AAPL - Apple Inc.

[Liberty]

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.

 

If there is no moat, why do they make more money than the rest of the industry combined, with a minority market share (all up-market)? Why should one commodity player have huge margins and very sticky users and other commodity players struggle to break even and create user loyalty? Why do millions of people wake up in the middle of the night to preorder commodity products that they've never seen in person, paying more than the competition?

 

Everybody else seems to be saying that the innovation gap is closing or has closed. Are you saying there's still a huge innovation gap and that it explains those superior profits?

[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?

 

the best android phones have none of those issues. and the choice on android is amazing and scales from high to low. In fact one of the big criticisms of the chunky ip6 plus is that applications look weird and stretched on the screen. :)

[DCG]

Steve Balmer is trying to ban the Clippers from using Apple products: http://mashable.com/2014/09/25/ballmer-apple-clippers/

 

 

He is such a douche.

[rkbabang]

When it's no longer popular, sales will drop.

 

Brilliant!

[rkbabang]

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?

 

the best android phones have none of those issues. and the choice on android is amazing and scales form high to low. and one of the big criticisms of the chunky ip6 plus is that applications look weird and stretched on the screen. :)

 

The choice of Hyundai's is amazing. They scale from the Elantra to the Equus. I love my Elantra, but I know for certain that if I were going to spend $65K on a car I wouldn't buy a Hyundai.  The same goes for phones.  If I wanted a cheap phone or tablet I'd get an android, if I was going to spend top dollar I'd buy Apple.

 

 

[txlaw]

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.

 

We have a fundamental disagreement here. 

 

Product quality is not the "single most important thing" that will determine "success" or "failure," especially if we're talking about valuation being "correct."  That's because Apple could have the "superior" product for the rest of time, but if the gap between Apple products and competing products is very small, then price will begin to dictate what the profit pool looks like going forward. 

 

Imagine every single competitor of Apple that makes comparable products (you might say there aren't any, but I would disagree, of course) switches strategies to where they give the device away and sell services tied to the device.  What is going to happen to the profit pool for mobile hardware sales? 

 

It's probably going to collapse like it has with PCs.  If Apple gets 100% profit share because of its design chops in a dramatically decreased profit pool, that doesn't necessarily support the valuation we see today.  Apple remains the Porsche of computing device manufacturer, but the absolute profit take stays flat or even decreases over time.

 

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'm not talking at all about innovation.  I'm talking about marketing and brand perception.  In fact, that is the very point I was trying to make with my initial post. 

 

We know that marketing and brand perception is a large part of the competitive moat of Apple.  Some people also believe (and this includes me) that a good portion of the Apple premium has more to do with marketing-influenced brand perception than actual design superiority.  And if people start to believe that Android and Apple phones aren't really that much different anymore -- regardless of what you believe reality to be -- it's going to affect purchasing decisions, whether justified or not. 

 

So to the extent that Bendgate, Shellshock, the Fappening, and the iOS 8 brick issue affect the perception of Apple products relative to Android products, that is something that ought to be noted as a negative.  But I will note that it may not be material because Apple is a resilient company and knows how to fight back against negative perceptions.  But we shouldn't just dismiss what appears to be an increasingly negative or blase view of Apple products.

[Liberty]

We do have a fundamental disagreement. I totally disagree with your view of how this consumer product industry works.

[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?

 

the best android phones have none of those issues. and the choice on android is amazing and scales form high to low. and one of the big criticisms of the chunky ip6 plus is that applications look weird and stretched on the screen. :)

 

The choice of Hyundai's is amazing. They scale from the Elantra to the Equus. I love my Elantra, but I know for certain that if I were going to spend $65K on a car I wouldn't buy a Hyundai.  The same goes for phones.  If I wanted a cheap phone or tablet I'd get an android, if I was going to spend top dollar I'd buy Apple.

 

I don't think this analysis makes a lot of sense. people go into stores and happily choose android phones over iphones when they are sitting there side by side. now why is that? no one would willingly go buy a Hyundai instead of a Porsche when they sell at the same price.

