$6 Billion in Revenue. 25 million users. Profitable.
Six million of their main consumer product sold in three years and
profitable in an industry where very few others made a profit.
Added bonus: Respected as an industry design leader both in
esthetics and, more importantly, in how functionality and features are
implemented for the consumer.
In any industry, that's an enviable position - even if you sold
toothpicks - except to computer industry business writers.
Why?
Read the first line again.
What is their criteria? Apparently one of the big criteria is that
Apple isn't #1 in market share and, safe to say, will never again be #1
in the personal computer market as measured by raw numbers sold.
Apparently these writers believe this is the only criteria in
measuring Apple. If you're not #1, you should just close up shop.
Is there hypocrisy here? Do they all work for the number #1 magazine
or newspaper in their field?
What about the fact that the number #1 business magazine in America
has a much lower circulation than TV Guide or The National Enquirer?
Should they hang their heads in shame and quit publishing?
What about newspapers? Most pale in circulation when compared with
USA Today.
How about on a more personal level - is each of them the best writer
in America? In their state? Or even at their publication?
Does #1 at all costs extend to themselves? Does merely having the
highest circulation or the highest salary on an editorial staff make
everyone else irrelevant?
I don't think they would argue that in all other cases - except in
the case of Apple.
I don't think writers would argue that a restaurant should close
just because they don't eat there, but many seemingly argue that Apple
should close up shop because they don't like the product or it's
not #1.
There may be a hidden agenda. Perhaps it's general animosity towards
Steve Jobs, whose personality does seem to generate polarizing
viewpoints. I've never met the man, so I cannot offer proof either
way.
From my viewpoint as a consumer, I've liked his products at Apple
and Pixar. When he was away at Apple, the products were not as strong.
I appreciate that he is back. That is pretty much the extent of my
feelings towards Jobs.
Now, if the writers' dislike of Apple is because they dislike the
CEO, that's fine. They are paid to have an opinion, but let's be
forthright and honest about it - let's not couch that feeling in pseudo
reasoning without any substantive manner in backing that.
But let's get back to the facts.
The main focal point is market share. Before proceeding, let's
refresh ourselves with the first sentence again.
$6 Billion in Revenue. Profitable.
And let's backtrack a little bit. (Keep in mind, these dates are not
ironclad, but they meant as reference points.) From the beginning of
the PC market until about 1993, market share was an important criteria
because market share meant profits.
Because supply hadn't met demand, margins were high and the bigger
your market share, the more money you made. Apple did well up to this
point.
From about 1993 to 1997, market share was still important, but it
was less important because PCs were becoming commodities. It was
important to be at the top or near the top to establish buying power
from your suppliers, since margins were narrowing. But also keep in
mind that being number #1 in PCs did not help save IBM, Zenith Data,
AST, Packard Bell (remember them?), Gateway, or Compaq from losing to
the "next PC maker" with better margins - currently Dell.
Being #1 means you only have further to fall - so much for being #1
in PCs! During this time, Apple was pretty much dormant. They did fall
asleep at the switch. Whether Apple should have licensed the Mac OS
then is another story in itself, but this isn't really about licensing
the OS, it's about the PC market.
During this period with the lowering of prices and commodization of
the PC, from about 1996 on the consumer PC market woke back up for wave
two. In the first wave, it was a big commitment to spend $3,000 to
$6,000 (late 1980s dollars) for a home computer, and some people
realized they didn't really need a PC - some people did it because they
had to bring work home and, of course, if you had DOS or Windows at
work, you had to buy DOS or Windows for home.
With PCs dropping into the $1,500 range (plus a growing economy),
people who were buying home PCs were people who really enjoyed or
wanted a PC at home. Virtually everyone who needed to bring work home
started to get company laptops (before this, only senior management
were given a $6,000 computer to tote around), and other people were
starting to be tied to the corporate network and database, so you
couldn't really copy that Oracle thing onto a floppy.
People bought home PCs because they wanted them for personal
printing, home budgeting, letters, some graphics, and, of course,
AOL.
