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journal: mac
Counterspective: Apple is a hardware company.
Apple is a hardware company. Repeat ad nauseum.
This article started out as a comment on UnnDunn’s latest entry, and grew long enough to merit its own entry. For more on this topic, see John Gruber’s The Art of the Parlay, Or: How I Learned to Stop Worrying About Platform Licensing and Market Share.
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Say it with me.
APPLE IS A HARDWARE COMPANY.
Good, now repeat until it sinks in.
Apple is not in the business to sell software. Why? Because they make lots and lots of money from the high premiums they place on Macs and, in the last 5 years, iPods. These are both hardware products. This whole Intel switch? It’s a hardware transition. For all intents and purposes, the software is exactly the same on a MacBook Pro as on a Powerbook.
Putting Intel Inside was never the smartest technical decision. But it makes it easier for Apple to move to a software licensi g business for Mac OS X, or sell the computer business completely.
This would be like Ford Motor Company selling their auto manufacturing business to sell car seats and auto upholstery to other manufacturers. That’s what OS X is: the cushy, comfy interface to the machine. Now, I’m not going to get into too many car analogies because at some point they don’t fit anymore (i.e. you can drive any car on any road), but in this case it’s a good fit: you buy a car that has good performance, good mechanical features, and a nice interior with well-designed controls. Similarly, you buy a computer with good performance, long-lasting parts, and a nice operating system to use it.
People seem to assume that if Apple went to a software-only company, they would be able to focus all their R&D efforts on producing fantastic software. Except, the R&D budget would be substantially slashed, because Apple would have sold off a market of over a billion dollars per year in gross revenue. According to this press release, Apple sold 1,254,000 Macs and 14,043,000 iPods quarter 1 of 2006 (ended December 31, 2005, strangely). If one averages the current MSRP for all the Mac and iPod models on Apple’s store, that comes out to $1607 per mac and $229 per iPod, which would translate into revenues of $2.015 billion in Mac sales and $3.215 billion in iPod sales. That adds up to $5.23 billion in hardware sales. These numbers are far from accurate because they do not take into account variables like educational/government discounts, third party retailers, and so on; nor do they account for Xserve sales (which I imagine are comparably low). But they do provide a rough estimate of how much silicon and steel Apple is pushing out the door.
Now, from that press release, Apple made $5.75 billion in revenue in Q1 2006. For the sake of argument, let’s say my calculations are close to accurate and Apple earned $5.25 billion on Mac and iPod sales. That means Apple only sold $500 million worth of software. In other words, 8.7% of Apple’s gross revenue came from software sales last quarter. That includes all sales of OS X, iLife, iWork, Final Cut Pro/Express, Logic, .mac, and anything else Apple ships on a disc. 8.7% of $5.75 billion… yeah, they really should drop their hardware business! I smell a great untapped opportunity here!
Speaking of opportunity, one of the arguments in favor of selling off the hardware divisions and licensing the software is a greater installed user base. However, the opportunity cost of losing $5 billion per year to gain a questionable amount of marketshare competing directly with Windows is much too high. It would take many years for OS X to reach the penetration level of even double digits in the Wintel world, much less anything even remotely close to what Windows currently commands. Apple would have to sell anywhere from 2-5 times as much software just to reach 10% penetration, and that’s at a mere $129 per sale. Compare that to, at minimum, $500 per pop with the software automatically included (some may argue, forced down the throat): the opportunity cost is at least $370, per sale. That adds up pretty quickly with millions of customers.
Gratia compleo, Apple builds machines and writes cool software specifically to sell more of those machines. That’s why so many of Apple’s innovations, especially in the software arena, are not true in-house developments, but refinements of other products (OS X based on UNIX, the iTunes Music Store based on other online music stores, hell, iTunes itself originally being SoundJam). Apple puts money toward finding ways to sell great products, even if they don’t completely come up with the idea for those products in-house. This is why Apple tries to market its machines in the best way possible (when they market them at all), proudly displaying (possibly misleading) benchmarks when they give Macs a clear advantage and removing said benchmarks when the Macs are surpassed. This is why Apple dropped the name Powerbook in favor of the tongue-twisting MacBook Pro. This is why Macs are such things of beauty, with smooth lines, clean, flat surfaces and no unnecessary or overtly obvious distuinguishing marks. (No “Intel Inside” stickers, for example.) Apple’s hook is selling computers and iPods, and their software development is the bait.
