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Does Apple Have A Monopoly?
Steve Jobs, MacWorld 2000, San Francisco MacWorld has come and gone and left us with the feeling that a subtle evolution is taking place in the minds that lead Apple. More interestingly, the rest of the world's perception of Apple is evolving in dramatic new directions. For instance, a widely read CBS Marketwatch article whines, "Apple gets to do what Microsoft wanted to do but could not: control the entire user experience from one end to the other, and dictate the terms that its customer base will have little choice but to follow." It's fascinating to witness the mainstream media's opinion of Apple mutate from proclamations of Apple's irrelevance to comparing Apple's success with the mighty Microsoft's loftiest yet unachieved ambitions. Of course, Apple doesn't have anything like the power that Microsoft has. There are no Justice Department Don Quixotes out tilting Apple's integrated hardware, software and Internet strategy. Apple's very conventional business model is roughly analogous to that of any company that offers a complex consumer product for sale. Ford Motors is allowed to dictate the style, engine configurations and options it offers to its customers whose only recourse if they disapprove is to buy another brand of automobile. Apple has always provided a complete computing experience. From the very beginning Apple sold the hardware, operating system and the basic applications one would need. Remember MacDraw, MacWrite, and MacPaint? At MacWorld, Steve Jobs felt no need to apologize for Apple's 'monopoly' saying, "It's true that Apple is the last company in our industry that makes the entire system, but that also means we are the last one that can take responsibility for the entire customer experience." He's right. Part of the instability and awkwardness of Windows can be attributed to the plethora of PC boxes – made by everyone from Dell to the communist Chinese army – in which Windows must operate. Microsoft may set the standards but no one is responsible for the gestalt of the Wintel experience. One tech support passes the buck to the next company's tech support. Apple has the singular privilege, and the accompanying heavy responsibility, of optimizing its systems and standards for its own proprietary hardware. This is an important tactical advantage in a world of increasing hardware and OS diversification. The single-system deal Apple can offer in the enterprise market space is even more cost effective in a world of increasing IT complexity and confusion. Linux and the open source movement promise an intellectual ecology of innovation but they also threaten to create a digital tower of Babel where no two operating systems will be configured alike and every piece of software has to be tweaked individually for each system. Steve Jobs rails on about OS X networking abilities, "We are going to take advantage – unfair advantage – of the fact that we supply the operating system to both the user and the client. We can integrate that together in a way that nobody else can, and we are the last guys in the industry that can do it." The view from Wall Street It's not surprising, given Apple's good fortunes in marketing the iMac and iBook, that Apple received a slew of upgrades in the last few weeks from various brokerage houses. Analysts love companies that have a locked-in "end to end" business solution. But what they love most are details like these: Mac OS 9 sold over a million copies in the first fiscal quarter of 2000, which ended on January 1st. The iBook is the best selling laptop in the US, although The Register claims it may have slipped out from first place in November. (The iBook has a different model number for each color, so each color must compete as a separate model making it unlikely any single color ever holds the best selling position. The same is true of the iMac.) In the one time gain category there is the incredible billion dollar paper profits Apple made with its investments in Akamai and ARM Holdings. Finally, the bottomline: Apple sold 1.35 million Macs in one quarter. That meets even Steve Jobs' definition of insanely great. So why hasn't AAPL's price soared? There could be a multitude of cross currents holding the stock down. Some investors may be nervous that Apple hasn't revamped the aging PowerBook G3 series yet. PowerBook G3 sales are much lower since the introduction of the iBook. Others wished for some other hardware announcement out of MacWorld, even though January is the poorest time of the year to introduce a new product. Some are worried that the iMac, Apple's flagship consumer product, no longer seems to be a fixture among the PC Data top five best sellers. Computer savvy investors are taking note of Motorola and IBM's inability to keep up with Moore's Law in the CPU megahertz race. Inexperienced users, frightened by the jargon that inevitably goes into any explanation of OS X, are unsure whether the upgrade will be an overnight success like OS 9. Meanwhile, at least on Wall Street, Linux stole OS X's thunder. But the real reason why Apple's stock isn't doing better is because Apple should never have schedule MacWorld during the special three-day mini-correction that the technology stocks endured last week. And you have to ask yourself was a 9.5% pullback enough for the Nasdaq-- still up 77% in 52 weeks? Hold on to your hats because the stock market isn't going to get less volatile and Apple will be announcing earnings Wednesday, January 19th after the bell. It should be one heck of a ride. Your comments are welcomed. |