And then the Internet took over. For most people, going by usage:
browser (or AOL), email, IM, digital graphics (digicams), MP3 rip and
jukebox, home budgeting, some word processing, and maybe HTML design.
Yes, there are games, but with some 60 million households with PCs, the
best selling PC games still numbers about 1 million copies (rarely)
while PlayStation and Nintendo games sell up towards 10 million. (Yes,
it's nice that Office is available on the Mac, but besides SOHO, how
many people really need a $500 office suite at home?)
Next Wave: It's Not the OS; it's OS All the Time
There is a massive sea change in attitudes towards the computer. The
main point being that it's a gadget now.
It's no longer an office machine (like a fax_ to do mostly serious
work on. It's a portal to the outside world. It's "stuff" you can't or
don't want to do at work. It's surfing the Net, sending JPEGs to
friends, emailing the family, IMing your friends, and buying or selling
stuff on
eBay.
Most people don't even bother with Word anymore. They just type
everything in their email program - spell check be damned.
Okay, when it's resume time you do need the full powered word
processor, but who in non-SOHO homes really needs Excel or PowerPoint
at home?
What am I getting at? Two points:
- The internet has made the OS at work, same OS at home point moot.
Explorer, Netscape, AOL, IM, MP3 ripper and player, CD burner, Quicken,
and graphics programs run pretty much the same on a Mac or a PC. Yes,
there are more choices on a PC, but do most people care? There are
probably 500 MP3 players and rippers on the PC, but what three do most
people use?
- We are now immersed in a world of technology and gadgets that all
work according to their own OS. Blackberry. Motorola. Palm. Nokia.
PocketPC. TiVo. DVD players. Satellite. Playstation, etc. We understand
that everything from our clock radio to the cell phone in our car and
the wife's cell phone all operate differetnlty. While we may grumble
and dislike having to learn to use it, we all do it. (Unless you're a
luddite, and then you probably aren't going to buy another PC.)
So what if the Mac OS is different than Windows? People buy a $2,000
camcorder they use to shoot about 90 minutes of footage a year - or a
$1,000 cappuccino maker because it looks great. It's just another
gadget; it's not a life-altering should-we-have-another-kid kind of
discussion.
Steve Jobs and Apple realize this, even if a lot of business writers
don't. It's not about the OS; it's about what you can do. More
than at any time in history, people will learn to operate a new
gadget.
That partially explains why 6 million iMacs have been sold. It
doesn't have to replace a Wintel PC; it's another gadget for the
house.
Is that so bad? Somehow business writers only equate success with
Mac OS growing at the expense of another OS, but if Apple is successful
with 5% of the market, everything else is gravy.
The Home Is No Longer Work
That's part of the market share equation. It doesn't matter what OS
people use at work because what people do at home is no longer
"work."
People don't use the same furniture at work as they as home or buy a
duplicate of the company car. The company car is a white 4-door sedan
bought at fleet prices - much like the beige PC. It's a fine machine
for work.
Today market share doesn't necessarily mean high margins or even
profits, since IT buyers are looking for the lowest bid. Market share
for the PC market now means you are efficient at getting the best
commodity pricing, assembling it the cheapest, having the lowest
overhead and a great sales force.
If you're successful and profitable as Dell is, great. All the power
to you, but is market share the be-all of everything in the PC market?
It is the only measuring criteria?
No. The business writers are focused on the wrong area. Because
since about 1993, being #1 just means you'll just get knocked off by
the next company. For Dell, that might be China's Legend Computers. You
might shake your head, but a lot of people already have started to
forget Packard Bell was by far the #1 seller not too man y years ago,
and where are they now?
That is why Dell is moving into servers, routers, and service.
And Apple, who cites BMW as a "goal," may be even better than BMW.
Apple margins range in the 27-30% area - no automaker is that high (BMW
is privately held, so nobody really knows). Apple also doesn't have to
spend $2 billion dollars to design and tool a new car, but in terms of
being independent, BMW is a good example.
Yes, that means Apple (and BMW) has to tread carefully. They can't
afford too many mistakes, but when is capitalism about avoiding risk?
