AAPL - Apple Inc.

[wachtwoord]

Remember the Micrsoft Zune? Was the iPod really better? Of course it wasn't, it's a freaking mp3 player ffs. Microsoft just sucks at marketing and Apple has some of the best marketeers in the world. They are able to sell HW for at least 50% more than their competitors. They won't be selling it to me however :)

 

The Zune was late to market and offered no benefits over an iPod...

 

The ipod was released in 2001...the zune...2006! Five years? To make absolutely no useful improvement? It wasn't that Microsoft sucked at marketing...it's that Apple had five years of an advantage to develop the market into the type of consumer it wanted!

 

Okay I checked and I was wrong about the Zune :)

 

Besides that, when the iPod was introduced there did exist other MP3 players. I have always failed to see the added value of iPod above those. An MP3 player is and MP3 player. Actually the earphones are kind of the most important parts as they directly impact sound quality. I have always thrown out the stock earphones and bought special purposes ones (doesn't need to be expensive).

[Guest valueInv]

 

You probably could have done without putting that first sentence in.  I'm willing to "engage with you intellectually" if you learn some manners.

And I'm wiling to engage intellectually with you if you bother to educate yourself on technology.

Your track record:

Dell

RIM

Ubuntu one device

HTC One stealing customers from iPhone

 

And yes, you even predicted that the Nexus will steal customers from the iPhone if they included LTE. Well, they just did. Let's see what happens in 6 months.  :P

 

I don't consider support for 64-bit to be of much use at this time.

 

Here is a great example of you not being educated about the topic.

And how would you know? How many lines of code have you written? How many products have you been involved in shipping?

 

http://www.anandtech.com/show/7335/the-iphone-5s-review/5

http://www.imore.com/arm64-advantage

 

http://www.cultofmac.com/251349/qualcomm-exec-soft-fired-after-calling-64-bit-a7-chip-a-gimmick/

 

However, I do think it becomes more important on upcoming next gen devices because I still believe in convergence, where the phone will be the only computer you need (the Ubuntu Edge vision, if you will).

Boy, that sounds like Apple is ahead in transitioning to the next generation.

 

BTW, how do you think they're able to switch to the retina screen  on the mini and how did they decrease the weight on the iPad air? Do ya think the new chip had something to do with it?  ;)

 

The fingerprint reader is pretty nice, but it's only one feature and doesn't make it a given that Apple is way ahead. 

Its a huge feature. The fingerprint sensor is only the tip of the iceberg:

http://www.quora.com/Apple-Secure-Enclave/What-is-Apple’s-new-Secure-Enclave-and-why-is-it-important

 

Apple, as usual, hides complexity from the outside world.

 

Plus this:

http://www.apple.com/ios/business/

 

In some respects, Apple is behind.  Small screen is absolutely a problem.  Tighter integration of Google Now into Kit Kat blows Apple out of the water for the very common use case of finding stuff on the fly on your phone.  iCloud integration still isn't very good compared to Android and Google services.

 

So, no, I wouldn't say Apple is far ahead.

 

Big screens are a tradeoff. For every feature you point out, I can point to two:

The office applications

iBooks 2.0

Garageband

iTunes Radio

iBeacon

iCloud Keychain

And on and on

 

The camera on the 5s blows away even the Lumia with only quarter of the pixels, leave on the Nexus 5:

 

http://blog.laptopmag.com/iphone-5s-vs-lumia-1020-camera

 

Apple did a complete redesign for iOS 7.  What did Google announce for Kit Kat? That it can run on 512 MB? Apple has been running on 512 MB for years.

 

Speaking of iCloud, what is the name of the syncing service on Android?

 

And Google Now. How many people are using it? What numbers did Google release? 

 

 

[Guest valueInv]

Remember the Micrsoft Zune? Was the iPod really better? Of course it wasn't, it's a freaking mp3 player ffs. Microsoft just sucks at marketing and Apple has some of the best marketeers in the world. They are able to sell HW for at least 50% more than their competitors. They won't be selling it to me however :)

 

The Zune was late to market and offered no benefits over an iPod...

 

The ipod was released in 2001...the zune...2006! Five years? To make absolutely no useful improvement? It wasn't that Microsoft sucked at marketing...it's that Apple had five years of an advantage to develop the market into the type of consumer it wanted!

 

Okay I checked and I was wrong about the Zune :)

 

Besides that, when the iPod was introduced there did exist other MP3 players. I have always failed to see the added value of iPod above those. An MP3 player is and MP3 player. Actually the earphones are kind of the most important parts as they directly impact sound quality. I have always thrown out the stock earphones and bought special purposes ones (doesn't need to be expensive).

 

It has a lot more to do with what you fail to see vs reality.

[Guest valueInv]

As usual, you are not even close to reality. Apple has already shifted to 64 but not so much Kit Kat.

btw, the nexus 5 still doesn't have a fingerprint sensor and the camera still sucks. I could go on and on.

 

I repeat, it's not about whether the 5S is better than the nexus. Surely I would hope given that the 5S costs $200 more than the Nexus, it would be superior in hardware. Therefore it follows that the iPhone may have a better camera and fingerprint sensor. Is that better camera and fingerprint sensor worth $200? To some it might be, to others, it may not.

If you want to find out how many people think it is worth it, take a look at Apple's earnings releases.

[Guest valueInv]

I completely disagree with that stratechery post.  It's nonsense to say that consumer products are different from business products and not subject to the "good enough" phenomenon. 

