Bad Apple Ed Bott wrote an excellent analysis about the news that kept the media busy for the last couple of days: Apple's market capitalization passed that of Microsoft. Most commentators attribute this to Microsoft's failures and in particular to Steve Ballmer, which is a bit strange considering that Windows 7 is the bestselling operating system ever. Ed Bott correctly realized that the whole PC industry wasn't doing any better than Microsoft. I am not an analyst, and 4sysops is not a blog about the philosophy of IT. But I can't help myself saying a word about this topic because Apple has become one of my favorite rant topics.

First of all, we should not forget that Apple’s market cap does not represent Apple's real value. It is the value that "the markets" predict for the future. The fact that Microsoft is more profitable than Apple makes this obvious. Of course, the markets know this. Thus, if Apple's market cap is now bigger than Microsoft's, the markets predict that Apple will be more profitable than Microsoft in the future. Well, we all know that the markets haven't been very good with their predictions lately.

Meanwhile the whole computer industry understands that the growth rates of the past can no longer be achieved in the PC market. Jobs was one of the first who understood this. This is why everyone focuses now on the market of mobile Internet devices. Because of the self-inflicted isolation, Apple will now be alone against the whole PC industry, handset makers, Microsoft, and Google. If Jobs won't find another new market soon, the Apple bubble will burst once again, a case of history repeating itself.

Thanks to Steve Jobs, Apple was often ahead of its time. I think the reason is that contrary to Gates, Dell, & Co. he doesn't really search for new profitable markets. He just finds them accidentally. What Jobs really seeks is attention. He is like a religious leader who wants to be admired for his stylish style and not for the market shares of his products. The problem is that once he finds a new market, this strong need to be someone special prevents him from keeping control of the market after the competitors enter the game.

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Thus it is only a matter of time until the iPhone and the iPad will just be isolated platforms and the masses will buy the cheaper and more powerful devices from Apple's competitors. Perhaps this time it will be Google, not Microsoft, that beats the Jobs company. It is not unlikely that the Apple will go bad again then, but I doubt that this will really hurt St. Jobs. As a martyr, he will just get more attention and once more he will have the chance to rise from the dead which will only increase the number of his followers.

9 Comments
  1. Derek Jones 12 years ago

    Few minor points (I’m not going to waste my time with much more):

    One–the markets are exceedingly good a predicting future value. There are literally trillions of dollars/Euros/precious metals/commodities/etc. leveraged on that very principle. Trust me, I’m a geek with a business degree.

    Two–Microsoft’s mobile products, save some early positivity, have been a joke. The iPhone/iPad and Android systems have done nothing but explode in growth and there’s no signs that Window 7 Mobile will change anything. Steven Balmer taking over the consumer division after J. Allard and Robbie Bach’s “retirements” is a sure sign that, an already struggling division, is headed even further relevancy. How clueless is Microsoft on Mobile? Witness the Kin–Microsoft’s “social phone” that cannot use Facebook or directly to Twitter. Talk about a case of, “huh?”

    Three–if you think that Steve Jobs just happened to trip into billions and billions of dollars of profits, you’re a big loon that I first thought.

    Nice shill piece. Why don’t you take-up writing about the boundless possibilities of oil drilling in the Gulf of Mexico for BP?

  2. Michael Pietroforte 12 years ago

    Derek, it is hard to trust someone who still believes in the markets after all the disasters they have caused. 😉 More and more economic experts seem to believe that the gambling at the stock markets has nothing to do anymore with the real economy. Apple is just another good example.

    Agreed, Microsoft was clueless on mobile.

    Steve Jobs also made countless wrong decisions in his career. Why do you think did Apple fire him? Apple was almost dead. But he is certainly on a roll lately. I am not saying that he was just lucky. My point is that his career as a religious leader helped him to make all these billions. There is no doubt that he has a great talent as a guru.

    One more question. Why did you get so emotional? Don’t you think that this just proves my point?

  3. Gurn Blanston 12 years ago

    So you have a Business Degree Derek – what does that prove? I know lots of people with degrees that don’t know how to do anything of value. Apple & Steve Jobs do a couple of things well, recognize opportunity and marketing. Apple makes great products for the most part and they understand that style appeals to a lot of people. They have also missed the mark on just as many occasions as anyone else. The current state of the world economy proves once again, that it’s all a shell game that no-one really understands. In closing, if you don’t like Michael’s opinions, don’t read his posts or come to his website – why don’t you start your own site with bullet-proof economic advice for everyone and back it up with a guarantee that you’ll replace any losses incurred by someone who took your advice.

