AAPL - Apple Inc.

[innerscorecard]

Txlaw, I really don't think the gap has closed at all. You make some valid points, but the things you point to - build quality, software features, and the like, are only a small part of what makes iPhones what they are.

 

No Android vendor has the Apple Store service, educational, and repair network, or anything close to it. Android does not have close to the same ecosystem of apps that Apple has (all the best apps are still out on Apple first). There are no Android laptops or desktops to have Continuity features with.

 

And years later, the best Android phones still have that annoying scrolling lag. Some people just don't notice this stuff. But a lot really do, even if they don't articulate it in those terms.

 

So the gap has closed in some ways. Android phones are fully functional. But in other ways, the gap is as wide as ever or even wider.

[innerscorecard]

Not to mention that in selling hardware, what's important is not only the product itself but also the sales and marketing (generally) defined. Tech nerds may have spent hundreds of hours discussing the virtues of the Nexus line, but it has been a total failure so far, not only in terms of sales (the line's goal was never actually to make a lot of money, so I won't bash it for that), but also in terms of really not making a dent in the public consciousness about "pure" Android, or really giving Google a lot of control over the ecosystem.

 

Apple's retail stores remain a huge competitive advantage that no one is close to replicating (Microsoft and Samsung's attempts were laughable - I've been to Lenovo and Xiaomi stores/service centers and they're also quite bad.).

[txlaw]

You think the mostly plasticy phones have the same build quality as iPhones? Maybe "build quality" doesn't mean the same thing to you as it does to me.

 

Have you seen the latest phones from Samsung and Motorola?  The build quality is unquestionably on par with iPhones.  Plasticy-ness is not even an issue -- check out the reviews from folks like the Verge, Ars, etc. 

 

The only difference is that these Android phones are still not as sleek as iPhone.  But that's not a build quality issue.  It sounds to me like you've got an outdated conception of Android handsets.

 

And iOS 8 was a major, major step ahead, making iOS clearly superior right now.

 

I completely disagree with this -- it's not "clearly superior."  And wait until Android L comes out.  Then we'll really start to see some interesting comparisons.

 

I would note that the commoditization effect isn't going to show up all at once.  It will be something that happens over time, so we can really only validly judge today's risk assessment in the future and not based on near term results.

 

Yes, I'm sure it's about to show up in Mac computers any day now, after 30 years...

 

30 years of being a high end, high margin, low profit share competitor . . .

[innerscorecard]

Build quality includes design.

[Liberty]

Have you seen the latest phones from Samsung and Motorola?  The build quality is unquestionably on par with iPhones.  Plasticy-ness is not even an issue -- check out the reviews from folks like the Verge, Ars, etc. 

 

This is from Samsung's own website:

 

http://i.imgur.com/toksRTI.jpg

 

That's on par with the iPhone?

 

The only difference is that these Android phones are still not as sleek as iPhone.  But that's not a build quality issue.  It sounds to me like you've got an outdated conception of Android handsets.

 

What's build quality to you? Number of defects? To me it's use of materials, tolerances, how it feels in your hand, how it gives an impression of quality, how it looks, how it works. Maybe you're looking at it super narrowly and I'm looking at it more broadly.

 

I completely disagree with this -- it's not "clearly superior."  And wait until Android L comes out.  Then we'll really start to see some interesting comparisons.

 

What's I've seen of Android L in that super long, super boring Google keynote certainly didn't shake my confidence in which OS the buying public will prefer for their high-end phones...

 

And by the time 50% of android users are on Android L, Apple will have 90% of its customers on iOS 10 or 11...

 

30 years of being a high end, high margin, low profit share competitor . . .

 

Pretty sure Macs are making more profits than the rest of the PC industry combined right now, and have for a while. They're also growing while others are shrinking. That hasn't always been the case, of course, but what matters is the future, and I don't see HP and DELL competing very effectively with Macs going forward, especially after they get more integrated with iPhones, iPads, Apple TVs, Apple Watches, etc.