 

Just think about consumer appliances, generally.  There's that famous story about how Steve Jobs used some high end washer/dryer from Germany.  Well, the vast majority of people use ordinary washer/dryers because they are good enough.  The vast majority of people buy kitchen knives that are good enough -- that get the job done.  Yes, you can make the argument that luxury knives are worth the price one pays, but people who are into luxury or designer goods can always explain why they believe the high end goods are better than the rest.  And they often seem to forget that people might just have different preferences that explain their purchase decisions. 

 

Take the whole JD Power tablet "controversy."  Samsung passed Apple this year.  Why?  Because of price.  That's because there are always trade offs when it comes to purchase decisions.  Even with luxury goods -- if I had a a billion dollars, I wouldn't buy a Bentley, despite the fact that is ostensibly of higher quality than other cars. 

 

Now, nobody is arguing that the iPhone goes away.  But what a lot of people fail to remember is that, by definition, a luxury good provider has a much smaller "installed base" (and smaller market share) than non-luxury good providers.  So the question is whether or not Apple's valuation is justified if it just becomes a luxury appliance provider.

Well, duh. There is no "becoming" a luxury provider. They have always been one. BTW, take a look at the Gold 5s sales  ;) What's the backlog these days?

 

 

"Quality" is more subjective than you are letting on, though.

 

There is no wine that is superior than all the rest.  There are good wines and bad wines.  And people have different preferences for different types of wines too.  Some people don't even like wine, since it is an acquired taste.

 

If I'm a car guy, I might buy a Subaru BRZ and get a pretty cool driving experience instead of buying a Porsche.  A lot of car guys do that because they can't afford a Porsche.  Or they think that the extra tens of thousands of dollars are better spent elsewhere.

 

You're fooling yourself if you really believe that people who choose Android "can't perceive or don't care about quality."  And remember: the first principle is that you must not fool yourself, and you are the easiest person to fool.

And if someone wants a good example of that, they should take a look at the RIM thread.

[LC]

Remember the Micrsoft Zune? Was the iPod really better? Of course it wasn't, it's a freaking mp3 player ffs. Microsoft just sucks at marketing and Apple has some of the best marketeers in the world. They are able to sell HW for at least 50% more than their competitors. They won't be selling it to me however :)

 

The Zune was late to market and offered no benefits over an iPod...

 

The ipod was released in 2001...the zune...2006! Five years? To make absolutely no useful improvement? It wasn't that Microsoft sucked at marketing...it's that Apple had five years of an advantage to develop the market into the type of consumer it wanted!

 

Okay I checked and I was wrong about the Zune :)

 

Besides that, when the iPod was introduced there did exist other MP3 players. I have always failed to see the added value of iPod above those. An MP3 player is and MP3 player. Actually the earphones are kind of the most important parts as they directly impact sound quality. I have always thrown out the stock earphones and bought special purposes ones (doesn't need to be expensive).

 

Heh, no worries...it was a long time ago :)

 

I don't remember the specifics...but from what I recall from my own shopping, the ipod was leaps above other MP3 players. More storeage, easier interface, and "everyone" had itunes. Also, the apple earphones were way better than the stock ones provided by all the other MP3 players.

 

And there was some heft to the ipod...it was sturdy. and the polished metal back reinforced this image. the other MP3 players simply felt like cheap, imported knock-offs.

[Guest valueInv]

As usual, you are not even close to reality. Apple has already shifted to 64 but not so much Kit Kat.

btw, the nexus 5 still doesn't have a fingerprint sensor and the camera still sucks. I could go on and on.

 

I repeat, it's not about whether the 5S is better than the nexus. Surely I would hope given that the 5S costs $200 more than the Nexus, it would be superior in hardware. Therefore it follows that the iPhone may have a better camera and fingerprint sensor. Is that better camera and fingerprint sensor worth $200? To some it might be, to others, it may not.

If you want to find out how many people think it is worth it, take a look at Apple's earnings releases.

 

This is the best example of trolling. I make a point, you ignore it, tout your agenda, I point out that you didn't refute my point, and you respond, "Apple made a lot of money". You don't think any other company makes a lot of money?

 

 

I'm done arguing with religious extremists.

No, Apple tells you how many devices they sold in each quarter in the earnings releases. That tells you how many people find the extra $200 worth it.

[Palantir]

I have read Apple's earnings just as closely as you have, so you do not need to tell me. In any case, since you are not grasping the point, I'm off.

[Guest valueInv]

I have read Apple's earnings just as closely as you have, so you do not need to tell me. In any case, since you are not grasping the point, I'm off.

 

I grasp your point well and so does Apple. It's called segmentation.

 

For the high end which wants the latest and greatest, for whom their phone is a status symbol, their is the 5s.

 

For teeny boppers,women, people who like color and for people who are more budget concious, there is the 5c.

 

For people who don't care about features and don't see why they should pay up, there is the 4s.

 

This does not address all segment and does not work well in countries with low per capita income. Which is why Apple is being aggressive with the 4s. It also tells you why there is a 5c.

 

Also, the reason why they are not being aggressive with the 5c pricing is to prevent bleeding into adjacent price segments.

[Liberty]

Just because a product sells doesn't mean another product isn't good enough.

