Why Amazon Is Special and Apple Is Not(theatlantic.com)
theatlantic.com
Why Amazon Is Special and Apple Is Not
http://www.theatlantic.com/business/archive/2013/02/why-amazon-is-special-and-apple-is-not-in-1-paragraph/272791/
18 comments
You are right about the ecosystem but that is not how Apple makes so much money. iPod and app/music sales are minor portions of Apple valuation. The main profit center is driven by high iPhone margins, which are carrier subsidized so that people upgrade without second thought. When there are good enough lower cost alternatives carriers have all the incentive to reduce the subsidy, which either show up as lower gross margin for Apple or higher prices for consumers (which leads to less upgrades and less unit volume). Pick your poison.
I know that's not how they make their money, but it's a large part of their value proposition to customers. iPods might have been successful without iTunes, but nowhere near as much as they were with it. Just because something is free doesn't mean it has no value. That's the fundamental principle the free/libre software movement is built on, but they're not the only ones that can leverage the power of free. Apple is very sophisticated in the way they use free or break-even software and services to massively ratchet up the value of their paid-for products.
There's not wishful thinking in any of this. Amazon and Apple are not startups, they are both mature businesses in their prime. They still have a lot of risks and opportunities ahead of them for sure, but Amazon started business I think 17 years ago. Arguably Apple's reconstruction into the company it is today started at around the same time with the NeXT acquisition and the return of Steve Jobs. That's a significant track record on which to evaluate them.
There's not wishful thinking in any of this. Amazon and Apple are not startups, they are both mature businesses in their prime. They still have a lot of risks and opportunities ahead of them for sure, but Amazon started business I think 17 years ago. Arguably Apple's reconstruction into the company it is today started at around the same time with the NeXT acquisition and the return of Steve Jobs. That's a significant track record on which to evaluate them.
I mostly agree with what you are saying. The reason we are having a discussion here is that there are at least two ways to look at the fact that Apple enjoys both mass volume and high margin:
1. Apple has an amazing business.
2. Despite 1 it is not sustainable to have both mass volume and high margin.
I am trying to come up with counter examples of point 2. Coca Cola, McDonald's and Microsoft come to mind, but they share a common characteristic in that these companies control a small but high margin part of their respective value chains. The end products that consumers actually buy (Coke, burgers and PCs) are mass volume and low margin.
1. Apple has an amazing business.
2. Despite 1 it is not sustainable to have both mass volume and high margin.
I am trying to come up with counter examples of point 2. Coca Cola, McDonald's and Microsoft come to mind, but they share a common characteristic in that these companies control a small but high margin part of their respective value chains. The end products that consumers actually buy (Coke, burgers and PCs) are mass volume and low margin.
I'd agree that mass volume and high margin is hard to pull off, and often proves unstable. I think this is why Apple often doesn't try to address all of a market. They only produce a handful of desktop and laptop models, they have resisted producing a large format phone (though I do expect that to change), etc. They value product consistency over feature and form factor proliferation. They are perfectly happy to occupy the high end of the market, and leave the low end to others.
wow! you're right
comparing the net income of Apple to Amazon.. in 2012 the difference was astounding at 98,000 vs 41,733,000!
http://finance.yahoo.com/q/is?s=AMZN http://finance.yahoo.com/q/is?s=AAPL+Income+Statement&an...
comparing the net income of Apple to Amazon.. in 2012 the difference was astounding at 98,000 vs 41,733,000!
http://finance.yahoo.com/q/is?s=AMZN http://finance.yahoo.com/q/is?s=AAPL+Income+Statement&an...
In case people are wondering, the unit is '000 USD.
So that's 98 million vs. 41 billion USD.
So that's 98 million vs. 41 billion USD.
Article claims that it's easy to compete with Apple, yet hard to compete with Amazon. Fair enough, makes a lot of sense to me.
And yet, last I checked, a lot of companies made serious money in retail, but very few companies managed to earn substantial profits in smartphones, tablets and notebooks.
I seems to be harder to compete with Apple than most investors think it is. (I say that as a developer who hopes that an open platform will win the smartphone wars.)
And yet, last I checked, a lot of companies made serious money in retail, but very few companies managed to earn substantial profits in smartphones, tablets and notebooks.
I seems to be harder to compete with Apple than most investors think it is. (I say that as a developer who hopes that an open platform will win the smartphone wars.)
The retail comparison is apples to oranges, in my opinion. Amazon is purely eCommerce, no brick-and-mortar, so the comparison is strongest when considering other eCommerce outfits.
Consider a site like NewEgg. At ~250M annual revenue they're an appreciable fraction of Amazon's size with a lot of catalog overlap. Certainly for commodotized consumer electronics they are direct competitors.
I think the difference the author is trying to articulate is that NewEgg's overlap with Amazon (for example) is considerably less impactful on Amazon than, say, Samsung's overlap with Apple. Phones and tablets are a huge proportion of Apple's profit generation - an area where they cannot afford to be dethroned. With Amazon and consumer electronics, having NewEgg overtake more of their sales in that area would hurt, but Amazon has such a vast catalog that the company, investors, and stockholders know they'll soldier on in a variety of other markets.
