I’m uncomfortable about Apple

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    Posted: 25 May 2009 05:31 PM

    I’ve been invested in Apple for about two years. For most of that time, while I was not happy with AAPL, and I’ve been very concerned with the effect of the economy on the stock, I’ve had almost nothing bad to say about Apple management. When I’ve had reservation they’ve been wrong- I wanted them to buy back shares on the way down at 120.

    Lately I’ve had very bad vibes.

    It’s related to the latest MSFT ads. The critisisms they make relate to corporate policy and will not be satisfied with a good counter ad campaign.

    I see MSFT’s current marketing strategy as similar to McDonald’s effort to redeem themselves a few years ago. McDonalds was a tarnished brand, associated with 2nd rate food, kiddies and declining service. McDonalds response was evolutionary, not radical. They started with the premise that they were still the incumbent, and didn’t have to reinvent themselves as something different. They played down the kiddie aspect, without eliminating it and its advantages. They added a few items to like McCafe and Salads, to make themselves respectable to upscale customers, and they upgraded cleanliness and service. For most consumers, if you wanted to go to McDonalds, there was no overriding reason to go anywhere else.

    MSFT has had a couple of bad years with Vista. But most reports say that they are getting their act together with Windows 7. Despite Balmer’s buffoonery, Apple cannot afford depend on MSFT to keep shooting itself in the foot. MSFT is still the incumbent.

    McDonalds did something else. They responded to the economy. You can get a double cheeseburger, fries and a small drink for 3 bucks.

    Apple has maintained sales and profits. But they have not addressed the financial distress of customers. It is not enough to say that over years it costs more to own windows. .

    1. Most people are concerned with paying this month’s bills.
    2. If you are trying to get people to change computers, the bar is raised for improved function and cost over time in tight economic times.
    3. If you are a company with $30 billion in the bank, people want to know that you give a damn that they are suffering and that you will forego some profits to make your product available.

    None of their ads say, “We know you are hurting. Here is what we are doing about it.”

    Their I’m a Mac, I’m a PC campaign is getting long in the tooth. People are concerned with surviving, not being hip.

    Apple has to show not just that they are cheaper, but that Apple knows that people don’t have money, and that they are making products and sacrificing profit because they care.

    Apples strategy until now has been radically different and very successful, but the terrain has changed radically, and we’re the best, you get what you pay for, and profit margin above all is not appropriate for today’s economy.

    I think that continued increased market share in macbooks and desktops is not realistic.
    But Apple does have the best mobile platform with Ipod, Iphone, I touch and app store. Dominance is based on:
    1 best platform
    2. installed base.

    Best platform is unquestioned. It will continue, but the gap will narrow. Right now is a unique opportunity to increase installed base. Once installed, people will be reluctant to change. But apple needs to let people know they want them as customers, and will give them a value realistic for these times.

    I think Apple has lost valuable time. They have enough money in the bank, and a reputation that gives them leeway for mistakes. But MSFT is still the incumbent, and should not be underestimated. And time is short.

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  • Posted: 25 May 2009 06:06 PM #1

    Apple has to show not just that they are cheaper, but that Apple knows that people don?t have money, and that they are making products and sacrificing profit because they care.

    Apple could send each of the 17 million iPhone purchasers a $1,700.00 check in appreciation of their loyalty and the hard times. Then we wouldn’t have to worry with that pesky cash hoard and could get busy earning another 30 billion.

         
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    Posted: 25 May 2009 06:51 PM #2

    Zig Ziglar says “It’s easier to justify cost once, than apologize for quality forever”  That is the situation Microsoft has gotten themselves into. They must constantly apologize for their OS.  Apple, on the other hand, justifies the price they charge and the customer is usually happy.  Further, the comparisons between the Best Buy computers and the Macs don’t necessarily have comparable specs.  Granted that is not pointed out in the ads and people won’t care.

    Also the comparison between Apple’s hardware sales and Microsoft’s software sales is not necessarily a fair one. Comparing iWork’s cost with Office’s cost may be a more apples to apples comparison.  And on that front iWork is priced competitively.

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    “Once we roared like lions for liberty; now we bleat like sheep for security! The solution for America’s problem is not in terms of big government, but it is in big men over whom nobody stands in control but God.”  ?Norman Vincent Peale

         
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    Posted: 25 May 2009 07:22 PM #3

    McDonalds didn’t come out with the Value Menu in response to the economy, it’s been around at least since ‘05. As Play Ultimate said “the comparison between Apple?s hardware sales and Microsoft?s software sales is not necessarily a fair one”. If I were a PC maker I’d be mad that M$ touts the cheap computers. Would you also recommend that Mercedes-Benz produce a car for under $9k?