 

I don't understand why you're saying this. I never said that because the iPhone was best everything else wasn't "good enough". My whole point is that "good enough" doesn't matter in ease of use and quality of overall experience, you can't overshoot on those, and that as long as Apple makes better products than the competition, they'll get the money of the top end because these people want the best, and they won't say "well, Android is now good enough, even if Apple is better I'll just use Android because it's "good enough". No, they're looking for the best overall experience. Heavy smartphone users with money spend their lives on their mobile devices, and they won't care about saving a few bucks if it makes their experience worse. A Corolla's good enough, but the top end of the car market has money and wants the best and so won't settle for it.).

 

The Mac is far more of a niche device than Windows, you can retreat to "marketshare isn't everything" but your claim is getting weaker and weaker. Even on the "high end", where do you think Samsung is competing?

 

They're a niche device that takes pretty much all of the profit in the consumer PC market, has a thriving software ecosystem, and has been outgrowing all competitors for 10+ years. Not bad.

 

I'm not sure I understand your question about Samsung. Sure they're higher-end than most, but they're not Apple level overall in user experience, both hardware and software. It doesn't mean it's a bad strategy for Samsung. They'll make a ton of money I'm sure. But based on what I've seen, I'm not afraid that tomorrow Samsung will release a phone that will be better overall than the iPhone or a tablet better than the iPad. Now that would be a big problem for Apple.

 

Autos are a totally different market, apples and oranges. When people buy a car, they make an expensive purchase that lasts many years, smartphones, they upgrade every 2-3 years.

 

On average (especially before the 2008 recession), people didn't keep their cars that much longer considering it's something that costs 30-50x more... But still, I fail to see how that makes them so different. They are consumer product bought by the people who use them, to be interacted with closely very frequently. That's why people care a lot more about features, brand, design, quality, user experience, etc, than with products that are a lot less 'personal' (a gas furnace, a dishwasher, a septic tank).

[LC]

Also remember that there are devices which you own that other people see (iphone, car, clothes) and items you own which other people don't see (dishwasher, furnace, etc.).

[Palantir]

Samsung is a high end competitor. People are not only buying Android because it is cheaper.

 

 

 

Sigh.

[Liberty]

Samsung is a high end competitor. People are not only buying Android because it is cheaper.

 

 

 

Sigh.

 

I give up. Strawman someone else.

[Palantir]

I don't understand why you're saying this. I never said that because the iPhone was best everything else wasn't "good enough". My whole point is that "good enough" doesn't matter in ease of use and quality of overall experience, you can't overshoot on those, and that as long as Apple makes better products than the competition, they'll get the money of the top end because these people want the best, and they won't say "well, Android is now good enough, even if Apple is better I'll just use Android because it's "good enough". No, they're looking for the best overall experience. Heavy smartphone users with money spend their lives on their mobile devices, and they won't care about saving a few bucks if it makes their experience worse. A Corolla's good enough, but the top end of the car market has money and wants the best and so won't settle for it.).

 

- What makes you think the iPhone is a "high end" device? It's priced like a "high end" device, but given that most people buy it on a subsidized plan, it's nowhere near a "high end" device. People in all walks of life have iPhones. Apple is not making iPhones for a niche group of wealthy people as you seem to think. Recently we went to get a smartphone plan, they were offering us any phone for free. (Including the iPhone)

 

- How do you know that "good enough" is not good enough? You seem to be assuming that Android devices are trash and poor copies of iOS, when it's nowhere near the truth, there are a significant number of people who prefer Android. Even a "good enough" Android is a very good operating system. Frankly, with iOS 7, it is not all that user friendly and a step down from iOS 6, but it looks better.

 

- So your claim that the iPhone is only owned by very "high end", exclusive, discerning users is utterly untrue. (btw I own an iPhone 5, not "high end" here).

 

- Even on the "high end" Android is competitive. Every single guy who owns a GS4, a Note, or an HTC One could have bought an iPhone but chose not to. This is not just Corolla versus Mercedes. This is Mercedes vs BMW vs Audi.

 

 

They're a niche device that takes pretty much all of the profit in the consumer PC market, has a thriving software ecosystem, and has been outgrowing all competitors for 10+ years. Not bad.

 

Yes, exactly, it is a niche device and only a small contributor to Apple's profits. If you see iPhone going that way, then I understand your argument.

 

I'm not sure I understand your question about Samsung. Sure they're higher-end than most, but they're not Apple level overall in user experience, both hardware and software. It doesn't mean it's a bad strategy for Samsung. They'll make a ton of money I'm sure. But based on what I've seen, I'm not afraid that tomorrow Samsung will release a phone that will be better overall than the iPhone or a tablet better than the iPad. Now that would be a big problem for Apple.

 

Samsung's Galaxy series is positioned in the exact same price range, and aimed at iPhone's user base. This is not some "low end disruption" story you are seeing.

 

On average (especially before the 2008 recession), people didn't keep their cars that much longer considering it's something that costs 30-50x more... But still, I fail to see how that makes them so different. They are consumer product bought by the people who use them, to be interacted with closely very frequently. That's why people care a lot more about features, brand, design, quality, user experience, etc, than with products that are a lot less 'personal' (a gas furnace, a dishwasher, a septic tank).

 

Tell me something, is there only one high end auto brand? Just curious.

