The case for bricks (and motar)
| December 10, 2010 | Posted by Dax under Articles |
Apple has overtaken Microsoft as the largest technology company by market capitalization, amounting to 293 billion compared to MSFT’s 231 billion (Google is at a distant 189 billion).
As a software behemoth from the eighties, Microsoft gained dominance through its Windows operating systems and Office suite of productivity applications, which were all within the realm of software. Their position continued unchallenged for more than twenty years, and even though Apple was a serious competitor with both the Mac desktops and Apple OS, Microsoft was never really challenged until now.
With the emergence of the Internet in the late nineties, several online only outfits such as Google, Amazon, Yahoo and lately Facebook have claimed a huge stake of capital. Back in the early 2000′s, there was a popular notion that ‘brick and motar’ companies like your neighborhood bookstore were going the way of the dinosaur as online alternatives became the only form of commerce. Now ten years later, it seems as if ‘bricks’ are back in business.
Before Apple launched the iPhone, which was in January 2007, APPL’s share price was about $85 that January. In the 4 years since then, the share has rocketed to about $320 today (10 Dec 2010). Now this is an incredibly lucrative piece of ‘brick’! (or maybe more like a piece of tile since Motorola was the first to produce phones that looked like bricks and Apple’s iPhone is way too slick to be degraded like that). While other technology companies are churning away at codes and software products, Apple has developed a piece of hardware that is highly coveted by the generations of past, present and future. Apple is also a software player with their Mac OS and iTunes, but a single piece of hardware like the iPhone has truly integrated their product lines and provided huge synergies. Revenues stream in not only from each iPhone sold but also from Apple’s cut of sales of iPhone Applications on App Store, music, TV shows and movies from iTunes and books from iBooks. By providing a desirable platform and conduit through which it takes a cut of every content that passes through, Apple has found the golden goose in the form of a ‘brick’. Google tried too late to mimic this strategy by creating first the Android mobile OS and then the Nexus phone, but their only success was Android OS, which, like their search engine service, is still being provided for free to other handset manufacturers like Samsung and HTC. The Nexus phone continues to languish and Android does not generate revenues nor provide any synergies besides providing a marketing platform for other free Google services. On the other hand, with each iteration of the iPhone and additions like the iPad, Apple has gone from strength to strength by producing both hardware and software, the hardware being at the heart of the revenue generating machine.
Market capitalizations of selected tech industry giants:
Apple – 293 Billion
Microsoft -231 B
Google – 189 B
Oracle -147 B
Intel – 122 B
Facebook – about 50 B (estimated at 1/4 of GOOG)
(data as of 10 Dec 2010)