Data and calculations gathered from:
- Apple press release on Q1 2006 earnings
- The Apple Store
- Google Calculator
- Poor Latin translation provided with the help of FreeDict Latin/English translator
- Dashboard’s Calculator widget
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46 | 2670 |
| Arden | comments | views |
thinkback
Is BMW a hardware company? More so than anything else. You don’t buy BMW’s navigation system seperately---yet and even if you did it wouldn’t mean the company was primarily changed from its car-selling business.
| Jan. 30, 2006 | |
| moreApple | 8:19 am |
The laegest problem with selling OS X and other software packages (iLife, iWork, etc) as OEM rather than specifically for Macs is that now, all of the sudden, all of these programs will have to work with an infinite number of hardware configurations v the strict few that Apple uses in its machines..
That is one of the main reasons that OS X works so well.
I respectfully disagree, and welcome to the forum.
I never accept the “OS X doesn’t have viruses because nobody wants to make them” and “Macs have fewer problems because there are fewer drivers needed” arguments.
Both of these statements are only true with equal conditions, if OS X and Windows are identical. But the two operating systems are not equal. They are quite different.
And to illustrate this, you only need to check out the “Windows Compatibility” page on Canon’s Web site in the digital camera section and compare it to the “OS X Compatibility” page. On the Windows page, you are told right off the bat about an issue, a problem. There is a list of a separate WIA driver for every single camera Canon makes. There are detailed instructions on how to uninstall a driver, etc.
The OS X page is much simpler, no problems listed, no need to install a separate driver for each camera. In fact, most of the time, OS X doesn’t even need a driver for canon digital cameras.
I see this time and time again. The same product has fewer issues and fewer problems and “just works” on OS X.
Now, this doesn’t mean there are no problems and no issues on OS X Macs. Of course there are. But it seems that OS X Macs have fewer issues and it’s pretty obvious to me that the reason is because of the design of the OS.
Can you have hardware on your Mac that will crash your computer after an OS X update that causes you to go download the latest driver? Of course. The hardware driver causing a crash is an issue on both platforms.
Does OS X have any registry, virus, malware, DLL issues at all? Nope.
Finally, it is simply not true, it’s a myth perpetuated by Windows users that Apple has complete control of all the hardware. Just like Windows XP, OS X doesn’t include drivers for a DeckLink video card. The card comes with drivers. Same goes for all kinds of other video cards, sound cards, and peripherals. And all of those developers have to develop their own driver. ATI develops the driver for their retail video cards, for example. So does Creative for the Mac SoundBlaster. Same goes for the M-Audio card, Kona, joysticks, Logitech, Kennsington, Microsoft, etc.
In some cases, the drivers for Windows get a lot more attention from the developer than the Mac because most of their customers are on Windows PCs.
To sell computers AND software AND iPods, or to sell software and iPods?
To sell software and hardware to 2.8%, or to sell software to 100%?
How hard would it be for Gateway/HP/Dell to sell 3.65 million OS X PCs with iLife? By themselves, Apple sells a bit over 1 million. Do you think Dell/Gateway/HP could sell 2.65 million more? I think that is a no-brainer, slam dunk yes.
Is BMW a hardware company? More so than anything else. You don’t buy BMW’s navigation system seperately---yet and even if you did it wouldn’t mean the company was primarily changed from its car-selling business
Here’s what I think is the problem with that analogy:
BMW doesn’t make most of their revenue from the navigation system like Apple makes most of their revenue from iPods.
And there isn’t any technology in the BMW that any other car maker doesn’t have which forces me to get a BMW to have that technology. But to use OS X, I need to buy a Mac from Apple.
The same thing that happened to the iPod revenue when Apple started selling to Windows users would happen to Apple’s software revenue if they sold it to X86 PC users, in my opinion.
