What are Apple’s market share ambitions?
As an investor I have struggled in the past five years with feeling confident that I truly understand Apple’s ambition when it comes to its computer business.
I have been a fan of Steve Jobs for years, as a kid, I remember Apple IIs in my class room. I always marveled that this young, brash kid with ideas had invented an product in a garage, competing with the likes of IBM.
Whether true or not, I believed then that Steve’s ambition in the 80’s with regard to the Apple computer was to beat IBM. To be the dominant player in the business. To own the majority of market share. It seems he made quotes about how he wanted market share and Scully wanted profits.
Today it seems obvious that Apple and Steve Jobs are now much different beasts, both happy with being a high-margin, niche producer in a complex industry. They are also clearly moving away from being wholly focused on computers, they even dropped computers from their name.
It seems almost like Apple’s actions are screaming loud and clear that they have no ambitions of ever reaching a 50+% share of the computer business. For example, they don’t have reasonable offerings at the bottom of the pricing/margin spectrum, they repeatedly tell everyone they are not interested in products that don’t provide traditional apple profit margins. They don’t want to play in that space, even though that space represents a huge percent of computer market share. If they don’t want to play in that space, aren’t they blatantly screaming that they don’t care about being #1, ever.
So why is this question important to me? Because I don’t perceive the computer business like the auto business, where Apple is a BMW and Microsoft is Honda where both companies exist in peace and harmony side by side for a millenia.
Rather, i perceive the computer business as being highly geared towards a dominant player, much more like the CPU businesses of Intel, Motorola and AMD. 1 vs 2 and 3 ebbs and flows but 1 always seems to have the upper hand in the long run and in your gut you feel that one day #2 will eventually be bought out or file bankruptcy. Much better to be #1 long term in that business, no doubt.
So are we in the glory years of Apple right now? Are we flowing and about to ebb?
Or….. Maybe ... Does Apple truly have different, hidden ambitions? Apple’s overt actions and language have been telling everyone they are happy being #2, possibly forever. But I think guardedly they have bigger ambitions, bigger plans. I seriously believe they have a beat-Microsoft plan, a majority market-share plan, a Steve Dies #1 Plan.
I have a checklist of what Apple would have to do to be #1 in computer market share in the U.S. I think there are signs Apple maybe working on these agenda items.
To be #1, Apple must:
1. Have supreme trust and familiarity: Check
- Apple has brilliantly placed its product in almost every home. iTunes, iPods, iPhones
- Apple is #1 in satisfaction for years running by a huge margin
2. Have multiple long-term sustainable competitive computer advantages over Microsoft: Check
- Major in-roads in the past few years. OS has been but nobody cared. Their application software had peaked but now is making a huge come back. Unibody construction. iMac design. Genius bar. Apple stores. There is more to come here for sure, but I think they have achieved this goal.
3. Regain student, education market lead: in progress
- In a couple of years apple will be over 50% in education sales again, my prediction
4. Provide reasonable business product offerings: Not in sight
- Apple has made statements that consumers drive their products not businesses. I think this is the most scary indication that my hopes and dreams of apple being #1 are pure fantasy. Unless Apple makes catering to business a huge priority it will NEVER just happen. They need, stripped down products, with included cross-platform installation and support to ever ween businesses off of PCs.
5. Birth a low-margin Apple product line that feeds the masses: difficult.
- One word, cannibalization
- sorry, mac mini, and low-end imacs and macbooks just don’t reach the current sweet spot that makes up the bulk #s in computer sales
Is this all just a pipe dream? What do you think? Are there things missing from my checklist? Have any of you seen signs that they have long term own-the-market ambitions? If so what are they?
I don’t agree with the premise. Apple’s history, and that of Unix variants, suggests that there *is* in fact room for more than one player. That’s a good thing; you don’t want anyone to have an unchallenged monopoly, or they start to get sloppy and unresponsive to consumers—- which, I feel, contributes in a big way to the huge stumble Microsoft made with Vista. If Apple were the single biggest player with others holding small market share, I’m not sure they’d do better than Microsoft. Apple is pushed to compete like mad with their offerings *because* they’re either a minority player (Mac), or because the rest of the world is nipping at their heels (look at all the attempts by competitors to reproduce the iPhone).
I love my Apple products, but won’t be brand loyal if some competitor offers something better. If they get to be number 1 and go the way of Microsoft with their quality, I’ll be an early deserter.
