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Why Apple is Ditching The Disc


Exactly how Apple whittled the computer down is an exercise in engineering ingenuity...

Editor's Note: The 'Ville is proud to introduce Cory Bortnicker, a member of Minyanville's edit team and one of the creative minds behind Hoofy & Boo's News and Views.

For many Appleheads, Macworld 2008 seemed, well, a little disappointing. With no revolutionizing "iProduct" to unveil, Apple (AAPL) CEO Steve Jobs presented an array of upgrades to current products that left techies feeling a bit let-down. Astute investors, however, may have a reason to celebrate. Although quietly, Jobs presented an expanded business strategy that-if successful-could spell long term success in the digital media market.

Apple is a unique company that creates beautiful hardware to house its elegant software, and the MacBook Air is the latest incarnation garnering buzz. Billed as the world's thinnest laptop, it weighs about three pounds and measures, at its thickest point, a mere 0.76 inches. Exactly how Apple whittled the computer down is an exercise in engineering ingenuity, but consumers may notice one obvious piece of hardware that Apple dumped again: a CD/DVD drive. Sure, getting rid of that device makes it easier to slim down, but there is absolutely a strategic advantage for Apple to ditch the disc.

Jobs-the consummate marketer-remarked that "we don't think most users are going to miss the optical drive." And neither will Apple investors. Here's why.

Let's assume that anyone shelling out $1,800 for the MacBook Air is already wedded to an iPod. Unless an external CD/DVD drive is purchased ($99), there's no longer a reason to buy music CDs. They won't fit anywhere. Instead, Apple suggests you mosey on over to the iTunes store and make your purchase there. Oh-and that Netflix account? Forget it. Their pesky DVDs will soon seem as ancient as 5.25" floppy drives. The iTunes store will now rent movies, and there's no need to worry about a scratched disc, or missing envelopes, or waiting for the mailman.

No CD/DVD drive is no problem. Apple will sell you music, movies, and television in a way you can use. The little company that could has once again furthered its ability to control media content by controlling media hardware.

Really, it's the old business model of selling printers to make money off of ink cartridges. Except in this case, Apple is positioned to own both sides of the operation. The iPod constitutes 90% of the hard-drive based music players market. Apple recently reported that 48% of its $7.1 billion quarterly revenue was from iPod sales. Meanwhile, Apple has turned around profits on the iTunes store and now generates operating profits in the 10-15% range. On January 15, 2008, Apple announced that it had sold more than 4 billion songs. As CDs and DVDs become obsolete, these numbers can only go up.

No doubt, the MacBook Air is a beautiful piece of hardware. But more importantly, its aesthetic appeal allows for the precedent of no CD/DVD drive in a way that advances Apple's hold on digital media. The Macintosh shed the floppy drive years before other competitors. There are few reasons to expect Jobs isn't ahead of the curve once again. Macworld 2008 may go down in history as the expo that cemented Apple's digital footprint for the foreseeable future.

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No positions in stocks mentioned.

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