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Summary:

Nicholas Carr reminds us that on October 6, 1997, Michael Dell proposed that Apple be shut down and the money given back to its shareholders. On Friday the 13th, Dell was lapped by Apple. Oops! Dell has a market cap of about $71.97 billion while Apple’s […]

Nicholas Carr reminds us that on October 6, 1997, Michael Dell proposed that Apple be shut down and the money given back to its shareholders. On Friday the 13th, Dell was lapped by Apple. Oops! Dell has a market cap of about $71.97 billion while Apple’s market capitalization is about $72.13 billion.

That’s not all, look at the profitability of the two companies. According to latest quarterly financial data, Apple had sales of $3.678 billion and net income of $430 million. – about 11.69% of sales. In comparison, Dell had a net income of $606 million on sales of $13.911 billion. That works out to be 4.36% of total sales. Its been the case for past one year. Over past four quarters Dell had sales of a whopping $54.2 billion and net income of $3.23 billion. In comparison, Apple had sales of $13.93 billion and a net income of $1.34 billion. Perhaps, the bigger doesn’t necessarily mean bigger profits.


The divergence in the direction of Dell and Apple shares, is pretty telling. Perhaps the “commoditized” technology trend is being slowly replaced by “using commoditized technology to create a compelling user experience” trend? HBS’s Clayton Christensen gave his prognosis about Apple and iPod’s future in an interview with Business Week, which is a splendid read, in which he says

“I’d be very surprised if three years from now, the proprietary architecture [in music players] is as dominant as it is now. Think about the PC. Apple dominated the market in 1983, but by 1987, the industry-standard companies, such as IBM and Compaq, had begun to take over.”

Carr, explains that Apple never really had a dominant position in PC business, like it has in the digital music business. But that’s not the only reason, why the esteemed professor might be off the mark. iPod, and Apple are part of the post “rapid commoditization” theory proposed by the esteemed professor. iPod is nothing but a shiny packaging for off the shelf chips, and a hard drive. At the very core, not much difference exists between a Creative Zen and an iPod.

The difference is the software that is being used to create a “user experience.” That user experience is what has helped iPod gain a mass market appeal. That user experience also stems from a tight marriage of the device, the music and the desktop software. Easy to buy, easy to load, easy to playback. The user experience is the new competitive advantage, not the chips etc. It is so ephemeral, that it is hard to pin down in a theory.

Why do people buy Diesel jeans or pay $150+ for a pair of Seven For All Mankind, when Gap and Levi’s do make perfectly acceptable pants? It is perception, and user experience. Peter Rojas, who edits Engadget was in town last week, and over a hot spicy dinner at Henry’s Hunan, he said something which is logged in my head – technology in the new porn, and iPod is the new rock star. As long as iPod can reinvent itself, like say Rolling Stones, then Apple has nothing to worry about. Apple stores are part of that experience as well. I think if you looked around in other industries, you could easily find the same parallels as Dell and Apple. Walmart and Target? Toyota & GM?

I find it amusing that most folks in retail and consumer good totally get the Apple renaissance while people who little or no grasp of the consumer, turn out to be Apple naysayers. Sun CEO Scott McNealy speaking at a panel discussion at the Computer History Museum recently quipped

“Your iPod is like your home answering machine. It’s a temporary thing,” McNealy said. “It’s going to be hard to sell a lot of iPods five years from now, when every cell phone is going to be able to automatically access your library wherever you are.”

I would like to point out, that many of us have home answering machines. “Automatically access your library wherever you are” bit reminds me a lot of their “consumer on demand computing business.” I find it strange that McNealy presumes that Apple will sit still, do nothing. (Okay, historically speaking Apple doesn’t have a great track record, but as Mark Twain once said, history doesn’t rhyme with repeat!) We have heard the on-again-off-again rumors of iPhone. When not if, but it will happen.

Sun folks should not be making predictions about anything, given their own state of affairs. Especially not about consumer markets, where they have, and never had any expertise! I do detect a smattering of jealousy in Scott’s words? His once high-flying company is now worth $16 billion and change, while Apple’s fortunes have reversed. And that they came close to buying Apple so many times. Bill Joy, another Sun co-founder at the same panel discussion hinted that Apple and Sun came together, nearly half a dozen times.