 

Most PC makers don't even make money on the hardware anymore, they get paid to put crapware on their products. Shameful, really.

[innerscorecard]

As Steve Jobs said, some people will just never get it. It looks quite easy to have a consumer hardware company with integrated software and services, but actually, no one else can pull it off. It's just like it seems like it would be easy to copy what Buffett and Munger do with Berkshire, but no one (big) really does it. Because they can't.

[txlaw]

Txlaw, I really don't think the gap has closed at all. You make some valid points, but the things you point to - build quality, software features, and the like, are only a small part of what makes iPhones what they are.

 

No Android vendor has the Apple Store service, educational, and repair network, or anything close to it. Android does not have close to the same ecosystem of apps that Apple has (all the best apps are still out on Apple first). There are no Android laptops or desktops to have Continuity features with.

 

And years later, the best Android phones still have that annoying scrolling lag. Some people just don't notice this stuff. But a lot really do, even if they don't articulate it in those terms.

 

So the gap has closed in some ways. Android phones are fully functional. But in other ways, the gap is as wide as ever or even wider.

 

I personally don't think it has completely closed.  But it continues to get smaller and smaller.  And I still contend that, in some ways, Android is superior to iPhone (because of the software, not the hardware).

 

I don't count the Apple service/repair ecosystem as an inherent advantage.  It is a matter of personal preference -- some people will pay a premium for that service, but others think it's not worth it.  As to apps, you're right -- iOS still has some of the best apps first, but that's definitely changing because of the spread of Android.  Re: Continuity, Google has already started incorporating Continuity-like features into its own "ecosystem" (Chromebooks, e.g., will automatically log into Google services when a paired Android device is nearby).  So you can be sure it's coming with Android devices (mobile and laptop-esque), albeit later than Apple's roll-out.

 

One can always point to particular features as points scored against the competitor, but if you ignore the competitor's superior features, that indicates a biased, partisan view.

[Liberty]

One can always point to particular features as points scored against the competitor, but if you ignore the competitor's superior features, that indicates a biased, partisan view.

 

Could you please tell us what are Android's superior features?

[innerscorecard]

I think it's fair that to say that for the majority of phones users on Earth, the gap has closed. Most people won't buy any apps at all, and don't even have a pc or a tablet other than their phone. For Android devices, it's easy to sideload music or other content onto it with a SIM card. Can't do that with an iPhone. Totally true. And I'm sure Android will surprise people with new features that iOS doesn't have.

 

But for other people, those who have a lot of money to spend on apps, companion devices, and the like, the gap is even wider than before. I think for that segment of the market, Apple has a sustainable competitive advantage that I don't see anyone challenging in the near-term.

[Liberty]

Someone helpful PM'ed me this:

 

http://www.slate.com/blogs/moneybox/2013/04/16/mac_profits_are_high_too_high.html

 

http://www.slate.com/content/dam/slate/blogs/moneybox/2013/04/16/mac_profits_are_high_too_high/mac%20profits.png.CROP.article568-large.png

 

That's from a couple years ago, but I think the lead has increased since then since the PC industry has been hit hard in the meantime while Macs have kept growing and popular new models have been introduced...

[txlaw]

What's build quality to you? Number of defects? To me it's use of materials, tolerances, how it feels in your hand, how it gives an impression of quality, how it looks, how it works. Maybe you're looking at it super narrowly and I'm looking at it more broadly.

 

Instead of tacky chrome accents on cheap plastic, the Alpha has a real metal frame. It looks an awful lot like a smaller and thinner Galaxy S5 — because that's what it is — but the way that it feels is dramatically different. I first laid my hands on the Galaxy Alpha at IFA earlier this month and was immediately hooked by its svelte and subtle design. For the first time ever, I was drawn to a Samsung phone because of its design, not in spite of it.

