Guest post by Dell and its business model has been the focus of a lot of comment on Apple oriented forums in recent months. The Dell model is said to be unviable, and Dell’s recent news is said to prove this. A limited endorsement of sorts for the so called “end to end model” in music has been published by Walt Mossberg in the WSJ. Recently a real sky-is-falling article with this theme has appeared here. This is a subject that matters. If the advocates of the so-called “end to end model” are right, it implies that the industry structure which allows us all to source hardware from wherever we want, and run a variety of OSs on it, is in danger.
We need to begin with the facts about Dell’s and Apple’s recent performance, and the best place to begin is Morningstar for financials and Ars Technica for market performance.
Here is the Apple Chart and financials, and here is the Dell Chart and financials
It is worth taking the time to look at them carefully. There can not be much argument about what they show. They show that for 10 years, Apple’s revenues and profits have fluctuated, but Dell’s have grown consistently. Ars Technica published an article about the market share and shipment trends in the PC market here. From this, you can see that in computers, Apple is basically a no growth company. Apple sold around 1.4 million machines/quarter in 1999; there was then a decline to around 800k a quarter, which lasted for several years, and we are now back to the 1999 levels. The revenue growth which the Apple chart shows is mostly due to iPod sales, which are now reported to be 40% of revenues. From the Ars charts, Apple PC market share was 4% in 1999, then fell, with some ups and downs, to a bit over 2% currently. There seems to be a lower limit of around 2%, but the trend has been steadily down for the last 5 or 6 years. In summary, Apple is not growing in computers, and its market share is falling.
Why has this happened? Two main reasons. Apple is in a distinct segment: the segment of the locked hardware/software combination. This segment has not been growing. The segment consisting of OS on hardware from a variety of sources has been growing. Second, Dell has executed better. It has controlled costs, increased share of its growing segment, and supplied what the market wanted in terms of total mix, channel, package, support.
Is Apple growing as fast as the industry in the immediate past? If you look at performance in the last quarter, you will find the industry grew at 13% quarter on quarter, and that Apple sales declined 11% quarter on quarter. As you would expect, this shows that Apple is not converting large numbers of Windows users. The number of converts buying from the US stores has gone up a little, but this rise is some thousands per quarter as a percent of 1.1 million or so total sales.
Is the predominance of the “component model” recent? No. If you want to look back at the eighties, go here. The Ars Technica material cited earlier is based on this. You will see that historically, the growth in the PC market as we know it today was driven by companies supplying hardware all of which would run the same OSs. 1985 or thereabouts was the last year in which the half of the market was supplied by companies selling a combination of hardware and software which only worked with each other. Apple is the last survivor in the PC space with this business model.
If we look at what exactly the model is, and how what Mossberg calls the “end to end model” differs from what he calls the “component model”, it may not be clear at first what the difference is. In fact, to use these names is to misrepresent the situation. Apple and the other PC suppliers such as Dell use identical hardware and components. The OS they ship is always preinstalled, and relates to the standard hardware in exactly the same way. Both methods result in solutions which work as a whole when taken out of the box and switched on. They distribute in the same ways, often through the same channels. They manufacture using the same OEMs and they have the same discussions with them about form and function and features. There is a variation in whether the OS is developed in-house, as Apple’s is, but this is not the key difference. Consider that Apple would still be following its current model if it distributed an outsourced OS, but still locked it so it only ran on Apple branded hardware. Linspire would not be following the Apple model if it shipped PCs with Linspire preinstalled as long as it sold unlocked copies of Linspire separately, for customers to install on whatever they wanted. Lock the OS to the hardware, and this would be the Apple model. The essence is not whether the OS is developed in house. The essence is, whether it is locked to the hardware.
In short, it is DRM. The real difference that characterises what is misleadingly called the “end to end model” is that you cannot buy OSX compatible hardware anywhere but from Apple. Apple has no competition for Mac hardware. This is the only thing that is different. It is not that one model is in any meaningful sense more end to end than the other. Let’s ask two questions about this. First, what effects has it had?
It has permitted higher prices and a higher lifetime profits for Apple. Over the years of owning an Apple, you pay Apple pretty much annually for software upgrades, and you pay a higher price initially for the hardware/software combination. Dell gets nothing from Service Packs. This adds up to an average percentage margin difference of around 15 points. Apple’s margins are about 30%, Dell’s are about 15%. Check out Morningstar to confirm this. It has also permitted Apple to milk the base. If you are locked into OSX, you have to pay the Apple price to get your next hardware. If you’re running Windows, you can get your next machine from anyone you like.
People sometimes argue that Apple can have higher margins without its customers paying more for the same things as the Dell customers, just by selling more stuff with the machine. The argument appears frequently on OSViews. It doesn’t however work, mathematically. If the cost of goods sold for a machine is 850 for each company, Dell would sell it for 1,000. Now Apple would somehow sell these same parts and others for a 30% total margin. Assume the margin on the extra parts is 50%. How much would the bundle have to sell for? Suppose it sold for 2000, i.e. double. That would give margin of 575, which is just about 30%. This is not what we see in the market, and it is also not what the people who offer this argument say. They claim, on the contrary, that Apple somehow gets its 15 extra margin points by selling products which are similarly priced. It is not possible. The only place these margin points can come from is the customers.
Does this mean Dell and its peers are selling a commodity, like generic aspirin, and doomed to compete solely on price? Does it mean Apple is selling solutions and Dell a commodity or components? No. Dell et al are selling solutions, competing on all elements of the product mix, in a market which is very price competitive. It’s different. Dell strives to be the low cost producer, but that does not mean it competes on price. It doesn’t even mean Apple is not selling a commodity. There is a difference between having eliminated competition for a commodity you sell, and it not being a commodity at all. Ask De Beers! However, keeping these prices and these margins and eliminating competition does have its own price. It’s called elasticity, and it has limited Apple’s sales and market share by lowering demand.
Second, is Apple’s a more viable model? No, there is no evidence at all for this. We have seen from Morningstar that Apple has not performed any better than Dell. We’ve seen from the Ars Technica material that the Dell model accounts for some 97% of global PC sales. Apple is the only survivor using its business model, and no-one has tried to enter the industry recently using it. What the HP/Compaq merger, and what the well publicised difficulties of some suppliers shows is, that it is a very competitive market. Margins are thin. Players get into difficulty. Sometimes they go bust or merge. But this is not the model being unviable or vanishing. This is the model working. What would prove the model to be unviable would be new entrants supplying OSs which would only run on their hardware, and for players with this business model to start dominating the PC market.
Relax, there is no sign of it happening, and there has not been for twenty years.
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It has dick to do with snobbery and everything to do with a tight control on your sales numbers. Apple started out with conventional distribution channels, and they got murdered every time they tried to go back to it.
When they experimented with the clones, they had to kill the program because instead of servicing the server market as intended, the cloners went after the desktop market and undercut their own PowerPCs.
By largely selling Macs through their own channels, Apple has a crystal clear picture at any given moment of what’s selling and what isn’t, and some of Apple’s darkest moments historically were the result of upper management only finding out too late what was gathering dust on shelves.
I don’t think the industry structure’s going away, but trends change and companies survive by accepting that change and die when they can’t.
My bad experience with Dell is the unbelievable amount of unnecessary variation under the hood: incompatible PC100 RAM, mobos without USB jumpers, inconsistent standards on specifying master/slave configurations, BIOSes that don’t understand large HDs, built-in video with wretched lowest-common-denominator features, even nonstandard bay faceplates. The worst I ever had to deal with when buying hardware for a Mac was putting the model number through a RAM configurator.
Dell ram is annoying.
There are models that I can have “exact” replacements for, and it still will not work. Same clock and everything.
Alcibiades makes good points, but still I wonder if we’re not just feeding that variety of troll known as the “tech journalist” by even referring to articles like the one by the guy, Kress. We all know it’s the thing to do in tech journalism to be either stirring the pot and digging up old flame wars like microkernel vs monolithic, or simply predicting doom for this company, that product, etc. It never fails to attract our attention, but also ensures it remains omnipresent. Would we all not be better off to simply ignore these kinds of articles and maybe encourage them to write about something more worthwhile?
Would we all not be better off to simply ignore these kinds of articles and maybe encourage them to write about something more worthwhile?
Topic writing 101
1: Write a good article to provoke intelligent reposnses.
2: If you can’t do #1, then write a inflamatory article.
3: Result: Hit traffic.
Linux. While Apple’s OS10 is a great OS,(arguably the best one out there) people just don’t want to be locked out of their boxes as they are with OS10.
With Apple, that’s Apple’s OS.
With Linux, that’s *MY* OS.
Which would you choose? Ownership? Or a permanent loan? I personally have chosen Ownership.
And by “savior”, I mean the break of MS’ dominance. Firefox has shown the way, and provides a first step into OSS. While it might be small steps, slowly, linux is gaining users and marketshare wheras the mac platform is not.
Edited 2006-05-30 21:12
Linux is gaining marketshare among nerds like us who compose a statistically invalid sample and don’t usually influence PHBs. Even showing people a MythTV and the cost doesn’t interest them in Linux. I know veteran UNIX programmers who can’t be bothered to experiment with Linux.
OS X gains tiny marketshare among nerds who want the friendliest desktop UNIX they can imagine, but its real marketshare are college students who want simplicity, convergence, and the appearance of freedom. These people will buy more Macs in adulthood, and don’t see political issues in it.
Each new Windows flaw or virus that makes the news sells Macs. Period.
Gamers stick with Windows because they have to, but their noise online is disproportionate to the actual size of their niche, a market served by unstable businesses and given to periodic market collapses.
There’s room for everyone on this ride, but Linux is an unknown quantity to most people and its lack of a common platform or trusted vendor will keep it that way for a while. Apple’s inability to embrace corporate markets will keep it inside a small proportion, but one it knows how to manage. Windows has nothing more than inertia and FUD to hold its place.
You need to look outside of the ghetto of the consumer desktop market. The Linux install base has grown faster than any other OS in history (unless you count Symbian). No, not on the desktop, but the desktop represent a tiny fraction of overall computer market.
You’ve apparently never handed out Knoppix disks.
More often than not, you raise eyebrows.
Most people have had some sort of expensive or even catastrophic(in their view) event surrounding their computer and/or OS and would be much more willing to give something else a try if they knew something else even existed. Remember, Linux doesn’t have mindshare.
You say “linux” most will reply with “what’s that?”.
I’ve handed out tons of Knoppix disks, both CD and DVD. People look impressed when I show them off but never have the nerve to check them out on their own. Not one has asked me to repartition for a dual-boot. There’s a line between impressed and willing to leave their comfort zone.
Hmmm, maybe it’s where you live. There could be many reasons but I do know I’ve had a different response than that.
They’re impressed that an entire OS and suite of applications including drivers for their devices fits on one piece of optical media, but are generally afraid of trying it out themselves. I live out in the mountains of Arizona.
At this point I’ve given up trying to impress people and am increasingly motivated to take their old “broken” boxes off their hands; I’ve managed to build a MythTV out of one for cheap.
The Mac’s market share has not flat-lined.
For evidence:
1. Use of the Mac’s default browser, Safari, has increased 75% over last year and is now the #3 browser behind IE and FF.