Irony would be that Apple could step-up and make a play for Sun, but then why!

  1. I think Sun should keep quiet and avoid embarassing itself any further, especially now that it’s trading for less than $5.

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  2. Is it because of apple or is it because of its competitors that the ipod is still a favorite?
    What has Apple done in its computer business to capitalise on the iPod?

    Apple treats its users like kids. And it is a very strict parent. When people start realising this… they will try to get out – I hope it won’t be too late then.

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  3. “As long as iPod can reinvent itself, like say Rolling Stones, then Apple has nothing to worry about.”

    If there is one thing that Apple can do it is reinvent itself. From the home/K-12 market of the Apple II to the Macintosh to the iPod; Apple has always managed to renew itself. Apple is approaching thirty years old and is growing faster than ever.

    And one of the reasons is Steve Jobs – the epitome of self-reinvention. From boy entrepeneur to workstation builder to Hollywood mogul to corporate CEO. He is one of those very few people who has managed to change just ahead of the times.

    I suspect that Apple will continue to grow if for no other reason, because it has the ability to reinvent itself.

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  4. [...] Om Malik on Broadband : » So Long Apple Nay Sayers » Nicholas Carr reminds us that on October 6, 1997, Michael Dell proposed that Apple be shut down and the money given back to its shareholders. On Friday the 13th, Dell was lapped by Apple. Oops! Dell has a market cap of about $71.97 billion while Apple’s…. [...]

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  5. Om,

    Might I suggest that Virginia Postel’s book (The substance of Style) is more apropos than Clay in this case.

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  6. Comparing Apple’s decision not to license Mac OS back in the 80′s is not the same as comparing their decision not to license iTunes today. Apple today is in the same relative position as MSFT & INTC. I don’t see Christensen telling those 2 companies to license their technology? AAPL controls the “performance-defining subsystem” that the professor is talking about. I think the comparisons to IBM & Compaq are the wrong ones; Xerox and Kodak are better examples of companies that didn’t innovate & let technology take over their space and pass them by. But even then, it took a long time for those 2 venerable companies to go down…

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  7. Charlie,

    I was actually thinking along the same lines. i think it is basically what the world hasn’t paid much attention to. i guess, being not championed by andy grove does have its downside.

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  8. Slashdoc beta wants to know what Apple has done in computers to capitalise on the iPod.

    He asks the perfect question. Apple has used the iPod to fund its transition in the PC business at a critical time in the PC business that comes only once a decade.

    If Apple didn’t have iPod, and were to make the transition to Intel, it would be seen as a sign of desperation.

    However, with the iPod, Apple at the top of its game decides to make a fundamental transition in its business. Other than moving from OS 9 to X, changing the cpu architecture is huge. Doing it at the top of its game is a sign of strength and points to its larger strategy.

    Many think the OS game was lost in the 80s, and so it was. However, whenever major transitions in hardware and/or software take place, they create opportunities for their competitors. Apple, has timed its latest transition to coordinate it with MS’s XP transition to Vista. In order to take full advantage of a mature Vista, many users will want to upgrade their hardware to faster cpus and gpus. Now that Apple has standardized on the same cpus and gpus, this is a major opportunity to win serious market share from MS.

    It’s the recognition that MS was making a major transition that’s truly significant. I’m just surprised that more commentators haven’t noted why Apple is making the transition beyond Apple’s annoyance with PowerPC chips.

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  9. [...] Om Malik on Broadband : » So Long Apple Nay Sayers Nicholas Carr reminds us that on October 6, 1997, Michael Dell proposed that Apple be shut down and the money given back to its shareholders. On Friday the 13th, Dell was lapped by Apple. Oops! Dell has a market cap of about $71.97 billion while Apple’s (tags: apple dell ipod market) [...]

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  10. Seems like the reason aapl switched to intel is that motorola couldn’t deliver a low power, low heat, G5 chip. No low power G5, no G5 laptops.

    As for aapl’s paternalistic tendancies, they are only paternalistic to the naive user who can easily screw stuff up. As soon as you launch a terminal window a user who knows what they are doing can do pretty much whatever they want. All my longtime hardcore unix friends switched to OSX. quite a while ago.

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