Is there or Is There Not a Halo Effect?
Plenty of Back and Forth on the Subject, but Little Closure
By Roger L. Kay
For several years in the mid-1980s, after Apple had launched the Macintosh — the first personal
computer with a graphical user interface — and well before Microsoft was able to field anything
beyond a command-line interface, Apple enjoyed a commanding share of the worldwide PC
market.  Its U.S. share hit 16% in 1986 and its worldwide share stood at 13%.  By the 1990s,
Apple had lost some of its shine, but was still a significant player.  In fact, the company ranked
second behind IBM worldwide from 1990 to 1993 with a market share hovering near 10%.  In
1993, a surging Compaq took the top spot from IBM, and Apple was bumped to number three.  
It's was pretty much downhill after that.  

Apple's suit against Microsoft, attempting to prevent the Redmond software maker from using
graphical elements such as folders in the interface for Windows 95, failed, and Microsoft was
able to launch an operating environment that, over the years, became increasingly competitive
with Apple's Macintosh.  Through the 1990s and into the new century, Apple's share declined
(Figure 1).  

Figure 1
Since 2000, Apple's worldwide share has hovered around 2%.  However, since mid-2004, the
company and some of its followers have been touting a "halo effect," a rise in Apple's personal
computer market share based on its highly successful iPod launch.  The theory of the halo effect
is that buyers of iPods, who download digital music from Apple's iTunes music store on either a
Mac or PC, are so enchanted with the experience that they run right out and purchase a Mac.

Now, Apple's share has risen from 1.8% in 3Q04 pretty steadily, albeit in baby steps, up to a high
of 2.5% in 2Q05 (Figure 2).  It is not easy to determine whether this rise is due to a halo effect or
just represents the normal cyclical of Apple users upgrading, which they do every few years.  
Making the determination more difficult is the fact that in 3Q05, Apple fell off marginally to 2.4%.  
So, no Sherman's march to the sea here.

Figure 2
The argument against the halo effect says that while Apple's shipments have been up for the
past four quarters, it is because they are coming off historic lows, and we are now in an upgrade
cycle in which the Apple faithful buy new systems.  Recent history shows something that
resembles cycles, but they appear to be more seasonal than tri- or quadrennial.  Further debate
along these lines indicates that despite recent share gains, Apple's position remains below
where it was from 1997 through the middle of 2002, and it is in this unenviable position because
its products have become increasingly less competitively priced and have lost their advantage
over PCs in features and functions.  The reasoning goes that, under these circumstances, if
there is a halo effect — discounting the recent rise as nothing but cyclic buying behavior and
given that Apple's share remains near historic lows — then the demand for Macintosh systems
must be that much worse, since without such an effect, the company's share would be even
lower.

My own belief is that this view represents an unduly harsh interpretation of the facts.  Apple's
share did decline steadily from a worldwide high of around 10% in 1992 to about 2% in 2004.  I
attribute this swan dive to two policies: a lack of openness (i.e., not licensing the OS and not
establishing a healthy partner ecosystem) and a price umbrella, which let the whole PC market
squeeze through underneath.  

What has kept the company down since the Great Fall is the compatibility issue, a story
management still doesn't get (e.g., using Rendezvous instead of UPnP for device discovery).  My
own view of the halo effect is that, like the Great Wall of China, it is a feature you can see from
outer space, but just barely, and it is mostly discernible at the worldwide level from seasonality.  
To wit: for the past five years (since 2000), the company's worldwide market share has remained
in the 2-3% range WW.  The low was 2003-2004.  Since 3Q04, a tiny but steady rise, measured
in tenths of a percent, has occurred, pretty much in and out of season.  Apple's high is generally
in 2Q, based on the weighting of its business portfolio toward education, but overall, it has
gained a bit more than half a point since the nadir.  

The timing of the rise coincides with more or less the two-year anniversary of the introduction of
the iPod, not exactly a direct temporal relationship.  In fact, Apple's share in PCs actually sank for
two years after the iPod launch.  And the rise corresponds to more recent events, such as the
Apple retail store expansion and the introduction of the mini, which opened up a new lower price
point.  So, it's not clear that the iPod stimulated the recent rise.  It is possible that it took two years
for the market to "get it," and now the enthusiasm has caught on, but calling this effect a halo may
be an exaggeration.  

Now, whether Apple's share will fall back down again is a question.  My own belief is that the
defection traffic flow goes both ways, with Apple people abandoning at about the same rate as
the other way around.  Apple does appear to be winning some new entrants in consumer, and
some Windows consumers are adding a Mac to their mix for fun.  One die-hard Windows guy I
talked to bought a Mac for his daughter because she kept getting viruses on her PC.  She thought
the Mac was cool because she knew about the iPod, and Dad decided to spring the extra $400
for the Mac notebook on the basis of her desire and a belief that the system wouldn't pick up so
many diseases.  Halo effect in action.

However, the view from outer space says, if the company maintains its gains and then breaks
3%, it can make a case that its computing products have renewed cachet.

Rather than draw a trend line straight down from 1993 to the present, another way to parse the
Apple market share data is to divide it into periods: Before the Fall (the 1980s and early 1990s),
the Great Fall (1994-2002), the Bottom (2003), and the iPod Era (2004-present).

Whether any of this makes any difference is a matter of perspective: from Apple's point of view,
business is up, profits are up, and shareholders can be happy, not just because of iPods, but
Macs as well.  From the overall market's point of view, it's a tempest in a teapot.  I believe the
company continues to make suboptimal strategic decisions, even as its marketing and short-
term tactical execution are astounding.  What will trip it up again are the standards and pricing
issues.

Recently, Apple's offer to contribute OS X at no cost to the consortium putting together a $100 PC
for buyers in developing nations was rejected because it was not open source.  Even free, it's not
attractive for this application because it's closed.
© 2006 Endpoint Technologies Associates, Inc. All rights reserved.
Apple's Share Rise May be Due to a Range of Factors