One of the main road blocks for this use to be “...but Apple would have to go through the huge expense of porting OS X and all their applications to X86 and there won’t be any native software because none of the software developers will port to a platform that has a ZERO user base”. That argument is moot now. OS X is now X86 native and at some point in the near future, every single OS X application will be native too.
| Jan. 30, 2006 | ||
| 9:59 am |
But it seems that you’re assuming that everyone would spontaneously choose to use OS X over Windows.
Most people don’t have any idea of what a Mac (and OS X) can do and don’t care because of the extreme bias that people have against Macs as being “niche machines” or only for “graphic design.” Thinking that OS X can gain market share if they sold OEM is having the belief that people will accept OS X as being more (or less than depending on your POV) than they currently perceive it to be. How many people have you heard say “I would never use a Mac” (and hence OS X)? I have heard more people than I can remember, and to be honest, I stopped caring long ago whether people used Macs or PCs. I just figure that if they want the finest computer experience to be had (an experience that I will more than willingly share with them of they want to listen--which most don’t) then they will use a Mac. If not, and apparently most do not, they will continue to suffer with Windows. People don’t switch because of OS X (not in spite of it--afterall the OS is the only part of a computer that people directly interact with) so in that sense it doesn’t really matter what machine they put it in because people (not in the numbers you’re talking) still won’t buy it.
They are happy with their Word and Excel and their ignorance that Word has been made for the Mac for longer than Windows has existed, much less Word for Windows. They want to keep using Windows, not because it is better, but so that they can feel that they have been making the right decision all along.
Apple has no shot at gaining on MS in market share, and SJ has (rightfully I think) given up on that idea. Years ago.
And there isn’t any technology in the BMW that any other car maker doesn’t have which forces me to get a BMW to have that technology. But to use OS X, I need to buy a Mac from Apple.
It’s not only about tghe technology, but the experience. Most people have no clue that hardware (especially in these new Intel Macs) is the same hardware (by and large) that one can put into PCs. It’s not about the hardware but the computing experience. The leather seats and the prestige of owning a BMW (and a Mac).
| Jan. 30, 2006 | |
| e:leaf | 11:36 am |
But it seems that you’re assuming that everyone would spontaneously choose to use OS X over Windows.
No, I’m assuming that Dell/Gateway/HP would license OS X (Michael Dell said he would) and that they would, together, be able to see 2.65 million more than Apple.
Most people don’t have any idea of what a Mac (and OS X) can do and don’t care because of the extreme bias that people have against Macs as being “niche machines� or only for “graphic design.�
I don’t agree that most people think this.
How many people have you heard say “I would never use a Mac� (and hence OS X)?
Only Windows zealots on the Internet. I’ve never heard any of my neighbors or my friends say that.
Some of the biggest Windows zealots out there would purchase OS X for their existing PCs.
Apple has no shot at gaining on MS in market share, and SJ has (rightfully I think) given up on that idea. Years ago.
I disagree.
What do you think the Apple Store is all about? Apple made it very clear that the Apple Store is about “doubling their market share”. Where is that market share coming from?
I think Dell selling OS X PCs with iLife, and advertising them on TV, would snag a lot of new customers for Apple that they aren’t getting today.
Apple is about making more money, like any corporation, and increasing their sales and revenue and profit. The difference between the Apple of 2006 and the Apple of 1995 is that Apple is now making most of its revenue from selling something other than Macs. Apple is selling millions of iPods, but Apple is also much more of a software company than they were in 1995. Also, Apple is selling millions of songs and videos today.
Three neighbors on my street have Dell PCs. Do you know why? Because they saw the commercial and they knew about Dell and because the price they saw in the TV ad was what they wanted to spend.
The leather seats and the prestige of owning a BMW (and a Mac).
The leather seats in BMWs aren’t any better than leather seats in any other car. There is no difference in the experience of BMW leather seats and GM’s leather seats.
That’s the problem with this car analogy.
| Jan. 30, 2006 | ||
| 11:55 am |
The leather seats in BMWs aren’t any better than leather seats in any other car. There is no difference in the experience of BMW leather seats and GM’s leather seats.
There may be no real difference, but there is a perceived difference. That’s why BMWs cost much more, and why people are willing to pay much more because of that perceived difference.