I don’t care if Apple is #2, as long as they’re very good at it.
As an Applephile and stock holder I am not sure I want Apple to overtake, or even be aside, MicroSoft. That sort of market share seems to breed mediocracy. They have to be big enough to be taken seriously, but not so much that they lose the edge.
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Your thinking is like that of a young Steve Jobs. Being number one in market share isn’t what it is necessarily all about. It’s about profit. It’s an easy prediction to make that within the next year or two Apple’s Market Cap will exceed Microsoft, and doing it with not much more than 10% of the PC market share.
It’s time to ask a question, “What really is computer market share?” Apple has dramatically changed the PC game. Personal Computer market share can no longer simply be calculated by counting PC’s sold. A rapidly growing percentage of the population are now walking around with small powerful PC’s in their pockets. The Apple’s OSX operating system is now in iPods, iPhones and Macs. In reality, Apple has made phones and Walkmans small powerful friendly computers, causing a major paradigm shift in the computer industry.
The fact is Microsoft finds itself in the same spiraling death cycle IBM found itself in 25 years ago, and is now simply milking a dying cow ( Windows). If the market figured this out, and simply started counting iPods and iPhones as computers, AAPL would be over 300 right now. It’s killing Microsoft.
Apple is taking big profitable chunks out of every market they enter, by giving the public small portable user friendly PC’s. Apple presently has such a small market share of PC’s and phones, it has huge growth potential over the next 5 years. I think PC market share is an out dated score keeping system.
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And don’t forget, Apple *is* #1 in several markets. Hand-held music players - #1, smartphones #1 or soon to be. On-line music retailer - #1 (or is that music retailer of any kind?)
These are huge swaths of their revenue, all in a #1 position with #2 ebbs and flows.
But overall are they #2? (aside:, name that movie “I was their #1 son, but they always treated me like #2) I don’t know if they’re #2, but doesn’t Dell, HP and others outsell Apple on a unit for unit basis? That might make them #3, 4, or 5?
Who cars? The Intel vs AMD analogy to Microsoft vs Apple falls apart when you look at the details. AMD is hurting for cash, Intel isn’t. Neither Microsoft or Apple is hurting for cash. Neither one is going to file for bankruptcy soon. Also, the major business of Intel and AMD is to make processors that run Windows variants. They are both fighting for share of a fixed market and one can only gain at the expense of the other. Apple on the other hand creates new markets or expands existing ones. Apple is not necessarily growing because they are taking business away from Microsoft (switchers notwithstanding). They are growing largely by creating new and better products that expand the market. Apple may have taken some of Microsoft’s smart phone business, but they also grew that market by bringing in new customers that the other guys could never get with their overly complex products.
I disagree that the netbook is a new market. I can’t back it up, but I believe that netbooks vs notebook sales are a zero sum game.
I Do think that Apple and Microsoft are more like BMW and Honda than Intel and AMD. The reason Apple make take over Microsoft in terms of market share of anything will not be by doing what Microsoft does, only better. Rather it will be by innovation and the creation of new markets. Dominant companies that fail, usually fail because they did not change with the times. A good company follows the trends and delivers a quality product. A great company reinvents itself from time to time and creates those trends.
Finally, I would like to add that I enjoyed your analysis to a point. The point I stopped enjoying your piece was when you started in on the, “Apple doesn’t give customers enough choice” argument. Just what the heck is a “reasonable offering at the bottom of the pricing/margin spectrum”? I tell you what it is. It’s junk. OK, that’s in elitist comment, but that’s what Apple want’s its customers to think so that it can maintain a high margin.
So when I got to that part of your post, I thought, “oh, here’s another guy that either wants a netbook or minitower from Apple” Personally, I don’t believe either one of those products (nor “reasonable business product offerings”) will make them both #1 and insanely profitable. I’ll take quality, profitability, customer loyalty, and innovation over market share all day every day.
Well it seems that without actually saying so, everyone believes Apple internally is completely content with being #2. It also seems to me that Apple investors in mass don’t seem to care about Apple being #1 themselves.
I do want Apple to be #1, for these over-the-top and selfish reasons:
1. Proper use of Developer resources. The more developers focused on the right types of user experiences the better for me and mankind. I think its bad for mankind having so many resources wasted on Windows Applications. Sounds over the top, but i believe it, Microsoft and its developers do not expand the computing paradigm, they copy.