2. Last year, the Mac’s sales share was growing at 2x the rate of growth for the overall PC market.
On the other hand, I haven’t seen any reports to indicate a surge in Linux desktop adoption (other than “this is the year for Linux on the desktop blah blah”).
The browser quotent doesn’t seem very relevant given Apple’s 2% of the market. Safari could never have more than 2% even if 100% of mac users used it.
And Mac sales share isn’t all that relevant either. It is, but it isn’t. Their sales are increasing but their marketshare isn’t. If they released OS10 for the masses, then they’d gain both market and sales share.
===========On the other hand, I haven’t seen any reports to indicate a surge in Linux desktop adoption=============
This entire article is self explanatory….
http://www.wired.com/news/mac/0,2125,64504,00.html
Whereas this one,
http://channels.lockergnome.com/linux/archives/20060518_xandros_see…
It’s what’s part of the article that’s relevant.
—————-DC forecasts that the market for new and redeployed PCs running Linux will grow to $10-billion (U.S.) and 17 million units by 2008, with an installed base of more than 42.6 million units.———–
That’s not servers. And keep in mind, according to apple themselves…..
http://www.businessweek.com/technology/content/jan2004/tc20040126_9…
They’ve only got 25 million users.(which very likely is 30 mil now)
So clearly Linux is head of the game.
Apple zealots on the run?
The post from halfmanhalfamazing is not offensive, not off topic, does not contain spam or advertising, sooo… Why mod it down, unless it’s because some disagree with his view? But disagreeing is not a valid reason for modding down, so that can’t be it
In order to figure out the actual Mac number of OS X desktops, I’d like to look at the browser marketshare. To me it seems to indicate a Mac OS X userbase of 3-4 % and not 2 %.
From Mercury News (Steve Langberg):
“Meanwhile, the two research firms that track computer market share — Gartner and IDC — are in close agreement on Apple’s decline.
“Gartner puts Apple’s 1996 share at 4.6 percent, IDC at 5.1 percent. Market share in 2005 was 2.2 percent from Gartner and 2.3 percent from IDC. According to Gartner, Apple’s market share peaked at 15.8 percent in 1980 — four years before the Mac was introduced…..
“Apple is somewhat stronger in U.S. consumer market share, with Gartner giving Apple 5.8 percent in 2005 and IDC at 2.9 percent.
“It’s also worth noting that Apple’s worldwide market share did move up slightly last year from 1.9 percent in 2004, according to Gartner, or 2.0 percent, according to IDC.
“That’s because Mac sales are exceeding industry growth rates. Apple shipped 38 percent more Macs in the fiscal year ended Sept. 24, 2005, than in the prior year, and shipments were up 20 percent in the last three months of 2005.”
It is not what the article is mainly about, but it is not disputable.
“With Linux, that’s *MY* OS. ”
Amen.
Apples and Oranges …..
not more.
Apple makes stylish tech equipment, for a small group who is willing to pay Apple’s prices, because they think that what they get is worth it.
Anyway, Apple has to keep on releasing clever product lines to stay alive, while Dell is doing it’s buisness at corporate level, where the only counting arguments are the price and the service (what isn’t a real argument when the price is low enough and all competitioners are as bad as you).
Sorry for my English.
-pady
Edited 2006-05-30 21:30
Even if Apple were catering to the corporate market I don’t think they’d follow the same methods Dell has. You are correct in pointing out that Dell mimics Microsoft in simultaneously targeting two markets (home and corporate), but it bears notice that the markets are diverging enough to make one business model for both unfeasible. Corporate markets need consistency more than new features, and Windows has suffered for this ever since 98 and NT were merged to form XP.
Where the comparison is valid is to observe how a more targeted product manages to serve its base while making drastic changes in its software and hardware frameworks, compared to the difficulties of being all things to all people even when the architectural changes are comparatively minor. The trick here is to stop thinking of Dell and Microsoft as separate companies, since their goals and markets are indivisible.
Walt Mossberg was specifically addressing whether the end-to-end or component model was better for NON-PC devices. Alcibades’ so-called “rebuttal” relies almost entirely on stats regarding the PC (marketshare, etc.), while ignoring the statistics for the actual kind of device Mossberg was talking about (e.g., the dominating marketshare statistics for the iPod/iTunes/iTMS).
Also, it is not true that there is no difference between the end-to-end and component models (for PCs or non-PC devices). The difference is that in the end-to-end model), one party is responsible for integrating and supporting everything. Even though Dell sells you a PC with a bunch of apps installed, they don’t support all the apps. YOu have to go to the the third-party app provider, if not from the get-go, definitely once you upgrade the app. With apple, they support everything for as long as you own it – the hardware, the OS and most of the key apps everyone uses.
In the end, we’ve got here just another sloppy piece from an open hardware, techie zealot that can’t accept the facts when it comes to the end-to-end model — the model is simpler for non-technical users that just want to use their device (mp3 player, phone, whatever), without a bunch of glitches and fingerpointing among multiple component providers when something goes wrong.
Another point worth noting is that while alcibades makes note of the higher apple margins compared to Dell, he ignores the 80 percent plus profit margin generated by MS on windows. Further, the idea that the mac is insulated from competition is absurd. Apple/the mac was almost put out of business by wintel. Apple has to constantly strive to offer something more than wintel, otherwise people will not even think about buying a mac (because of the somewhat higher prices and perceived/real compatibility issues).
Edited 2006-05-30 21:58
PC or Non-PC, it’s irrelevant. The music industry has always been a commodity market. Being tied to Apple hardware when purchasing from iTMS is, in principle, no more acceptable than it would be if I were to required to purchase a Virgin branded CD player to play CDs bought at a Virgin Record store and a Wallmart CD player to play music bought at Wallmart.
Once the novelty of online distribution wears off, consumers will demand the same type of interoperability they’ve always had with music.
They have it.
It’s called an audio CD. You can make one right from iTunes.
Or use the analog hole and your cutting-edge 8-track recorder. Whatever suits your needs.
If you want the full quality of the original file you downloaded, you have to play it through iTunes or an iPod, or just leave the house and get a real CD, but it’s not like people are buying iPods because they’re locked in. They buy them because they’re better. Fairplay just offers much more flexibility than WMDRM ever will.
They have it.
Only if you find a further degradation in sound quality an acceptable trade off for the interoperability you’ve had all along. I don’t and I see no reason to believe that consumers in general will over the long run.
Fairplay just offers much more flexibility than WMDRM ever will
False. On the technical side, MS’s DRM scheme offers a greater range of enforcable policies than FairPlay, making it more attractive to publishers, and it’s available on a far greater range of devices, which will eventually win over consumers.
Hello! McFly! Anybody home?
I think the previous poster was referring to more flexibility for the consumer. Guess what? He’s correct.
Your statement about MS’s DRM only amplifies why Apple’s scheme has been more successful. MS provides more flexibility for the content provider, therefore, it creates more confusion for the consumer.
Fair enough. Seen from that angle, his comment does make more sense. In any case, it does nothing to undermine my primary contention that broad interoperability will inevitably win out.
False. On the technical side, MS’s DRM scheme offers a greater range of enforcable policies than FairPlay, making it more attractive to publishers, and it’s available on a far greater range of devices, which will eventually win over consumers.
Not gonna happen. MS DRM is dead, just no one bothered to announce it yet.
I worked with Windows Media DRM (Janus to be exact) on a development level and with customers directly. Its a wash. The SDK is about as a solid as using quicksand for the foundation of a house. Look at the support forums of any company using windows media DRM and you’ll see post after post about licensing issues, tracks that suddenly become unplayable, device licenses that expire without rhyme or reason, Burn rights that fail. Its a wash out.
Customers get confused with all the different ‘policies’. They don’t get that one track might be transferable to a device, but not burnable to CD, or burnable to CD but not transferable to a device.
Windows DRM is NOT reliable and it has so many licensing options that it does nothing but confuse users.
Not gonna happen. MS DRM is dead, just no one bothered to announce it yet.
Someone should tell DoCoMo. They just picked MS DRM for all Japanese cellphones that have DRM.
Someone should tell DoCoMo. They just picked MS DRM for all Japanese cellphones that have DRM.
It might work out for them on a cell phone, the licensing can be simplified enough.
I was speaking more directly about home computing, where you have different ‘policies’ for different songs,artits,albums etc. etc. Its confusing for consumers and the companies who are using it are paying the price in support trying to sort it out for consumers, not to mention the unreliability of Windows DRM.
Yes, DoCoMo decided to use MS DRM, but none of the limitations of it will apply. That’s because NTT’s cell phone division rocks just about the most closed and proprietary system since life emerged from the sea.
NTT (DoCoMo) will control every aspect of what handset manufacturers (are allowed to) deploy, so whatever they choose in terms of what the user can do will be all that there is. Limiting on the one hand, but it will also save them from the morass of unlimited and confusing options that the consumer is expected to sort out.
It is in many ways even more closed than the iPod. A key aspect of the iPod missed by a lot of discussion here is that it IS comatible with a ubiquitous, widely-used and free (in real-world terms, although not legal ones) format: MP3.
Don’t like Apple’s DRM? Buy a CD. (Or, if you don’t mind burning for eternity in the fires of Hell, go on BitTorrent/Napster/Whatever.)
What you are trading your freedom (to burn, copy to X device, etc.) for, with DoCoMo or Apple, is the ability to buy songs electronically. You don’t have to load your iPod with Apple AACs, and you won’t have to load your NTT phone with Windows Media files (although in NTT/DoCoMo’s case, there are credible rumors that barring handset makers from supporting MP3 was discussed). Go MP3.
One could have fairly said much the same thing about Windows 95, or NT for that matter, eh? The technical kinks will be worked out (mostly) over time, and de facto standards of rights management policies will eventually coalesce around proven business models.
In any case, the determinant factor at play here isn’t going to be technological; it’ll be economic.
The Microsoft model for online distribution of audio and video would situate them in roughly the same role that Phillips occupies in the CD market. Microsoft seeks to extract a licensing fee from a commoditized standard, which is already the status quo in the consumer electronics market.
The Apple model, on the other hand, would result in a Cupertino based monopoly controlling the entire retail distribution chain as well a crucial component in the the consumer electronics market. Of course, that’s the nightmare version. But no need to worry…I think it’s pretty safe to say that the idea of Apple assuming the role of every record store and replacing every manufacturer of CD players to be exceedingly unlikely.
As of right now, the market could be said to consist of Apple and The Rest. But the greater Apple’s successes in the early phases of the game, the greater the collateral pressure for The Rest to coordinate their efforts around commoditized standards.
Also, don’t forget that the small handful of major content cartels will have a pretty decisive say in how things will turn out. Do you think it’s likely that the interests represented by the MPAA will choose negotiating retail distribution contracts with a single monopoly player rather than with a broad array of independent interests?
Or maybe Jobs will end up making the smart play and open up the FairPlay licensing for other hardware manufacturers and retailers. In that case, all bets are off.
Edited 2006-05-31 06:43
Only if you find a further degradation in sound quality an acceptable trade off for the interoperability you’ve had all along. I don’t and I see no reason to believe that consumers in general will over the long run.
