contrasting OS X with Microsoft’s operating system—think back to Steve Jobs’ 2006 developers conference keynote where he claimed Apple was keeping Leopard features under wraps so that they wouldn’t find their way into Vista. But for all fun had at Microsoft’s expense, not even the most ambitious Apple executive would expect OS X 10.5 to outsell Vista, which serves a much larger customer base.

Nevertheless, the Windows operating system remains an important point of comparison for Apple’s OS X efforts, NPD’s Rubin says. “It’s an obvious benchmark for them, and it’s one they allude to often,”he said.

And that’s more true than ever, after Apple’s switch to Intel processors. “It’s the first [OS X upgrade] to launch on Intel,” Rubin added. “There is a sense that the Intel transition made the Mac more attractive to Windows users—this upgrade really allows those users to experience a Mac upgrade for the first time.”

And that could give Apple an opportunity to make a strong first impression—especially in light of the uneven history of Windows upgrades. “Apple controls the hardware and technologies like FireWire, which helps when upgrading,” said Rubin. “Generally upgrading versions of the Mac OS has been far less complex than upgrading from say XP to Vista.”

“We are not going to see users getting a new Mac and asking if they can downgrade like we saw with Vista users,” said JupiterResearch’s Gartenberg.

The opinion of individual users will be an important driver for Leopard’s success, according to one industry analyst. While Forrester Research shows many people don’t know that much about operating systems, the typical Mac user is different.

“In the case of the Mac, the user community is very influential,” said Forrester Research analyst J.P. Gownder. “The reception of Apple enthusiasts will help determine the buzz.”

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