2. Correct focus for technology companies in general. I think the Apple paradigm of accountability and total product ownership is THE way to manage this industry. Rather than a flood of crappy PC companies out there, the world is again a better place with a flood of responsible, take-ownership-of-the-customer experience companies. Like it or not #1 is emulated in our society for more than #2. I cannot tell you how many of my friends over the years have followed or emulated Dell or Microsoft simply because of their position in the business world hierarchy. #1 would to me be a sea change in US corporate strategies. It would put a stamp on the business philosophies of the great Steve Jobs and we would all be better off for it. Be a real company, plan, budget and execute for now AND the future.
3. Incredible monopolization powers. Microsoft abused them with their open licensed OS. Apple’s leverage as #1 would be unbelievable. Monopolies are good things when governed by Steve Jobs himself and when i am a share holder of the company with a monopoly.
4. I am an Apple fan boy and I am tired of being #2.
5. I make a lot more money if they get to #1. I am after all an investor.
I agree that from a business point of view being #2 in many segments is a perfectly profitable and ambitious objective. However, I would be surprised if Apple doesn’t have bigger plans.
Being #1 does not have to mean cheap, it does not have to mean diminishing margins, it does not have to mean you are a cash cow dinosaur. Especially for Apple.
As for the critique on my thoughts that Apple does not play well at the bottom end, the junk spectrum. I don’t think the issue is really debatable. You can argue the merits of being a player in the low-dollar product pool, however, to be the computing company for the masses you better be a major player in that space. Furthermore, to not be a respected player at every price point is more than likely a mistake if you are #1 or #2.
I also think that if any company can make an outstanding product to compete in that arena and still churn out profits, Apple is the one. Look for something that costs $700 and blows the doors off a netbook.
Apple may be #2 in computer share but they are #1 and way out front in lifestyle share.
It seems almost like Apple’s actions are screaming loud and clear that they have no ambitions of ever reaching a 50+% share of the computer business. For example, they don’t have reasonable offerings at the bottom of the pricing/margin spectrum
No screaming involved. Jobs has repeatedly used the analogy that Apple’s market share is like being at the bottom of the ocean. Good eatin’ down there, but the guys on top have to weather all the storms and rough waves.
The Mac Mini is Apple’s reasonable offer at the bottom end. $600 is a very good price for a full featured computer with room for expansion. You would rather have them compete on something like netbooks, where there is almost no profit margin?
Personally, I would much, much rather have Apple remain profitable and healthy in a niche market than bite their nails over gaining a few market share points, by any means necessary. Their level of influence on multiple industries has certainly NOT suffered one iota over their percentage in the industry, either.
Apple surpassed Microsoft in many users minds LONG ago. Everyone has different yardsticks for measuring. The writer’s yardstick is purely fiscal and capitalistic. And that’s fine for his own belief system. But I too think the premise is silly and pardon the expression, immature.
Apple is for all purposes a hardware company that makes the software to go along with their hardware for the user’s benefit.
Microsoft is a software company that dabbles in hardware occasionally, and generally not well outside the gaming arena (a large niche market in itself).
Microsoft’s primary profits are from their software. Apple’s is from their hardware. The area of overlap between the two now heavily favors Apple because there are so many alternatives to the software offerings of Microsoft.
Apple’s OS does compete directly with Microsoft Windows. And yes, it’s in 2nd place. Microsoft’s Zune competes with the iPod. And at best comes in 4th or 5th.
There are so many disparities between the companies, their sphere of influence over each other is nearly disintegrating.
If you want to adopt a fiscal approach, just look at the stock market prices per share, and their debt ratios. I’ll bet on the one free and clear of debt sitting on $28 billion. Vista was such a disappointment, and now studies are predicting that even when Windows 7 is released, it will take at least two years for enterprise America to accept it and finally give up XP. In 2 years, Apple will have probably moved on to OS XI !!!!
So, I think maybe reexamining the premise from additional points of view might be in the author’s best interest. Step out of the cubicle for five minutes and realize that the “computer industry” as you see it is not exactly that any more. My computer has become a hub for sure, for my iPhone! I don’t have to run back to the desk to do things, I can conduct business just fine. I downloaded 3 free games for my nephew to play when I see him. Hadn’t played a single one once myself. Probably never will. But I’m over 40 and I’m not that target demographic. I’ve been using Macs for 25 years now. I am APPLE’s target demographic.