  4. Michael Pietroforte 12 years ago

    Gurn, thanks a lot for the support. Just one thing, please don’t recommend people not to read my blog if they don’t like my opinion. I am afraid only a few readers would be left. 😉 Actually, my rant posts are mostly for those who don’t share my view. It would be only half the fun if I only received applause.

  5. Derek Jones 12 years ago

    Michael,

    The world around you–most everything you or anyone else can possess–have a price, ergo, have a market value. A market is nothing more than system by which to establish a relationship to what something is worth to a purchaser of that product with a seller who could supply it. My point to this–what we have seen is the fault, not of the markets, but of lack of clarity and realism of their participants. The “market failure” was due to a host of issues, faults and, downright lies that hindered the ability of the market to respond in a “true form.” Is that gambling? Yes, it is, in a sense. There were many people–many of whom were acting in a selfish, ignorant, arrogant or downright treacherous fashion–who failed to allow the markets to function, as they should. However, sitting that aside, to say that markets are somehow evil because they involve gambling is, if you’ll forgive me, is a little ignorant.

    Every purchase you have ever made is a gamble, although you might not think of it in that context. Sorry to labor this but, if you buy a gallon of milk, you’re gambling $3 bucks the milk is fresh, wholesome and will satisfy your “milk needs.” When you go to work, your effectively gambling that your employer will pay you the wages on your next paycheck you would earn during the day. You can go on to most anything from there but, that is really the point–your, my and everyone’s role in this is just as any other supplier or provider of products, in a de facto market for some sort, selling and buying.

    Apple is no different in that their products pricing are set by the demand for that product and, the ancillary needs that it creates, save the scale. They have a something to sell and the market–overtime–sets the price of that product. Price too high, says you? Too bad, you don’t set the price–but, maybe a bit surprising, not even Steve Jobs does–it all depends on how many boxes Apple move to drive the price up (think eBay in this case) or down (Overstock.com in that case) and the repercussions that pressure has on future productions and also replacement products (e.g. cut-rate Zunes in the face of a iPod world).

    As to Jobs being the “iMessiah,” I don’t think I ever meant to imply that he was ready for some barefoot water walking across the San Francisco Bay, just that he is, to paraphrase him, “insanely rich.” Rich, in an open market (I swear I’ll shut-up about markets from here on out) equates to success. Bill Gates–with all due sincerity on my part–is in the same boat. So is Eric Schmitt et al, Larry Ellison, Warrant Buffet, Ted Turner and so on and so on. As for being a religious leader, as one of the majority agnostics, it’s all bits to most every one of Apple’s customers. Push the price of an iPhone to three times its current price and see how many people start buying BlackBerries and Androids in spite of their idolatry of all things crafted in Cupertino.

    The emotional impact–which far too many PC-types get all worked up about–has to do with, the products far more than Apple or Jobs, in my opinion. My view is that Apple products have a deeper connection with their owners and users. They are exceeding engineered and meticulously designed and that imbues them with a sensation of passion and desire that, for many, anthropomorphifies their relationship to that product.

    Put another way–take look at another “passion product” for most Americans: Cars. Try this: do a few searches on Google for BMW, Mercedes Benz or other “premier” brand of cars in a given city verses the number of clubs for lesser brands of cars such as Dodge or Toyota. Do you really expect there to be as much passion for a daily commuter model verses an M6 or a CLK? Whether or not the viewpoints of such people have technical merit is immaterial–their emotional sense is at the core of their obsession–including the need to look cool to those around them (still wonder why the iPod ear buds are conspicuously white?).

    Finally, as for my emotions–to be honest, I just get tired of all the crap that flies back and forth between the two sides in this OS jihad that has lingered for so many, many years (yes, I just implied that both sides are guilty). What bothers me so much is for people–and, to be clear, I have no way of knowing if you’re in this club–who dismiss others’ preferences so offhandedly and without thought, let alone, consideration. Macs, iPod, iPads and iPhones are great. Get over it. Maybe they are more expensive but, if someone wants to pay for what they see as a better solution, so be it–it’s their money and their folly if they’re wrong. Doesn’t work for you? Cool–stay with what you got and be happy running Windows or Linux or whatever. One more, “Apple sucks, here’s why this time,” blog post is, to be blunt, about as important or impactful as one about Justin Bieber’s favorite hair products. Obviously, I’m playing ignorant to the merits of another “ah, shut-up already” reply to such a posting.

    Derek

    PS–Before you start wondering why I wrote so much–most of this reply was lifted from a paper I wrote for a college class I was in a bit back. I’m in just to pull the lucidity scale to an acceptable 2.8 on a 10-point scale.