    My 2 ?

         
  • Posted: 25 May 2009 07:36 PM #4

    It is not as though Apple has to spend relevant time in development to create and sell a cheaper product if they wanted to. The reason they are not selling cheaper-and-less-capable products now is because they don’t want to.

    The important thing is that they have everything in place (technology, software, and expertise) to start selling a cheaper product if margins, demand elasticity, etc. are where they want them to be.

    The argument that Apple as a company is missing out on something (or will miss out on something) because they don’t sell cheaper and less capable machines is based on the fallacy that they could not do so if they wanted to. As soon as it is good for them, they will do it, and it will cost them nothing to do it.

    This is the competitive advantage they have now, and it is a big one.

         
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    Posted: 25 May 2009 07:37 PM #5

    Play Ultimate - 25 May 2009 09:51 PM

    Zig Ziglar says “It’s easier to justify cost once, than apologize for quality forever”  That is the situation Microsoft has gotten themselves into. They must constantly apologize for their OS.  Apple, on the other hand, justifies the price they charge and the customer is usually happy.  Further, the comparisons between the Best Buy computers and the Macs don’t necessarily have comparable specs.  Granted that is not pointed out in the ads and people won’t care.

    Also the comparison between Apple’s hardware sales and Microsoft’s software sales is not necessarily a fair one. Comparing iWork’s cost with Office’s cost may be a more apples to apples comparison.  And on that front iWork is priced competitively.

    I’m not saying that Apple is or needs to compete on the same playing field. Just that it needs to demonstrate to the public that it understands the times. Being the best and being hip is less important to most people now that being affordable or necessary.

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    Posted: 25 May 2009 07:38 PM #6

    calebar,

    Have two questions:

    a.  Which is the more important platform in future, mobile/handheld or desktop/laptop?

    b.  What do you think is the goal of Mac vs PC ads?  Gain marketshare or openly repair the walkway but secretly march to chen cang?

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    Posted: 25 May 2009 07:50 PM #7

    You need to separate aapl the stock from Apple the company.  The two are not always tied in lockstep especially in the short term.  Apple the company has publicly stated that they do not want to compete in the commodity PC market which was further defined as below $500.  Microsoft on the other hand is losing market share to Linux in the commodity PC (Netbook) so they pretty much have to give away Windows XP for about $30 per copy to OEMs.  That works great until you build a new OS, Windows 7 and try and sell it to that OEM building the $ 400 PC for the low low price of say $60-$90 a doubling or tripling of price during a recession which oh by the way you can not pass on to the consumer because Windows provides no added value on this netbook. 

    The bottom line is Microsoft does not sell computers.  They sell software.  Apple’s OS retail pricing is very competitive with Microsoft.  The commercials focus on an Apple perceived weakness when comparing a Mac to a PC,  since Microsoft is unable to differentiate any other way they must compete on the only thing remaining, Price.  Obviously price matters, but mainly on the lower end of the price spectrum.  The reality is the cost of the hardware is just one sign post in the total cost of ownership.  If I wait 10 minutes per day for the PC to run a virus scan before I can do real work, then how much is it worth to me.  The average switcher is not running Vista and they are fed up with all the problems they are having with their Windows PC.  To upgrade to Vista they need a new machine so maybe they buy a Mac.  The recession brings as much delayed purchase as people who were thinking about switching to a Mac selecting a PC running Vista instead.  Windows 7 is vaporware.  If you can’t buy it today the only decision it is affecting is the delay and use what I have verse something new. 

    If your concerned about AAPL the stock vs MSFT then you need to pull up a long term chart.  Microsoft is living on its past laurels and the stock over the last 10 years is a joke for a growth company, on the other hand appl investors have been rewarded significantly for betting on this horse over the last 10 years.

         
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    Posted: 25 May 2009 10:14 PM #8

    Mace - 25 May 2009 10:38 PM

    calebar,

    Have two questions:

    a.  Which is the more important platform in future, mobile/handheld or desktop/laptop?

    b.  What do you think is the goal of Mac vs PC ads?  Gain marketshare or openly repair the walkway but secretly march to chen cang?

    A. No question mobile.
    B is over my head. Please explain.

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    The more I learn the higher I go,
        The higher I go the more I see;
    The more I see the less I know,
        The less I know the more I’m free.

