Analyst Report: Why the Mac is infiltrating the enterprise

1 Summary

Traditionally, the Mac has made up an extremely small sliver of corporate PC purchases, but over the last few quarters, more and more of them have been incorporated into the workplace. And on the heels of this trend was an announcement from the analysts over at Forrester last month: Businesses should start buying Macs for their employees. Or at any rate, they should at least start allowing employees to bring one, even if it’s their own, to work. Specifically, Forrester called the “prohibition” against Apple desktops and laptops on corporate networks outdated and said it needed to be “repealed.” The company’s suggestion was somewhat shocking because of who it was coming from — but not shocking to those who have followed Apple over the years.

Driving the growth of the Mac

An estimated 5.2 percent share worldwide as of the second quarter of 2011, according to NPD, is the highest share of PC sales Apple has seen in 15 years. While that number seems miniscule on the surface, consider where the Mac’s share of worldwide computer purchases over the last decade and a half has been — hovering somewhere between 1 percent and 3 percent.

Mac shipments to businesses grew 43.8 percent in the second quarter of this year, according to Needham & Company analyst Charlie Wolf, who’s been watching Apple’s PC business for years. Compare that to the sales growth rate of all brands of computers to businesses, which was 4.8 percent during the same quarter.

“The Mac’s share of the business market went from 1.2 percent to 3 percent over the course of five or so quarters,” Wolf said in a recent interview. “It was a dramatic change, since the Mac was really targeted at the consumer and education market and not the business market.”

“The Mac’s share went up in all five segments (very large, large, medium, small business and small office) and all five have continued to go up, which was really sort of stunning to me, and I sort of believe that the Mac shipments in the business market are going to outpace the business market itself for the indefinite future going forward,” he added.

Sound crazy? It might not be, considering what’s bringing this change about.

This sudden growth, particularly when it comes to the enterprise, isn’t due to changes to the machine itself or drastic cuts in price. And Apple has even made some moves that displeased its base of fans in the IT world, like shutting down business-targeted products such as Xserve.

Rather, this shift towards the enterprise can be explained in terms of the trends happening around the machine: Changes within the core of Apple’s business, the consumer takeover of IT and the changing nature of how we work.

The consumerization of IT

It’s a major trend that corporate IT departments everywhere are grappling with: the use of traditionally consumer-oriented technologies like smartphones, tablets and social networks to accomplish business goals. This “consumerization of IT” is happening at companies of all sizes, according to a recent report from Good Technology. German software giant SAP is even embracing it. At our recent GigaOM Net:Work conference, the company’s EVP of Global Mobility Solutions, Chris McClain, said SAP currently has thousands of tablets on its corporate network because employees bring them from home. Video game giant Electronic Arts is another company that allows this, so long as the device an employee brings meets the IT department’s security requirements. Eric Brown, EA’s CFO, said in an interview that the policy is open to BlackBerrys, iPhones and other iOS devices.

“We’re definitely giving people choice to bring in and use their own personal devices,” he said. That choice “is important” for employees. And it’s also important for attracting the right kind of employees. “We have people who work remotely and their choice of device form factor is very important to them, and having a choice, particularly in the tech market, especially in Silicon Valley, a lot of companies do offer that,” he said.

Companies are generally shifting to this practice because allowing employees to use the devices they want is helping to make workers more productive. As Forrester’s report says, workers who want to and are allowed to use MacBooks on the company network classify as “power laptop users.” To Forrester, that means those employees work longer and are more productive. They use more devices and apps to get work done and work more hours per week than employees who don’t have a strong opinion on what kind of computer they use.

Forrester’s point is that companies are starting to recognize this pattern with Macs. Twenty-two percent of the companies Forrester talked to said they plan on allowing Macs in the workplace sometime soon. People tend to use Macs because they’re easy to use and they do a good job of hiding complex technology behind an intuitive interface. Once people are using them at home, it’s not a huge logical leap to understand that if they’re spending a lot of time on a computer at work, they’d love to use a platform they’re familiar with. Brown at EA said he sees that Apple devices are overwhelmingly the devices that employees choose when given the chance to bring their own devices to the office.

The iPad

Apple said in October that 93 percent of the world’s Fortune 500 companies are “testing or deploying the iPad.” We don’t know how many of those companies’ employees are bringing them to work a la SAP, or if they’re being given out like United, which put an iPad into the hands of each of its 11,000 pilots. All we know is there are a lot of Apple tablets floating around really large companies.

And the good news for Apple is that however it’s making its way inside these companies, the iPad seems to be a gateway for other Apple products.

It typically happens like this, according to Dale Fuller, former head of the PowerBook division at Apple and current CEO of MokaFive, which makes virtual desktop software for businesses that deploy Macs. People (executives, in many cases) bring iPads to the office. Eventually they might find the iPad is great for particular uses like presentations, email, taking notes and web browsing. But to put it in Steve Jobs’ words, those people eventually realize that iPads are like cars while desktops and laptops are like trucks — the latter are the machines you’re going to use for number crunching, creating PowerPoint presentations or writing a detailed research report. Some of the executives of companies that pushed for iPads to be allowed on their corporate networks then will say, “Hey, if our IT guys figured out how to support iOS on our network, we can support Mac OS X.”

Charlie Wolf agrees that the effect is taking place. “The iPad is sort of like a Trojan horse that is loaded with Macs, and to me, that’s the big driver, even more than the iPhone,” he said. “There’s no way to explain the [recent] success of the Mac other than the halo effect — the twin halo effect — of the iPad and the iPhone.”

In the end, the uptick in businesses purchasing Macs isn’t necessarily coming in place of large companies buying Windows-based PCs, says Wolf. But there are several ways, either by new purchases or employees bringing them from home, that Macs are finding new ways to infiltrate the workplace.

The ultimate opportunity for Apple is huge if it is able to continue to ride the “iPad as Trojan horse” trend into offices. Especially when it comes to profits — after all, Macs can cost about twice what the $499 to $829 iPad does. Fuller says based on what he’s seen he wouldn’t be surprised if Apple could someday own a third of the enterprise computing market if it keeps this up. Of course, that’s quite a few years away, but based on the current size of the worldwide business PC market of about 100 million machines, that could mean 30 million Macs. And at $1,500 each, that could be a $45 billion market opportunity for Apple.

Or in the words of Wolf, “There’s a major opportunity for Apple to etch itself into the enterprise in a way we haven’t seen since IBM in the early days.”

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