[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?

 

 

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/

 

I don't think that is what he meant. I think he meant a brand/franchise exists (and subsequently, the opportunity for outsized returns) when you offer a product that consumers (it doesn't have to be all consumers!) are willing to cross the street for.

 

Apple fits that bill. Samsung et al are probably just as technically advanced, if not more, than the iPhone. They are less expensive. And yet I (and some others) will walk across the street.

 

As to whether there is a moat or whatever you want to call it, who knows! Does Gillette have a moat despite the fact I pay about 10cents for a double edge razor blade vs the $4 Gillette wants to charge me? I think the world needs to wake up and stop shelling out $10bucks for razor blades.

 

But, check the financial statements of Gillette vs DE blade companies and a moat appears to exist. The proof is in the pudding. Same, I think, goes for Apple.

[rkbabang]

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?

 

the best android phones have none of those issues. and the choice on android is amazing and scales form high to low. and one of the big criticisms of the chunky ip6 plus is that applications look weird and stretched on the screen. :)

 

The choice of Hyundai's is amazing. They scale from the Elantra to the Equus. I love my Elantra, but I know for certain that if I were going to spend $65K on a car I wouldn't buy a Hyundai.  The same goes for phones.  If I wanted a cheap phone or tablet I'd get an android, if I was going to spend top dollar I'd buy Apple.

 

I don't think this analysis makes a lot of sense. people go into stores and happily choose android phones over iphones when they are sitting there side by side. now why is that? no one would willingly go buy a Hyundai instead of a Porsche when they sell at the same price.

 

You are wrong.  Some people do pay $65-$75K for a Hyundai Equus, when they could have bought a Porsche, BMW, Mercedes, Lexus, Audi, etc .  Just as some people will pay just as much for an Android as an Apple, and a few might even buy a Blackberry.  But most people who want the top priced devices are going to choose Apple.

[Guest wellmont]

in many cases informed consumers buy Hyundai cars because they offer far more value than pricey german cars that break down a lot and have quality issues. it's the perception vs reality thing. so if that is your analogy I guess you are on to something.

[rkbabang]

in many cases informed consumers buy Hyundai cars because they offer far more value than pricey german cars that break down a lot and have quality issues. so if that is your analogy I guess you are on to something.

 

It is an apt analogy.  Those are the reasons that someone might pick the Hyundai.  I drive a Hyundai myself and don't own an iPhone, so I think it is a perfectly good analogy.  The fact is that Porsche will always make higher margins on its sales than Hyundai will though.  Just as Apple will make higher margins than the many Android manufacturers will.  Apple's sales are worth more than Androids sales.

 

[txlaw]

We do have a fundamental disagreement. I totally disagree with your view of how this consumer product industry works.

 

Yup.  It's the stratechery vs. commoditization theory debate all over again with regards to consumer products.

 

 

[txlaw]

Unfortunately, though, Apple partisans will always boil it down to a Steve Jobs quote: "[T]hey just don't have any taste."

 

Ahh, the hubris of design geeks.

[rkbabang]

Unfortunately, though, Apple partisans will always boil it down to a Steve Jobs quote: "[T]hey just don't have any taste."

 

Ahh, the hubris of design geeks.

 

But so far they have been correct.  I look at Apple as much as a brand as a device company.  Once people associate a brand with quality (whatever that means in association with the type of product) they stick with it unless something drastic happens.  A Timex tells time pretty much as well as a Rolex.  A Hyundai will get you to where you want to go and in many cases more reliably than an Audi.  Generic store brand cola will taste just as good as Coke or Pepsi.  Android has commodified itself, Apple hasn't.  Just because I am the type of person who buys the generic brand or the cheap brand, I know that there is (in Coke's case) more than a century of data suggesting that most people care deeply about brand.  Coke may be in danger if people stop drinking soda altogether, but it will never be in danger from store brand cola.