That's Amazon's power. Apple's no one-trick pony but they are a pony with a countably limited number of tricks. Amazon is a platform for selling anything and everything. They've abstracted out their distribution network to adapt to selling the Next Big Thing before it's even been conceived. Competitors can take a swipe at a chunk of their market but at the end of the day they're in so many markets that it's a truly monumental task to dethrone Amazon in any meaningful way.
Consider a site like NewEgg. At ~250M annual revenue they're an appreciable fraction of Amazon's size with a lot of catalog overlap. Certainly for commodotized consumer electronics they are direct competitors.
I think the difference the author is trying to articulate is that NewEgg's overlap with Amazon (for example) is considerably less impactful on Amazon than, say, Samsung's overlap with Apple. Phones and tablets are a huge proportion of Apple's profit generation - an area where they cannot afford to be dethroned. With Amazon and consumer electronics, having NewEgg overtake more of their sales in that area would hurt, but Amazon has such a vast catalog that the company, investors, and stockholders know they'll soldier on in a variety of other markets.
That's Amazon's power. Apple's no one-trick pony but they are a pony with a countably limited number of tricks. Amazon is a platform for selling anything and everything. They've abstracted out their distribution network to adapt to selling the Next Big Thing before it's even been conceived. Competitors can take a swipe at a chunk of their market but at the end of the day they're in so many markets that it's a truly monumental task to dethrone Amazon in any meaningful way.
Your second line doesn't make sense. What does companies making money in retail have to do with being able to compete with Amazon?
Now, if you could say that incumbents attacking Amazon's base stole serious revenue from Amazon that would be something. But what does it mean to say WalMart makes serious money in retail, ergo it is easy to compete against Amazon?
Now, if you could say that incumbents attacking Amazon's base stole serious revenue from Amazon that would be something. But what does it mean to say WalMart makes serious money in retail, ergo it is easy to compete against Amazon?
How do you define "competing against Amazon"?
If you define it as general retail (who manages to capture the consumer dollar), then Walmart and its physical stores can be considered a competitor.
If you take the article's concept: "build a massive online database and offline infrastructure to transport boxes from warehouses to hundreds of millions of doorsteps.", then clearly stores aren't competing with Amazon.
If you define it as general retail (who manages to capture the consumer dollar), then Walmart and its physical stores can be considered a competitor.
If you take the article's concept: "build a massive online database and offline infrastructure to transport boxes from warehouses to hundreds of millions of doorsteps.", then clearly stores aren't competing with Amazon.
I actually think brick and mortar stores are competing with Amazon - and there is also an emerging hybrid approach that threatens Amazon as well.
In many places, suburbs and cities alike, people don't want stuff delivered to their doorstep. The existence of Amazon Lockers is proof enough of this - sotres now offer online shopping with local pickup (Best Buy, Staples, and IIRC Wal-Mart). This competes with Amazon.
Wal-Mart is also attempting to reposition itself as an Amazon alternative (i.e., pure online shopping) and has the capital and existing supply chain infrastructure to do so (they are one of very few).
On top of that Amazon continues to struggle with specialty goods. Amazon is very, very effective at selling mass-market products, but their attempts to move upmarket have been extremely mixed. Lower-volume, premium goods are not their forte, and brick and mortar stores (as well as niche online shops) still have a firm grip on that.
Not to mention we know that the public is extremely price-sensitive. Amazon continues to price-compete with Wal-Mart, despite its substantially lower volume, leading to even thinner margins. They do this out of necessity, because at this point for many people the conveniences of online do not trump a quick trip to Wal-Mart if the product is cheaper.
I don't think it's at all prudent to discount pure brick and mortar businesses as competitors to Amazon. Amazon very much exists in the same sphere as all retailers, online and off.
In many places, suburbs and cities alike, people don't want stuff delivered to their doorstep. The existence of Amazon Lockers is proof enough of this - sotres now offer online shopping with local pickup (Best Buy, Staples, and IIRC Wal-Mart). This competes with Amazon.
Wal-Mart is also attempting to reposition itself as an Amazon alternative (i.e., pure online shopping) and has the capital and existing supply chain infrastructure to do so (they are one of very few).
On top of that Amazon continues to struggle with specialty goods. Amazon is very, very effective at selling mass-market products, but their attempts to move upmarket have been extremely mixed. Lower-volume, premium goods are not their forte, and brick and mortar stores (as well as niche online shops) still have a firm grip on that.
Not to mention we know that the public is extremely price-sensitive. Amazon continues to price-compete with Wal-Mart, despite its substantially lower volume, leading to even thinner margins. They do this out of necessity, because at this point for many people the conveniences of online do not trump a quick trip to Wal-Mart if the product is cheaper.
I don't think it's at all prudent to discount pure brick and mortar businesses as competitors to Amazon. Amazon very much exists in the same sphere as all retailers, online and off.
