Is That a Mac in Your Cart? Hi Switcher!

The news was splashed around the Mac-o-sphere: 1 million switchers in three quarters of 2005. If you relied solely on headlines, as many are wont to do, you would be left with the impression that the Mac was well and truly on the road to market share glory.  If you bothered to read a few articles you quickly realized that the unabashed joy sweeping the Mac web all came from a single source: a research note issued by Charles Wolf of Needham and Co.. The “million switcher” assertion may have started out as a small trickle but, like a raging mountain stream that starts as a small spring high above sea level, it picked up momentum and became the dominate Mac news for much of this week.

Analysts are smart people, they are paid a lot of the green stuff to tell other people how to maximize returns on their stock portfolios.* Likely any respected analyst has attended a prestigious school, Wharton or Harvard, have been steeped in the techniques of statistical analysis and understands the psychology of the stock market on level most of us couldn’t comprehend even if we gave it our best effort. Realizing that we are inherently inferior in matters of business to any particular analyst it is easy to take one of their statements on faith, particularly when it is something we want to hear. We are afforded a very rare opportunity in the case of the “million switchers” analysis. Charles Wolf explains his methodology in a manner that even Apple Matters densest writer can comprehend.

At this point those of you with a smattering of statistical knowledge are probably expecting terms like “standard deviation,” “r² values” and “polynomial regression” bandied about as though they were part of the everyday lexicon. Good news, while those are the kind of tools most of would expect a nattily dressed analyst to use we can reduce Charles’ analysis to much simpler terms. Here’s how he arrived at the million switchers number: Add up Macs sold in the first three quarters of 2004. Add up all the Macs sold in the last three quarters of 2005. Subtract the Macs sold in 2004 from the Macs sold in 2005. The formula appears as follows:

2005_{Macs Sold}-2004_{Macs Sold}=Change in Macs Sold

Now it’s time for the financial voodoo. Once the number is calculated the careful analyst will undoubtedly compare that to total iPod sales, weigh it against total PC sales and the really clever ones might throw population growth into the mix. Charles uses a completely different methodology. He just guesses any sales increase over the previous year was due to a “switcher.” To wit:

“If we assume that all of the growth in Mac shipments during the past three quarters resulted from Windows users purchasing a Mac, then purchases by Windows users exceeded one million,” the analyst said. “Indeed, the number of Windows users purchasing Macs in 2005 could easily exceed our forecast of 1.3 million switchers in 2006.”

Not all assumptions are equally reasonable even if they are technically possible. If you purchase a lottery ticket with the notion that you will, with certainty, win the Powerball jackpot that is probably not the most solid assumption in the history of the world. On the opposite end of the spectrum if you hook up an unpatched version of XP to the internet and expect to get some malware installed pretty quickly that represents a fairly safe assumption. To see where Charles’ assumption lies on the newly minted Seibold Assumption Reasonability Scale^TM we need to look at a few facts:

In 2004 sales of Macs suffered when Apple ran out of G4 iMacs
2005 featured the introduction of the most inexpensive Mac to date: The Mac mini
2005 has outsold 2000 (before the iPod existed) by only 435,000 Macs
The overall computer Market has grown in the past year

Those are just the larger factors. There are plenty of other things we could take into to consideration to explain the recent surge in sales: falling Mac prices, acceptance of OS X, Apple Stores, etc. One thing we can’t use to explain the false resurgence of the Mac is advertising, that is something Apple has decided to forego for their computer line. In any event, there exist a plentitude of reasons to suspect that the growth in Mac sales is not solely attributable to switchers.

Mr. Wolf’s error is no reason to abandon hope for the Mac platform. The demand for Macs, particularly for the tech aware, has been steadily dropping since the Intel announcement. Yet, even with the switch dragging sales of Macs down the platform continues to grow at a rate outpacing the competition. That surprising tidbit can logically be interpreted to mean that when the Intel Macs finally make the scene they will spur a demand great enough to make the iPod Halo Effect look positively quaint.**

*Some of you may be wondering why the analysts are busy spending their time telling other people how to make money when they could be following their own advice and keeping all the dough for themselves. The answer is not apparent, I suggest you ask Miss Cleo.

** Mr. Wolf has finally put a value on the Halo Effect. According to his numbers the Halo Effect is right around .035. That is to say for every 100 iPods sold Apple will sell 3.5 Macs.