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Apple Makes Tiny Steps For the Masses

By Rob Pegoraro
Washington Post Staff Writer
Wednesday, January 12, 2005; Page E01

SAN FRANCISCO, Jan. 11 -- Apple Computer Inc. is going where it has never gone before -- the discount end of the price scale.

Chief executive Steve Jobs opened the Macworld Expo trade show Tuesday by unveiling a new desktop computer and a new music player, both priced far below its other Macs and iPods. With the new hardware, Apple hopes to build on the success of its popular music player, using it to draw in customers who found earlier iPods too expensive and allowing more consumers to buy into the rest of the Apple universe.

Apple chief executive Steve Jobs introduces the iPod shuffle, bragging that the music player is "smaller than most packs of gum." (Jeff Chiu -- AP)

"We want to price this Mac so that people who are thinking of switching will have no more excuses," said Jobs, as he showed off the new Mac Mini, a tiny, silver-and-gray box smaller than some laptops. It will go on sale Jan. 22 for $499 and $599, depending on processor speed and hard drive size.

"This is the most affordable Mac ever; in fact, it's the cheapest computer Apple has ever offered," Jobs said.

Neither model will include a keyboard, mouse or display -- Apple expects customers to bring their own, possibly by using whatever came with the PC already at home.

To go with that baby-sized computer, Jobs introduced an even tinier music player, the iPod Shuffle. "It is smaller than most packs of gum," Jobs said. "It weighs about four quarters."

The iPod Shuffle will sell for $99 and $149. Unlike other iPods, the Shuffle uses flash memory, rather than a miniature hard drive, to store songs; it is priced lower than many competing flash players with less memory than the 512 megabytes and 1 gigabyte Apple will include. The Shuffle lacks a display to show what song is playing, but connects to Apple's iTunes software just like its larger, pricier siblings. Its name refers to its ability to play through a set of music at random, a popular feature on Apple's music players.

Both the Mac Mini and the iPod Shuffle will sell for two-thirds or half the price of the next cheapest Apple model in each category -- a departure from the company's oft-invoked goal of being the BMW of the computing market, selling precision-engineered, artfully designed machines at a slightly higher price than most.

"This Macworld is going to be remembered not just for the products that were introduced . . . but for Apple's recognition that there is a mass market out there," said Michael Gartenberg, an analyst at Jupiter Research. He described the Mac Mini as Apple's "first opportunity in about 15 years to become a mass-market item" and suggested that the Shuffle's just-under-$100 price would leave little room for competing players.

A key question for Apple is if all this new hardware can extend its winning streak in digital music to the desktop and laptop markets. Apple has sold more than 10 million iPods to date and 230 million songs online at its iTunes Music Store, Jobs noted. But the company's market share for desktop and laptop computers is as low as 2 percent in some estimates -- far short of what Apple has accomplished in the music business.

Although it did not offer an MP3 program until four years ago, Apple says it now owns 65 percent of the digital-music-player market and 70 percent of the music-download business.

Yet despite selling far more iPods than computers -- just over 2 million vs. 836,000 during the last fiscal quarter for which results are available -- Apple makes more money from Mac desktops and laptops. In that quarter, which ended Sept. 25, it made $537 million from iPods and $1.23 billion from computers.

Gartenberg said that Apple's best time to turn that corner is now and that the Mac Mini may be the computer to do it: "It comes at a time in the market when Apple has such a strongly reinvigorated brand in the minds of consumers, thanks to the iPod."

It, however, is also the first Mac to be sold with the express expectation that customers will complete a computer setup by using other companies' hardware. Apple hasn't sold an entry-level monitor in years.

Adam C. Engst, editor of the influential Mac newsletter Tidbits, noted that this would make the Mini not much cheaper than Apple's other desktops for customers without a spare keyboard, mouse and display: "The price isn't that much lower than an eMac or an iMac by the time you buy everything else."

Apple stock closed Tuesday at $64.56 a share, down $4.40 for the day. A year ago, it traded in the neighborhood of $20. The Cupertino, Calif.-based company will release its fiscal results for the first quarter Wednesday.

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