Which is why I buy CDs, and then rip them in iTunes so I can listen to them on my iPod. People who buy from the iTMS have their own reasons. For one, it’s instant music that may be hard to find in stores. Or maybe because they just want one song and not a whole album. Or again, because you get the neat previews and then can’t resist the impulse buy. But I think the big seller is that “plays for sure” is a fact, not a slogan. If they currently or ever don’t have an iPod, they can burn a CD for the car, or hook up a Mini or any other computer to a stereo. It’s a few clicks to move their entire downloaded library to a new computer. Also, on top of being the best service, iTMS has a great amount of momentum. Other music download services may be gone in the morning.
False. On the technical side, MS’s DRM scheme offers a greater range of enforcable policies than FairPlay,
What good is a range? Customers don’t get to choose which DRM policy their files will have on them. Fairplay has one policy, and it’s very pro-consumer.
making it more attractive to publishers,
Because they can more effectively restrict the customer’s freedom. This is why a “range” is bad.
and it’s available on a far greater range of devices, which will eventually win over consumers.
You’d think so, but it ain’t happening. The iPod gets more popular with each iteration. MP3 players that aren’t iPods are a true anomaly in the wild.
Once the novelty of online distribution wears off, consumers will demand the same type of interoperability they’ve always had with music.
Or simply demand that DRM is not used; the only people who want it are the music industry – the tech industry? hell no, its yet another damn thing they have to maintain, audit and provide security updates for, the less they have to worry about, the better; the last people who will want DRM, along with consumers, tech companies.
At the same time, however, tech companies know that if they don’t provide DRM technology/facilities, the chances of them being able to offer online services, music players etc. would be gone.
If people *really* wish to vent their anger at the DRM issue, target it at the companies who are demanding that DRM to be used; simply refuse to purchase their music; purchase off independent labels who refuse to offer their music protected by DRM, who offer vanilla mp3’s for download rather than extorting money out of customers per month as with the subscription models do today.
Agreed. With the exception of DVDs, where the protection scheme is trivial to circumvent and there exists no other alternative, I personally refuse to purchase DRMed media. While I find it heartening that eMusic is doing as well as it apparently is, I think it’s highly unlikely that major content cartels will agree to such a distribution scheme anytime in the near future (although that might be their eventual undoing).
Also, while I’m kinda reflexively opposed to DRM, I must say that I have a hard time seeing anything inherently wrong with rental models such as the ones currently used by Napster and Real. The price is still too high for what you get in my view (not to mention that their services aren’t available on my operating system of choice), but the model itself seems basically fair to me. If Netflix were to sell a closed piece of hardware and corresponding service which downloaded DVD quality video from the internet and allowed me to select from among their entire catalog (essentially changing their turnaround time from 48 hours to 4 hours), I’d be very tempted even if the device was heavily locked down and limited to playing the content on a single display.
True, and I think at the end of the day, people like us ask, “we are we being punished for the actions of a few” – the thing is, people will pirate regardless of what the laws are and what technology is used.
…are doomed to be eaten alive by them.
The computer market is, with a few important provisos, a commodity market. Apple has long been a niche player in the computer market because it has opted to fight the inevitable by offering a so-called end-to-end solution. It’s often said that Linux has been the primary cause for the flat growth seen in the Unix market over the last 6 years, but that, I believe, misses the primary economic motivator at play: commodity hardware. Sun didn’t lose business to RedHat because CIOs picked Linux over Solaris, but because Linux was “good enough” while enabling a transition to commodity x86 hardware.
As regards music, it should be noted that the overall music industry has been a classic commodity market for a very, very long time. While the music itself is arguably not an interchangable commodity (a position which can tough to maintain after listening to radio for an hour or two), it is distributed in the form of standardized media (or standardized radio broadcast protocols) available from numerous suppliers and played on standardized equipment available from numerous suppliers.
Although Apple has done a surprisingly good job (much better than Sony’s similar attempts) of leveraging its first mover status in the newly emerging market for online distribution so as to counteract the economic pressures which inevitably lead to market commoditization, they will fail in the end. I have absolute confidence that 5 years from now iTMS will be, assuming it still exists at all, a bit player in online music distribution. Unless, of course, Steve Jobs overcomes his allergy to commodity markets and allows FairPlay to be widely licensed to any device manufacturer who wants to implement it. Otherwise, in 5 years time MS’s Play for Sure DRM scheme will be ubituitous. Your cell phone, your TV, your computer, your car, your wristwatch, and maybe even your toaster and refrigerator will all interoperate with each other and your Play for Sure media, while iTMS purchased media will locked into to a couple of devices.
As companies, I don’t particularly like either MS or Apple, although I would generally pick Apple as the lesser evil. I also don’t like DRM, but I’m not naive enough to believe that it’s going to go away. If there’s going to be DRM, MS’s offering is far more beneficial to consumers than is Apple’s. MS is content to get a small part of a lot of pies, but Apple only wants to play in markets where it gets the entire pie.
I used to read arguments like this in economics classes, usually in the context of demonstrating particular fallacies. Much of your argument depends on what makes the most sense to you. Commodity markets overtake non-commodity markets because they’re a more sensible business model.
Unfortunately, our elections prove that consumers don’t make their choices based on those reasons. Comfort, price and inertia play a larger role in those decisions. Apple didn’t get out of traditional retail because they weren’t getting a big enough percentage of sales, they got out because it didn’t work for them. Repeatedly.
The iPod is overpriced, its newest features are routinely cribbed from hackers who’ve demonstrated them on previous models, its product life is ridiculously short, and yet it’s still the dominant music player, iTunes is still the dominant vehicle, and the government of France blinked in a staring contest. Either you have to accept these facts and adjust your understanding of markets accordingly or make up some “people won’t stand for this forever, you know!” response that dismisses it. Pick the more intellectually honest one of the two.
Music players aren’t computers. They don’t adhere to any platform and so far there hasn’t been a reason for vendors to adopt one. They don’t have to be built to a particular set of specs and run a familiar OS, so your comparison of consumers to CIOs is nonsensical.
If you truly believe building an OS to the widest distribution of hardware available is a market-building strength, look at Linux and Microsoft. One OS has to reverse engineer chipsets and the other’s vendor has to sign NDAs with the manufacturers of those chipsets. It’s a technical nightmare at times.
Your other fallacy is extrapolating long term trends from short term trends. What happened during the 90s was a short term trend. Cheap PCs on a common platform made it possible for Windows to dominate. Short term, it worked beautifully. Long term, it yoked the Windows OS to a platform they have limited control over.
When it works, it’s beautiful. When it doesn’t, it sucks terribly. People actually care about those things and remember them when buying their next PC. And on that subject, those commodity PCs only last 36 months before most of their owners are convinced they have to be replaced, and that accounts substantially into market share. I kept a Mac running the latest OS from 1995 to 2002 and the upgrades still cost less than replacing the system.
No offense, but I’m having a very difficult time making much sense of your comment. I’ll try and respond insofar as I can.
Commodity markets overtake non-commodity markets because they’re a more sensible business model.
Yes and no. Commodity markets don’t necessarily make more sense to producers. Producers generally fight commoditization over the short term. Consumers though are greatly advantaged by commodity markets, which represents the economic pressure that normally leads to commoditization.
Unfortunately, our elections prove that consumers don’t make their choices based on those reasons. Comfort, price and inertia play a larger role in those decisions.
Are you speaking of rational choice models? Genreally speaking, I have a lot of objections to rational choice theory (although it is a useful assumption for constructing certain models).
Either you have to accept these facts and adjust your understanding of markets accordingly or make up some “people won’t stand for this forever, you know!” response that dismisses it. Pick the more intellectually honest one of the two.
Nothing I’ve said ignores the fact of Apple’s present dominant status. Instead I’ve presented the opinion that, absent a change in position over the licensing over FairPlay, they will eventually fail.
Music players aren’t computers. They don’t adhere to any platform and so far there hasn’t been a reason for vendors to adopt one. They don’t have to be built to a particular set of specs and run a familiar OS, so your comparison of consumers to CIOs is nonsensical.
Sorry, I can’t make sense of what you’re saying here.
If you truly believe building an OS to the widest distribution of hardware available is a market-building strength, look at Linux and Microsoft. One OS has to reverse engineer chipsets and the other’s vendor has to sign NDAs with the manufacturers of those chipsets. It’s a technical nightmare at times.
And yet that business model, whatever technical difficulties it may involve, represents well over 90% of the entire market. I’d say the market has chosen a winner.
Your other fallacy is extrapolating long term trends from short term trends.
Please point out to me one single instance over the last century of a commodity market which has shifted to a non-commodity market. (hint: there isn’t one)
Please point out to me one single instance over the last century of a commodity market which has shifted to a non-commodity market. (hint: there isn’t one)
Never say never. The market for high-end steel string accoustical guitars is a counter example. As recently as 1990, the market was dominated by a small number of commodity manufacturers, most notably Martin and Gibson.
Due to many factors, there has been a rebirth of luthier-built guitars, and in 2005, more custom high-end guitars were sold than factory manufactured guitars in the same category.
Interesting. I stand corrected…but you know what they say about exceptions proving the rule.
Nothing I’ve said ignores the fact of Apple’s present dominant status. Instead I’ve presented the opinion that, absent a change in position over the licensing over FairPlay, they will eventually fail.
The successful companies in the computer business have been the ones whose business models evolve to at least some extent. That said, Apple’s core business model has been stable for them, and their core business is selling hardware which doesn’t require a nerd to help you with it. That’s a two-part sentence and the first clause is the linchpin. Because the second clause holds true, they haven’t had to ally themselves with enormous distributors to stay alive. Remove either part and the model disintegrates. While Apple has changed their PR repeatedly over the years, the general impression of what their product line stands for hasn’t. Apple brings you the power to do X without having to learn Y.
Pundits foam at the mouth telling everyone that Apple should compete on the same terms as a software company with virtually no overhead whose primary markets are hardware manufacturers and corporate customers. Microsoft’s revenues are at least two-thirds inside sales, and the poor adoption rate for upgraders in both the OS and office suite bears this estimate out.
Back to FairPlay. No company in its right mind is going to give up an advantage until either market pressure or litigation forces them to. What I fail to hear from anyone predicting iTMS’ demise is the exact mechanics of it happening based on current trends, or anything other than the nebulous threat of Microsoft suddenly overtaking a market they’ve had years to penetrate without demonstrable success. Dell had every economic and distribution advantage on their hands and still blew it completely.
First to market is not to be underestimated.
“Music players aren’t computers. They don’t adhere to any platform and so far there hasn’t been a reason for vendors to adopt one. They don’t have to be built to a particular set of specs and run a familiar OS, so your comparison of consumers to CIOs is nonsensical.”
Sorry, I can’t make sense of what you’re saying here.
Your earlier post made an analogy of CIOs buying PCs rather than Macs to music players, and I was reminding you that analogies are illustrative devices to explain an unfamiliar concept by showing a familiar one, but they are NOT to be used as a logical proof. Computers, mobile phones, and music players are markets covered by the same news outlets and manufactured by the same kinds of companies, but there’s a repeated logical failure on the part of pundits who assume that the market forces in each area are substitutable. They aren’t; Dell can’t sell music players and Apple can’t sell ROKRs.
“If you truly believe building an OS to the widest distribution of hardware available is a market-building strength, look at Linux and Microsoft. One OS has to reverse engineer chipsets and the other’s vendor has to sign NDAs with the manufacturers of those chipsets. It’s a technical nightmare at times.”