 

While we're talking about hand-feel, Motorola ditched the all-plastic trim from the original X in favor of an aluminum band (which also acts as the antenna) that runs around the edges of the phone. You wouldn't think that so little metal would have such an impact on what it's like to hold the phone, but it does -- it imparts the X with a denser, more premium feel, and combined with the weight of the screen, it means you've got a phone that's reliably hefty, but not heavy, per se. The sheet of Corning Gorilla Glass 3 protecting the display is curved at the edges too, and while that may seem like a minor design decision, it helps the X feel like it's been seamlessly put together. There have been times when I've had the X in my pocket and I'd find myself absently fingering those smooth edges. It's the little things that matter, folks.

 

You can probably find far more negative assessments of design and build quality, but you will see that people are pretty positive on the latest Android hardware.

 

Pretty sure Macs are making more profits than the rest of the PC industry combined right now, and have for a while. They're also growing while others are shrinking. That hasn't always been the case, of course . . .

 

I'm not the one who talked about the past 30 years of Mac.  Because when you compare 30 years of Mac versus PCs, it's clear that PCs win in terms of profit share.

[txlaw]

As Steve Jobs said, some people will just never get it. It looks quite easy to have a consumer hardware company with integrated software and services, but actually, no one else can pull it off. It's just like it seems like it would be easy to copy what Buffett and Munger do with Berkshire, but no one (big) really does it. Because they can't.

 

Anyone who quotes Steve Jobs on some people never "getting it" is likely an Apple partisan that will never see things in a somewhat objective manner, so I'll stop here.

[txlaw]

Someone helpful PM'ed me this:

 

http://www.slate.com/blogs/moneybox/2013/04/16/mac_profits_are_high_too_high.html

 

http://www.slate.com/content/dam/slate/blogs/moneybox/2013/04/16/mac_profits_are_high_too_high/mac%20profits.png.CROP.article568-large.png

 

That's from a couple years ago, but I think the lead has increased since then since the PC industry has been hit hard in the meantime while Macs have kept growing and popular new models have been introduced...

 

Yes, but you were talking about 30 years of Macs vs. PCs. 

 

Care to show us a graph of how much profit was generated by the PC value chain versus the Mac value chain over 30 years? 

[txlaw]

One can always point to particular features as points scored against the competitor, but if you ignore the competitor's superior features, that indicates a biased, partisan view.

 

Could you please tell us what are Android's superior features?

 

Oh, lord. 

 

Okay, this is getting into the typical design/features debate that happens every several months on this thread, so I think I'm just gonna stop now.

[fareastwarriors]

It adds nothing. The question is does it sell and sell at great margins? The answer is unresoundingly yes to both.

[Liberty]

Yes, but you were talking about 30 years of Macs vs. PCs. 

 

Care to show us a graph of how much profit was generated by the PC value chain versus the Mac value chain over 30 years?

 

I was saying that the Mac has been around for 30 years and it's still not commoditized. You were talking about commoditization.

 

Over that 30 year period they've had ups and downs, and have made products that weren't competitive for various reasons (the Windows monopoly pretty much choked off all competition for a long time before the internet became the platform that mattered, etc). For a long period the company was very different from what it is today and kind of lost its way. Since Jobs came back, we can pretty much talk about a New Apple. But it doesn't change that the Mac was never commoditized, unlike your thesis that it's inevitable..

 

Differentiation is necessary but not sufficient for superior profits in this market. Ask Android hardware makers or PC makers how their margins are doing...

 

Someone PM'ed me this interesting question: "at the current trend rates, how long does it take Apple to eclipse Cummulative 30 year pc profits?" Good question. Volume was so much lower for the first 15-20 years, I wouldn't be surprised if it happened pretty quickly... And of course if you count mobile devices, which are computers, on both sides, well...

[Liberty]

One can always point to particular features as points scored against the competitor, but if you ignore the competitor's superior features, that indicates a biased, partisan view.

 

Could you please tell us what are Android's superior features?

 

Oh, lord. 

 

Okay, this is getting into the typical design/features debate that happens every several months on this thread, so I think I'm just gonna stop now.