         
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    Posted: 26 May 2009 01:13 AM #9

    calebcar - 26 May 2009 01:14 AM
    Mace - 25 May 2009 10:38 PM

    calebar,

    Have two questions:

    a.  Which is the more important platform in future, mobile/handheld or desktop/laptop?

    b.  What do you think is the goal of Mac vs PC ads?  Gain marketshare or openly repair the walkway but secretly march to chen cang?

    A. No question mobile.
    B is over my head. Please explain.

    If mobile is more important, why is Apple spending so much $ on Mac vs PC ads?

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    Stay Hungry. Stay Foolish.  - Steve Jobs

         
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    Posted: 26 May 2009 01:18 AM #10

    artman1033 - 26 May 2009 01:22 AM

    du chen cang means “Do one thing under cover of another. “

    AKA as a “head fake” if you are from the wrong side of the tracks.

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  • Posted: 26 May 2009 09:02 AM #11

    Mace is right.

    Apple can’t win the PC market against MS, but MS can lose. Hence Apple’s support of open formats and APIs. MS can’t fight them by fighting Apple. Apple is even free to walk away from the PC market if it is hurting.

    So far iPhone is going quite well. The worry is whether Apple can make the proprietary, closed, one-device-fits-all iPhone succeed long term where a similar vision for the Mac 23 years earlier was eventually swept aside.

         
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    Posted: 26 May 2009 09:25 AM #12

    sleepytoo - 26 May 2009 12:02 PM

    Mace is right.

    Apple can’t win the PC market against MS, but MS can lose. Hence Apple’s support of open formats and APIs. MS can’t fight them by fighting Apple. Apple is even free to walk away from the PC market if it is hurting.

    So far iPhone is going quite well. The worry is whether Apple can make the proprietary, closed, one-device-fits-all iPhone succeed long term where a similar vision for the Mac 23 years earlier was eventually swept aside.

    I think the PC market at least from the end user device view is changing.  Many Enterprise IT departments no longer have a requirement to support only a single OS, and the move to SAAS and cloud base computing means the end user device can be like a terminal rather then a high power desktop but Apple in the enterprise brings it’s own baggage since they are so secret it is difficult to do any longer term planning.  The Iphone in the enterprise is no more close/proprietary then any other device maker, but at least in the states they tied themselves to a single carrier which probably slows adoption.  The battle of OS is interesting for sure.  I am always looking to see what new verticals Apple will apply their talent to.  It shows how well Apple studies their market when they can walk into a mature market and disrupt all the players in such a short time.  I would expect Apple to continue to focus on key vertical markets rather then directly take on Microsoft and the whole PC industry.

         
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    Posted: 26 May 2009 09:43 AM #13

    sleepytoo - 26 May 2009 12:02 PM

    The worry is whether Apple can make the proprietary, closed, one-device-fits-all iPhone succeed long term where a similar vision for the Mac 23 years earlier was eventually swept aside.

    The conditions, IMO, aren’t similar. During the days of the Sinclairs, TIs, TRSs, Commodores, Ataris and Apples, the industry was mostly seen as a hobby since real computing was done on an IBM. They were the proverbial “elephant in the room.” As soon as IBM decided to enter the PC market, the world changed.  MSFT was just fortunate that IBM picked them and yet allowed them to license MS-DOS to clone makers.

    Currently there is no elephant in the room. The cellphone market is relatively mature.  (Albeit “smart phones” are new but a natural progression.)  And with the relatively open and flexible App store, companies may have less fear from Apple’s vertical integration. Also unlike the early 80s when Apple was a relatively small company, Apple is now big and growing company.

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    “Once we roared like lions for liberty; now we bleat like sheep for security! The solution for America’s problem is not in terms of big government, but it is in big men over whom nobody stands in control but God.”  ?Norman Vincent Peale

         
  • Posted: 26 May 2009 09:58 AM #14

    Play Ultimate - 26 May 2009 12:43 PM

    MSFT was just fortunate that IBM picked them and yet allowed them to license MS-DOS to clone makers.

    I think that the deal was actually done by Ballmer. This is the ONLY reason I can see that he is in charge at MS these days.

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  • Posted: 26 May 2009 10:22 AM #15

    Apple can’t do enough to market the productivity gains from using the best OS and applications.  In any discussion of pricing, one MUST factor in this simple question:  How much is your time worth?

    I am not AT ALL uncomfortable with Apple pricing.