And I don’t think that you need reminding that GM is a company contemplating bankruptcy. Why? They will say that it is because of overhead and too many employees. But their lack of sales will tell you that it’s because people don’t perceive GM products (including their deluxe models with the same leather seats as BMW) as being of the same build quality as BMW. They simply don’t make a good product.
And, eventually (long before Apple I’m sure) Dell will follow that path.
People don’t look at computing as an experience, but as a means to complete a task. Dell knows this and knows that they can build the biggest POS on the planet and people will buy it, so long as it’s cheap.
I don’t want OS X running on cheap gear, but on quality gear. That’s not good for anyone (Apple or the user).That’s why I’m willing to pay more for a Mac.
Apple doesn’t need to have the lion’s share of the market to continue to innovate. They do well with their +-3% and like it that way. Would they like to sell more? Sure. No one has doubts about that. Will they compromise their name by putting top quality software on bottom quality gear? No way. Nor should they.
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| Jan. 30, 2006 | |
| e:leaf | 2:56 pm |
There may be no real difference, but there is a perceived difference. That’s why BMWs cost much more, and why people are willing to pay much more because of that perceived difference.
Again, there isn’t anything BMW offers me that I can’t get somewhere else. But with Apple, I can’t get OS X anywhere else.
I can get pretentious status driving many different cars other than BMWs.
Will they compromise their name by putting top quality software on bottom quality gear? No way.
iTunes. QuickTime.
Intel processor, Intel motherboard, PCIexpress, ATI and nVidia, seagate or WD hard drive, Sony or Pioneer optical drive...I’m having a hard time finding the Mac-only hardware on an Intel Mac.
And now the iPod is USB by default and not FireWire.
| Jan. 30, 2006 | ||
| 3:19 pm |
I can get pretentious status driving many different cars other than BMWs.
All of which share about the same market share. Not much.
And you can also do this with computers. How many people do you know own Alienware PCs? Probably not many. That is where the difference is in between the Intel Mac and the Dell. The Intel Mac is more along the lines of Alienware rather than Dell with their shared video memory and no-name parts.
Apple wants to control the platform. They want to control how their system is run and on what hardware. This seems a sound decision given that they have done is successfully for over 20 years with the Mac. When they did try to open their platform the company almost went under.
I don’t buy that if people could all of the sudden get OS X for their PC that they would order it that way. It doesn’t make sense. People use (or put up with it) Windows because that is what they know. That is what their businesses use, that is peobably what their neighbors and friends use. Until businesses make a change (and why should they considering that it would mean that they would have to by all new software for all of their users), people won’t becausr they will continue to think that Windows is the only vialble option. They can buy a Mac right now that is inexpensive and will run any software that they need to run (Mac mini), yet they are hardly making a dent in the PC market.
Have people bought them? Sure. But not in the numbers that you’re talking about. Why would offering the same software at a similar price make a huge difference?
iTunes. QuickTime
But this proves my point exactly. Would they have ported iTunes to Windows if it weren’t for the fact that they had to in order to sell the iPod to Windows users. They port software to Windows when it has the potential to have Windows users buy Apple hardware. No iPod, no Windows iTunes. This was not for the benefit of PC users, but for the benefit of Apple’s hardware sales.
Although I have been enjoying this discussion, it seems that we are both too entrenched in our positions to continue this back and forth gobblygook and have it be productive.
Bottom line is that until Apple makes a decision to open the OS to other platforms, it won’t happen, and I don’t see anything that is happening right now to indicate that we are on the way there.
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| Jan. 30, 2006 | |
| e:leaf | 4:27 pm |
All of which share about the same market share. Not much.
I don’t really know where you are going. I’m discussing the analogy between cars and computers. That analogy doesn’t work, IMHO. The situations are completely different in so many ways.
When they did try to open their platform the company almost went under.
No, they didn’t almost go under. They never had less than 3 billion in cash.
But as I have said a few times now, Apple in 2006 is not Apple in 1995. When Apple licensed their OS to Mac clones, that was all of their revenue. Today, most of their revenue comes from iPods and that side of the business would not be negatively impacted by OS X on X86.
And OS X on any X86 PC is much different than Mac clones. To a PC user, a Mac clone is the same as an Apple Mac. It’s a different computer they have to buy in order to use the Mac OS.