 

You're the one who brought it up.  "if you ignore the competitor's superior features, that indicates a biased, partisan view."

 

Let's not ignore them, then...?

[txlaw]

One can always point to particular features as points scored against the competitor, but if you ignore the competitor's superior features, that indicates a biased, partisan view.

 

Could you please tell us what are Android's superior features?

 

Oh, lord. 

 

Okay, this is getting into the typical design/features debate that happens every several months on this thread, so I think I'm just gonna stop now.

 

You're the one who brought it up.  "if you ignore the competitor's superior features, that indicates a biased, partisan view."

 

Let's not ignore them, then...?

 

No, when I made a post about how the mass media and consumers in NA are starting to adopt/glom onto the narrative of the closing of the "innovation gap" -- because of the recent issues with Bendgate, iOS 8 roll out, iCloud hacks -- your response was to try to actually argue whether or not Android phones are, in reality, actually competitive with iPhone 6.

 

"What's the one phone that people can actually buy that is competitive with the iPhone 6 on all aspects of hardware?"

 

And then we started to go down the Mac vs. Android rabbit hole that fires up every now and then.  I always try to avoid this product-focused debate because there's too much subjectivity involved. 

[Guest wellmont]

Txlaw, I really don't think the gap has closed at all. You make some valid points, but the things you point to - build quality, software features, and the like, are only a small part of what makes iPhones what they are.

 

No Android vendor has the Apple Store service, educational, and repair network, or anything close to it. Android does not have close to the same ecosystem of apps that Apple has (all the best apps are still out on Apple first). There are no Android laptops or desktops to have Continuity features with.

 

And years later, the best Android phones still have that annoying scrolling lag. Some people just don't notice this stuff. But a lot really do, even if they don't articulate it in those terms.

 

So the gap has closed in some ways. Android phones are fully functional. But in other ways, the gap is as wide as ever or even wider.

 

actually the innovation gap is not even there. it's totally closed. if you go over to the verge, to take one example, most of the uber geek writers who do this stuff for a living, use android phones side by side with iphones. and in many cases Prefer Android phones. read the reviews of the latest android phones and you'll understand this is not 2008 anymore. Continuing to say there is "lag" in the best android phones displays a lack of nuanced analysis of the competitive landscape. That's a narrative that apple centric journalists continue to falsely trumpet and speaks to lack of credibility and independence.

 

The uber geeks gave a decidedly luke warm review of the ip6 and a Negative review of what they saw of the apple watch, putting it behind Android Wear,  which is already out and shipping. And that was before the 8.0.1 debacle and the bendable phones. txlaw is right. apple is going to have a rougher time as this sector gets more and more commoditized. not to mention that Apple really is competing with Google (and not the mass of android phone makers) in OS design and they are GOOD and fast. The other factor is that I expect more and more of their top talent (who got rich at apple) to leave for more rewarding opportunities. this happened to lots of lots of succesful tech companies as their opportunities became more pedestrian as they got larger.

[Liberty]

Ok, have it your way, let's not talk about products even if that's the single most important thing that will determine success or failure for all companies involved.

 

But even if that's what you want to talk about, I don't see what the "innovation gap" - narrative or not - has to do with Bendgate, an iOS point update bug, and the hacking scandal. These are certainly not good for perception of Apple, they are clearly screwups, though I'd say they'll soon be forgotten, but what have they got to do with innovation?

 

The only reason why these things are even notable is because Apple is held to such an incredibly higher standard than its competition, mostly because the tiniest thing the media jumps on generates more pageviews than anything else. Android is full of malware, phones that can't be updated, carrier supplied crapware, horrible OEM interfaces like Samsung's Magazine, tablet apps that are still stretched phone apps, etc. Can you imagine the shitstorm if Apple's ecosystem started having these problems all of a sudden? Aren't these things a lot more fundamental to the experience than waiting a day for iOS 8.0.2?