We should applaud companies willing to go off on their own terms
whether it be an automaker, a coffee maker or a computer
manufacturer.
Macs Cost Too Much
Yes, price is a factor in everything we buy, but we are in the midst
of a consumer sea change. We are now chasing value. That
translates into driving a $45,000 SUV to buy toilet paper at
Target.
We measure value not by price, but by our return. We might
feel a $45,000 SUV is the best value for our money, but paying
more than $5 for 12 rolls of TP goes against our better judgment. So
while a Mac might cost more than a PC, its value may be judged to be
higher.
Of course, that is purely a judgment call, but you have to recognize
that price is not everybody's first call on every single item. In fact,
I'll bet most people don't eat the cheapest lunch they can find; it's a
judgment call on value.
Time to Look Around
Business writers are also quick to find analysts who say that this
path of being the "different" one leads nowhere. Of course, 16 out of
17 Houston analysts recommended Enron as late as last summer.
Writers need to keep in mind that it's not the computer market of
1989 or even 1995; we are on the cusp and in the midst of a sea change
from Gen Xers giving way to next wave - a new wave of people used to
disparate technologies.
It's not easy to predict the future. Just a few years ago, most
industry analysts predicted that DVD's would find acceptance, but not
very rapidly. After all, Laserdiscs never went beyond a niche market,
and they were round discs with movies on them.
People are quick to disparage the new and different based on old
evidence or the possibility of history repeating itself. People need to
really examine the marketplace and how it's changed or what about it
might work - not just condemn anything they don't understand.
Just like the pundits who point out flat screen computers have not
sold very well so far - obviously by their reasoning, flat screen
computers will never sell very well for now and through eternity.
How did they feel about an all-in-one computer in 1998? It was easy
to find analysts who predicted that consumers want separate components
- six million iMacs later, who was right?
Spend Money to Talk Directly to Consumers One-on-One
In virtually every other consumer arena, they would applaud a
company that wants to reach discerning customers (and potential
customers) one-on-one without having their message diluted by a
third-party - but for Apple, business writers and analysts sound like
the old football coach who didn't believe in the passing game because
according to him, "2 out 3 possible scenarios during a pass were bad."
How silly do you sound?
Let's look closely at Apple's retail effort. If you're simplistic,
it can be easy to be dismissive. After all, Gateway closed many stores,
but there are many differences. Besides the obvious one that many PC
buyers realize it's just MHz to MHz, Gateway also did not let you take
your PC purchase home, and Gateway's store were mostly in strip malls
off the beaten path.
Apple is making a real commitment. They're not just opening a few
showcase stores on Rodeo Drtive or Times Square to be flashy, but
instead they've picked high-traffic classy malls to demonstrate their
products to consumers.
Instead of trying to sell their products in stores where 100
employees need to be somewhat knowledgeable about 70 product lines and
4,000 items, they have 20 employees who know one thing very well.
Is that something to be mocked? Apparently helping consumers
one-on-one is not a lofty enough of a goal?
Business writers would be the first to agree that stores that offer
you the best value cannot always train their employees to know 4,000
products, yet they almost immediately dismiss Apple's attempt. Instead
of really looking at the stores and researching how it's different than
what's been attempted before, their immediate conclusion is that
because it's never worked before, it's probably not going to work now -
as if that is any sort of logic, reasoning, and a proper
conclusion.
How about Sam Walton - already a failure with one attempt but
setting up a new venture selling discount goods in Arkansas in hopes of
going national. How many strikes against him? We all know retailing is
difficult - that you can get 19 out of 20 things right and still fail -
but to dismiss it outright by basically saying it's difficult and there
are no other success stories - is that an actual analysis of the
situation?
To really burrow down into the facts presented and then draw a
conclusion - is that too much to ask? Doesn't it go against the basic
tenent of capitalism to say otherwise? To say that because it's never
been done before one should never try? That it's outrageous for a
company sitting on $4.5 billion in cash to spend $100 million in an
attempt to increase sales by the best method - actually reaching
consumers live and in person? Is that such so far-fetched?