[Liberty]

- What makes you think the iPhone is a "high end" device? It's priced like a "high end" device, but given that most people buy it on a subsidized plan, it's nowhere near a "high end" device. People in all walks of life have iPhones. Apple is not making iPhones for a niche group of wealthy people as you seem to think. Recently we went to get a smartphone plan, they were offering us any phone for free. (Including the iPhone)

 

Strawman, I never said it was some exclusive product. When I call it high-end, I mean in the quality of the hardware and software. I called it "affordable luxury", which is what it is.

 

- How do you know that "good enough" is not good enough? You seem to be assuming that Android devices are trash and poor copies of iOS, when it's nowhere near the truth, there are a significant number of people who prefer Android. Even a "good enough" Android is a very good operating system. Frankly, with iOS 7, it is not all that user friendly and a step down from iOS 6, but it looks better.

 

Strawman. I don't believe Android is trash or a poor copy. But to me it is inferior in many ways that matter. It doesn't mean that nobody can prefer Android or like it.

 

- So your claim that the iPhone is only owned by very "high end", exclusive, discerning users is utterly untrue. (btw I own an iPhone 5, not "high end" here).

 

Strawman. I never claimed that.

 

- Even on the "high end" Android is competitive. Every single guy who owns a GS4, a Note, or an HTC One could have bought an iPhone but chose not to. This is not just Corolla versus Mercedes. This is Mercedes vs BMW vs Audi.

 

Sure they're competing in the high end, I never said they weren't. I just don't think they're close to being as good, and Samsung spending 11 billion in marketing and sales commissions and still generally having lower prices probably helps.

 

Yes, exactly, it is a niche device and only a small contributor to Apple's profits. If you see iPhone going that way, then I understand your argument.

 

I don't see that happening in the near future. But longer-term, who knows.

 

But even that doesn't make much sense as criticism; the Mac isn't a small part of Apple's profits because the Mac did badly. It's small because they had huge massive successes with the iPhone and iPad.

 

Samsung's Galaxy series is positioned in the exact same price range, and aimed at iPhone's user base. This is not some "low end disruption" story you are seeing.

 

Pricing is not what matters to me, it's user experience. When Samsung makes a user experience that I feel is as good as Apple's, I'll be ready to sell my shares.

 

 

Tell me something, is there only one high end auto brand? Just curious.

 

No, but as I wrote earlier, general computing devices have huge networking effects and ecosystems matters a lot. Is there as many OSes in PCs as there are car companies out there? Why not? Well, same in mobile: There's space for 2, maybe 3 OSes, so I'd be very surprised if the high end fractured much.

[Palantir]

Strawman, I never said it was some exclusive product. When I call it high-end, I mean in the quality of the hardware and software. I called it "affordable luxury", which is what it is.

 

Yet you compared the iPhone to a Mercedes, and the "top end" of the market which "has money". I do get the argument you're making - you're saying it's for users who truly care about a great user experience, that is ok. But that's only one component of iPhone's customer base!

 

 

Strawman. I don't believe Android is trash or a poor copy. But to me it is inferior in many ways that matter. It doesn't mean that nobody can prefer Android or like it.

 

It is fine if you prefer iOS (I do too), but I don't believe all, or even a majority of iPhone's customer base is seeking the "very best" user experience. I think most people want iPhones because it is a good product, it looks great, and has an iconic brand name.

 

Sure they're competing in the high end, I never said they weren't. I just don't think they're close to being as good, and Samsung spending 11 billion in marketing and sales commissions and still generally having lower prices probably helps.

...

Pricing is not what matters to me, it's user experience. When Samsung makes a user experience that I feel is as good as Apple's, I'll be ready to sell my shares.

 

People are buying these phones for different reasons and different levels of usage. IMO, the iPhone is a mass market product, it is not like the Mac.

 

No, but as I wrote earlier, general computing devices have huge networking effects and ecosystems matters a lot. Is there as many OSes in PCs as there are car companies out there? Why not? Well, same in mobile: There's space for 2, maybe 3 OSes, so I'd be very surprised if the high end fractured much.

 

I don't believe any of the high end devices from Apple or Android lack the ecosystem.

[Palantir]

I grasp your point well and so does Apple. It's called segmentation.

 

For the high end which wants the latest and greatest, for whom their phone is a status symbol, their is the 5s.

 

For teeny boppers,women, people who like color and for people who are more budget concious, there is the 5c.

 

For people who don't care about features and don't see why they should pay up, there is the 4s.

 

This does not address all segment and does not work well in countries with low per capita income. Which is why Apple is being aggressive with the 4s. It also tells you why there is a 5c.

 

Also, the reason why they are not being aggressive with the 5c pricing is to prevent bleeding into adjacent price segments.

 

That comes back to my argument. At the low end of Apple's range you have the 4S at 450. $450 is still a higher end phone. You really think the 4S, a 2011 product, is better than the Nexus 5?

 

 

[Liberty]

Yet you compared the iPhone to a Mercedes, and the "top end" of the market which "has money". I do get the argument you're making - you're saying it's for users who truly care about a great user experience, that is ok. But that's only one component of iPhone's customer base!

 

I compared it to BMW, actually. And I meant for quality, not exclusivity.

 

And yes, the bottom end of the market that cares more about saving a few bucks than the experience, and won't spend on apps and music and movies and services, these don't "have money" and aren't targeted by Apple. Doesn't mean you have to be a billionaire, though.

 

 

It is fine if you prefer iOS (I do too), but I don't believe all, or even a majority of iPhone's customer base is seeking the "very best" user experience. I think most people want iPhones because it is a good product, it looks great, and has an iconic brand name.