The two situations are different.
I don’t buy that if people could all of the sudden get OS X for their PC that they would order it that way. It doesn’t make sense. People use (or put up with it) Windows because that is what they know.
Many people use Windows because of that, sure. And Dell/HP/Gateway selling OS X PCs will definitely help in that regard. Why do you think they would not advertise?
There are many PC users out there who like PCs because they can build it themselves. They are very likely going to be picking up a copy of OS X to put on another partition.
this proves my point exactly. Would they have ported iTunes to Windows if it weren’t for the fact that they had to in order to sell the iPod to Windows users.
You forget that the iPod for Windows was for sale before iTunes made it to Windows. Apple bundled a Windows audio application.
Apple put iTunes on Windows to sell songs and videos, not iPods.
| Jan. 30, 2006 | ||
| 4:57 pm |
No, they didn’t almost go under. They never had less than 3 billion in cash.
It seems that you’ve been misinformed. http://www.corante.com/apple/archives/2004/ 02/19/apple_debtfree.php
Apple had massive debt when Jobs returned. One of the first things that he did was end licensing the platform.
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| Jan. 30, 2006 | |
| e:leaf | 5:14 pm |
Yeah, they had less than 3 billion. But they were never going under.
http://www.apple.com/investor/
Check out the 1998 filing and read the liquidity and capital page. They had $1.745 billion in 1996.
| Jan. 30, 2006 | ||
| 6:04 pm |
To sell software and hardware to 2.8%, or to sell software to 100%?
How hard would it be for Gateway/HP/Dell to sell 3.65 million OS X PCs with iLife? By themselves, Apple sells a bit over 1 million. Do you think Dell/Gateway/HP could sell 2.65 million more? I think that is a no-brainer, slam dunk yes.
1. No Macs = no more of those beautiful gadgets which “just work”.
2. Only selling OS X = Competing directly and only with Microsoft. Bad idea (study some history).
3. Running on a bigger variety of hardware = a lot less stability and ease of use, just like MS Windoze. Yuck!
6. Apple’s product’s greatest strength is how beautifully and seamlessly they work together. Integration is the word, something which usually suck in the Windows world, i.e. would you be happy losing that?
5. Apple’s shareholders would hang and fry Jobs if he ever got rid of what has been Apples core business since the beginning.
| Jan. 31, 2006 | |
| 4:32 am |
Windows is very stable, IMHO. Gone are the days of frequent BSOD.
But it gets hosed quite easily. If you don’t use Windows, it will continue to work just like it does out of the box. But if you start installing software, surfing the Web, getting emails, etc., that’s where the problems start appearing.
Yep, if you don’t have any sex at all with anyone, ever, you won’t contract an STD. If you get an STD, it’s your fault for having sex! 
| Jan. 31, 2006 | ||
| 5:03 pm |
You know, I’ve never really used Linux. My work requires I use all kinds of applications that aren’t on Linux.
I love the fact that Linux is out there, though. The more choice and competition, the better.
I’m curious what one of those Lindows PCs is like.
What’s ftw?
| Feb. 01, 2006 | ||
| 10:32 am |
I guess he forgot a ‘s’, i.e. “ftw” as in “sftw” as in “software”.
I agree, one of the best qualities of Linux is that it’s free.
I’ve been a Suse Linux user & technician and it wasn’t an entirely unpleasant experience even if it’s a tad bit more complicated to control & maintain. Any moron can use it though.
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| Feb. 02, 2006 | |
| 12:22 am |
Ahhhhh. I wasn’t being sarcastic or a spelling Nazi. I really didn’t know what he was talking about.
Thanks, Mikael.
| Feb. 02, 2006 | ||
| 10:00 am |
26.
You don’t need to be The Next Einstein to figure this one out:
Which will give Apple the most profit? To sell computers AND software AND iPods, or to sell software and iPods?
I think it’s because people think “if Microsoft make so much money selling only software....”, but they sell mice and other kinds of hardware too because it’s good money too.
Another point is marketshare. 2.8% (according to Thurrott) of what every other PC-maker sell IN THE WORLD, that’s huge. The Apple CEO would have to have a serious brain-malfunction to lose that.