Apple: Like Starbucks and Whole Foods, A Trend That's Past Its Prime 77 comments
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When folks are flush, they will spend for status, but when things get tight and quality low-cost competitors enter the market, buying habit change ... fast. What is happening now at Apple (AAPL) started last summer (this also has nothing to do with Steve Jobs' shareholder deception).
So, the Apple nuts will send me more hate mail and call me names. Oh well...
Remember when WholeFoods (WFMI) was the only place in town to get organic food and Starbucks (SBUX) was the only place the get anything other than a standard cup of coffee? Remember? It seems like an eternity ago especially when I can get organic food at the 7-11, Wal-Mart (WMT), Costco (COST), BJ's (BJ) and every local supermarket. And a cappuccino can be had at any one of a dozen local coffee houses, McDonalds (MCD) and Dunkin Donuts.
Is WholeFood's $5-a-pound organic potato the best? Is Starbucks' $6 cappuccino appreciably better than an offering from anyone else at a fraction of the price? No.
Is the iPhone ($199) that much better than Research in Motion's (RIMM) Blackberry Bold or Storm that can be had for 1/2 the price ($99 through discounts)? No.
Is a Mac computer really worth 2x the amount I can get a similarly functional product from Dell (DELL) or Lenova? No.
For the coffee devotee, the person searching for the "one of a kind" generic item, the computer lover who wants a top-of-the-line item or a devoted Apple user, all of the above will continue to generates sales and profits from these folks.
But for the "unwashed masses" (yours truly is one of them) who are not married to a brand or a cup, who need a computer for basic functionality and who don't need organic-hand-picked-free-trade-union-only beets, we will always drift to the lower-cost comparable item. The problem with the three brands mentioned above is that they lack an item for us.
The Blackberry Bold and the iPhone are comparable items. Both have pros and cons vs each other and both have loyal followers who will tell you theirs is better. But at 1/2 the price, the Bold has the most important advantage over the iPhone.
I am reading Howard Lindzon's upcoming book "The Wallstrip Edge. " For the record I am not a trader, but the book is very good as it does force you to look at things a different way and it challenges "common knowledge". Lindzon has been in the game for decades now, and anytime you can get insight from someone as brutally honest as Howard, that has tremendous value.
As I read it, I realized the trend in Apple, like the others, is over. Shareholders are not going to see a $180 stock price in the future and like the other two, a stable or declining price is more likely. The iPod was revolutionary and had such a lead on the competition there was no answer (the real advantage was iTunes, not the player). The iPhone is a great product but was immediately matched by competitors that offer some things it doesn't at a far lower price point. Unlike the iPod, there is no iTunes for the phone that makes using a competitor's product impossible. Cell networks are as interchangeable as toilet paper, so the advantage the iPod has is not found on the iPhone. Now price rules.
With US sales down 24% in Q4, Apple is left with only more price cuts to stimulate sales. That will cut into margins and profits.
Are any of the three "name" companies going away? No. Are they in danger of losing money? Apple no, the others, for a while, yes. It does mean the glory days for the stock are over, unless they can tap back into the mass market that has left them. But that will require dramatic pricing alterations, something all three up until this point have been painfully reluctant to do. Starbucks and WholeFoods really have not significantly altered prices, and Apple only did so on the iPhone (from $599 to $399 to $199) after sales of the product ground to a pedestrian level; and even at its current price level, the phone is overpriced vs. the market.
What's worse is that all three brands now have the reputation of "expensive". That will be the hardest thing to overcome: convincing the newly thrifty bargain hunting consumer you are not what they say you are...
Disclosure: Long MCD, none
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This article has 77 comments:
Once Apple opens up more markets, such as China, for iPhone expansion, it is likely that Apple revenues and market share will continue to grow. Apple, unlike Starbuck's and Whole Foods, is not a one-trick pony. Apple continues to innovate and I certainly wouldn't be against them. I would expect some new product announcement in the current or next quarter.
What about the app store? Completely unmatched by the Bold.
