So Long Apple Nay Sayers

Nicholas Carr reminds us that on October 6, 1997, Michael Dell proposed that Apple be shut down and the money given back to its shareholders. On Friday the 13th, Dell was lapped by Apple. Oops! Dell has a market cap of about $71.97 billion while Apple’s market capitalization is about $72.13 billion.

That’s not all, look at the profitability of the two companies. According to latest quarterly financial data, Apple had sales of $3.678 billion and net income of $430 million. – about 11.69% of sales. In comparison, Dell had a net income of $606 million on sales of $13.911 billion. That works out to be 4.36% of total sales. Its been the case for past one year. Over past four quarters Dell had sales of a whopping $54.2 billion and net income of $3.23 billion. In comparison, Apple had sales of $13.93 billion and a net income of $1.34 billion. Perhaps, the bigger doesn’t necessarily mean bigger profits.

The divergence in the direction of Dell and Apple shares, is pretty telling. Perhaps the “commoditized” technology trend is being slowly replaced by “using commoditized technology to create a compelling user experience” trend? HBS’s Clayton Christensen gave his prognosis about Apple and iPod’s future in an interview with Business Week, which is a splendid read, in which he says

“I’d be very surprised if three years from now, the proprietary architecture [in music players] is as dominant as it is now. Think about the PC. Apple dominated the market in 1983, but by 1987, the industry-standard companies, such as IBM and Compaq, had begun to take over.”

Carr, explains that Apple never really had a dominant position in PC business, like it has in the digital music business. But that’s not the only reason, why the esteemed professor might be off the mark. iPod, and Apple are part of the post “rapid commoditization” theory proposed by the esteemed professor. iPod is nothing but a shiny packaging for off the shelf chips, and a hard drive. At the very core, not much difference exists between a Creative Zen and an iPod.

The difference is the software that is being used to create a “user experience.” That user experience is what has helped iPod gain a mass market appeal. That user experience also stems from a tight marriage of the device, the music and the desktop software. Easy to buy, easy to load, easy to playback. The user experience is the new competitive advantage, not the chips etc. It is so ephemeral, that it is hard to pin down in a theory.

Why do people buy Diesel jeans or pay $150+ for a pair of Seven For All Mankind, when Gap and Levi’s do make perfectly acceptable pants? It is perception, and user experience. Peter Rojas, who edits Engadget was in town last week, and over a hot spicy dinner at Henry’s Hunan, he said something which is logged in my head – technology in the new porn, and iPod is the new rock star. As long as iPod can reinvent itself, like say Rolling Stones, then Apple has nothing to worry about. Apple stores are part of that experience as well. I think if you looked around in other industries, you could easily find the same parallels as Dell and Apple. Walmart and Target? Toyota & GM?

I find it amusing that most folks in retail and consumer good totally get the Apple renaissance while people who little or no grasp of the consumer, turn out to be Apple naysayers. Sun CEO Scott McNealy speaking at a panel discussion at the Computer History Museum recently quipped

“Your iPod is like your home answering machine. It’s a temporary thing,” McNealy said. “It’s going to be hard to sell a lot of iPods five years from now, when every cell phone is going to be able to automatically access your library wherever you are.”

I would like to point out, that many of us have home answering machines. “Automatically access your library wherever you are” bit reminds me a lot of their “consumer on demand computing business.” I find it strange that McNealy presumes that Apple will sit still, do nothing. (Okay, historically speaking Apple doesn’t have a great track record, but as Mark Twain once said, history doesn’t rhyme with repeat!) We have heard the on-again-off-again rumors of iPhone. When not if, but it will happen.

Sun folks should not be making predictions about anything, given their own state of affairs. Especially not about consumer markets, where they have, and never had any expertise! I do detect a smattering of jealousy in Scott’s words? His once high-flying company is now worth $16 billion and change, while Apple’s fortunes have reversed. And that they came close to buying Apple so many times. Bill Joy, another Sun co-founder at the same panel discussion hinted that Apple and Sun came together, nearly half a dozen times.

Irony would be that Apple could step-up and make a play for Sun, but then why!