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December 4, 2000

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Subject:  Re: Micron PC warns, big-time
Author:  mzee20

I have been a demo rep for the past several weekends. It is an experience I would recommend to anyone interested in AAPL or any other computer/consumer electronics investment. The sales people handle a variety of electronics, and in the down time between demos, they are happy to discuss their experiences. The situation with the consumers this year is really not so mysterious, and the reasons are both complex and simple. Complex because there are many, and simple because each one makes perfect sense in the context of the particular family.

1. Consumer electronics are still a draw. People are fascinated by megapixel cameras, even folks who obviously know zilch about photography, cameras, computers or printers. The idea that they can cull their photos before they leave the site appeals. I get the impression, though, that there will be a group of unhappy customers once they take these home and find that they still need to know something before their pix look like the ones on the sample posters. And the camera they bought is not really the best one for their purposes. They will be in the same pickle as the computer guys are now.

Cellular phones are hot, and cost a lot more after purchase, cutting in on spendable income. Between the phone, cable, ISP, etc, they spend $200-300 on contracts and fees. Playstation is very hot, but unavailable, so they're still buying for old games or sitting tight. Many folks who came to my demo wanted to know which video camera to buy to be able to use it on a computer. Some of those knew the difference between Mac and PC, but some were disappointed to learn that iMovie was Mac-only.

2. The PC is not dead, just upgraded. People feel burned by PC companies that sell them substandard, way behind-the-curve models each year and expect them to buy new. My guess is that the ugly speakers hanging [off] of the average PC monitor is calculated to appease these types. Market testing probably proved that this look seemed more "complete" and tricked out than the one-box look. This is one reason that the iMac is slammed. In the experience of PC owners, lack of expansion equates to rip-off. I try to explain that the iMac has a fast video card and lots of VRAM, but they want to know what they're going to do when a faster one comes out. They feel that for the price of an iMac, they should get 5 years from the box. Never mind that the progressive upgrade route for a consumer machine replaces the priciest components, so is not necessarily price wise. Maybe the consumer is just sick of sending all that plastic to the dump, but boxes are going to have to last at least as long as their other appliances.

3. New computer users are frightened by stories of rip-offs they hear from the early adopters. They also feel that the computer is still too hard to use (even a Mac) and that the internet appliances are locking them into a single provider, and that worries them (it should!). Mac has done only a so-so job of making folks feel comfortable owning a new Mac. Classes would help, a better tutorial system might (remember the ones that came with the MacSE's, very cute, about 40 minutes of interactive lessons, very complete). These people really need their hands held, literally. BTW, new users are even more worried about the FUD than PC switchers who know little more about computers than the newbies.

4. Savvy Mac users are sick of being burned by the Apple way of charging full price until new products are announced. They are waiting until January, when they can choose to go with the new stuff, or buy the old stuff at bargain basement prices. My guess is that many people saw the offering from last time and inferred that the good stuff must be behind schedule. They just decided to sit tight until the stuff that was supposed to wow us is released.

5. Then there is convergence. Outside the big markets, the penetration of HD is poor. People know it's coming, but they can't say when. When it does, though, they have a sense that somehow the computer and the TV signal will be all combined in the new thingie....It isn't cogent yet, but they feel silly always getting caught with last year's high-tech getting replaced with this year's. DVD's replacing all their CD's? DVD's replacing all their VHS tapes? They get the unpleasant feeling that they are beginning to look like the old fogies who still have 78's or 8 tracks. Some of them will sit out a few generations until they see a plateau. It may never come, but they are willing to wait.

A lot of this is future shock, some of it post-millennium let down. Much of what we see on Wall Street, IMO, is chicken littleism, propagated by spoiled brokers who will have smaller bonuses this year. In fact, all those news stories last Christmas about how the brokers and the .com millionaires were cleaning up and spending on new cars and jewelry offended the majority of the country. They still believe in hard work before riches.

In any case, I am willing to sit tight, but I do hope the advertisers recognize that people want value, they want to be in charge, they want to be educated, not snowed. The consumers are not stupid, and the star dust is off there eyes. Advertisers will sell computers the way they sell cars: glossy folders, lots of time, specs and crash tests, and a little sex thrown in. They will have to recognize that females make or contribute to 80% of purchasing decisions overall. It's a different world, maybe, but just a minor challenge for the power to the advertising industry.


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