Is Apple Leaving Money on the Table? Part One

Mmmm. Apple Flavored Money.

Given that Apple makes a fortune, am I serious about that headline? Yes! Really!

And I’m not talking about the Apple Tablet, iSlate, iPad or whatever is coming out on the 27th? I’m talking about tweaks Apple could make to its existing Mac product lines that could very easily juice profits up a little more. And Apple can do it with minimal additional R&D just by doing a couple of rather simple things.

In this part we’ll take a lost profits with their Apple TV and Mac Mini products.

Let’s check it out …

Mac Mini TV

In response to the popularity of the Mac Mini amongst gadget geeks and home theater enthusiasts who were purchasing the diminutive $600 desktop computer for use in the home theater, Apple decided to enter the living room themselves in 2007 with the creation of the Mac Mini inspired Apple TV. To make the Apple TV more palatable to the non-hacker crowd Apple engineered the Apple TV to be simpler to integrate into the living room by including the ubiquitous HDMI output used on all HDTV’s. Additionally Apple based the Apple TV interface on an enhanced version of their Front Row media player software and also included the Apple Remote control, which were initially developed in 2005 for use with the iMac.

And that sounded pretty good – on the surface. But the power user crowd wasn’t exactly jumping off the couch to go get one. And Steve Jobs himself referred to the Apple TV product as a “hobby”, which was seen by many as a fairly derogatory statement indicating that Apple didn’t really work too hard to create it. And looking at the specs for the device you can quickly see why the home theater enthusiasts weren’t writing home about it.

Apple wanted to make the Apple TV more enticing to general users by keeping the price under $250 – less than half the price of the low-end Mac Mini. To make it cheaper than the Mini, Apple had to downgrade the Mini’s specs significantly. Aside from hard drive size, the specs are largely the same now as it was nearly three years ago: a small and non-upgradeable 160GB hard drive, a paltry 256MB RAM, a pokey 1GHz 32-bit Pentium M processor, no support for 1080p full high definition output, poor support for non-iTunes Store video/audio formats, no official or easy way to install or access third party media software and services such as Boxee, Hulu or Netflix, and no DVD/Blu-Ray drive.

Given that the Mac Mini starts at $600 and is presumably more profitable than the Apple TV, many enthusiasts held out hope that ensuing revisions of the Mac Mini would be upgraded to be a superset of the Apple TV. After all, just about the only hardware lacking on the Mac Mini versus Apple TV was an HDMI output. That sounded like a no-brainer.

But nearly three years later and the Mac Mini still doesn’t sport an HDMI output. It does however include a Mini DisplayPort socket. And Mini DisplayPort to HDMI adapters are pretty cheap. For instance, at Amazon.com you can pick up this Mini DisplayPort to HDMI Adapter for under $10. But if the electronics are so cheap, why doesn’t Apple just build it in as a way to make it more palatable to non-techies?

Correction: It turns out that while the DisplayPort cable standard supports the simultaneous transmission of both video and audio, Apple does not provide audio output from the Mac Mini’s DisplayPort. Bummer. This makes the task of hooking up a Mac Mini to a HDMI TV or receiver a bit more difficult. Since the Mac Mini supports audio over USB, you can get a Mini DisplayPort and USB to HDMI adapter. It’s a bit more expensive though since it takes some extra intelligence in the adapter to decode USB audio and re-encode it to HDMI. Monoprice.com sells one for about $36.75.

To the enthusiast crowd, having to buy a separate low cost adapter is no big deal. But what does leave a sour taste in some folks mouths is that the Front Row derived software in Apple TV has been upgraded to version 3.0.1 with new features and a better interface. But the version of Front Row included with the Snow Leopard operating system included on all Macs hasn’t been blessed with feature parity.

So what can Apple do to make the Mac Mini/Apple TV better and make more money?

It’s mostly simple:

1. Unify the hardware and software across Apple TV and Mac Mini. It’ll probably save some manufacturing and engineering costs. This’ll largely be a modification of the Apple TV case to mostly mirror the Mac Mini case, but with the HDMI output on the back. The Apple TV is overdue for a good refresh anyway. And throw in a DVD drive, or if component costs are cheap enough for the low end model, Blu-ray. The low end model could still be called Apple TV, but it’ll run a tweaked version of Snow Leopard that autoruns Front Row as soon as it boots up. Oh, and who these days really needs component video, RCA analog stereo and optical audio outputs? So just ditch them and move to the future. With increased set top box competition from Roku, Boxee, and Popcorn Hour/PopBox Apple’s going to have to work harder to justify a higher price tag. But with better design and features, it might now be worth more that the current $229 price.
2. Now for the part that’ll make the high end couch potatoes happy – The new Mac Mini would look basically the same as the current ones, but it’ll have the long awaited integrated HDMI output. But it perhaps is still using the Mac Mini name, so how about rebranding it slightly as the Mac Mini TV? And since it’s carrying the higher price tag, give it a Blu-ray player.
3. The remote should be cooler – Give it accelerometers and point and click features like the Nintendo Wii Remote. Then instead of having to mess with arrow keys to navigate the Front Row menus, one can just point and click. (OK, this one might take some more engineering work to get done.)
4. Create a plug-in system for Front Row and let developers list and sell them in the iTunes App Store. Why not? Apps for Apple TV. Apple started App-mania. And the set top box competitors are doing similar things. It’s time for Apple TV/Front Row to match and surpass the competition by joining the trend that they themselves started. This will enable people to get Netflix, Hulu, Pandora and all those other apps – some of which are available in iPhone versions.
5. But wait, there’s more! Once there’s an API and a department in the App Store you get something else for FREE: Game development! You have an honest to goodness gaming console. And since Apple TV is a Mac, games will run on any Mac – iMacs, MacBooks, PowerMacs – a sort of halo effect that could help boost sales of these higher priced Macs. This will help address one of the biggest complaints that PC gamers have about choosing a Mac over a PC – game selection. And if that Wii-style remote has gaming buttons on it, everything is set. Or, there’s always third party Bluetooth game controllers. Maybe Activision will put out Bluetooth guitars, microphones, and drums?

As Steve Jobs said at the All Things D conference in 2007 when asked by The Wall Street Journal’s Walt Mossberg why he called Apple TV a “hobby”:

“The reason I call it a hobby is a lot of people have tried and failed to make it a business. It’s a business that’s hundreds of thousands of units per year but it hasn’t crested to be millions of units per year, but I think if we improve things we can crack that.”

Maybe it’s time to start cracking.

That’s it for Part One. In Part Two we’ll see how Apple could re-tackle the business of Mac clones in a way that won’t cannibalise their own earnings.