Sunday, 6 January 2008

Top 10 analyst misconceptions about Apple

  1. Apple is really a software company
  2. Apple should license the Mac OS to other PC manufacturers
  3. Apple formats are proprietary, whereas Microsoft formats are standards
  4. Apple is making the same mistake with the iPod that they did with the Mac
  5. Apple is now a monopolist
  6. Apple’s success is down to its “legendary ease of use”
  7. Apple should integrate Windows emulation into Mac OS X
  8. Apple’s notorious secrecy is harming it’s business
  9. Apple doesn’t make a profit on the iTunes store
  10. Apple is the BMW of the computer world

If ever there was a company misunderstood by analysts, it’s Apple. The trouble is that Apple’s business defies classification, spanning a wide variety of sectors, and owing it’s continued existence to its relentless pace of innovation. As a result, all too frequently analysts crow that Apple should zig, when instead they zag.

Back in 1997, analysts the world over were writing Apple off, and yet the foundations for Apple’s success today were already in place back then – NeXTSTEP, Mac OS, QuickTime and hardware design expertise. What the analysts lacked, but Steve Job’s management team had in abundance, was imagination.

The following 10 misconceptions illustrate how poorly framed many analyst’s perspective on Apple truly is.

1. Apple is really a software company

Nothing could be further from the truth. Apple does two things: software and hardware. Their success is due to a synergy between these two businesses, best illustrated by the iPod. Companies like Sony lost market share to Apple by focusing solely on hardware in an age where electronics and the Internet were making a new range of devices possible that required tight hardware/software integration. The market had shifted in Apple’s favour, and Apple seized the opportunity with confidence.

Ironically, back in the late 90s, some analysts were arguing that Apple should get out of the hardware business altogether and focus on software. Imagine if Apple had taken that advice! There certainly wouldn’t have been an iPod, and Apple’s shareholders would have been much poorer as a result.

2. Apple should license their OS to other PC manufacturers

The argument goes that Apple could enjoy some of Microsoft’s success by licensing Mac OS X to PC manufacturers as an alternative to Windows. It’s a superficially appealing argument, but it fails to take into account some key facts. First and foremost, the Mac is not just a software product – it is a tight integration of software and hardware. This makes Apple’s life much easier, since they don’t have to support the endless variety of hardware configurations and legacy dependencies that slow down Microsoft’s development cycles. It makes their 3rd party developers’ lives easier too, because they can make many assumptions in terms of target systems. Finally, and perhaps most importantly, it allows Apple to differentiate the Mac’s proposition from the Windows hegemony of its competitors.

On top of all this, there’s the salient fact that Apple did try licensing the Mac OS in the mid-90s and it proved to be a costly mistake, resulting in other manufacturers cannibalising Apple’s hardware sales.

3. Apple’s technology is proprietary, whereas Microsoft technologies are standards

At the crux of this argument is a confusion between de facto standards and real standards. A de facto standard works as if it was a real standard because it has become so dominant that the vast majority of users adopt it. Microsoft controls many de facto standards, such as Office, Active Directory, Exchange and Windows Media. In the IT industry, de facto standards tend to be proprietary, controlled by software vendors for their own commercial benefit. By contrast, open standards, such as TCP/IP and HTML, are controlled by non-profit organisations, for the benefit of all users. The Internet is built entirely from such open standards.

As its market share has increased, Apple’s technologies, such as the FairPlay DRM system, have become widely adopted. Calls have grown for Apple to support “standard” Microsoft technologies such as Windows Media. Ironically, Windows Media is no more a standard that Apple’s FairPlay. The former is an existing de facto standard, whilst the latter is an emerging one. Forcing Apple to support an established monopolist’s proprietary technologies is hardly in the interests of users – legislators should instead seek to promote industry-wide support for genuine open standards.

Finally, it’s worth noting that Apple has a far better track record of implementing standards than Microsoft. For example, Macs support Windows File Sharing, whereas Windows PCs do not support Mac file sharing. Apple’s Safari web browser has been fast to adopt standards, whereas Microsoft’s Internet Explorer has been very slow to do so.

Tune in next week for more…

2 comments:

  1. This is not an accurate list. The #1 analyst misconception is that Apple growth is due to its cult followers whereas the truth is that the Apple fanboys now make only a small percentage of Apple's buyers as it gets more and more mainstream.

    The second biggest misconception is that Apple products sell because of their eye candy. Analysts don't truly understand that aesthetics is only a small component of user experience and that product design is more about how it works rather than how it looks.

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  2. Hi Manu Sharma. I think you're absolutely right about misconceptions on Apple's cult following. I'm preparing a list of the top 10 lazy journalists' tired Apple clichés, and that one will be right at the top :)

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