Amazon Lockers and local pickup solve different problems: the Locker solves the delivery guy issue (will I be there to sign) but doesn't provide the immediacy of in-store pickup for those items that are available in store.
I don't quite follow you either, maybe I misunderstand you. Every sale that Walmart makes is one that Amazon didn't get, right? They are direct competitors (at least for a subset of their respective product portfolio).
They are direct competitors
I guess I don't see it that way, but reflecting I guess my view is distorted.
I guess I don't see it that way, but reflecting I guess my view is distorted.
This is first year business school stuff here. In a five forces analysis[1] of Amazon, Wal-Mart would certainly be a substitute, not a rival.
In general it is true that Amazon has a high threat of substitutes. I think what @silverstorm, and this article, are trying to say is that rivalry for Amazon is pretty low, given how expansive their business is.
[1] http://en.wikipedia.org/wiki/Porter_five_forces_analysis
In general it is true that Amazon has a high threat of substitutes. I think what @silverstorm, and this article, are trying to say is that rivalry for Amazon is pretty low, given how expansive their business is.
[1] http://en.wikipedia.org/wiki/Porter_five_forces_analysis
I recently bought a pair of pajama pants from Walmart.com and they shipped the same day. How many online retailers do that? Other than Amazon, of course.
Certainly Walmart believes they are competing with Amazon. (I would have bought my patio furniture there, too, if they hadn't sold out. Instead I bought it on Target.com.)
Certainly Walmart believes they are competing with Amazon. (I would have bought my patio furniture there, too, if they hadn't sold out. Instead I bought it on Target.com.)
It is tough to compete in the public relation and marketing arena. It is a soft-skill that many competitors have not master.
Theoretically it would be possible to compete with Apple because their price position makes them vulnerable (high margins). A competitor offering an equivalent product could undercut them and come out on top. This is textbook from an investment point of view.
This was all said in the article I think but I'm just trying to rephrase it.
But yes, as Microsoft demonstrates competition in this sector doesn't always go by the book. Because it really isn't such a free market with non-captive consumers.
This was all said in the article I think but I'm just trying to rephrase it.
But yes, as Microsoft demonstrates competition in this sector doesn't always go by the book. Because it really isn't such a free market with non-captive consumers.
Drawing conclusions of a company's performance given a stock price change is a classical mistake. The share price change only says if the announced figures were in accordance to the market's expectations and has nothing to do with the level of those figures. If amazon's stock went up is because the market expected its profits were gonna be worse than they actually were. It doesn't mean the market thinks amazon is awesome.
I'm not sure if I'm missing something screamingly obvious here, but the article seems to me to be ignoring some rather critical facts.
People have been beating Apple on price for years, yet Apple are still here and still reaping their profits. These are not commodity products - I doubt that too many people would choose a Samsung tablet over an Apple one based solely on the fact that they were £100 cheaper. If I want an iPhone or an iPad, I'm only going to be buying it from Apple
Amazon, on the other hand, offer pretty much nothing that couldn't be copied or beaten by a big retailer (someone like WalMart, or Tesco in the UK) if they really put their mind to it.
People have been beating Apple on price for years, yet Apple are still here and still reaping their profits. These are not commodity products - I doubt that too many people would choose a Samsung tablet over an Apple one based solely on the fact that they were £100 cheaper. If I want an iPhone or an iPad, I'm only going to be buying it from Apple
Amazon, on the other hand, offer pretty much nothing that couldn't be copied or beaten by a big retailer (someone like WalMart, or Tesco in the UK) if they really put their mind to it.
There are a few things about this article that I must not be following correctly:
- Apple's core business is something 'everyone can do'. If so then why aren't there more people chasing down their position as 'most profitable tech company'?
- 'Practically nobody wants to' do what Amazon do?
I get the premise: Amazon are playing a long game but will be entrenched, whereas Apple's products tend to have a far shorter lifespan, therefore Amazon isn't being chased as furiously as Apple. However, it still seems a bit... wrong?
- Apple's core business is something 'everyone can do'. If so then why aren't there more people chasing down their position as 'most profitable tech company'?
- 'Practically nobody wants to' do what Amazon do?
I get the premise: Amazon are playing a long game but will be entrenched, whereas Apple's products tend to have a far shorter lifespan, therefore Amazon isn't being chased as furiously as Apple. However, it still seems a bit... wrong?
If so then why aren't there more people chasing down their position as 'most profitable tech company'?
Competitors are not yet successful at giving Apple's profitability a run for its money, but you'd have to be willfully blind to think they weren't trying.
LG, Samsung, Nokia, RIM, HTC, Huawei, Acer, Asus, Motorola, Sony...
Competitors are not yet successful at giving Apple's profitability a run for its money, but you'd have to be willfully blind to think they weren't trying.
LG, Samsung, Nokia, RIM, HTC, Huawei, Acer, Asus, Motorola, Sony...
I think he means to say that there are already various smartphone and laptop manufactures whereas there are few (none?) who have Amazon's worldwide logistics infrastructure. So in effect, the hurdles to be tackled by a promising competitor are more easily monitor in Amazon's case than in Apple's and therefore Amazon is a potentially safer investment.