And yet that business model, whatever technical difficulties it may involve, represents well over 90% of the entire market. I’d say the market has chosen a winner.
1. Anthropomorphizing an abstraction of complex phenomena to explain its actions is the business of religion, not economics. That’s why I quit the major with a 4.0 average and half my credits finished. “The market” is not a person any more than Lady Luck is.
2. If you’ve learned anything in econ, it’s that things always change and the losers are the ones who cannot see it coming or resist it. What works beautifully now may have less of a competitive edge five years in the future. The phrase “all other things remaining equal” depends on the word ‘remaining.’
3. Mediocrity usually wins out because it’s easiest to maintain and cheapest to produce. This isn’t sour grapes, it’s a definition of free market capitalism. Never laud a product based on how many units it sells.
Pundits foam at the mouth telling everyone that Apple should compete on the same terms as a software company with virtually no overhead whose primary markets are hardware manufacturers and corporate customers.
I’ve made no complaint about Apple’s business model for selling computers. It’s not a scalable model, but it’s worked well enough keep Apple in business servicing a small but not insignificant niche.
What I fail to hear from anyone predicting iTMS’ demise is the exact mechanics of it happening
As I’ve stated elsewhere, under the assumption that DRM protected media, whether distributed online or on a physical medium, will eventually grow to replace the current model of unprotected media distributed on CDs, were Apple to continue to dominate the market for DRM media to the same extent they currently do, it would result in an Apple monopoly occupying the role currently played by every record store and every manufacturer of CD players.
There are purely economic reasons why such an eventuality is highly unlikely, mostly having to do with market efficiencies, but the most immediate reason is that the major content cartels (RIAA, MPAA, etc…) will never allow it to happen. And it is largely going to be the content cartels, not Apple, who will exercise the deciding vote in determining how the distribution model for DRM protected media eventually works out.
Would you rather negotiate licensing and distribution agreeements with a monopoly interest or an array independent vendors and various industry consortia?
As of right now, Apple and MS are the only games in town for DRM. While Apple’s licensing of FairPlay would result in an Apple monopoly position clearly contrary to interests of the content cartels, MS’s offering allows for what is essentially a continuation of the status quo in the existing market for media distribution; multiple retail channels and multiple hardware manufacturers competing with one another around standardized and interoperable media.
he nebulous threat of Microsoft suddenly overtaking a market they’ve had years to penetrate without demonstrable success
The installed base of devices more-or-less compatible with MS’s DRM is already larger than the install base of devices which work with Apple’s scheme (eg., cell phones, DVD players, game consoles, computers, MP3 players, etc…). What’s missing currently is a corresponding retail channel, although you might say that Apple is currently working the kinks out of the basic business model and doing the heavy lifting in generating initial consumer interest, which others will in good position to capitalize upon a little further along in the game.
First to market is not to be underestimated.
Agreed. I don’t want MS to win this war. Actually, I’d really prefer almost anyone else win this war. Apple could, if they were license FairPlay under RAND terms to other retailers and hardware manufacturers, give MS a serious run for its money. But by sticking to an end-to-end business model, Apple is ensuring that it will never grow beyond a niche player and, absent the arrival of another serious contender, is all but handing MS the win.
analogies are illustrative devices to explain an unfamiliar concept by showing a familiar one, but they are NOT to be used as a logical proof
Absolutely true. Economics doesn’t traffic in logical certainty or analytic truth; it arbitrates among competing claims according to standards of statistical probability predicated upon models derived from material inferences, which are themselves not fully interpretable in a formal sense (the problem of the “hidden variable” being a pretty much intractable one within the domain of economic inquiry).
We must deal with limitations of the tools we have at hand.
there’s a repeated logical failure on the part of pundits who assume that the market forces in each area are substitutable
That’s not an assumption which I’ve made. At least not knowingly. My prediction of Apple’s inevitable marginalization in the media distribution market isn’t based upon a specious analogy with the computer market, but is instead premised primarily upon the fact that they are offering a distribution channel which, when compared to the status quo, disadvantages consumers, cuts many powerful and heavily vested interests out of the loop, and which would result in severly diminishing the relative power of the single most important and powerful players (eg., the content cartels).
Anthropomorphizing an abstraction of complex phenomena to explain its actions is the business of religion, not economics.
My anthropormorphism (“the market has decided”) was simply a turn of phrase intended to serve as shorthand for an aggregate statistical phenomenon arising from a large number of individual choices distributed across many autonomous agents.
Mediocrity usually wins out because it’s easiest to maintain and cheapest to produce. This isn’t sour grapes, it’s a definition of free market capitalism. Never laud a product based on how many units it sells.
Au contraire. Mediocrity coupled with the economies of scale attainable in commodity markets uniformly represent a greater collective good, measured both in terms of wealth and utility, than technical excellence which remains the exclusive purview of a select few. In other words, interoperability beats innovation in all but a few corner cases.
As companies, I don’t particularly like either MS or Apple, although I would generally pick Apple as the lesser evil. I also don’t like DRM, but I’m not naive enough to believe that it’s going to go away. If there’s going to be DRM, MS’s offering is far more beneficial to consumers than is Apple’s. MS is content to get a small part of a lot of pies, but Apple only wants to play in markets where it gets the entire pie.
Where is Microsoft playing for small portions? They have the majority of the market on operating systems, office suites, and web browsers. They’re desperately pushing to hold on to the web browser dominance and for more control of game systems, servers, and multimedia. If Windows Media catches on, it’ll be a disaster for consumer choice. MS doesn’t even offer a basic player for a second platform anymore. Anyone with Windows Media is forced to use Windows, period. How is that beneficial to consumers?
Where is Microsoft playing for small portions?
Every single transaction in which MS profits involves other players, each of whom profits more than MS does (harware OEMs, consultants, third party software publishers, systems integrators, etc…).
If Windows Media catches on, it’ll be a disaster for consumer choice
Speaking as Linux user, I’m sympathetic to this claim. That said, an MS victory in the DRM standards war is far better for consumers in general than an Apple victory (Linux user lose either way).
MS doesn’t even offer a basic player for a second platform anymore.
True, but what’s important is that they will license their DRM scheme to anyone for use on any platform. In fact, MS will license their DRM scheme to someone who wants to implement a compliant player on Linux (which already exist but only for embedded Linux use).
Anyone with Windows Media is forced to use Windows, period. How is that beneficial to consumers?
They can use Windows or the thousands of media devices which already support MS’s DRM. The door is also open to third parties to make compliant players for use on either Macs or Linux boxes.
Every single transaction in which MS profits involves other players, each of whom profits more than MS does (harware OEMs, consultants, third party software publishers, systems integrators, etc…).
I understand what you meant now about only controlling part of the process, but I don’t agree with this at all. If those services made more money, Microsoft would be doing those services. Pressing a copy of the bits they’ve written costs virtually nothing. Licensing it costs even less. With WMDRM, they’ve created a product that they can distribute on an infinite scale, making money whether the devices that use it turn a profit or go bankrupt. That would make for a lot more control over the customer and the industry than Apple has if it ever caught on.
Speaking as Linux user, I’m sympathetic to this claim. That said, an MS victory in the DRM standards war is far better for consumers in general than an Apple victory (Linux user lose either way).
Linux users will choose whatever device supports mp3 or vorbis. I admit Apple doesn’t make it easy for people without iTunes, but now that we have GTKPod, the device is just as usable with unprotected music for Linux users as it is for everyone else. There’s no reason to think the iPod will ever lock out unprotected files (and if it did, people would switch to RockBox), but with the quagmire of WMDRM devices out there, you can bet some others will. Remember when Sony tried this with ATRAC3? They’re still licking their wounds, and Apple is gaining at their loss. Less protection = more sales. Apple has been fighting the industry about the strength of their DRM for some time now, and the consumer is still winning.
They can use Windows or the thousands of media devices which already support MS’s DRM.
You mean Windows and one of however many devices. You can’t load DRMed files onto a DRMed device without a DRMed operating system, of which Apple supports twice as many as Microsoft. But Apple makes it easier to avoid DRM anyway. You can download and reassemble a CD or buy a real CD and rip it to an unprotected format. WiMP rips to MP3, but not by default. One reformat or migration where unsuspecting users find out their backed up music doesn’t work anymore, and it’s straight to iTunes. I’m sure quite a few happy iPod owners have WMDRM horror stories.
It is worth taking the time to look at them carefully. There can not be much argument about what they show. They show that for 10 years, Apple’s revenues and profits have fluctuated, but Dell’s have grown consistently.
Ok Steve Jobs hasn’t been back at the helm of Apple nearly that long, and just before that was a couple of total idiots of CEO’s who went for profits instead of market share.
From this, you can see that in computers, Apple is basically a no growth company. Apple sold around 1.4 million machines/quarter in 1999; there was then a decline to around 800k a quarter, which lasted for several years, and we are now back to the 1999 levels.
Actually since Steve Jobs has been back at the helm and all these Apple Stores have been opening up, Mac market share has gone up. Read the reports how well these Apple Stores are doing, or for cristsake go visit one yourself, they are all mostly jam packed.
Second, Apple considers itself a Consumers Product Company sure this is a smaller market share that BIG GOVERNMENT or BIG CORPORATION that can buy several thousand PC’s at a stroke of a pen.
The needs of general consumers is different than the needs of BIG X.
[i]The revenue growth which the Apple chart shows is mostly due to iPod sales, which are now reported to be 40% of revenues.
I agree the invention of the iPod/iTunes combination is a great success for Apple. That’s how this company (under Steve Jobs) survives, through innovation and market domination for as long as possible. They need and will most likely continue, which is a great benefit for us consumers.
From the Ars charts, Apple PC market share was 4% in 1999, then fell, with some ups and downs, to a bit over 2% currently. There seems to be a lower limit of around 2%, but the trend has been steadily down for the last 5 or 6 years. In summary, Apple is not growing in computers, and its market share is falling.
Well first of all Apple caters to consumers, which tend to buy just one machine, instead of business/government which needs are different and buy in bulk. A business that wishes to have very little problems with their machines and can deal outside of the Microsoft software environment, with a bit of self customized software thrown in, can reap a much higher ROI than with cheap PC’s and Windows high IT costs.
In fact supposedly the installed base of Mac’s is closer to around 10-16% because they last and people don’t feel the need to “get a new computer” because their operating system is always appears messed up and complicated like it is on Windows PC’s
Another thing I read that Dells have a average turnover rate of 2-3 years compared to 3-5 years for Mac’s. So how can you count yearly market share by unit sales if your forcing your customers to prematurely upgrade?
My Dual 2 Ghz w/30″ has a low $500 year Total cost of ownership, and that’s a 3D gamers machine. What’s the use if one has to pay $1500-$2000 for a Dell every two years? Who really pays more?
Why has this happened? Two main reasons. Apple is in a distinct segment: the segment of the locked hardware/software combination. This segment has not been growing. The segment consisting of OS on hardware from a variety of sources has been growing. Second, Dell has executed better. It has controlled costs, increased share of its growing segment, and supplied what the market wanted in terms of total mix, channel, package, support.
Yes Dell caters to the larger, more multi-purpose big business and government markets. Apple caters to the smaller vertical, “appliance like” consumer market and art fields.