You have no idea what you are talking about. The only reason the iPhone is $199 is because ATT is subsidizing it. Apple is still reaping the full price. And you clearly do not understand that the driving force behind having an iPhone is not the phone capabilities but the App Store. Just an awful, awful "article".
Yes!
Although it's not actually twice the price, this is a myth that Apple is that much more expensive. People are finally realizing that there is a better operating system than Windows, and Apple share of the market has been growing steadily for several years, yet with only 10% market share there is still plenty of room for growth.
You, and many others are making a mistake in thinking it's about the physical product, it's about the operating system. Apple are getting back at Microsoft for what they stole back in the eighties.
Most people that want and Apple that have a hard time affording one will typically wait until they can get one rather than going out and buying more PC crap.
how about the app store? the gaming platform? future innovation from a cash rich company?
go have yourself another organic slurpee.
And, Apple does not need a 50% or 70% market penetration. Although the iPhone and Ipod (touch) are the current real stories, these devices bring along customer...albeit slowly.....to the apple desktops and notebook. Look at the chart of mac sales, my friends......it is up, up, up - almost 10% as far as web use. What happens when they eventually get to 15% or 20%, and when there are 100 million plus iphone users?
I'm still a long term bull, despite how the wind is blowing right now.
I do think, however, that it was a bad move to give up the $10 a month from AT&T....but they probably know more than I do.
Is a mac worth more? Well, being as I still have and use my $899 iBook from 2001, and my brother uses my $1900 G4 Desktop from 1999, and my wife will not give up her "lampshade" iMac, and we have not needed ANY security software nor any tech support from outside....I'll get you work out the savings........while you drink your Folgers Coffee.
Did this blasphemous blog get you the attention (clicks) you coveted?
The next time you're feeling insignificant, stop and consider that your feelings and your true worth to this community may indeed be congruent.
Then yell 'fire' in a crowded theater and get back all of that wonderful attention. Again.
Funny how you didnt mention not a 1 of em....
Sorry but you are clueless about everything.
To begin with - Whole Foods Potatoes are NOT $5 per pound - at least not for standard white/red spuds.
Now for the big one. You say:
"Is a Mac computer really worth 2x the amount I can get a similarly functional product from Dell (DELL) or Lenova?"
Yet the very article you reference shows that there is NOT a 2x difference. It states:
"But the Dell can be had in this custom configuration for $1,324, ... The MacBook fetches $1,999,"
The difference is $675 according to my math, this is about half again as much. So your 2x factor is basically - a lie!
While you note that there are small differences in RAM and Hard Drive sizes which the article notes as not very significant, you ignore the major factor:
Nvidia GeForce 8600 Nvidia GeForce 9600+9400
for Dell & Macbook respectively.
The macbook pro is designed for the pro. This configuration makes a very significant difference in performance for those people who need it (gamers too). And when Snow Leopard comes out you will see even greater performance gains as they implement OpenCL into the OS.
On top of that you get the the unibody, all the integrated software, greater usability of Mac OSX, greater stability of Mac OSX, greater stability of Mac OSX, & greater stability of Mac OSX.
Now you say about the iPhone "Unlike the iPod, there is no iTunes for the [i]phone that makes using a competitor's product impossible. Cell networks are as interchangeable as toilet paper, so the advantage the iPod has is not found on the iPhone. Now price rules. "
HELLO??? Ever hear of the Apps store??
Apple's mission is to provide extraordinary experience to the customer via elegant, easy-to-use interfaces to electronic products. People are responding to this in growing numbers, as millions of Macs are sold to new costumers every year.
This is not an "Apple nut" sending hate mail. Just a satisfied customer telling you the simple truth:
Your article is full of exaggeration, half-truths, bluster and hot air. Your lack of touch with reality shows that it is no exaggeration to call you CLUELESS!
But when it comes to your question about whether an apple computer is better than a pc even if it is twice the price as you said, your answer 'NO' cannot be further from the truth. I 'HAVE' to use my windows machine for about 20 minutes a week and not once do I go through those 20 minutes without using an expletive (or 10). I would gladly pay 5 times more for an apple computer, maybe i'll keep it longer if it's more expensive, but i would never lower my standards. a piece of junk at $500 is still a piece of junk!