I myself think the view a bit too simplistic and as a counterpoint I would say that Apple's continuous influential presence within the market despite the hostility imposed by the numerous competitors is a testament to Apple's ability to navigate treacherous waters.
I myself think the view a bit too simplistic and as a counterpoint I would say that Apple's continuous influential presence within the market despite the hostility imposed by the numerous competitors is a testament to Apple's ability to navigate treacherous waters.
Amazon is very far from being world-wide. Amazon is patchy, here and there in some countries in the world, which is much bigger than that.
Apple can cross borders much more easily, which it does.
Apple can cross borders much more easily, which it does.
Thank you. If anyone thinks they can beat Apples infrastructure, good luck to them. Buying components by the 10s of millions, and getting completed products to customers from the factory to the end user at the other end of the world in a day or 3, whilst managing to have low inventory. Brand new iPhone models excluded...
I think it means building phones and tablets is easier than building warehouses, developing partnerships and affiliates.
Keep in mind that Apple has been doing this (building touch screen devices) for about 6 years, while Amazon has been doing this (e-retail) for more than twice that time. Apple already has serious competitors, while Amazon maintains a near monopoly. I think this is the essence of what the article was getting at.
Keep in mind that Apple has been doing this (building touch screen devices) for about 6 years, while Amazon has been doing this (e-retail) for more than twice that time. Apple already has serious competitors, while Amazon maintains a near monopoly. I think this is the essence of what the article was getting at.
You misinterpret what "core business" means. Apple's core business is making phones and tablets. There is now fierce global competition in these sectors.
I can't think of any other company that competes with Amazon at anywhere near the scale they are operating at.
I can't think of any other company that competes with Amazon at anywhere near the scale they are operating at.
it's very wrong. take a look at the latest batch of 500.co or YC or AngelList. compare # of companies gunning for AMZN and ecommerce compared to those gearing up to build phones and tablets. if i was apple i'd rather compete against HTC armed with margin than the hordes of YC. the article implies Amazon's scorched earth approach is preferable to Apple's continuing innovation. braindead if u ask me.
The article states that a company with high margins, is at risk of being outcompeted by companys with lower prices. This makes sense, but in the case of Apple, lower priced products have been there for a while and people still choose Apple.
Apple have <10% share of the desktop/laptop market, about 20-25% of the smartphone market, and <50% of the tablet market.
Most of their profit comes from phones and tablets, and in both of these markets their global marketshare has decreased, or at best held steady, in most quarters over the last few years.
Most of their profit comes from phones and tablets, and in both of these markets their global marketshare has decreased, or at best held steady, in most quarters over the last few years.
… but in an overall growing market.
It’s not necessarily true that competitors are converting owners of Apple devices en masse, it’s much more likely that competitors are able to convert more non-smartphone or tablet users than Apple can.
I foresee Apple being just a company that doesn’t grow much in the future but still makes tons of money.
It’s not necessarily true that competitors are converting owners of Apple devices en masse, it’s much more likely that competitors are able to convert more non-smartphone or tablet users than Apple can.
I foresee Apple being just a company that doesn’t grow much in the future but still makes tons of money.
They may well be able to hold on to a niche segment in the market with high margins, but the chances of them holding on to a dominant position and high margins are slim to none. This is the reason for their seemingly low P/E.
When has Apple ever "competed on price"? As far as I can tell, low cost competition has not been a problem for Apple.
In the 90's, Windows machines competed with Macs on price, and nearly made Apple extinct.
With the iPod, iPhone and iPad, Apple have been going from Early Mover to Early Mover, which has allowed them to keep their high margins. Unless they can keep finding even more new markets to move into, they are going to find it harder and harder to maintain high margins. They will then almost certainly have to lower their prices to remain competitive, or lose huge amounts of market share.
With the iPod, iPhone and iPad, Apple have been going from Early Mover to Early Mover, which has allowed them to keep their high margins. Unless they can keep finding even more new markets to move into, they are going to find it harder and harder to maintain high margins. They will then almost certainly have to lower their prices to remain competitive, or lose huge amounts of market share.
One of the things that must be considered is that from 1995-2006, Windows machines were better.
I was a Mac user through that time. Windows 95 came around with preemptive multi-tasking. The Mac was still more polished, but Windows 95 was a better operating system. This period also saw Intel processors far outpace the PowerPC. When OS X came out in 2001, it was so slow as to be nearly unusable. 10.1 helped, but comparing it to a Windows XP machine was simply disheartening.
Looking back on this period, I find it hard to believe that I (mostly) stuck with the Mac platform through it. OS X is wonderful today. However, I think it's important to realize that during the dark days for Apple, they were really selling inferior machines and an inferior operating system. From 1995-2001, Apple was selling a cooperatively multitasked operating system against a more technologically sound Windows 95/98. Intel processors were very significantly better as OS X came around and Apple was having trouble getting good PowerPC processors out of IBM and Motorola. Apple introduced a 700MHz iMac in 2002 against around 2GHz PCs. Apple did try to spin it and we all know that MHz isn't everything, but there was quite a gap - a gap that would simply become larger until the Intel switch.