Is Apple growing as fast as the industry in the immediate past? If you look at performance in the last quarter, you will find the industry grew at 13% quarter on quarter, and that Apple sales declined 11% quarter on quarter. As you would expect, this shows that Apple is not converting large numbers of Windows users. The number of converts buying from the US stores has gone up a little, but this rise is some thousands per quarter as a percent of 1.1 million or so total sales.
It doesn’t matter, Apple caters to a niche market and that niche market will grow according to the overall growth of the general PC market. We Mac users don’t expect Apple to take over the world. We are quite happy with our market niche much like there is a BMW niche amongst the sea of everything else. There will always be a certain percentage of the population that will want something different that what everyone else uses, something better than Windows.
All that matter is Apple remains profitable with the success of the iPod and the Apple Stores being immensely profitable, it doesn’t matter too much that the market share is substantially less than Dell or HP or Windows. Apple has billions in cash, they are doing fine.
Apple is the last survivor in the PC space with this business model.
And the oldest, and still profitable and still going. Where is Compaq? Where is Gateway? Where is IBM PC division?
Who is providing new innovations to the computer industry? Dell?
Only Dell and Apple are making any profit in selling computers and Dell is eyeing Apple with worry since all those Intel Mac’s can now run Windows. They are changing their business model and opening Dell Stores!
Apple’s margins are about 30%, Dell’s are about 15%. Check out Morningstar to confirm this. It has also permitted Apple to milk the base. If you are locked into OSX, you have to pay the Apple price to get your next hardware. If you’re running Windows, you can get your next machine from anyone you like.
Uh one doesn’t figure in all the free software that gets thrown in a new Mac. Quality games, iLife software, the almost headache free computing experience (one Mac virus in 21 years for me) the hardware generally just lasts and lasts.
You pay a bit more upfront YES, but the yearly total cost of ownership is LOWER on most Mac’s because we turn over our machines LESS often!
Dell strives to be the low cost producer
Exactly and Apple (under Steve jobs) strives to be (and is) the industry innovator, it lives on the bleeding edge. It’s business strategy is different from Dells.
With the recent announcement of Windows running on Apple hardware, combined with all the Apple Stores. Steve Jobs pulled a neat trick and made Michael Dell most likely shit his pants. Steve Jobs is addressing the problems Apple had inflicted by years of incompetent management and direction and Apple is reaping billions.
<1>Second, is Apple’s a more viable model? No, there is no evidence at all for this. We have seen from Morningstar that Apple has not performed any better than Dell. We’ve seen from the Ars Technica material that the Dell model accounts for some 97% of global PC sales. Apple is the only survivor using its business model, and no-one has tried to enter the industry recently using it.[/i]
Apple business model has changed, now their machines can run Windows, which is the established OS in the major business and government markets.
Dell is just a PC vendor that rose to the top of popularity much like Gateway or Compaq or IBM did many years before them. Apple has always remained there despite all the “fad” PC vendors changes.
It’s market share would have been much better today if Steve Jobs wasn’t forced out of the company under John Scully and the incompetence of the later CEO’s.
Since Steve jobs has been back, the second coming of Apple is arriving.
Apple has already changed it’s processors, it’s business model and it’s OS. One might use the “old Apple” to reflect how it got to this state, but the future of Apple is extremely bright and the stock price succeeding Dells a few times goes to show it’s true.
Apple is green and growing, Dell is ripe and rotting.
Dang, hit the wrong button. We should be able to edit our posts, just a few minutes of time for edit/correction is all that’s needed.
Do you realize you use Steve Jobs in just about every one of your answers? So you’re basically saying with him around, Apple can conquer the world, but without him they’re dead in the water?
That point has some validity, actually. Macs are not sold as commodity hardware, but the average Mac is made up of commodity components. So how come Apple can sell computers for so much?
Well, there’s OS X, but it’s not a very popular OS, and it shows. No one writes viruses for OS X, but no one writes other software either. OS X definitely has a shockingly high amount of apps available considering its marketshare, but it still doesn’t come close to what’s available for Windows, and if you need just one app which is only for Windows, OS X is no good. And if OS X became more popular, then people would write viruses for it, and there goes one of the main reasons people would consider switching.
Alternatively, people are buying an experience. Everyone tries to sell their brand name, even Dell. Dell didn’t make the “Dude, you’re getting a Dell!” commercials just so we could make fun of them. No, what Dell wants is this: the next time you want to buy a computer, you say to yourself, “I haven’t bought a computer in a while, where do I even look? Hmm, how about that Dell?”
Apple, of course, is playing the same game.
But here’s the thing: if someone walks into a computer store, she’s probably going to decide which features she wants (and if the salesman does his job, he’ll convince her she needs a much better computer than she does, but that’s another story), and then buy the cheapest model that has them. Or she’ll pick a price point, and then buy the best computer that doesn’t cost more than she’s willing to spend. Either way, she’s looking for a good deal, and unless she’s had a particularly good/bad experience with one brand, she probably won’t pay much of a premium for the name.
In that respect, Dell has an advantage. If our hypothetical computer buyer remembers that someone told her good things about Dells (even if “someone” was a TV commercial), she’ll look online and find out that Dell is willing to sell her a much better computer for the same amount of money. And so there’s a good chance she’ll buy the Dell on price alone. Not to mention, maybe her friends actually told her good things about Dells, or maybe she likes that the computer will be delivered, or something like that.
Now, let’s say the computer buyer’s friend has a Mac, and so she decides to look at what Apple has to offer before making a decision. If she actually compares the Apple with the Dell, with no existing bias towards OS X, she’ll conclude that Apple is charging significantly /more/ than everyone else, and so she’ll stick with Dell.
But clearly, that isn’t happening, or else Apple would be bankrupt, not one of the most profitable companies in the business. What gives? It’s simple: Apple has gone to great lengths to make sure that its products (both computers and iPods) are /not/ comparable with anything else.
Yes, Macs are computers, and you can compare many of the specs; Apple can give you a computer with as many gigabytes and as much megahertz as anyone. But you’re paying a price premium for the “Apple experience” — i.e. for the privilege to be part of an exclusive club, which grants you some incidental benefits (fewer viruses, more appealing and consistent interface), but for which the main draw is just being in it.
Steve Jobs knows this well, and he seems to be the only person capable of making it work. If Jef Raskin had his way, the first Mac would have cost $500-$1000; instead, Steve Jobs won, and it cost $2500. When Steve Jobs first ran the company, he set up the foundations of what Apple is today. Now, he is the only person (all the other CEOs of Apple certainly failed) who can successfully convince people that it’s worth spending a huge premium to be part of this elite crowd.
I don’t mean to suggest that Macs aren’t good computers. I had an iBook for two years and loved it, and I recommended that my parents buy themselves an iBook and a Mac Mini (which they now use and love). But in every other market, cheap and standard has uniformly won, regardless of whether the alternatives were better. There is no more Betamax, period. Every house (in the US) uses the same type of electrical outlet. Cellphones are rapidly converging on GSM and its successors.
Even Steve Jobs couldn’t take over the world from Apple’s helm. But when he leaves, unless Apple finds someone with as much charisma and marketing talent, I really can’t imagine how Apple will be able to keep up its formula for much longer.
In fact, Steve Jobs’s efforts to standardize his computers’ components almost make me wonder whether he’s preparing for his eventual succession. A future CEO could decide to discontinue OS X and install Windows on all new Macs. Microsoft would be elated, and Apple wouldn’t have to worry about losing customers to more standard platforms. Apple could still be the BMW of computer makers — after all, BMWs drive on the same highways as everyone else.
Well, there’s OS X, but it’s not a very popular OS, and it shows.
Well because it only runs (legally, a generic PC version is available online) on Apple hardware.
No one writes viruses for OS X,
Well they try, but it’s difficult, if I was a hacker I would be glad to get a “name” for being the first one that did. Market share has something to do with not many people having access to Mac OS X to write viruses too. I’ll admit that.
but no one writes other software either. OS X definitely has a shockingly high amount of apps available considering its marketshare, but it still doesn’t come close to what’s available for Windows,
How many apps does one need? Really, think about it. Sure when it comes to games, Windows has the advantage. Because Apple never created a cheap gamers box.
and if you need just one app which is only for Windows, OS X is no good.
Depends if it will run under Virtual PC or not, now with Apple’s “BootCamp” if there is a piece of Windows software it can be run, in the malware Windows if necessary.
And if OS X became more popular, then people would write viruses for it, and there goes one of the main reasons people would consider switching.
Mac OS x is getting more popular and more exploits have been discovered and get patched quickly, but so far no viruses because the OS has certain compartmentialized security if you reseach more about it. Mac OS X is a new OS that addresses fundamental flaws that occurs in Windows that makes it so insecure. There are bugs, but there isn’t any structural flaws that can’t be fixed like Windows has.
I have fummed at Apple before because they haven’t checked their code enough to make sure the bugs didn’t make it into the world. But it’s immensly more secure than Windows will ever be because Microsoft understands the world wants insecure computers.
Well because it only runs (legally, a generic PC version is available online) on Apple hardware.
Is that the only reason? People buy new computers all the time, and most computers sold cost (excluding the monitor) more than $600. So people could buy a Mac Mini and have OS X if they really wanted to. The fact that Apple’s marketshare — i.e. not the installed base, but their share of current sales — has remained below 5% suggests that most people just don’t want to switch.
Well they try, but it’s difficult, if I was a hacker I would be glad to get a “name” for being the first one that did. Market share has something to do with not many people having access to Mac OS X to write viruses too. I’ll admit that.
Most viruses in Windows are pretty trivial. Back in the day, they were Word macro viruses; now, they’re either Outlook [Express] viruses, or just “human security holes”. Most of Kevin Mitnick’s “hacks” were just getting people to tell him his password. Similarly, the easiest way to write a “virus” on Windows is to include an attachment in an email; once someone’s opened it, your program has free reign.
Here’s one for you. What if I wrote a program that pretended to be a “fun arcade game”, which came with an installer, and then the installer asked for your password on installation (like many programs do), except the password dialog was actually a trojan horse that recorded your password and used it to do malicious things to your computer?
There’s nothing that an OS could possibly do about that. In this particular case, you could use the old NT strategy and require people to press Ctrl-Alt-Del or some other system-reserved key sequence, but the point is the same: if a user with local, privileged access isn’t paying attention, no system can protect them.
Mac OS x is getting more popular and more exploits have been discovered and get patched quickly, but so far no viruses because the OS has certain compartmentialized (sic) security if you reseach more about it. Mac OS X is a new OS that addresses fundamental flaws that occurs in Windows that makes it so insecure. There are bugs, but there isn’t any structural flaws that can’t be fixed like Windows has.
Do you mean the fact that OS X users don’t tend to login as root, and so have to authenticate themselves before doing anything that requires privileges? It’s certainly true that programs have to request permission before they can do anything destructive (although they could wipe out your entire Documents folder without asking for your password — which for most people would be a bigger loss than the OS), but that isn’t compartmentalized so much as effective use of sudo.
As far as exploits go, any program written in assembler or a language that uses C strings and arrays (i.e. C, C++, and Obj-C not counting NSString) will always have the potential for exploits. Get rid of C-style (dumb) arrays, and you’ve gotten rid of buffer overflows.