 

Are you doing this on purpose? Do you think I meant it as: "They sit down and write a list of criteria, and on it is 'find the very best'". No, they look at a bunch of products, and one of them has the best build quality, best looking interface, smoother animations, best graphic design, best apps, best brand, best buying experience, things are more intuitive, etc.. And it feels like the best thing they can get so they do.

 

 

People are buying these phones for different reasons and different levels of usage. IMO, the iPhone is a mass market product, it is not like the Mac.

 

Mass-market in how many they sell, high-end in quality, and affordable luxury in branding.

 

I don't believe any of the high end devices from Apple or Android lack the ecosystem.

 

That's not what we were talking about. You were talking about how many luxury automakers there were out there. I said that mobile computing devices are different because there's huge network effect, so huge barrier to entry for new ecosystems. This means that you won't have a ton of different new OSes, and we'll probably stay with iOS, Android, and maybe Windows for the foreseeable future.

 

So while a few companies can make phones to compete against Apple, their differentiation is seriously limited because they all run the same OS, kind of like the HPs and Dells and Lenovos out there are less differentiated from each other when compared to the Mac.

[Guest valueInv]

I grasp your point well and so does Apple. It's called segmentation.

 

For the high end which wants the latest and greatest, for whom their phone is a status symbol, their is the 5s.

 

For teeny boppers,women, people who like color and for people who are more budget concious, there is the 5c.

 

For people who don't care about features and don't see why they should pay up, there is the 4s.

 

This does not address all segment and does not work well in countries with low per capita income. Which is why Apple is being aggressive with the 4s. It also tells you why there is a 5c.

 

Also, the reason why they are not being aggressive with the 5c pricing is to prevent bleeding into adjacent price segments.

 

That comes back to my argument. At the low end of Apple's range you have the 4S at 450. $450 is still a higher end phone. You really think the 4S, a 2011 product, is better than the Nexus 5?

 

Note what I said about the 4s. The people who buy is don't care that it is not competitive to the Nexus 5. They're grandma who likes Apple products because they are simple and intuitive or some guy in China who views Apple as an aspirational brand but can't afford the 5s.

 

In many markets most people don't pay $450 - the phones are subsidized. Even in emerging markets, there are financing plans. Not to mention, Apple is getting more aggressive with the pricing, as they talked about in the last earnings call.

 

BTW, they realized that demand for the iPad mini retina is going to be robust and that they could get away with raising the price. This is further helped by having the old iPad at $299 to compete against cheaper devices. They see and analyze a lot more sales data than we have access to. There is a reason for these prices.

 

It is also a better long term strategy - as you are seeing with the profits in the PC markets.

 

When you engage in sustained aggressive price competition, you have to start cutting corners to eke out margins. You can get away with no margins in the short term, not in the long term. So you start cutting corners and the quality drops (even though you tout the same features as the high end). Over time, the gap in quality between the low end and the high end widens and people start noticing it - allowing the high end brands to cement themselves in their price segment. You are seeing it in the PC market today. Where are emachines and Gateway today?

[txlaw]

Exactly. And the vast majority of people buy Android, but the top of the market, where the money is, most buy Apple. I never said that most people bought Apple or knives made out of S30V steel. What I said is you can't overshoot in ease of use and quality, and the top end of the market will follow you as far as you go, not that average people will all use luxury brand because nothing else is "good enough".

 

I understood you to be saying that the mental model of "good enough" does not apply for consumer products like the ones that Apple makes.  That's what it sounded like in your post citing the stratechery blog. 

 

My point was that the mental model certainly does apply to those products, and the notion that the "top end" of the market will ostensibly continue to use Apple products is not at all inconsistent with Christensen's theories on commoditization.  If the majority of people make the decision to go with Android (or other) phones over Apple based on price point, that is consistent with the notion of overshooting, which does not mean that the incumbent goes away.  Overshooting simply means that when the technology more than meets most customers' needs, there is opportunity for cheaper (and perhaps more rudimentary) products to gain market share.  Which can eventually lead to disruption.

 

And while that article you posted on market share is a good one for explaining what market share means and doesn't mean, by no means should you conclude from the article that market share is not material to valuation.  Especially for a company that makes its profits primarily from sales of new product into the market. 

 

For example, if Apple's market share shrinks rapidly, even in the face of market growth, that can potentially lead to slower unit sales growth, which may not be factored into AAPL's current market valuation.  Market share loss can also affect COGS.  When you have a high market share, you can often extract the best possible terms from your suppliers.  IMO, Android market share growth has materially affected Apple's gross margins and has also been one of the reasons behind the supply shortages for Apple products.  And this, of course, affects profits per share.

 

That JD power thing made no sense at all. Apple beat it in all categories, except in price, but even that highly depends how you count price and for which models

 

http://techcrunch.com/2013/11/01/jd-power-explains-why-samsung-beat-apple-in-its-latest-tablet-study-price/

 

But saying that Samsung beats Apple in a quality survey because of price is like saying that a Corolla is a better car than a BMW 3 series because it's cheaper.

 

When did J.D. Power say that Samsung beat Apple in a "quality survey"? 

 

J.D. Power's tablet study is about "customer satisfaction," and under their scoring methodology, Samsung edged Apple out when it comes to overall customer satisfaction.  And price was the key factor there.  Now you can certainly criticize this methodology, but there shouldn't be a knee jerk reaction to such a survey, which is entirely consistent with the notion of the "good enough" phenomenon occurring in this market. 