So, it's easy to say that "Windows machines competed on price," but I think looking at the history, Windows machines were substantially better for a decade. Mac OS was still better polished and a more pleasant interface (in my opinion), but the classic Mac OS was ancient by the technology of the day, OS X was dreadfully slow when introduced, and Intel processors wiped the floor with PowerPCs. The Windows machines weren't just "competing on price", but were better.
While people may prefer Android or Windows phones, the iPhone's processor is as fast or faster than what is being offered in the competition. You may want a different mix of features than iOS offers, but I don't think a reasonable person would say that it's technologically inferior to its competitors. In many ways, Apple is still the state of the art. The A6 processor runs circles around the Galaxy S III (http://www.anandtech.com/show/6330/the-iphone-5-review/10), iOS is well liked, the build quality of Apple's devices is arguably the best in the industry, etc. Apple does have competitors and it would be foolish to discount them. However, Apple's current situation is absolutely nothing like 1995-2006. In that period, a dispassionate person would look at Apple's products and find them woefully inadequate. Today, dispassionate people don't find Apple's products lacking.
I was a Mac user through that time. Windows 95 came around with preemptive multi-tasking. The Mac was still more polished, but Windows 95 was a better operating system. This period also saw Intel processors far outpace the PowerPC. When OS X came out in 2001, it was so slow as to be nearly unusable. 10.1 helped, but comparing it to a Windows XP machine was simply disheartening.
Looking back on this period, I find it hard to believe that I (mostly) stuck with the Mac platform through it. OS X is wonderful today. However, I think it's important to realize that during the dark days for Apple, they were really selling inferior machines and an inferior operating system. From 1995-2001, Apple was selling a cooperatively multitasked operating system against a more technologically sound Windows 95/98. Intel processors were very significantly better as OS X came around and Apple was having trouble getting good PowerPC processors out of IBM and Motorola. Apple introduced a 700MHz iMac in 2002 against around 2GHz PCs. Apple did try to spin it and we all know that MHz isn't everything, but there was quite a gap - a gap that would simply become larger until the Intel switch.
So, it's easy to say that "Windows machines competed on price," but I think looking at the history, Windows machines were substantially better for a decade. Mac OS was still better polished and a more pleasant interface (in my opinion), but the classic Mac OS was ancient by the technology of the day, OS X was dreadfully slow when introduced, and Intel processors wiped the floor with PowerPCs. The Windows machines weren't just "competing on price", but were better.
While people may prefer Android or Windows phones, the iPhone's processor is as fast or faster than what is being offered in the competition. You may want a different mix of features than iOS offers, but I don't think a reasonable person would say that it's technologically inferior to its competitors. In many ways, Apple is still the state of the art. The A6 processor runs circles around the Galaxy S III (http://www.anandtech.com/show/6330/the-iphone-5-review/10), iOS is well liked, the build quality of Apple's devices is arguably the best in the industry, etc. Apple does have competitors and it would be foolish to discount them. However, Apple's current situation is absolutely nothing like 1995-2006. In that period, a dispassionate person would look at Apple's products and find them woefully inadequate. Today, dispassionate people don't find Apple's products lacking.
I think the loss of market share came before the lack of quality. I remember when the original Mac came out, it was a very impressive device, but the price was outrageous compared to a PC compatible. It wasn't until Windows 95 came out that PC caught up, and if my memory serves me right, PC was already dominating the market.
At the time I thought that the lack of quality of the Mac was an offshoot from the lack of market share, but having read a number of books lately on that era, I think it was more a lack of Steve Jobs that was the problem.
It will be interesting to see what happens now, because again they don't have Jobs, but the current team are in my opinion far more on top of things than the management team in the 90's. OSX is also on a much firmer footing than the old Mac OS, particularly because of the Unix roots.
iOS I'm not sure about. I think they have made a number of compromises and sacrifices in order to make the phone run quicker and be more "simple", but I think it is falling behind Android. I also think that their reliance on marketing Retina DPI along with having s fixed resolution is getting them into trouble.
At the time I thought that the lack of quality of the Mac was an offshoot from the lack of market share, but having read a number of books lately on that era, I think it was more a lack of Steve Jobs that was the problem.
It will be interesting to see what happens now, because again they don't have Jobs, but the current team are in my opinion far more on top of things than the management team in the 90's. OSX is also on a much firmer footing than the old Mac OS, particularly because of the Unix roots.
iOS I'm not sure about. I think they have made a number of compromises and sacrifices in order to make the phone run quicker and be more "simple", but I think it is falling behind Android. I also think that their reliance on marketing Retina DPI along with having s fixed resolution is getting them into trouble.
I don't believe that for most people "Windows machines were substantially better". Then, as now, Windows was bundled in with so much crapware and with such poor out of the box defaults that the performance was, and remains, dreadful.
Then, as now, Windows primarily thrived because corporate buyers bought more of what they already had. The success of Windows between 1996-2005 was almost entirely due to monopolistic abuse and buyer inertia.