Clearly, in this respect, Unix and its brethren (OS X included) can’t do much better than Windows, although it can’t do much worse either. You want a secure operating system? Write it in Cyclone: http://cyclone.thelanguage.org/ . That’s security for you.
How many apps does one need? Really, think about it. Sure when it comes to games, Windows has the advantage. Because Apple never created a cheap gamers box.
Not many, but if again, if the one app you need is for Windows — or, hell, if you just own a lot of Windows software that you don’t want to repurchase — then OS X won’t do you an good.
Depends if it will run under Virtual PC or not, now with Apple’s “BootCamp” if there is a piece of Windows software it can be run, in the malware Windows if necessary.
With either Virtual PC or BootCamp, you still have to buy a copy of Windows. We’re talking serious money here, considering that a standalone version of Windows costs $200 for Home, and that’s not even counting the possible Virtual PC price. My entire computer cost less than that…
I have fummed at Apple before because they haven’t checked their code enough to make sure the bugs didn’t make it into the world. But it’s immensly more secure than Windows will ever be because Microsoft understands the world wants insecure computers.
Even if this statement made sense, which it doesn’t, you haven’t given any evidence. You haven’t seen the source code for either OS X or Windows, and neither have I. Anything we say about it would just be an educated guess.
What I can say (and have said) is that buffer overflows are common in any OS/program written in a language with C arrays, and that any user who has privileged local access to a system can fall prey to a human-level virus. Both of those statements apply equally to Windows, OS X, Linux, and in fact almost any OS I can think of. (btw, if anyone knows an OS written in something besides machine/assembler/C/C++, can you let me know? no, NT doesn’t count)
And my real point still remains, which is that even if OS X is better than Windows, it isn’t so much better that people would pay a premium for a Mac — and pay for Windows and/or new versions of programs they already own — except that they are also buying into an image. There will always be a market for that, but for the same reason that BMW drivers use the same roads and gas tanks as everyone else, I have every reason to believe that, without Steve Jobs at the helm, Apple will finish standardizing its platform too.
Is that the only reason? People buy new computers all the time, and most computers sold cost (excluding the monitor) more than $600
You should get a job selling PC’s for a month so you can see how completely wrong you are. I worked for Dell (worst job ever btw) at a inbound call center for home sales… Probably 9 out of every 10 callers wanted the $399 computer and if you pulled teeth you may be able to get them up to $500. Now the average price of a computer may be higher because when someone comes in not wanting $399 they generally drop a lot of money on a nice set up.
Do you realize you use Steve Jobs in just about every one of your answers? So you’re basically saying with him around, Apple can conquer the world, but without him they’re dead in the water?
It’s true, (well I don’t know about conquering the world) I’ve been with Apple since they began. I’ve seen the changes.
Steve Jobs saved Apple when he returned to the company.
The whole reason Apple is as it’s now with market share is because of other CEO’s decisions. “Apple was run by salesguys” as Steve ha been quoted as saying.
Micheal Dell has run the company from the beginging, only recently turning over leadership according to what I read online. So he fullfilled his vision and now he’s done.
Apple was denied the fruits of it’s founder, much like if someone ripped Walt Disney out of Disney after the first couple of animated movies were made, or the first few rides at DisneyLand. The imagination of what could have happened if things would have conitnued…
We all knew Apple could have been great, but denied it’s chance by betrayal by John Scully.
Apple brought a lot and still is brining a lot of innovation to the computing world.
I’m afraid though that Apple will have to become some sort of combination of Windows/Mac PC vendor in order to compete against the likes of Dell and sell enough hardware.
It’s sad. Steve has been preparing Apple for his eventual retirement.
Wall Street’s infatuation with advertising and marketing is probably why these articles are favoring Apple’s “business model.” Needless to say, Apple has had an amazing marketing success. Don’t underestimate the stupidity of these business “analysts”: they too are bamboozled by a nice ad, trying to justify their likes by some unintelligble economic theory. Remember the dot-com bubble? Even movers-and-shakers like Bill Gates thought a new era was being ushered where capital would be liberated from the needs of labor. Never happened.
On one hand, this article states that Apple is the only computer manufacturer using their business model, and indicates that because nobody else is using it, it’s a failure, while on the other hand, Dell and a lot of other computer manufacturers are using the commodity business model that’s more open, and stating that the “process is working” when there’s mergers and companies that go bust.
Now, think about it: Apple has been making and selling their own OS and hardware for much longer than many of these companies have existed, period, and while they’ve had some rough spots, they still exist, while their competitors have to merge or die in many cases. So, what the article is effectively saying is that having a different business model from every other computer manufacturer/solution provider where you survive is untenable and doomed to failure and is simply fatally flawed, while the “successful” business model that works on thin margins and competes against everyone else and their dogs is wildly successful and working properly when many of the businesses using that model must merge or die?
Furthermore, one could argue that in the past, Windows has been locked down to the common PC hardware that it has been sold to support, but now Apple has thrown a wildcard into the equation by providing a way for people to use Windows on their “locked-down” hardware that is supposed to be a DRM-based solution. Unless you’ve gotten a Not-For-Resale copy of Windows, it is locked down by activation to the machine you install it on, or at least it should be in theory. Really, how is that different? Ok, sure, the generic PC can also run Linux without a problem, and many other niche OS’s, but for the general computing public, there’s Windows, OS X, Unix, Linux, and all the rest are rarely even heard of. Well, the new Macintels can readily run Windows, OS X and Linux, and there’s enough information about their hardware specs that the only thing stopping people from running other OS’s on them is their willingness to put in a little bit of effort to do so, especially since the new Macintels are basically “Commodity PCs” with a small added bit of hardware that the generic PCs Dell and the rest don’t have on their machines…yet.
So, from the practical standpoint, for most users, the fact that there’s not currently as many alternate OS’s available that run on the Macs means nothing statistically, because the big 3 consume more than 99% of what users know about and would consider using, and the alternative Mac OS (ie. Windows) is available for the newer Macs, but OS X is not available for the Dell PCs, thus leaving the new Macs in the most flexible position for encouraging new customers to try them out. Thus, Apple being an end-to-end DRM’ed business model as stated in the article is not necessarily inferior and unsuccessful: Apple has lasted this long and been profitable enough to keep in business, while many others with the “successful” business model are historical footnotes, and Apple has been competing with all of them, whereas they’ve basically only really worried about competing with others of the same business model.
I’m wise enough not to make any claims about which manufacturer is going to die: what makes Alcibiades think he knows more than myself or anyone else that “The Elf is About to Die” (Elf=Apple) especially when so many naysayers predicted many years or decades ago that the end was near?
You’re rightly refuting several things I did not say and do not think.
I do not think that Apple is going to go out of business and didn’t say or imply it. I do think that the business model they are following in computers has restricted them, and will continue to restrict them, to a niche – mainly because the evidence is that the segment they compete in is small and not rising. Nor do I try to forecast who will go bust next.
Product activation is irrelevant to the difference between the two models. The difference is, activated or not, you can buy a Windows machine from many many different competing vendors; you can only buy an OSX machine from Apple. This has consequences due to increased competition. Any supplier of a Windows machine has competition from other suppliers supplying the same OS. Apple has none – for the supply of OSX machines. This is what makes the difference.
The article presents evidence to suggest that the ‘Dell model’ has won decisively. Whether individual companies have stayed in business or not is irrelevant to this argument. Dell can do better or worse, it is irrelevant. Though, contrary to what is sometimes argued, the article does give evidence to prove that following the Dell model is not a route to any sort of financial disaster, and in fact is compatible with better financial performance than Apple following the Apple model. It is also totally irrelevant whether companies in the industry in aggregate make as high margins and profts as outsiders would like. The victory of the ‘Dell model’ is compatible with any amount of churn in the industry, as long as that model retains dominant share.
There is relevant evidence, which if it existed, would prove that the ‘Dell model’ is failing.
If new entrants like Linspire were to lock the OS to their own brand hardware, if there were to be other new entrants following this model, if in aggregate these entrants were gaining market share, while that of the suppliers following the existing model where there are multiple suppliers of hardware for a given OS were to be falling. That would totally refute the argument.
Its not happening.
The ‘Apple model’ has been in decline, measured by share of supply following that model, since the eighties, and shows no signs of reviving. There is also no evidence in the record that it has been more profitable for the companies following it. Nostalgia for it is wasted. Rejoicing at the supposed death of the death of the Dell model is premature.
We probably will be able to continue to pick our OS, and then, independently, our hardware supplier, for the forseeable future. That’s a great relief.
Dell ram is annoying.
There are models that I can have “exact” replacements for, and it still will not work. Same clock and everything.
I know you didn’t say this, but you need to read and respond to it. When I bought a used Dell and attempted to upgrade its memory, I took one of its memory sticks in to Fry’s and matched the specs. The memory was worthless. I had to go to another chop shop and watch them randomly switch memory sticks in and out of it until a set worked. If that isn’t vendor lock-in, I’m a baboon’s ass.
While we’re on the subject of the wonders of standardized commodity hardware, how many times has Intel changed their processor pinouts/form factors to the point of requiring you to replace an entire mobo? Slot 1 screwed a lot more people than NuBus ever did.
How many gamer kids opened up their Dells to find the video card was non-replaceable?
The examples I’m giving aren’t low-end Dells, either. My point is that their business model is slanted towards turning out boxes designed specifically not to upgrade gracefully. Kind of like the way iPods have an unspoken lifespan best measured in months. From a business perspective, both are excellent business models. From a human perspective, both are dishonest.
I’m curious. What kind of Dell was this? I have a Dimension 5150 and was able to buy RAM at Newegg that worked with no problem. Actually, if I was going to bitch about Dells it would that they now only have a recovery partition and don’t even let you make recovery disks.
Component business models have one drawback IMHO. They have to incur the cost of standardization and potential complexity in the architecture because of the same. There are many evidences for this. Every PC company uses a different BIOS for its hardware. Intel had been trying to push EFI as a clean solution for a long time but…
Everybody knows about how nVidia and Creative utilized PCI quirks to hog more bandwidth on the PCI bus and how it became impossible to get cards from these companies working on the same computer.
The PC architecture is encumbered with backward compatibility hacks. Any piece of software/hardware that sits on it has to pay attention to all those.
One big advantage of the end model is that advances in technology can be fast. There is an overall discipline in the future direction of the product.
Its probably lack of this discipline which makes linux feel somewhat “uncertain”. Linux (the entire OS) is good and all… but productifying and cutting it into a disciplined path will increase confidence in it. Otherwise, businesses will keep finding its components rather than its complete entity more useful.
Unix sucks. Everyone knows it. Even people who would never use anything else on their computers (personally, I used OS X on an iBook for two years, and now I’m using Arch Linux) know it sucks. That’s why Bell Labs came up with Plan 9. It fixed everything Unix got wrong and then some.
What was the problem with Plan 9? Well, er, nothing. Maybe the licensing wasn’t so great, but then again, neither was Unix’s, back in the day. So how come no one switched? Well… Unix was good enough.
Maybe its API wasn’t the cleanest thing in the world, and maybe C is not the world’s most secure programming language (which is why it still mystifies me that the OpenBSD guys haven’t come out with a dialect of C that just doesn’t allow any of the operations that could introduce a buffer overflow). But C is simple, and Unix is simple to write.
So Unix spread everywhere, and no one hated it enough to switch. And now 20 years later, what do you know, half of Plan 9’s features are part of modern Linux distributions. Who would have thought?
Examples of things that are Good Enough:
* The BIOS. Yes, it’s slow, unreliable, has all sorts of quirks. You know what? Once you’ve turned on your computer, you don’t have to deal with it (and no modern operating system needs to use BIOS calls).
* The southbridge. Macs don’t have any legacy ports, and in turn, Macs come with cool stuff like gigabit ethernet, Bluetooth, and DVI. But southbridges don’t cost much to make (Macs certainly aren’t any cheaper for the lack), and how much can a bunch of extra ports on the back of your computer bother you?
* x86 itself. There’s a reason that computer architecture courses in college teach you MIPS assembly; the x86 architecture is complicated. On every count, it should have been replaced by something else (Alpha?) a long time ago. But it hasn’t been, and it’s easy to see why; if you’re making the fastest processor around by any standard, no one’s going to use a slower and more expensive alternative just because it’s “cleaner”.
Examples of things that were close:
* ATA/IDE. When it comes to performance, SCSI is the shit, and ATA is just plain shit. There have been 15,000 RPM SCSI hard drives for years, and until recently, the fastest ATA drive was 7,200 RPM. This was beginning to be a problem, so the hard drive people went and invented SATA, which is fast enough that it’s worthwhile making a 10,000 RPM drive. Some company could have made a whole new platform, but SATA was an important enough change that it became popular even without an end-to-end distributor enforcing it.
* x86 (again). My computer cost $500 total and it has 2GB of memory. Clearly, we’re going to want 64-bit computers soon. Intel tried the start-from-scratch idea with Itanium, but that didn’t really work. So AMD just took the x86 architecture, extended it to support 64-bit code, removed some of the cruft, and now I can buy a 64-bit processor for $50 that’s faster than the original $2000 Itaniums (and possibly faster than current Itaniums at legacy code).
In other words: yes, you’ll have cruft and ugly backward-compatibility, but the component model and technological innovation/change aren’t mutually exclusive. Quite the opposite.
You should point out the kinds of things that you don’t like about Unix and which you think Plan 9 improves upon. Unix is some very good design decisons and obviously C is tied in closely with the design for good or bad. Example of some good design decisions are:
Hierarchical process layout which propagate credentials, environment variables and opened files along the tree.
The filesystem layout is relatively flexible allowing users to cleanly install/uninstall software the way he/she likes.
I cannot emphasize this more: Overall simplicity in design. This is the major factor which keeps users stuck to it once they are hooked.
OSes and software should be like cars and music systems. And believe me, additional complexity in software generally serves nothing more than filling the software engineer’s pockets and reducing the productivity of users.
Plan9 is good. However, it would have been better if its features came as clean extentions to the Unix system we already know about. No matter how cool distributed systems look, they all have their problems. One should steer clear of extra “distributed” bloat in one’s system. These days clusters are a very nice way to get the benefits of distributed systems. There has been a lot of development in distributed filesystem development lately (esp with Red Hat and Oracle’s clustering fliesystems and projects like PVFS2 etc).
Itanium was a good vision. I am actually pretty sad that it got bashed into the HPC corners. There is a lot of evidence that Itanium design is technically better than x86. What do you think stopped this technical advancement? Why did Intel have to discard all the effort at the end and release Core et al? And how do you think the numerous cell phone companies and mp3 player companies and game console companies keep changing their hardware left and right without any impact on the product besides being faster/cleaner/better?
The BIOS: The boot loader cannot live without it. The initial framebuffer relies on it. There is till no reliable way to boot from USB thumbdrives. There is still no clean way to extend/hide it.
Southbridge: A bus is a bus and nothing more than a bus. Numerous kinds of buses just make it complex to ultimately do the same thing; transfer commands and data.
x86: Oh sure. But its success is precisely because if its huge undisciplined following. There is a reason why x86 is NOT the ISA of choice in mobile devices. There is a reason why x86 still doesn’t have a nice SIMD ISA extention. x86 is powerful because it has people behind it. Its a matter of personal choice how many people you want behind something before technical elegance starts loosing its shine.
IDE: SATA1 has a capacity of 150MB/s and SATA2 300MB/s. The best drives today cannot push more than 50MB/s during purely sequential transfers. ATA 33, 66, 100 could easily push 33MB/s, 66MB/s, 100MB/s. Most typical disk usage has significantly slower bandwidth. Disk Buses are probably a bad example as technology advances very very fast here.
I have no idea why someone modded you down… you actually know what you’re talking about. But anyway.
Re Plan 9, http://www.faqs.org/docs/artu/plan9.html is my source, and while I know ESR is a nutjob, I have no reason not to believe what he’s saying. To quote:
“The single most important feature of Plan 9 is that all mounted file servers export the same file-system-like interface, regardless of the implementation behind them. Some might correspond to local file systems, some to remote file systems accessed over a network, some to instances of system servers running in user space (like the window system or an alternate network stack), and some to kernel interfaces. To users and client programs, all these cases look alike…
“Plan 9 has much else to recommend it, including the reinvention of some of the more problematic areas of the Unix system-call interface, the elimination of superuser, and many other interesting rethinkings. Its pedigree is impeccable, its design elegant, and it exposes some significant errors in the design of Unix. Unlike most efforts at a second system, it produced an architecture that was in many ways simpler and more elegant than its predecessor.”
Simpler is the key word here. If you were writing an OS from scratch, it would be easier to make the design choices ESR discusses than the ones that current implementations of Unix use, for the same reason that Unix is simpler than VMS and NT. And yet, unlike Unix, it didn’t take over the world, because Unix already had, and Plan 9 wasn’t so much better that it was worth it (for most people) to switch.
For all your other examples: I feel like you’re missing the point. Regardless of whether Itanium was a good idea, and acknowledging that the BIOS/Southbridge/x86 are all (or are composed of) unnecessary cruft, the fact still remains that computers using that architecture are not only still in use, but can accomplish things that people only dreamed about 20 years ago.
Think about this for a second: the vast majority of households in America own a computer that can connect to a server in Japan, download a feature-length movie, and display that movie in extremely high quality in real-time. What’s remarkable isn’t that we’ve invented such powerful computers, but that one of them is sitting in virtually every home in the country. In fact, I just recently bought one for $300, including a 15″ LCD monitor. By contrast, maybe 1 in 15 or 1 in 20 households own a Mac (mostly concentrated among college students and graphics people), and very few households own computers made by any of the other end-to-end companies — since they all went bankrupt years ago.
BIOS and southbridges and x86 are bad for every reason you say, but if you define “results” in terms of penetration as well as good technology, then you can’t possibly tell me that an end-to-end model achieves better results.
Apple had around 20% marketshare in 1984. It now has around 2% of a much larger market. In Nov 1984 Apple stocks averaged $26 they are now around $65 (adjusted for splits and bonuses). In other words in 22 years Apple has had essentially no (inflation adjusted)growth. It has also lost 90% of it’s original market share. Hardly a sucessful business model.
Edited 2006-05-31 02:49
I hate to say this, but Peter Alcibiades has now written two articles which rank among the worst OSNews has ever published. This article is so wrong I don’t even know where to begin.
First of all, the article misleads by arguing against a straw-man premise: refuting the idea that end-to-end solution providers are always superior in every respect to commodity players. Hardly anyone argues that — in fact, most Mac users by no means suggest Apple’s business model should be the only one used in the computer industry.
However, the fact remains that Apple over the past five years has beaten Dell and Microsoft in the innovation game by a huge factor and as a result is gaining marketshare and growing faster than the industry average. Alcibiades makes a gigantic error by quoting Apple’s last quarter results. That quarter was impacted by the Intel switch. Previous quarters indicated a growth rate of over 40%. Meanwhile, Dell’s consumer sales (remember, Apple doesn’t even really compete in the server market and the corporate workstation market) are weak and the tools provided are lackluster. iLife is the PREMIER suite for home media creation, and almost everyone in the industry agrees. Dell doesn’t have an effective alternative. Microsoft doesn’t have an effective alternative. By the time Vista’s media tools come out next year, Apple will have a new OS in the works and possibly a new iLife as well. And Apple will win again.
Remember, Apple doesn’t need to gain a big marketshare number to be wildly successful. If Apple’s US marketshare shoots past its current nubmer (just under 5%) to, say, 8-9%, sales will be almost doubled. If Apple’s worldwide marketshare shoots up to a respectable 4-5%, it will be an amazing amount of money coming in. And Dell’s standing in the consumer, education, and creative markets will be heavily impacted.
Speaking of marketshare numbers, there are many examples of Apple’s success. For instance, did you know that Apple is more successful than Dell in EU education? Again, I repeat: Apple currently sells more computers than Dell to education customers in the European Union. How do you spin that one to say that Dell is invincable and Apple’s lost behind in the dust?
The bottom line to all of this is simple: Apple sells computers primarily to a certain number of specific markets (consumer, creative, small business, education, and lately Web development) — and in those markets, Apple has always been somewhat successful. Yes, there were lean years in the days before Jobs, and marketshare still slid down when Mac OS X was young, but now Apple is on a growth path, Apple is out-innovating Dell and Microsoft, and Apple’s design savvy and pulse on the industry is second to none. When it comes to non-corporate and server markets, Dell isn’t looking at Toshiba or Acer when it designs a new computer. It’s looking at Apple. Microsoft isn’t looking at Ubuntu or some hobbyist OS. It’s looking at Apple. Again, this isn’t true for the corporate + server markets much, but as I’ve said already, those aren’t markets where Apple effectively competes.
Apple designs. Dell assembles. No matter how you slice it, Dell can’t out-innovate Apple unless it adds a new business model to its corporate structure. And, when it comes to growth in many segments of the industry these days, innovation is what people want. Not price. Not OS monopoly. Not box assembly. Innovation. Therefore, based on current trends and indicators, Apple has already won.
Another lousy article posted by OS News. Where do they come up with this stuff? This article was very poorly written and really just makes no sense throughout. Coampring a company like Apple that has to engineer and design their hardware and OS to a company like Dell that just slaps cheap parts together is nonsensical. But hey anything that slams Apple is OK with Thom right? BTW you can’t compare Service packs which fix some of the bugs in Windows, cause others, and drag down the system to new versions of OS X that are generally faster and add lots of new functionality. That shows you don’t know a thing about Macs. You also don’t know a thing about stock prices or market value since Apple is beating the snot out of Dell on both. See when you buy a stock and that stock goes up you make money and that stock is a GROWTH STOCK.
“False. On the technical side, MS’s DRM scheme offers a greater range of enforcable policies than FairPlay, making it more attractive to publishers, and it’s available on a far greater range of devices, which will eventually win over consumers.”
I had to LOL reading this one. Microsoft has been thinking their are eventually going to win over consumers for years and it hasn’t happened yet. “Plays for Sure” is a joke. Mot other MP3 players are amazingly bad next to the iPod. Nothing matches the iPod/iTunes integration. I assume by “greater range of enforcable policies” you mean subscription based services that nobody seems to want. Everytime anything gets even close to the iPod Apple comes out wiht new version (that noone is forcing you to buy so don’t whine) that blows away everything else.