 

If the top end were to fragment heavily and Apple only had a slice of it, maybe that'd be a problem. But Smartphones and tablets (which are basically general computing devices) aren't watches. They have strong network effects and ecosystems matter. There's a winner-takes-all aspect which means that we probably won't see much more than 2-3 platforms. I doubt the high end will fragment, and Apple can retain a big chunk of where the money is.

 

And Apple is affordable luxury, it's not Rolex, so let's not get carried away with the implications of the word "luxury".

 

I also used to think that strong network effects and ecosystems mattered for these OS providers (I still view Apple primarily as an OS provider that bundles its product in optimized boxes), but I've changed my view in this regard.  My view now is that the OS market is being commoditized, as we are getting to a point where cheaper and simpler versions are "good enough."  It doesn't matter if there are only 2 or 3 platforms in the end because value/profit is shifting to different parts of the value chain -- namely in the hardware layer and in the software and services layers running on top of (or through) the OS.  If the 3 competing products are pretty similar, people will go with the free one (i.e., Android) and focus more on apps and services.

 

In other words, the traditional business model for Apple is probably not going to remain a wildly profitable (on an absolute level) endeavor for the medium to long term. 

 

Exactly, except imagine a world where there's just 2-3 car makers.

 

Imagine a world where there are 2 or 3 car makers, where all the cars are generally pretty similar, and where one car maker starts to give its product away for free.

 

There are many reasons why people pick Android, but I'm pretty sure one of the biggest ones is price. Sell the iPhone for the same price as the competition and you'll see what happens to Android's perceived advantages over the iPhone (especially after they have a model with a bigger screen -- Apple has always taken its time to get things right, but they do give people what they want eventually (ie. iPad Mini)).

 

I agree that price is a big reason why many people pick Android devices.  That's kind of my point.  I'm saying that as the "innovation gap" closes between Android and iOS, with Android being a "good enough" alternative to iOS, price becomes more and more of a factor.  And this could have a material affect on Apple's ability to extract the level of profits it does from the sale of each unit it produces.

[txlaw]

But if we are going to be comparing iOS and Android in terms of "how ahead" they are, we really should be looking at Kit Kat on new hardware versus iOS on the latest hardware (iPhone 5S).  Also, there's really no way to say that Apple will be on even footing if/when Apple fixes the small screen problem because we don't know what Samsung's new phones will look like at that time.  Samsung will always have a COGS advantage because they are vertically integrated -- which means that Apple will never be on equal footing with Samsung at least in one important aspect: price.

 

I disagree. If you do not know what Samsung's phones will look like, and you don't have a definitive opinion on KitKat, how can you be so sure that Samsung will have an advantage? :)

 

I don't agree that Samsung has a COGS advantage, because Apple has been very good at keeping supply costs as low as possible, and the price advantage is gone because Samsung is squarely aiming at the high end with its Galaxy series. The Note is a $700 phone.

 

If Apple comes out with a 5" phone, I think Apple will clearly have the advantage - it is equal on size and price, but has the better UI, better design, better brand name, and better overall experience.

 

Size is important. :)

 

I only said that Samsung has an advantage with respect to COGS.  Not with respect to their product quality. 

 

And I don't see how this COGS advantage goes away.  Not only does Samsung get the OS they use for cheap, but they also manufacturer a lot more of the components than does Apple.  There is a structural advantage there when it comes to the break even point for device sales.  Their pricing is a different matter.

 

My point on the 5" phone battle is that we have no idea when Apple is going to come out with that phone.  For all we know, by the time that it does come out (if ever), we could even see Samsung/Android beating iPhone on user experience.  But that remains to be seen.

[Guest valueInv]

But if we are going to be comparing iOS and Android in terms of "how ahead" they are, we really should be looking at Kit Kat on new hardware versus iOS on the latest hardware (iPhone 5S).  Also, there's really no way to say that Apple will be on even footing if/when Apple fixes the small screen problem because we don't know what Samsung's new phones will look like at that time.  Samsung will always have a COGS advantage because they are vertically integrated -- which means that Apple will never be on equal footing with Samsung at least in one important aspect: price.

 

I disagree. If you do not know what Samsung's phones will look like, and you don't have a definitive opinion on KitKat, how can you be so sure that Samsung will have an advantage? :)

 

I don't agree that Samsung has a COGS advantage, because Apple has been very good at keeping supply costs as low as possible, and the price advantage is gone because Samsung is squarely aiming at the high end with its Galaxy series. The Note is a $700 phone.

 

If Apple comes out with a 5" phone, I think Apple will clearly have the advantage - it is equal on size and price, but has the better UI, better design, better brand name, and better overall experience.

 

Size is important. :)

 

I only said that Samsung has an advantage with respect to COGS.  Not with respect to their product quality. 

 

And I don't see how this COGS advantage goes away.  Not only does Samsung get the OS they use for cheap, but they also manufacturer a lot more of the components than does Apple.  There is a structural advantage there when it comes to the break even point for device sales.  Their pricing is a different matter.

 

My point on the 5" phone battle is that we have no idea when Apple is going to come out with that phone.  For all we know, by the time that it does come out (if ever), we could even see Samsung/Android beating iPhone on user experience.  But that remains to be seen.