 

And that is exactly what android is.  It isn't the Pepsi to Apple's Coke (Pepsi never commodified itself, it can't be made by any company that wants to produce it), Android is the store brand cola.

 

[dwy000]

When people line up on the sidewalk for 2 weeks to be the first to buy a product that they've never seen before and don't know what it's capabilities are, it tells me that the "premium" is not solely about the products.  There's a coolness factor that is fantastic while it lasts but can be tough to overcome when the fervor moves on.

[Liberty]

Unfortunately, though, Apple partisans will always boil it down to a Steve Jobs quote: "[T]hey just don't have no taste."

 

Ahh, the hubris of design geeks.

 

The real hubris is for those with no taste to think that because it doesn't matter to them, that it can't possibly matter to others despite facts clearly showing that it matters a lot, especially in the premium end of the market.

[Liberty]

When people line up on the sidewalk for 2 weeks to be the first to buy a product that they've never seen before and don't know what it's capabilities are, it tells me that the "premium" is not solely about the products.  There's a coolness factor that is fantastic while it lasts but can be tough to overcome when the fervor moves on.

 

Which came first, the egg or the chicken?

[dwy000]

When people line up on the sidewalk for 2 weeks to be the first to buy a product that they've never seen before and don't know what it's capabilities are, it tells me that the "premium" is not solely about the products.  There's a coolness factor that is fantastic while it lasts but can be tough to overcome when the fervor moves on.

 

Which came first, the egg or the chicken?

 

Well obviously the product came first and created the "coolness".  But the question everyone is arguing about is whether you can retain that if your product is no longer light years better than everyone elses.  People can argue about whether the apple phone is better or worse than others but it's hard to argue that the gap between apple phones and others has shrunk considerably.  And if that's the case can the waning of the coolness factor be far behind?

[Guest Schwab711]

When people line up on the sidewalk for 2 weeks to be the first to buy a product that they've never seen before and don't know what it's capabilities are, it tells me that the "premium" is not solely about the products.  There's a coolness factor that is fantastic while it lasts but can be tough to overcome when the fervor moves on.

 

I think this paragraph describes my feelings on Apple fairly well. I could understand why some love Apple and the brand is most certainly with excess profits currently. I don't think the actual products are what creates the large margins and excess profits, its the enthusiasm for the brand that is placed on the products. The brand gained prominence with the iPod and iPhone. I also understand the history and that it has always been a premium brand but I think 2000 points to my fears I will cover. The past 10 years have clouded a lot of risk within the industry they are in. HPQ was once able to sell a commodity for a premium until it was no longer able to. If enthusiasm and prestige of the brand diminished to the point where loyal customers were cut in half (market share down to 10%-12% from current ~20% in phones and they lose market share in tablets) then the first to be hit will be the margins. Some of the worst losses come from investing in 'moat' companies when the moat was not as deep or wide as you first thought due to operating leverage these companies often experience. Simply put, there are not many true 'moat' companies out there and it's hard to say a business has one without some kind of direct or de-facto monopoly in place. Apple does not have a monopoly and their brand is not Coca-Cola if you look at historical market share numbers. I worry that margins and revenue are at an all-time high and that profits will go sideways or worse over the next 10 years. The valuation is excellent if you truly believe in the moat but I just don't see Moody's or FICO Scores here; they sell hardware.

[txlaw]

Unfortunately, though, Apple partisans will always boil it down to a Steve Jobs quote: "[T]hey just don't have any taste."

 

Ahh, the hubris of design geeks.

 

But so far they have been correct.  I look at Apple as much as a brand as a device company.  Once people associate a brand with quality (whatever that means in association with the type of product) they stick with it unless something drastic happens.  A Timex tells time pretty much as well as a Rolex.  A Hyundai will get you to where you want to go and in many cases more reliably than an Audi.  Generic store brand cola will taste just as good as Coke or Pepsi.  Android has commodified itself, Apple hasn't.  Just because I am the type of person who buys the generic brand or the cheap brand, I know that there is (in Coke's case) more than a century of data suggesting that most people care deeply about brand.  Coke may be in danger if people stop drinking soda altogether, but it will never be in danger from store brand cola.

