September 16, 2016 | In: Technology
How Apple Is Making the Same Mistake that Commodore Did in the 90s
I love computers. I really love them – and I owe that love to my uncle who bought the first computer I ever touched back in the mid 80s. I was fascinated by it and I still remember the moment my uncle told us that he bought one. It feels like yesterday, yet it happened 30 years ago…
30 years ago, for those who don’t know, was the golden era of computers, where computers were fascinating and not taken for granted as they are today, where computers were built to last for the foreseeable future and not intentionally built to last only for a couple of years. 30 years ago was the era of the Commodore, the Amiga, and the Atari.
As such, I love watching videos about these old computers. I do that whenever I have free time, and I had some free time yesterday. So I watched a video on YouTube, where an Amiga passionate interviewed David Pleasance, Commodore’s Managing Director in the UK (Commodore was the company that owned Amiga back in its golden years).
The video was interesting about the history of the Amiga, how it succeeded in the 80s and how it failed in the 90s. The interviewee was not secretive about sharing his marketing strategy that lead to the success of the Commodore 64 and the Amiga: bundles. It was bundling the Amiga and the Commodore 64 with games and selling these bundles to the consumers that was the secret ingredient for the success. But there was another secret ingredient that was revealed later in the interview: building, expanding, and nurturing a reliable and happy distribution chain.
Commodore offered high markups on the sales of Commodore 64 and Amigas for retailers, and also offered free magnificent trips to retailers who exceed sales expectations, that in turn increased and enhanced the distribution network since other retailers wanted to make serious money and wanted to go on these vacations. In fact, as David Pleasance stated, many retailers played an important role in convincing clients to choose an Amiga over an Atari, and it was all because of these incentives.
At one point during the interview, the interviewer asked David: “Why did the Amiga fail in the United States?” David responded: “It was because of a huge retailer, I think it was Kmart, who, for example, bought the Amiga at $98 and sold it at $99. That made all other retailers lose interest in selling Amigas.” He continued saying: “Commodore should have never let this thing happen”.
But it did, and in a few years, Commodore was lost, simply because the UK sales, although they were excellent, were not enough to sustain Commodore globally.
Now, enough nostalgia, and let’s go back to 2016, where Apple is effectively acting as a Kmart policy enforcer, allowing BestBuy and other poor retailers only a few dollars of markup for each sale of major apple devices, and keeping the lion’s share of the sale to themselves. The problem with this policy is that it is not sustainable both for Apple and the retailers.
The thing is retailers, such as BestBuy, have huge expenses (the absolute majortity of their employees are located in their areas of operations, unlike Apple, which outsources all of its work to countries with cheap workers and questionable labor ethics), and cannot afford to make a few bucks on something they are paying hundreds of dollars for. They know that they’re not making money on these things – but they think it is bringing customers to their doors, and they can sell these customers other products, while they are buying their iphones. This strategy actually worked 10 years ago (ironically, that was when Apple was a minor player in the retail business), but now it doesn’t anymore. The absolute majority of consumers are frugal, and they research the prices before buying anything, so it’s hard to sell them anything in the store above market price (unless, of course it’s a service).
Unfortunately, Apple is probably thinking that it’s immune to retailer sentiments, and so it doesn’t care about the fact that retailers have no incentives whatsoever to sell their (Apple) products – but that is the same, fatal mistake that Commodore made back in the 80s/early 90s. Apple, despite its current might, is not invincible, anyone who thinks that is wrong. In fact, its shield is being pierced little by little (AAPL is trading at 1.19% more than it did a year ago – and that’s after releasing details about iPhone 7), and all that disdain and indifference that it has for its suppliers will payback one day. You reap what you sow.
For those interested on a what real marketing man said about one of the most ambitious computers during the 80s – early 90s, here is the video: