This past Tuesday, Apple shared their third quarter results, boasting the headlines: All-Time Record Revenue and Earnings Increase 78 Percent. This press-release set the stage for the Conference Call – lead by COO Tim Cook, and CFO Peter Oppenheimer – scheduled later that day. Analysts and stockholders were given the opportunity to ask questions regarding the company’s plans, intentions and opinions. My interest lies – specifically, though not exclusively – in a question made by Mark Moskowitz of JPMorgan [emphasis mine]:

Two quick questions, Tim, just coming back to the iPad for a second. I know, there is a lot of speculation about potential cannibalization down the road, while it’s still premature to speculate. I’m just trying to get a sense, could there actually be a reverse effect, where Apple maybe benefits from a halo effect forced by the iPad, but then they also decide maybe to buy some either Apple devices to keep at home when they’re using the iPad on the road. In the early stages, has your data shown that where you’re seeing someone buying iPad and then there is a subsequent purchase of a MacBook or a iMac or an iPhone?

Tim Cook’s response [again, emphasis mine]:

We – that’s a very good question, Mark, and I do agree that I think most people external to Apple focus on cannibalization, it’s been negative, and internally, we focused on exactly the opposite. It’s the synergy between both technically and from a demand point of view. If you look at the iPod historically, all of the people here felt that the iPod created a halo for the Mac, and in fact as the iPod volumes took off, you will see a dramatic change in the Mac sales back in time that we experienced. So, could that happen on iPhone and iPad? We’ll see. I don’t want to predict it. But I do think that with our Mac share, the Mac has outgrown the market 17 straight quarters. However, the Mac share is still low, and so there is still an enormous opportunity for the Mac to grow. Certainly the more customers we can introduce to Apple through iPad, and through iPhone and through iPod, you would think that there might be some synergy with the Mac there, and there may be synergy between the iPad and the iPhone as well, and so on and so forth. So, that’s the way that we look at it internally instead of the negative. Although I know everybody is more focused on the negative piece of it. This is where it’s great to be – to have a lower share, because if it turns out that the iPad cannibalizes PCs then I think it’s fantastic for us, because there is a lot PCs to cannibalize. It’s still a big market.

Ok great, so what exactly is the Halo Effect? According to Wikipedia,

The halo effect refers to a cognitive bias whereby the perception of a particular trait is influenced by the perception of the former traits in a sequence of interpretations.

This definition is full of highly organic and overly complicated words, however – in regard to Apple – the definition becomes much simpler:

The halo effect refers to the act of acquiring knowledge in favor of a company, whereby the perception of one product line [Eg. Macs] is influenced by the perception of the former traits in a previous product line [Eg. iPod].

Now this makes a lot more sense. The way we perceive one product is affected by another – albeit, more successful and desired – product. If we agree on this definition, then we are able to see where, and how people were getting interested in the Mac; through the iPod. What about this definition:

The halo effect refers to the act of acquiring knowledge in favor of a company, whereby the perception of one product line [Eg. Macs] is influenced by the perception of the former traits in a previous product line [Eg. iPad].

Fast-forward to 2010 and only one word has changed, iPod : iPad (although, I really want to write iOS). This must mean people love the iPad, and therefore perceive MacBooks to be an adequate offering. However, the word ‘perceive’ is a very strong word, and is probably the most pertinent point to my argument. According to the New Oxford American Dictionary, ‘to perceive’ reads as:

a way of regarding, understanding, or interpreting something; a mental impression.

Tim Cook claims [emphasis mine]:

If you look at the iPod historically, all of the people here felt that the iPod created a halo for the Mac, and in fact as the iPod volumes took off, you will see a dramatic change in the Mac sales back in time that we experienced. So, could that happen on iPhone and iPad? We’ll see. I don’t want to predict it.

I have a feeling Apple has predicted it, and in fact, are betting on it. Both analysts and tech columnists predicted – here, here and here – that the iPad was guaranteed to “Cannibalize Mac Sales”. Did it?

Record quarterly sales of 3.47 million Macs, beating last record by 100,000. 33% year over year growth, over 22% growth for market overall (IDC).

The last quote was provided by MacWorld’s Live Coverage of the Q3 2010 Earnings Call. So what did Apple do to avoid the analyst’s predictions? Pay close attention to my definition of ‘perception’. Apple curated the way we perceive the iPad, from the moment we take it out of the box and connect it to iTunes. From that moment, the iPad is no longer seen as a Notebook Replacement, but a Notebook Accessory – a thing that can be added to something else in order to make it more useful, versatile, or attractive. I believe Mark should have asked, “Does Apple try to control the way we perceive certain products, to ultimately control the way we interact with others?”

The Sources Unlinked

Apple Inc. AAPL Q3 2010 Earnings Call Transcript
Apple Reports Third Quarter Results