[LC]

WB's line about going across the street to buy a Hershey's bar or whatever brand it was is coming to mind here.

 

IMHO Apple users continue to buy apple products. Android users have no problem flipping over to different manufacturers. HTC one day, Samsung the next, etc. etc.

 

On one side you have a commodity product. It earns commodity like returns, competes purely on price and technical specifications. On the other side you have a differentiated product with decades of brand loyalty which earns outsized returns.

 

Which business would you rather own?

[Guest wellmont]

Ok, have it your way, let's not talk about products even if that's the single most important thing that will determine success or failure for all companies involved.

 

But even if that's what you want to talk about, I don't see what the "innovation gap" - narrative or not - has to do with Bendgate, an iOS point update bug, and the hacking scandal. These are certainly not good for perception of Apple, they are clearly screwups, though I'd say they'll soon be forgotten, but what have they got to do with innovation?

 

The only reason why these things are even notable is because Apple is held to such an incredibly higher standard than its competition, mostly because the tiniest thing the media jumps on generates more pageviews than anything else. Android is full of malware, phones that can't be updated, carrier supplied crapware, horrible OEM interfaces like Samsung's Magazine, tablet apps that are still stretched phone apps, etc. Can you imagine the shitstorm if Apple's ecosystem started having these problems all of a sudden? Aren't these things a lot more fundamental to the experience than waiting a day for iOS 8.0.2?

 

I agree. perhaps it's time for the "independent" media to take Apple off the pedestal?

[Guest Schwab711]

WB's line about going across the street to buy a Hershey's bar or whatever brand it was is coming to mind here.

 

IMHO Apple users continue to buy apple products. Android users have no problem flipping over to different manufacturers. HTC one day, Samsung the next, etc. etc.

 

On one side you have a commodity product. It earns commodity like returns, competes purely on price and technical specifications. On the other side you have a differentiated product with decades of brand loyalty which earns outsized returns.

 

Which business would you rather own?

 

 

I think a lot of WB's quotes are taken too far. What he meant by Hershey is the incredible dominance Mars/Hershey has over everyone else in America in the chocolate industry. There's definitely brand loyalty for Apple but I doubt it is as large of a % of the population as you think. When it's no longer popular, sales will drop. This is a commodity product when they are not clearly ahead in innovation. This is a fickle industry and there is no moat.

 

 

http://247wallst.com/special-report/2012/04/05/americas-favorite-chocolate-brands/3/

[Liberty]

actually the innovation gap is not even there. it's totally closed. if you go over to the verge, to take one example, most of the uber geek writers who do this stuff for a living, use android phones side by side with iphones. and in many cases Prefer Android phones. read the reviews of the latest android phones and you'll understand this is not 2008 anymore. In fact, the uber geeks gave a decidedly luke warm review of the ip6 and a Negative review of what they saw of the apple watch, putting it behind Android Wear,  which is already out and shipping. And that was before the 8.0.1 debacle and the bendable phones. txlaw is right. apple is going to have a rougher time as this sector gets more and more commoditized. not to mention that Apple really is competing with Google (and not the mass of android phone makers) in OS design and they are GOOD and fast. The other factor is that I expect more and more of their top talent (who got rich at apple) to leave for more rewarding opportunities. this happened to lots of lots of succesful tech companies as their opportunities became more pedestrian as they got larger.

 

You're like my most reliable contrary indicator about Apple. I now expect even better results for the next few years.

[Guest wellmont]

WB's line about going across the street to buy a Hershey's bar or whatever brand it was is coming to mind here.

 

IMHO Apple users continue to buy apple products. Android users have no problem flipping over to different manufacturers. HTC one day, Samsung the next, etc. etc.

 

On one side you have a commodity product. It earns commodity like returns, competes purely on price and technical specifications. On the other side you have a differentiated product with decades of brand loyalty which earns outsized returns.

 

Which business would you rather own?

 

I would rather own a company that didn't almost go bankrupt during the "decades" of brand loyalty period.