But then I guess it made you feel really good in a very small way.
What some people will do to get attention.
Got enough Todd?
Go find something useful to do with you time like pulling the wings off of flies.
1) Yes the iPhone is a lot better than the Blackberry. Look at the sales as proof. It's clearly the mobile leader that RIMM may have been in the 90's
2) Yes, the MAC desktops and laptops are much better perfomers than the DELLs and LENOVOs. Also, a more secure OS. Macs are good out of the Box. Windows is painful, swiss cheese secure and need a lot more fussing with to run at optimal performance.
3) Yes, Apple will have earnings and innovation problems in this economy, with the "head" cut off.
Highest probability is that Apple is now on the A wave of the ABC of the 4th wave down on the monthly chart that has consumed 1 year so far. 4th waves typically consumes 100% to 300% of the time the 2nd wave consumed - meaning Apple should go thru at least 3 years of consolidation period before the next rally. Highest probability is 162% of the 2nd wave which is almost 5 years corrective process.
Projecting on the future. What can possibly cause Apple to be able to stage another rally after 5 years of consolidation including the 1 year consumed so far?
The days of the mobile phone is nearing or have already completed it's height and is now practically going thru the initial stages of long-term corrective process. This process is going to force most companies in this business to look for the next big thing.
Likewise, the mobile phone will never be as productive or as versatile as the personal computer except for it being mobile which the PC or laptap cannot match.
Next will be the Notepad or notebook computer which combines both traits and capabilities of the PC and the mobile phone. Imagine carrying a notebook PC instead of a briefcase or a heavy laptop with a maniature mobile phone (1/4 the size of current mobile phone attached to the n-PC). You will not need a laptop or a mobile phone or a briefcase for that matter. n-PC becomes the de-facto textbook and notebook for students as well.
It will take time. Intel Atom CPU is still in the early stages of development and is still not capable of providing satisfactory speed and energy efficiency for current and future use. Likewise, battery storage capacities are still too limited for extended all-day usage and are still too heavy and bulky to be worth carrying all the time. Likewise, the harddisk is still in the infancy stage for transition from mechanical to purely solid state which is going to reduce both energy consumption and weight of the current harddisks to a fraction of what is currectly available at affordable prices. Intel is going to release the SSD later this year and is expected to revolutionize the harddisk much like the core2 duo did with the CPU. But at $500-600 range, it will take considerable time before it becomes cost competitive with the cheap mechanical harddisks of today.
Give it time. Apple is still the most creative of the bunch sans Steven Jobs.
Todd has some outstanding points.
Perhaps if he combed his hair differently, he could hide them.
Ayuh
Complex technologies like smart phones and computers are not commodities, and if you act like they are, I don't think you'll do very well investing in technologies companies.
I haven't had even one of these problems with my Macs.
The iPhone revolutionized the mobile phone industry....and there are lots of "look a like" products....but none actually like it. The app store will eventually provide more business and educational software to a new apple product with a slightly larger format....it will revolutionize education as we know it.
I could write and write and write on this....
Its sad because its just misleading investors.....that is the one problem Apple does have....investor relations. If they did a better job they could combat more faulty analysis like this...
you must have had great inside info before the earnings report...
I can hear it now "I did my market research. I asked my mom and a man at the airport."
Fail.
On Jan 21 05:06 PM fauxscot wrote:
> way to go, man.
>
> you must have had great inside info before the earnings report...
>
>
> I can hear it now "I did my market research. I asked my mom and a
> man at the airport."
>
> Fail.
In other words . . . . "It's a trap!" - A. Ackbar
50% of the cool things you find in excel/word/ppt were first conceived by Apple
>>>
Sorry, have to chuckle at that one....having been an Apple user since 1984 and a PC user before that......
I don't do "office".....
Real Men don't do office.
And there is nothing cool about word,ppt or excel. Although there are a lot of boring things about them.