 

Read the reviews on the S4 and the 5s. You'll see in which direction the Android and iOS user experiences are heading. It pays to check in with reality once in a while. ;)

[Liberty]

I understood you to be saying that the mental model of "good enough" does not apply for consumer products like the ones that Apple makes.  That's what it sounded like in your post citing the stratechery blog. 

 

I meant that it's possible to overshoot on CPU speed and things like that, making something that is more than your average user needs. But it's not possible to overshoot on ease of use and quality of experience; nobody will ever say "this is too intuitive, too fun to use, too pretty, too delightful, it meets my needs too easily and without friction". That stuff is hard to get right, you need a company focused on the right things and with the right culture; if it was easy to just decide to wake up one morning and become good at design and UI, Microsoft would be a very different company.

 

My point was that the mental model certainly does apply to those products, and the notion that the "top end" of the market will ostensibly continue to use Apple products is not at all inconsistent with Christensen's theories on commoditization.  If the majority of people make the decision to go with Android (or other) phones over Apple based on price point, that is consistent with the notion of overshooting, which does not mean that the incumbent goes away.  Overshooting simply means that when the technology more than meets most customers' needs, there is opportunity for cheaper (and perhaps more rudimentary) products to gain market share.  Which can eventually lead to disruption.

 

Apple has never had the majority of users in anything, and they don't need them to thrive. They just have the most profitable ones.

 

And while that article you posted on market share is a good one for explaining what market share means and doesn't mean, by no means should you conclude from the article that market share is not material to valuation.  Especially for a company that makes its profits primarily from sales of new product into the market. 

 

I never said it wasn't material, just that most people are looking at it the wrong way.

 

For example, if Apple's market share shrinks rapidly, even in the face of market growth, that can potentially lead to slower unit sales growth, which may not be factored into AAPL's current market valuation.  Market share loss can also affect COGS.  When you have a high market share, you can often extract the best possible terms from your suppliers. 

 

You mean like Blackberry? Sure, if that happens, it's really bad. I just don't think we're anywhere near there yet.

 

IMO, Android market share growth has materially affected Apple's gross margins and has also been one of the reasons behind the supply shortages for Apple products.  And this, of course, affects profits per share.

 

You mean that Android makers, with their smaller margins, will have an easier time securing supply than Apple with its big margins? I think their money is just as green. The only reason for supply problems are timing issues (ie. trying to get something out for the holidays, but your suppliers have lower yields, etc) and Apple's scale. It's quite hard to make tens of millions of a new technology like the fingerprint sensor or the iPad Mini's IGZO retina screen. If Apple was selling as many devices as Nexus phones and tablets, I'm pretty sure there would be no supply problem.

 

When did J.D. Power say that Samsung beat Apple in a "quality survey"? 

 

J.D. Power's tablet study is about "customer satisfaction," and under their scoring methodology, Samsung edged Apple out when it comes to overall customer satisfaction.  And price was the key factor there.  Now you can certainly criticize this methodology, but there shouldn't be a knee jerk reaction to such a survey, which is entirely consistent with the notion of the "good enough" phenomenon occurring in this market.

 

I think that survey makes no sense, even by JD Power's own criteria of giving a 16% weighting to price. So yeah, I heavily discount that survey because it makes no sense. And even if you take it at face value and people give top scores to Apple in every category except price, yet Apple still sells a ton of devices, it doesn't seem like such a problem.

 

I also used to think that strong network effects and ecosystems mattered for these OS providers (I still view Apple primarily as an OS provider that bundles its product in optimized boxes), but I've changed my view in this regard.  My view now is that the OS market is being commoditized, as we are getting to a point where cheaper and simpler versions are "good enough."  It doesn't matter if there are only 2 or 3 platforms in the end because value/profit is shifting to different parts of the value chain -- namely in the hardware layer and in the software and services layers running on top of (or through) the OS.  If the 3 competing products are pretty similar, people will go with the free one (i.e., Android) and focus more on apps and services.

 

That's exactly what Apple has been doing, making its OS updates free. It doesn't mean that having the best OS isn't a great way to sell hardware and services, though, and making that OS exclusive to you is an advantage when everybody else is using the same OS and so lack differentiation.

 

In other words, the traditional business model for Apple is probably not going to remain a wildly profitable (on an absolute level) endeavor for the medium to long term. 

 

Apple makes money on hardware, not software.

 

They've just had a very well received product cycle update, selling a record number of iPhones at launch, without having to reduce their prices, and it's a "S" year. Next year will be even more attractive because the iPhone 6 will actually be visibly different (probably bigger screen model too). They still have tons of opportunity to expand internationally (few stores in China, no China Mobile deal yet), they are buying back tens of billions of dollars of shares, the tablet and smartphone markets are growing fast and the Mini retina with A7 should be a monster once there's supply. Things look good for the foreseeable future.

 

I'm not saying I can see 15 years in the future (did you see far ahead for Blackberry?) and know what will happen, but to me Apple is undervalued and the foreseeable future looks quite good.

 

Imagine a world where there are 2 or 3 car makers, where all the cars are generally pretty similar, and where one car maker starts to give its product away for free.

 

If Android phones become similar enough to iPhones in the ways that differentiate Apple, I'll be worried. Right now I don't see it, and reviewers agree, as well as all those people at the top end of the market who buy iPhones when they could buy less expensive Androids.

 

I agree that price is a big reason why many people pick Android devices.  That's kind of my point.  I'm saying that as the "innovation gap" closes between Android and iOS, with Android being a "good enough" alternative to iOS, price becomes more and more of a factor.  And this could have a material affect on Apple's ability to extract the level of profits it does from the sale of each unit it produces.

