Thursday, August 16, 2007

Guest Lecturer

Everyone please take your seats and shut the hell up. I don't want to miss happy hour just because you have a blond joke you haven't told enough times yet.

Leigh McMullen (at least I'm guesssing that's where the capital letters go) is a regular poster in these parts and has some information you need.

Sorry, Leigh, I just couldn't leave this in comments.

HEY!!! Shut your yap back there.....


On the subject of “Arrogant & Stupid” and answering the question of “Why Doesn’t Apple market OS X separately from their hardware?”

Okay kids, we’re delving into what I actually do for a living (Business Strategy) so if I lose you, scroll back up and read my lips more carefully.

Lets talk a little about Microsoft vs. Apple. And to frame our conversation let's just stick to the facts, shall we.

As of this writing, Microsoft has a Market Cap of: 262.89B. Big company. We knew that right. But seriously, a quarter of a trillion dollars; that's massive. It’s like bigger than Argentina.

Now the surprising part is that Apple’s market cap is: 99.00B. That's still pretty damn big – and bigger than you’d expect it to be since they’ve only got like 15% of the market, and MS has 85% and yet Apple is about 38% the size of MS from a capitalization perspective.

This story gets better, trust me. Microsoft’s REVENUE (thats actual dollars they made) is 51.12B, while Apple’s is: 22.63B. Thats just under HALF.

Say it with me… Apple is just about HALF the size in revenue as Microsoft. They’re not some little fifteen percent… but are actually about HALF the size of the big bad borg.

So how the heck is that possible? We all thought Microsoft was this big-assed-behemoth threatening to squish our favorite little company when in reality, at the rate with which Apple is growing (avg. about 30% a year over the past 3 years) Apple will surpass Microsoft in revenue in about 5 years.

Apple has already done it to Dell; they’re on track to do it to Microsoft. So lets think about what part of this business strategy isn’t working?

Got anything? Me either.

Now, hypothetically, what would happen if Apple were to license OS X to run on other platforms (and believe me, as a consumer I wish they would, but as a shareholder I’m glad they don’t).

They’d DILUTE the value of the asset.

You see OS X, Final Cut, iWork, iLife, Aperture, Logic Pro, etc… all these products exist for one purpose only, TO DRIVE HARDWARE SALES. And thats the secret behind the revenue. When we look at Gross Profit, Microsoft is like 40 billion, Apple is just 5 billion (which when we think of the two companies is more what we’d expect, that MSFT is like 8 times bigger than Apple from a profit perspective).


(Read my lips here; I don’t want you to miss it)

Apple is a H-A-R-D-W-A-R-E company.

And revenues on Hardware are much larger than on software, the margins on hardware are lower. If it helps you think of it in an apples to apples perspective (no pun intended), Microsoft charges you 200 bucks for Vista… Apple charges you 2500 for a copy of OSX and throws in a computer.

But that doesn’t answer the question of why not license OS X? It would help drive profitability, right?

Yeah, but it would cut hardware sales, and take a big bite out of revenue. Which we don’t like. And even though the profitability numbers look attractive there is one more statistic I want to throw at you, to answer the Arrogant and Stupid question:

Earnings Per Share:

Microsoft: $1.42

Wait for it….

Apple: $3.54

*That’s* what I’m talking about. Steve’s only job at that company is to DRIVE SHAREHOLDER VALUE. and from that perspective he’s doing better than TWICE as well as our friends up in Redmond.

So Arrogant, maybe… Stupid, hardly.

Thank you, Leigh. The first pitcher is on me.