Then, as now, Windows primarily thrived because corporate buyers bought more of what they already had. The success of Windows between 1996-2005 was almost entirely due to monopolistic abuse and buyer inertia.
Complete nonsense. Macs in the late 90s were awful, and most Mac fans I know agree with this, at least in retrospect. Slow, expensive, hardly any software ran on the things.
Windows machines thrived for many reasons, including being faster, cheaper, having the best office programs, by far the best games, as well as all the advantages they had in enterprise.
I don't think any competent observer could say that late 90's Macs were good value machines.
Windows machines thrived for many reasons, including being faster, cheaper, having the best office programs, by far the best games, as well as all the advantages they had in enterprise.
I don't think any competent observer could say that late 90's Macs were good value machines.
These days, OSX is simply a better product than is Windows (stability, security, feature set). OSX also has things like iTunes (largest provider of digital content world-wide... besides Pirate Bay), FinalCut, Logic, Aperture, and GNU/BSD tools. That's a hard line up for Windows to beat. More importantly, I think, is that OSX and iOS work well with one another. If I have an iPad, an iPhone, and an iMac my content syncs easily and transparently. When taken with iTunes this is simply tough to compete with.
tl:dr digital content delivery made Apple king.
tl:dr digital content delivery made Apple king.
What a rediculous comment. Windows still has plenty of advantages over OSX. Better window management, much better backward compatibility, better driver support, particularly for graphics cards. Its "simply better" for office productivity work, and computer games.
OSX has Unix compatibility, better audio and video production etc.
Neither is "simply better".
OSX has Unix compatibility, better audio and video production etc.
Neither is "simply better".
The root word of "ridiculous" in ridicule.
iTunes is available on Windows and does content syncing with multiple devices just fine.
This is completely focused on the financial side of the business. The innovation & marketing factors are not being considered, and those are precisely the elements that allow Apple to keep their high margin.
If a product is - or at least is perceived - to be 100% better than the others, paying just an extra 30% is a win in the mind of consumers
If a product is - or at least is perceived - to be 100% better than the others, paying just an extra 30% is a win in the mind of consumers
Apple is special because it is the paragon of the tech. innovator. There is always some new big thing in technology, and while Apple may not remain king, there will always be a company like Apple doing amazing things.
Amazon, on the other hand, is in retail. Very little magic or innovation happens in this old business, though Amazon is doing its best to squeeze some from a stone. Their music business was successfully disrupted by the iPod and they're scrambling like hell to prevent disruption in other digital media. It is not a place of wonder, and Amazon will never make anything but a token profit due to the nature of retail and Bezos' desire to constantly reinvest in the future.
Amazon, on the other hand, is in retail. Very little magic or innovation happens in this old business, though Amazon is doing its best to squeeze some from a stone. Their music business was successfully disrupted by the iPod and they're scrambling like hell to prevent disruption in other digital media. It is not a place of wonder, and Amazon will never make anything but a token profit due to the nature of retail and Bezos' desire to constantly reinvest in the future.
>Amazon, on the other hand, is in retail. Very little magic or innovation happens in this old business
This isn't really true. Check out Emek Basker's famous paper "The Causes and Consequences of Wal-Mart's Growth" (econ.missouri.edu/working-papers/2006/wp0611_basker.pdf (and its citations)) and the work of other economists who estimate that WalMart, on its own may be responsible for an appreciable portion of U.S. productivity growth in the 90s and 2000s.
One major problem India suffers from right now is entrenched incumbents who prevent modern retail practices from reaching most of the country. A lot of people there would love for American-style retail practices to spread.
This isn't really true. Check out Emek Basker's famous paper "The Causes and Consequences of Wal-Mart's Growth" (econ.missouri.edu/working-papers/2006/wp0611_basker.pdf (and its citations)) and the work of other economists who estimate that WalMart, on its own may be responsible for an appreciable portion of U.S. productivity growth in the 90s and 2000s.
One major problem India suffers from right now is entrenched incumbents who prevent modern retail practices from reaching most of the country. A lot of people there would love for American-style retail practices to spread.
I would draw a distinction between productivity and innovation. The source of Walmart's productivity gains was not innovation within Walmart, but advances in technology, from which Walmart was able to take advantage of more quickly than competitors. Just because retail gained in productivity and Walmart is the biggest retailer does not imply that Walmart is the source of innovation. I do give Walmart credit for their aggressive play, but the business of retail is still that of a middleman with a storefront, inventory management, customer service and thin margins.
I applaud Amazon's efforts to prevent disruption with the Kindle and to move into the cloud. AWS is fairly innovative.
I applaud Amazon's efforts to prevent disruption with the Kindle and to move into the cloud. AWS is fairly innovative.
>I would draw a distinction between productivity and innovation
Again, check out the paper, the papers citing it, and the papers cited in its bibliography—based on that research, the distinction is fuzzy at best.
Again, check out the paper, the papers citing it, and the papers cited in its bibliography—based on that research, the distinction is fuzzy at best.
eBooks? Cloud computing? Amazon validated both of these in the past few years alone. Say what you will about their core business, but there's a lot of innovation at Amazon, more so in some ways than Apple.