This article makes no sense. Remember Gateway and their stores? How many are left? Yea, that’s what I thought. Making and End-to-End solution out of PCs is destined to fail because there is nothing to be gained from it. Why compete with the volume discount big box stores when you have nothing better to offer other than a name? No PC company has as good of an image as Apple. When everyone can make the same thing at the same price, its called market saturation, something Apple (Steve) isolates itself from.
“Apple is the only survivor using its business model”
the old Monty Python Sketch (replacing “old Man” with “Sun Microsystems, Inc.”):
Cart-master: Bring out your dead!
Man: Here’s one-
Cart-master: Ninepence.
Sun Microsystems, Inc.: (feebly) I’m not dead!
Cart-master: (suprised) What?
Man: Nothing! Here’s your ninepence….
Sun Microsystems, Inc.: I’m not dead!
Cart-master: ‘Ere! ‘E says ‘e’s not dead!
Man: Yes he is.
Sun Microsystems, Inc.: I’m not!
Cart-master: ‘E isn’t?
Man: Well… he will be soon– he’s very ill…
Sun Microsystems, Inc.: I’m getting better!
Man: No you’re not, you’ll be stone dead in a moment.
Cart-master: I can’t take ‘im like that! It’s against regulations!
Sun Microsystems, Inc.: I don’t want to go on the cart….
Man: Oh, don’t be such a baby.
Cart-master: I can’t take ‘im….
Sun Microsystems, Inc.: I feel fine!
Man: Well, do us a favor…
Cart-master: I can’t!
Man: Can you hang around a couple of minutes? He won’t be long…
Cart-master: No, gotta get to Robinson’s, they lost nine today.
Man: Well, when’s your next round?
Cart-master: Thursday.
Sun Microsystems, Inc.: I think I’ll go for a walk….
Man: You’re not fooling anyone, you know–
(to Cart-master) Look, isn’t there something you can do…?
(they both look around)
Sun Microsystems, Inc.: I feel happy! I feel happy!
(the Cart-master deals Sun Microsystems, Inc. a swift blow to the head with his wooden
spoon. Sun Microsystems, Inc. goes limp.)
Man: (throwing Sun Microsystems, Inc. onto the cart) Ah. thanks very much.
Cart-master: Not at all. See you on Thursday!
Man: Right! All right….
The ability to source hardware from wherever, and get huge amounts of supply to meet demand, is the cornerstone of why the PC beat the Mac in the industry and why it will continue to outsell it. It’s the Mac model that is continually in danger as economies of scale come to bear and new marlets mature, and Intel Microsoft and Dell’s stocks have as much to do with that maturity as the sky falling in.
Either these articles were written by people who have no clue of the economics in the computing industry, or they’re in denial about the inevitable conclusion.
“Either these articles were written by people who have no clue of the economics in the computing industry, or they’re in denial about the inevitable conclusion.”
You’re in denial. The WSJ article was not about the PC. It was about non-PC devices. Mossberg’s whole point was that in that area, the component model is not working and is being beaten by the end-to-end model. Prime example is the iPod/iTunes/iTMS.
iTunes doesn’t run on the iPod, it runs on everyday Windows and OS X personal computers. It doesn’t only work for transfering files to the iPod, or just work for buying iTMS material to be transfered to the iPod, but instead plays video and music. The iPod doesn’t just play content from the iTMS, and isn’t just usable with iTunes.
There is no end-to-end exclusion here except that FairPlay-protected files only work with the iPod, and Apple has access to more of the commercial content that people want to buy on iTMS. Who Apple secures deals with is the really important aspect of the iTunes/iTMS/iPod combination. The effort to provide integration of the services to sell iPods is worthwhile from Apple’s perspective, but if they had the same content as eMusic they wouldn’t be in as enviable a position. If Microsoft could obtain exclusive licensing from the three major music companies, devices that used Microsoft DRM would be all of the rage. allofmp3.com exceeded all “legal” competition besides iTMS despite being cast in a shady light because it offered all of the content that people wanted, and made zero effort to tie its service to any particular device or even audio format. If it weren’t some shady outfit operating out of Russia, it’s easy to imagine that it would have grown to engulf the market.
And of course there’s always “piracy,” which along with trend-following is probably what sells the most iPods and other portable music players, and iTunes makes a poor BitTorrent client and iTMS doesn’t have any trackers with the latest [band name] albums.
The problem with Mossberg’s article is that it meanders through different areas and does so in a superficial manner to find various similarities that he thinks support his thesis. It is about the PC as much as it’s about the iPod, with the end being generously sprinkled with commentary about the imaginary strength of the component model in the PC world. He might even have harped more on the 360 if he’d thought about the differences in Live and Sony’s “component model” of online play. Well, except that despite the superior integration of Live, Sony outsells Microsoft in the console market.
All of the areas touched upon are more complicated than Mossberg gives them any credit for, and don’t really lend as much support to his thesis as he believes is the case. The iPod provides integration but doesn’t force the use of other Apple services or products. iTMS serves as an incentive to buy the iPod, not to provide closure to the device. To those interested in iTMS, they care that component sources of entertainment (music, tv networks, audio books) are offered in a single online store (amazon of online content) not who makes the firmware for music players. And if Creative’s players could use that content they’d compete with Apple on features and prices of devices, not unlike cell phones. No one cares who writes the firmware of their cell phone, as long as they can call all of the same people. But that’s just for those that are actually interested in the iTMS. There are lots of people using iPods for which Bram Cohen has done more to provide them with content than Apple Computer.
They’ve turned full circle and now a penguin is running at their giant monitor swinging a big hammer…
Freedom is the enemy of the corporate state.
The author continues to maintain that the Dell model of PC sales is somehow “better” than any other model. In terms of shear $$$ I guess you could say that (currently), but in terms of any other considerations it has severe problems. I’ve already discussed that in a previous comment.
The thing that really upsets me is the author’s bogus support for “freedom of choice”. He thinks you can get any OS for any computer system and that’s cool. Sorry, in the real world it doesn’t work that way. In the markets that Apple competes in, there’s only one viable OS: Windows. So really the deal is that you can buy from any computer vendor you want as long as it runs Windows. How is this freedom of choice? How is this a commodity market? It’s a monopoly, plain and simple. It’s like saying folks can buy any car they want as long as it runs on Shell gasoline. That’s not freedom of choice — what if you want to use another gasoline vendor?
Let’s face it: Linux is the only real OS competition to Mac OS X and Windows but it’s mainly for servers and some high-end workstations. That’s it. So the Dell model really is the Microsoft model: multiple hardware vendors competing virtually on price and looks alone because at heart they’re all the same: Windows machines. Is this the brilliant, innovative, growth industry of the future? A Microsoft-powered computer world?
Thank God for Apple.
People have two issues with the PC industry as it currently is. One is quite legitimate, the other is not.
The legitimate issue is the dominance of the OS industry by Microsoft, and the anti-competitive tactics that have accompanied it.
The illegitimate issue is the feeling that price compeition and industry turmoil is somehow wrong and a sign that the business model is failing. Where is it written that it has to be stable? Or that companies going broke in it are a sign of model failure? Success means that enough companies stay in business for it to carry on and attract investors. Its a competitive market and industry, fortunes fluctuate. There is nothing wrong with this This is not a failing model. Its life. Maybe not life in Cupertino, or at Louis Vuitton, but its life.
What would count as failure of the model would be evidence of its being replaced by a different one. There is no sign of this. Think ecology. Is the down cycle of a predator-prey cycle a sign of a failing model? No, its just that the successful enough model involves cycles.
Now, as to the point about competition, this is very simple. I have more choice if I can choose between two independent hardware vendors for my chosen OS than if I can only choose from one. If I can choose between 20, I have still more choice. You may feel that Linux is not a viable alternative. Whether it is or not makes no difference. The fact is, that I have more choice in Windows machines than in Macs. Anyone can see this.
And no, they are not all the same…
The illegitimate issue is the feeling that price compeition and industry turmoil is somehow wrong and a sign that the business model is failing.
I would tend to agree with you, but the opposing point isn’t presented with a great deal of nuance. While I would agree that competing on price isn’t inherently “evil” in and of itself, it does seem to have lead to some nasty side-effects in the Big OEM world. The Dells, HP/Compaqs, eMachines, etc, of the world seem to be engaged in a race to the bottom to see who can cut the most corners on their offerings in order to achieve the most attractive sticker price/highest profit margin. And especially on lower-end machines, it seems that those concerns are primary, while offering a usable computer is secondary.
It’s not terribly surprising, or unique to the PC industry. An idea that is successful will be imitated, a saturation point will be reached, and those who are clever/big enough to weather the inevitable crash will probably come out the other side in a better position. I don’t think Dell et al will be going out of business anytime soon, but I do think that they’re going to be facing increasing pressure from several fronts. I don’t think they can depend on the kind of growth they’ve seen in the path, and I think there’s a good chance we’ll see many of the big OEMs go from industry leaders to more marginal players – there’s precedent for that, look at what happened to IBM or Gateway (2000).
On one hand, the very thing that helped make Dell so successful – the commodity nature of x86 hardware – is making it easier for smaller companies, as well as local mom-n-pop shops – to compete with the Dells of the world. And IME, most mom-n-pops beat the tar out of big OEMs on service – Bill at the local computer store has to answer to his customers, so that means he tries to keep me happy in order to keep me coming back. Dell has to answer to their shareholders, so that means the outsource tech support to Bangalore in order to cut costs and maintain growth. I make no simple-minded pseudo-socialist ethical judgment, but I know which approach I prefer from a pragmatic standpoint.
And from the other end, the big OEMs have inadvertently created a context where Apple’s products look more attractive than they might otherwise. I think this is simply because the increasing sameness/uniformity of offerings from the likes of Dell makes Apple’s hardware seem more exotic/interesting by contrast.
And in a more tangible sense, while Apple is not always necessarily competitive on price/raw functionality, I do think it’s to their credit that they generally try to compete by offering products that are “nicer to use” for those who aren’t dedicated geeks.
That said, I don’t agree with those who suggest that the “Apple Experience” would be impossible to maintain on generic hardware. Be was able to achieve Mac-like plug-n-play on generic x86 hardware, provided the necessary drivers were installed. And Apple would have a much easier time getting driver support from the major hardware vendors – both because they are a larger company than Be, with more resources, and because there is less variety in hardware today than there was when the BeOS was ported to x86 (3-4 major video chipsets to support today, as opposed to 7 or 8 back then). I doubt it would take them more than a year of effort to get driver support for the majority of system devices out there.
Apple could forestall the potential problem of being flooded with calls to their support line saying “I dun bought Oh Es ex from CompUSA and it won’t run on mah Wal*Mart PC!” It could be done pretty easily: only offer an OEM version, with bold text on the CD saying “No support is provided for this software on non-Apple hardware.” That would largely limit it to OEMs pre-installing on systems, and geeks who knew enough to specifically seek it out – both groups would, presumably, know how to follow an HCL and put together a comptatible system. IIRC, the burden of support falls on the vendor anyway with OEM software – if I buy Windows from a local OEM, he’s the one I have to call for support; Microsoft will tell me “sorry” and/or suggest I call their pay-per-minute support line. Apple could do the same: you call Apple support, and get asked right off the bat for the model of Apple computer you’re calling about – if you’re calling about OS X on non-Apple hardware, you’re told “sorry, you need to call the OEM who sold it to you, have a nice day.”