The Stock Price
Quite a few articles that start out as product reviews drift into
the realm of AAPL stock valuation. Somehow they take the angle that the
only measure to judge a company's product is its stock value in the
forthcoming year or two. And their criteria mainly rests on exponential
growth - not just growth, but exponential growth.
Apple is in a tough situation, and buying AAPL is a tough investment
choice, but so are most of American's companies today. CEO's are now
calling it a "visibility" problem in predicting the next quarter or
two.
When companies such as GE and GM cannot really predict what their
next few quarters will be earnings-wise, how is Apple supposed to?
Sure, Apple is not anyone's rock-of-stability stock as an investment,
but does that really matter?
If nothing else, Apple has $4.5 billion in cash (that's worth $12 a
share) and is profitable. That's always good, but especially in an
industry as unstable as the PC market is today. Apple will probably
never grow exponentially, and while you may not tout its stock as an
investment instrument, why should that affect how you judge the
company's products?
You are buying a product to use today. It's not a massive
investment; it's a purchase. It's to be used today - is it useful
today? And will it be in the near future? If so, it's a good
purchase.
If you're an investment writer and you are writing about Apple's
potential as a stock investment choice, then certainly there are many
factors to consider, but the stock is irrelevant if you're taking about
the products of the company.
The Minor Arguments
The last three more minor points are design, software, and
networking.
Most negative feature stories on design are opinions, and people are
certainly entitled to that. It's a very narrow point of view, because
they presume that their design sensibility should extend out to
everyone, but I also have a feeling most people who deride Macs as
"fashion accessories" are not driving white 4-door sedans. They make
many of their own personal buying decisions based on design and what
others might think - they just draw the line at computers (or, more
specifically, at Macs).
Software and networking are really lumped together. They were
relevant arguments in the early 1990s, but now they are a minor point.
Apple is not focused on the low margin white box corporate world. Apple
is after a completely different world. 99% of consumer users pretty
much use the ten programs listed earlier - and they're virtually the
same on a Mac or a PC.
Not to mention how many of the legacy programs can Win XP really
run.
Where Do We Stand?
What do we have? A product with 25 million users. A product line
that sold 6 million units in three years. A $6 billion company that is
profitable in a difficult industry. The backroom is in order - $4.5
billion in cash and inventory control. Many design awards and an
innovator in the industry.
Not bad. Not perfect, but not bad.
Yet there is this undercurrent of animosity. Why? The CEO? Because
Apple was #1 and now is nowhere near that crown? Because the company
was reborn, denying the writers and pundits a "told you so" story?
If it's feelings towards Steve Jobs, fine - let it out in the open.
Let's not couch it by making non-reasoned arguments to reach a poor
conclusion.
Is it because Apple is no longer #1? Well, Ford practically invented
the U.S. automotive industry but ceded its crown to GM about 50 years
ago. Should Ford close up shop? Or for that matter, should GM? They've
lost over 30 market share points in the last 30 years (though they
still are #1)?
Are writers still upset because Apple never really licensed the OS
(at least in the early 1990s when it might've made a difference)? Well,
I think we can see what problems cropped up in the late 1990s when
Apple attempted it. It's simple-minded to think that Apple would be
number #1 simply by licensing the OS - you don't think there would be
ten flavors of Mac OS by now? MS probably would've just bought the OS
from Apple, leaving Apple to make hardware.
Who knows what would've happened in an alternative universe, but it
would not be a simple cut-and-dry answer.
Are writers upset that Apple has had a second life? Who knows where
the animosity comes from, but it clouds their judgment.
You should judge a product on its merits today in today's
marketplace. If it's a consumer machine, you need to really look around
at what's going on, not just base your analysis on last year's
marketplace. The world changes - sometimes in a heartbeat. You have to
constantly look up and around you; don't fall back on old presumptions
even in a field that's just 25 years old.
There are people using computers today who have always had
the Internet and think faxes and cassettes are vague remnants of some
other time. Maybe that's scary or weird to some of us, but we do have
to look through other eyes sometimes.
Share your perspective on the Mac by emailing with "My Turn" as your subject.