> Very little magic or innovation happens in this old business
What about Amazon Web Services? Amazon was and still is a leader on the cloud computing front.
> Bezos' desire to constantly reinvest in the future
This is a huge advantage at least from an investor perspective.
What about Amazon Web Services? Amazon was and still is a leader on the cloud computing front.
> Bezos' desire to constantly reinvest in the future
This is a huge advantage at least from an investor perspective.
As the update to the article quotes:
> The chances I leave [Apple] are minimal because I have all my music and photos and such on the phone. The inertia or friction of moving is fairly high.
This is also starting to become true with the kindle for consumers.
Another advantage of Amazon however is its many business customers - i.e. those who use and rely on AWS. I would imagine the friction of moving away from AWS are even higher for a business than for an end-user to transfer their songs and videos...
> The chances I leave [Apple] are minimal because I have all my music and photos and such on the phone. The inertia or friction of moving is fairly high.
This is also starting to become true with the kindle for consumers.
Another advantage of Amazon however is its many business customers - i.e. those who use and rely on AWS. I would imagine the friction of moving away from AWS are even higher for a business than for an end-user to transfer their songs and videos...
>This is also starting to become true with the kindle for consumers.
I disagree. In my experience, buying books on Kindle has been almost a reassurance that it could be read on any other platform, either through a web browser or iPhone/Android app. Amazon has made it easy to switch platforms and still be hooked on their services, whereas Apple essentially locks you in to their ecosystem with only allowing their content (iBooks and movie rentals, but not music in some sense) to be enjoyed on Apple devices.
Services like Spotify and Rdio make it easier to switch platforms -- if I want my music library on another platform, all I need to do is download an app. That kind of flexibility and availability is more powerful and consumer-friendly in the long run, in my opinion.
Here's an interesting read from Paul Miller of The Verge: http://www.theverge.com/2012/1/4/2669066/ecosystem-the-winne...
I disagree. In my experience, buying books on Kindle has been almost a reassurance that it could be read on any other platform, either through a web browser or iPhone/Android app. Amazon has made it easy to switch platforms and still be hooked on their services, whereas Apple essentially locks you in to their ecosystem with only allowing their content (iBooks and movie rentals, but not music in some sense) to be enjoyed on Apple devices.
Services like Spotify and Rdio make it easier to switch platforms -- if I want my music library on another platform, all I need to do is download an app. That kind of flexibility and availability is more powerful and consumer-friendly in the long run, in my opinion.
Here's an interesting read from Paul Miller of The Verge: http://www.theverge.com/2012/1/4/2669066/ecosystem-the-winne...
This is also starting to become true with the kindle for consumers.
Anecdata: I'm an Apple customer who purchases Kindle books specifically because they're cross-platform. I like that they're at least future-resistant.
Anecdata: I'm an Apple customer who purchases Kindle books specifically because they're cross-platform. I like that they're at least future-resistant.
What this article basically says is that Apple is not special because it is likely to become (in case of price wars) Amazon. But I don't get what makes Amazon so special to be valued at P/E 3000 while Apple a company with enough capital on books to buy 100% of Amazon stock in cash is valued at P/E 10.
Possibly a stupidity and self deception of investors.
( On another hand I totally admire Jeff Bezos and the company he built )
( On another hand I totally admire Jeff Bezos and the company he built )
Wow, I never made the connection but you are right. If AAPL really wanted to, they could buy AMZN in cash right now, even with their absurd valuation. Nuts.
After seeing many cases where Amazon is not the cheapest, I wonder if Costco (and costco.com) could ultimately eat away at Amazon. It has incredible pricing power and an efficient infrastructure, and costco.com itself is growing rapidly. Most importantly, on many items Costco can beat Amazon's price by a significant margin (even comparing Amazon's tax-advantaged price to Costco's after-tax price)
How much of that pricing power would remain if Costco carried as many items as Amazon? Amazon is predicted to eclipse Costco (and Target) in terms of sales this year (http://money.msn.com/top-stocks/post.aspx?post=34532428-58cf...), so given an equal catalog, Amazon would be able to sell more of each item and command a lower price, no?
Amazon's catalog is so much bigger than Costco's along two axes; more kinds of products, and more varieties of a given kind of product. The latter axis can be good for Amazon, since people have different utility functions, brand loyalties, etc. But one thing I like about Costco is that their catalog seems to be curated; whatever brand/model of a given thing they happen to carry, it's usually pretty decent. Amazon, by comparison, carries good and crap versions of pretty much everything, but you can use the customer reviews to separate the wheat from the chaff). By removing the paradox of choice, Costco not only reaps the usual benefit on the buyer's psychology, but is also able to negotiate better wholesale prices on the items they buy due to higher volume. Maybe that's a way for them to compete?