The future, including Apple, Google, etc...is about the mobility of programs and data, not the old "get your newest office upgrade". If you owned MSFT stock for the last decade, you probably already know that.
But in case you didn't, I'm here to inform and educate.
I am a full time computer consultant, web developer and writer - and also an inventor and other things...and have absolutely no need for any of those "cool" office apps. In fact, most people have no need for them...probably 90+ % of the people who own them! Maybe more!
Anyway, don't invest in MSFT, and cool...well, that is the app that turns your iPhone into a level. Or the one that shows your car actually driving along exactly where you really are.....from space, etc. etc. etc.
It's astounding what passes for journalism these days. People don't buy iphones and imacs for "status." They buy them because they work. The entire premise of the article is flawed. But wait, having a premise implies there is some kind of analysis, so never mind. And its timing (with earnings being announced) is moronic.
"I'm not a journalist ... but I can get hits if I bash Apple ...."
Hmmm, almost too bored to counterpoint...
Commodities still have quality grades (i.e. coffee and potatoes), but computers and mobile communicators designed for use and aesthetic are not commodities, and have more than just quality grades, but distinguishable functional differences (e.g. is there any functional difference between Starbucks and McDonalds coffees? No.)
Apple pricing is based more on margin and what the market will bear, not based on pushing large quantities. And in any case, their products are simply NOT whole-number multiples of the prices for "similar" products. The price myth is just that: myth.
The "early" competitive edge that he gives Apple with iTunes, he seems to think that other providers have come up with something comparable. Perhaps *several* providers in total can match the features of iTunes, but there is still no integrated service that cares for the customer experience as iTunes does.
And that applies to the App Store in huge multiples! Throw in the customer experience you get at an Apple retail store (where are those Blackberry stores and knowledgeable representatives?), and there simply is no comparison.
But here is his gem: "It does mean the glory days for the stock are over, unless they can tap back into the mass market that has left them."
Okay, you try to lump Apple with the performance of Starbucks and Whole Foods, but this is complete lunacy! For one, the mass market has NOT left Apple - they have been gaining market share in every category - and just had a record quarter, yeah, during the most dismal holiday season in a very, very long time.
Will this level of performance continue? Maybe not. Sure, lots of people will be tightening their budgets, whether they are still employed or not. But Apple is in a cash-rich position, which means that they can continue to invest and innovate during this recession/depression while their competitors will be cutting back. And that means that even if Apple is flat for the duration, they will be HUGE positive when we get to the backside of this recession.
A really sad, sad article. I hope your mother is proud of you.
www.dumbanalysts.com/2...
More like a major dope.
I *can* tell the difference between a cappucino made at Starbucks and one at McDonalds. One is made from real ingredients and one from powder. It is not imagined. My wife has blindfold tested me on various food like generic ketchup and items made with margarine instead of butter and I have always been able to tell the difference. And yes, I can tell the difference between a Starbucks French Roast and a cup of Folgers by smell alone.
So if you can't tell the difference between a powdered cappucino and a real one then why pay the premium? I agree with Todd. Go for cheap. Spend your money wisely. But for those that can tell the difference and that difference adds real (not perceived) value to that experience then why expend time and effort into something that gives you less than full value?
OS X is a real cappucino for me. As a web developer, I have tried to develop in both Windows and Linux environments and it was painful in each case. The tools and workflows were primitive and 2nd class in comparison to those available on the Mac and I could tell you exactly why...but that is a subject much too large to discuss in a blog comment.
Windows users, continue to enjoy your generic ketchup and powdered cappucino. You're a fool to pay more if you can't tell the difference (because then it's just buying into an image at that point.) OS X users, take comfort in knowing that you choose to pay more for a Mac because working in another environment would hinder your productivity. A professional would accept nothing less.
or stock manipulator wannabe
You would think if you invest in a hardware and device company you would already know that there is a small army of devices that are aimed squarely at the iPhone buying users. Some are better devices, and most are cheaper by far. Including not actually costing a few grand with that 2-year contract lockup and the inability to use the device reliably on any but one carrier network.