 

I think that you can't overshoot on ease of use and quality of experience, and as long as Apple stays ahead and others don't radically change their approach, the value proposition is different enough even if that doesn't show on a spec sheet, so things are not likely to change. We'll see what happens.

[fareastwarriors]

http://online.wsj.com/public/page/reader-comments.html?baseDocId=SB10001424052702304672404579185940386164788&headline=Apple%20Finds%20Surprising%20Growth%20Market%20in%20Japan

 

 

Apple Finds Surprising Growth Market in Japan

 

 

...

 

 

Apple's sales in Japan grew 27% to $13.5 billion in the fiscal year ended Sept. 28, compared with increases of 12.8% and 4.1% in China and the rest of Asia Pacific, respectively. Revenue growth was hampered by a weaker yen that diminishes sales when converted into U.S. dollars. In the preceding fiscal year, Japan outpaced the other regions with a 94% increase in sales.

 

Japan is also the most profitable market for Apple with operating profit margins exceeding 50%, compared with 35% in the rest of the world.

[txlaw]

I meant that it's possible to overshoot on CPU speed and things like that, making something that is more than your average user needs. But it's not possible to overshoot on ease of use and quality of experience; nobody will ever say "this is too intuitive, too fun to use, too pretty, too delightful, it meets my needs too easily and without friction". That stuff is hard to get right, you need a company focused on the right things and with the right culture; if it was easy to just decide to wake up one morning and become good at design and UI, Microsoft would be a very different company.

 

Again, in the context of Christensen's theory, overshooting simply means that that the technology has progressed so that it more than meets the needs of its users, which provides an opportunity for cheaper and simpler products to gain market share. 

 

It has nothing to do with whether Apple can never make their products more fun to use, more delightful, etc.  You can't base a valuation solely on how adept Apple is at design.  Especially when you can clearly see the gap in design closing between them and their major competitor (GOOG is doing pretty well, IMO). 

 

Apple has never had the majority of users in anything, and they don't need them to thrive. They just have the most profitable ones.

 

Sure, Apple can thrive.  The question is whether the number of users they have can support the current market valuation.  And whether the profit per customer remains static, goes up, or goes down, especially with the threat of low cost software that is very similar to their own software.

 

For some reason, people who question the valuation of Apple are characterized as believing that Apple's business won't do well going forward or that there will be a collapse in their business.  I don't know why.

 

You mean like Blackberry? Sure, if that happens, it's really bad. I just don't think we're anywhere near there yet.

 

Haha, looks like valueInv is rubbing off on you.  I was waiting for someone other than him to start using that one -- you win!  ;)

 

That was just an example of why market share can matter.  I'm not saying that Apple is going to flame out.  I think that Apple is a great company and will be here for a long time.  I just don't think there is necessarily huge downside protection with regards to current market valuation.

 

You mean that Android makers, with their smaller margins, will have an easier time securing supply than Apple with its big margins? I think their money is just as green. The only reason for supply problems are timing issues (ie. trying to get something out for the holidays, but your suppliers have lower yields, etc) and Apple's scale. It's quite hard to make tens of millions of a new technology like the fingerprint sensor or the iPad Mini's IGZO retina screen. If Apple was selling as many devices as Nexus phones and tablets, I'm pretty sure there would be no supply problem.

 

No, I mean that increased market share for Android means that Apple is competing with Android device manufacturers for component supply.  That's likely one reason for why GM has gone down.  I remember when some people were actually arguing that the peak GMs could go even higher for AAPL -- which was overly optimistic.

 

That's exactly what Apple has been doing, making its OS updates free. It doesn't mean that having the best OS isn't a great way to sell hardware and services, though, and making that OS exclusive to you is an advantage when everybody else is using the same OS and so lack differentiation.

 

Apple makes money on hardware, not software.

 

It appears that way at first blush, but that's not really the case when you break down the value chain. 

 

Apple designs both software and hardware and pays suppliers to manufacturer hardware that is optimized to run its software.  But the OS is really where the value is at.  Apple has always thought of themselves as a software company, not a hardware company.  And it's really the software that has put them ahead of everyone else for a while now (that's how they won with MP3 players, and that's how they have been winning in the mobile device market).  Their hardware certainly is cutting edge, but the majority of value can be assigned to the OS.   

 

They've just had a very well received product cycle update, selling a record number of iPhones at launch, without having to reduce their prices, and it's a "S" year. Next year will be even more attractive because the iPhone 6 will actually be visibly different (probably bigger screen model too). They still have tons of opportunity to expand internationally (few stores in China, no China Mobile deal yet), they are buying back tens of billions of dollars of shares, the tablet and smartphone markets are growing fast and the Mini retina with A7 should be a monster once there's supply. Things look good for the foreseeable future.

 

I'm not saying I can see 15 years in the future (did you see far ahead for Blackberry?) and know what will happen, but to me Apple is undervalued and the foreseeable future looks quite good.

 

It's not about whether Apple is doing well right now.  It's about what the potential downside is with respect to valuation as competitors close the innovation gap, particularly competitors who provide their products at a much lower price point. 

 

Btw, with respect to Blackberry, I always took into account the possibility that Blackberry would crash and burn.  That's why I always talked about run-off/break-up value (which I concede I might be wrong on).  Stick to the debate instead of veering off into valueInv territory.