Amazon's catalog is so much bigger than Costco's along two axes; more kinds of products, and more varieties of a given kind of product. The latter axis can be good for Amazon, since people have different utility functions, brand loyalties, etc. But one thing I like about Costco is that their catalog seems to be curated; whatever brand/model of a given thing they happen to carry, it's usually pretty decent. Amazon, by comparison, carries good and crap versions of pretty much everything, but you can use the customer reviews to separate the wheat from the chaff). By removing the paradox of choice, Costco not only reaps the usual benefit on the buyer's psychology, but is also able to negotiate better wholesale prices on the items they buy due to higher volume. Maybe that's a way for them to compete?
Right, but the whole point of Costco is "currated" content: they get good deals on huge quantities, because they make sure not to carry every type of product. Variety isn't necessarily a good thing, and if Costco implemented free two-day shipping (for an additional fee), as well as an improved UI, they probably could become the biggest online "everyday" retailer (i.e. for things like cereal, toilet paper, etc.). Though I think it might be more likely that Fresh Direct, or a similar company, could get a stronger toehold on that market than Costco or Amazon.
And remember, the tax advantage doesn't hold everywhere (certainly not in California anymore). Amazon has to offer something better other than price, and I think Prime is a large part of that.
FTA, Amazon's core business is "build[ing] a massive online database and offline infrastructure to transport boxes from warehouses to hundreds of millions of doorsteps", and I would argue that Costco's physical presence, existing warehouse efficiency, and brand identity positions them well for a foray into Amazon's business.
As for "offer something better other than price", most people point to customer service, and in my experience Costco's customer service completely blows away Amazon.
As for "offer something better other than price", most people point to customer service, and in my experience Costco's customer service completely blows away Amazon.
They don't have even a fraction of Amazon's inventory.
They might compete of some selected products, but it's a long way to the "we have it all" of Amazon.
They might compete of some selected products, but it's a long way to the "we have it all" of Amazon.
TLDR - The cost of competing against Amazon is a magnitude higher than competing against Apple (see Android).
Android only competes in a supercilious way. Android powered phones compete with the iPhone and Android OS does not compete with iOS. You cannot install Android on an iPhone and Apple does not offer iOS without an iTrinket. Samsung is a competitor of Apple not Android.
That's why I always struggled with the concepts of dividends.
If you have so much money you can pay dividends, it means you have grossly high margins and not investing in growth enough; which means someone will come and not only destroy your margins but your business also.
If we're talking tech not mining.
If you have so much money you can pay dividends, it means you have grossly high margins and not investing in growth enough; which means someone will come and not only destroy your margins but your business also.
If we're talking tech not mining.
The primary duty of the company's executives is to deploy capital effectively. Paying out dividends in many cases is a sign of good management since it makes it clear they understand the limitations of what they can do with deploying capital internally. The assumption is that unless they can earn more on the capital than shareholders could by investing it elsewhere, they should return it to shareholders.
They should invest at least some of it in making Xcode less terrible.
Some companies are cash cows and don't have to worry much about huge new innovations. Think of Coca Cola. Sure, they have to compete with Pepsi and are probably investing in new equipment but at the end of the day, they aren't entirely reinventing themselves the way most tech companies have to.
> and it also hints at potential complacency.
Hints? Potential? Have you guys not seen the kool-aid their employees are watching internally: https://www.youtube.com/watch?v=-AkLOvjl5jo
Hints? Potential? Have you guys not seen the kool-aid their employees are watching internally: https://www.youtube.com/watch?v=-AkLOvjl5jo
That's actually very bland for an in-company motivational video, and a good lesson in store design from Apple's perspective.
Since when does P/E matter for any company that is not paying dividends? If you buy a company's stock knowing that they aren't paying dividends, then you are obviously paying for growth.
You have a point but only if you replace "paying dividends" with "returning capital to investors."
Growth with no profits after 15 years? Amzn should make $5-$10 billion to justify it's $130Billion valuation. They will not gobble the world, Walmart, Costco and others are not going to roll over on a trillions and trillions of market.
By the way: a Good P/E is probably correlated with cash in bank, a higher buyout /sale price and likelihood of getting some cash back via dividends or share repurchases.
By the way: a Good P/E is probably correlated with cash in bank, a higher buyout /sale price and likelihood of getting some cash back via dividends or share repurchases.
Wonderful, someone summarized stories we've had posted directly and discussed already, and they get voted up? I'd rather the originals just get reposted, honestly.
amzn see themselves as an infrastructure company, their legacy ecommerce business is being kept at low margin precisely because they're unable to innovate further. aapl keeps selling at high margins because they're building differentiated products. this junk argument is getting tired.
The point is that Apple's devices are not easily disrupted by low end competitors because building software platforms and ecosystems is incredibly hard and once established they are very resilient to disruption.
If low end disruption was such a dire threat, the Zune would have rolled the iPod and Amorok would have supplanted iTunes. The majority of Android handset makers wouldn't be on the ropes financially and Microsoft's Phone and tablet software would be rapidly accumulating credible market share. And yet....
The author is trying to explain why what has been manifestly and irrefutably happening in front of our eyes for the last 10 years plus, and at this point is a matter of historical record, is impossible.