 

And that is exactly what android is.  It isn't the Pepsi to Apple's Coke (Pepsi never commodified itself, it can't be made by any company that wants to produce it), Android is the store brand cola.

 

Branding is separable from actual difference in quality and design.

 

For example, I can find high quality textiles that are cheaper than the exact same textiles that have a brand log stamped onto them.  If I buy the high quality, unbranded shirt, do I have worse taste than the person who buys the branded?  I would say, no. 

 

I agree that branding/marketing matters.  Hence the point about preventing snafus that affect brand.

[txlaw]

Unfortunately, though, Apple partisans will always boil it down to a Steve Jobs quote: "[T]hey just don't have no taste."

 

Ahh, the hubris of design geeks.

 

The real hubris is for those with no taste to think that because it doesn't matter to them, that it can't possibly matter to others despite facts clearly showing that it matters a lot, especially in the premium end of the market.

 

Those with real taste can actually tell the difference between quality and branding/marketing.

[rkbabang]

Apple does not have a monopoly and their brand is not Coca-Cola if you look at historical market share numbers. I worry that margins and revenue are at an all-time high and that profits will go sideways or worse over the next 10 years. The valuation is excellent if you truly believe in the moat but I just don't see Moody's or FICO Scores here; they sell hardware.

 

That is the difference in oppion between the two sides.  I disagree with you.  I think they do have a quite deep moat that will last decades from here.  "They sell hardware" is like saying "they sell flavored water".

 

[Liberty]

Those with real taste can actually tell the difference between quality and branding/marketing.

 

Absolutely. That's why Apple is so successful despite Samsung massively outspending them for years in marketing and sales incentives. That's why Apple could enter new markets where they had no presence, against entrenched incumbents, and win; because people saw the quality of their products and designs. How do you win against RIM, Nokia, Motorola, etc, when you've never made a phone before? How do you beat all the other digital music players when you're so late to the game? Tablets have been around for 15 years, how do you get people to buy yours when others have failed? Certainly not just marketing...

 

I don't understand why you think there's such a thing as "good enough" in consumer products. Did BMW, Porsche and Mercedes get killed by "good enough" Honda Accords? (a modern Accord is no doubt better than a Mercedes from the 80s, if not the 90s). Why didn't Nike get killed by cheap Walmart shoes? Why are high-end watchmakers still around when you can buy a cheap watch that does the job just fine? Why are premium headphone makers still around when you can get a fine pair pretty cheap nowadays? How about that high-end furniture? Viking appliances?

[dwy000]

Those with real taste can actually tell the difference between quality and branding/marketing.

 

Absolutely. That's why Apple is so successful despite Samsung massively outspending them for years in marketing and sales incentives. That's why Apple could enter new markets where they had no presence, against entrenched incumbents, and win; because people saw the quality of their products and designs. How do you win against RIM, Nokia, Motorola, etc, when you've never made a phone before? How do you beat all the other digital music players when you're so late to the game? Tablets have been around for 15 years, how do you get people to buy yours when others have failed? Certainly not just marketing...

 

I don't understand why you think there's such a thing as "good enough" in consumer products. Did BMW, Porsche and Mercedes get killed by "good enough" Honda Accords? (a modern Accord is no doubt better than a Mercedes from the 80s, if not the 90s). Why didn't Nike get killed by cheap Walmart shoes? Why are high-end watchmakers still around when you can buy a cheap watch that does the job just fine? Why are premium headphone makers still around when you can get a fine pair pretty cheap nowadays? How about that high-end furniture? Viking appliances?

 

Those are great analogies and it's a very valid point.  I think Apple will be around with premium products for years.  The difference in my mind is that Apple is like 40% of the market in the US (much higher by $ amt).  None of the products above is beyond a high end niche market.  Will Apple still be able to command the premium AND the market share when the other products are close to catching up.