• Apple and Microsoft: It’s All About the Money

    November 4th, 2009

    The cult status people apply to Apple Inc., Steve Jobs, and the products bearing the company’s logo are no doubt sufficient to make you believe that they were all built to change the world. Maybe that’s true, but don’t think for a moment that’s why Apple is in business.

    You see, the tech world is littered with the remains of companies that wanted to do something useful for humankind, but they never managed to earn a profit. Some of them produced decent products, some didn’t. But they are no longer in business because they couldn’t figure out how to turn greatness into a profitable business.

    Despite the incredible and fast-growing popularity of Twitter, it has yet to earn a profit. More than likely, it will, but it will require a business plan that seems only partly-formed right now, although the founders may simply be keeping some of the juicy details close to the vest.

    To be fair, the critics also said that Amazon would never show a profit, and for several years it seemed as if the conventional wisdom was accurate. However, Amazon kept putting money back into its infrastructure so that the business could expand as rapidly as possible. Today Amazon one of those Wall Street darlings that can do no wrong.

    That takes us to Microsoft. From the earliest days, you just knew they had a handle on how to make money. Consider when Bill Gates and crew bought an operating system from one company, rebranded it MS-DOS, and then sold a non-exclusive license to IBM for a whole lot more than they paid for it. These days, they say that net profits on Windows can exceed 80%, which means, of course, that they could cut the price substantially and still earn a profit. In fact, if you buy Windows and other Microsoft licenses in volume the price drops drastically.

    Microsoft, as most of you know, uses a hammer to build market share, with predatory marketing, bait and switch and just pumping more and more money into a product or service in the hope that it’ll eventually deliver great profits. For the most part, however, their greatest successes have been limited to their core software lineup, such as Windows, Office and server-based products.

    Certainly Microsoft has created lots of millionaires over the years and, as you know, a few billionaires. Some might suggest that Microsoft earned those profits on the backs of customers who suffered from malware, unpredictable performance and other ills. Regardless of what you think, it’s a sure thing that, for better or worse, Microsoft is a huge money-making machine and only recently have declining sales forced them to shed staff; an estimated 5,800 have been pink slipped.

    Microsoft uses the word innovation as marketing speak. They repeated to the U.S. Department of Justice in defense of their allegedly illegal behavior during that antitrust trial, and again in trying to get the upper hand against the European Union.

    In contrast, Apple is really very much about innovation. Sure, it’s fair to say that most of the key components in any Mac are very much off-the-shelf, the same available to any other PC maker. But Apple assembles everything with supreme care, adding the appropriate environmentally friendly touches, and then packages it in an elegant case. The operating system, whether on a Mac, iPhone or iPod, is easy to use and extremely reliable.

    No, you don’t have to remind me that Apple’s gear can be flaky at times. Sometimes it seems obvious that they rush products to market to meet an internal deadline and maximize sales, even if it’s not quite ready. That surely explains the rush of bug fixes that appear during the early days of the new gadget’s life-cycle. Of course, that’s quite true of many other companies as well.

    In the end, though, Apple is also a huge profit machine. They won’t release a product unless they have a strong belief that it will deliver high profits early on. Apple will quickly discontinue even a successful product, such as a certain version of the iPod nano, if they believe that a revised version will be even more successful. Sometimes you wonder why the Apple TV is still around, but even though it hasn’t been a huge seller, it’s a sure thing Apple makes a handsome profit from each unit sold, more than sufficient to continue to invest in software updates. Maybe some day it’ll even realize its potential, whatever that might be.

    When it comes to the nuts and bolts of running a business, Apple’s executives have it down pat. COO Tim Cook, for example, is regarded as the top inventory manager in the industry, and he also keeps a tight lid on production costs. As much as Steve Jobs is credited with providing Apple’s vision for success and infusing their corporate DNA, it’s Cook who keeps the wheels in motion. From the early days when he came to a company that almost always had “beleaguered” in the title, Cook worked with Jobs and the rest of Apple’s crew to slim down the product lineup, and make sure that they could wring the maximum amount of income from everything they sold.

    Yes, two different corporate cultures, but both focused on one thing above all else, and that’s making lots and lots of money.

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    One Response to “Apple and Microsoft: It’s All About the Money”

    1. Lawrence Rhodes says:

      Doesn’t hurt to have the CEO of the decade of course.

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