  6. Michael Pietroforte 12 years ago

    Derek, you have a strange notion of “gambling”. If I buy milk, then I do this not because I want to earn money with a bet, but because I want to drink milk. This is not gambling but real economy. Many people confuse the stock exchange with Las Vegas. If someone buys a certain currency without the intention of buying something in the corresponding country, then he is gambling. If people didn’t gamble with currencies, then we would have fair exchange rates which would be good for our real economies. I think it is that simple. But the markets don’t want it simple because gambling is fun and because many think they can make big money quickly without hard work. Unfortunately, our governments are too weak to enforce the appropriate rules. Anyway, this is really off-topic in this blog.

    As, for Apple. Yes, they have some nice some products, although most of them are overpriced. This works because many people believe they own something special if they buy an Apple product. This is the main achievement of Steve Jobs. He is a brand making machine. As far as I am concerned, I don’t like Apple’s style and I don’t like this brand. It is the only brand in the whole IT industry which I dislike. Moreover, I prefer functionality and flexibility over style and exclusiveness. This is why I don’t buy Apple products.

  7. Derek Jones 12 years ago

    Michael,

    Swing and a miss–go back and read what I said again. The idea is that you’re paying money without knowing what the milk’s real worth and that you don’t have a little meter spitting out a money on the hour but wait for maybe a few weeks for your. Hence, the gamble I’m talking about. It’s an overworked line of thinking–and to be honest a bit elementary for this discussion–but it serves (especially since I copied-and-pasted most of it 🙂 ). Also, currency trading effectively is much more like gambling than most anything I can think of due the near limitless variables of a national entity–or in the case of Europe–nearly a whole continent. As for simple, that’s a victim of the marketplace for financial instruments. The idea is that if any one can understand a offering–say, a s1950s-era share of GE–then most anyone can make a profit at buying and sell that share. Brokers, rating agencies, asset management firms and all the other myriad of financial interlopers are there to create what has become a highly technical and reactive world market. What I was alluding in my first reply was that those instruments become so convoluted and complex that they started to steer into more and more imaginary foundations of bizarre collections of dying holdings.

    Swinging back to Apple, let’s get a few things straight. One–there’s not a blessed thing that you can do on any of your Windows PCs that I can do on my Mac Pro and I’m not talking Boot Camp, Parallels or Fusion. In my view, you’re “functionality and flexibility” speaks volumes about what you know about Macs (and, while I’m waiving my “OS flag,” Linux/UNIX too.) Two–to put down anything over it’s looks flies blindly into whatever claims you have to “function over form” because you’re evidentially ignorant of what Macs can do because of their style. Three–You’re whole last paragraph goes right to my “why am I emotional” reply. ‘Cause you willfully ignorant and that bothers me but I’ll cope somehow. Four–Ballmer is a fool with all the vision and clairvoyance God bestrode on a mud hen so, enjoy your remanding days of “superiority” as tablets, mobiles and the clouds eats our collective butts. Oh–wait. Apple just sold 2MM iPads in 60 days–my bad.

    PS–God help me but I’m having fun with this. “Lead on, Montgomery!” (It’s okay Gurn, it’s one of those educational things.)

  8. Montgomery 12 years ago

    For those of you who are trying to work out the logic of Derek’s financial-milk-gambling analogy, it took a great deal imagination and two aspirin, but let me offer up my layman’s interpretation of it.

    The concept of buying milk being a gamble of some sort, doesn’t really stack up for me in a purely ‘financial market’ context. After all its hard for us non business types to make the reasoning leaps involved to compare a low value, low risk, sustenance product like milk, to the complexities of ‘market share’ valuation. The examples given don’t really give us many clues, but it does make absolute sense if you subscribe to the “we all gamble” way of thinking. For instance, we gamble that we won’t be run over by a bus crossing the road etc. Point being, we all gamble ever moment of our lives. In fact, I am gambling I finish this reply before I am hit by a meteor!

    I myself, think of gambling (hesitant to use “proper use”) as defined by a game of chance for stakes, or a matter involving risk – and when I say risk I mean with a reasonable slice of common sense. To summarise the financial-milk-gambling explanation, isn’t so much comparing apples and oranges, more akin to comparing an apple to the planet Jupiter.

    I hate to shatter any preconceptions of a true & pure theoretical model of the ‘market’, but I don’t have much faith in the markets mercenary ways, namely that of the corrupting influence of people. Hey, I could be wrong and be misjudging merchant bankers when in fact they are trust worthy custodians of our savings, with only our best financial security at heart…

    Derek, you may not have made it in business (not sure why), but I would like to be the first to welcome you to our lovely IT community.

    Montgomery
    [no MBA 🙁 ]

  9. Michael Pietroforte 12 years ago

    Hey guys, this is not a blog for economics, so please…

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