Where to even begin... try reading phonescoop.com or one of the handset sites. You will shudder at the iPhone clones already out and soon to be out if you are still holding Apple stock.
Where did you get your notion that Apple's US sales are down 24%?
They just had their best quarter ever, and you say their decline started six months ago?
I think you better go get washed. You stink.
Apple can certainly be criticized. Not everything they do is right and some products have not succeeded in the market (Cube, flower iMacs, OpenDoc). But if you are going to publish a critique in this area you really ought to do your homework and hopefully come up with something that adds to our understanding before hitting the send button.
Apple has incredibly great technology, they execute well, they have no debt, a huge cash pile (now $28B), and great designers. They have a fantastic future.
You should listen to the rebroadcast of the earnings announcement. The numbers are quite impressive. Sales up in all categories (US iPod sales down slightly, WW iPod sales up a lot). There are lots of units of cheap laptops being sold but Apple captures over 30% of laptop revenue in the US. Margins continue to be in the mid thirties. Competitors all have margins below 20%.
Think about that last number for a minute. Apple is building in enough value into their products that customers willingly pay enough money that Apple has margins far higher than the competition does. That means that Apple piles up profits that allow them to continue to invest in product design and engineering. It lets them buy companies to acquire needed technologies (like P. A. Semi). It lets them pioneer new manufacturing techniques (8 hour batteries and the new unibody for laptops).
During this downturn Apple is not pulling in their horns. They stated that they are continuing with their plan to open ~25 new stores this year in addition to maintaining their R&D budget.
If Apple discounted, as so many 'pundits' have called for, margins would be cut resulting in lower budgets resulting in fewer products in the pipeline resulting in lower sales a couple of years out.
As an investor I'm happy with the Apple is being run. I found it really interesting that they are confident that sales will hold up in the near term. No one has a perfect crystal ball but Apple has a lot of sharp people and they do their homework. As they are not planning on cutting back drastically then I'm encouraged to think that they see a way to keep the business flourishing. Very interesting.
And guess who will benefit? Apple, my good friends! Of course, open source will benefit also, but Apple will be...by far...the biggest gainer from the Microsoft losers.
I love being right. Although I love making money even more. Apple will be $200 a share within 2 years, and although that may seem like a long time to wait.......WOW, look at those numbers..... TENS OF MILLIONS of high profit units (ipods), many of which are "touches" which will download apps from the app store.
I'm getting dizzy. When the market sentiment turns around, this one will be a winner.
On Jan 21 03:43 PM TimboM wrote:
> How about your goatee? Now that's a trend that's past its prime.
>
>
> It's high time that you shaved that 'talking pussy', Todd.
Note: Apple is the only place to get iPods and Macs, etc.. There is no competition from Windows, Palm, RIM, etc... Macs were the only other system not KILLED off by windows. That is for a reason, it's ALWAYS been better.
I think it is safe to say in the coming economic backwash a wide variety of businesses will experience the same shifts as the consumer; having said that many of the folks who survived the Titanic were in First Class, not steerage.
After your bashing here perhaps I can buy you a coffee at Starbucks and I suspect you will enjoy it more than the one from McDonalds. You tend to forget when people are struggling, they attempt to treat themselves.
More often than not it is the discounters who succumb first.
I have a client who states, "There are three rules in successful business, quality, price and service; pick two."
You seem to believe that people go to starbucks for the coffee. I don't believe they do. I think they go for the familiarity, comfortable surroundings, vast array of choice in drinks, pastires etc, and the feeling of treating themselves to an inexpensive luxury.
I buy starbucks coffee regularly. It isn't particularly good coffee, and certainly isn't good value for money from that perspective. But I buy it because it makes me feel good. And will continue to do so unless my personal economy absolutely prohibits it. Even in this america, there is still more to a product than price.
I do not own AAPL stock nor would I want to, but your comments on the IPhone are way off the mark. Unfortunately for you, the IPhone is in many more ways than the IPod a complete game-changer for smart-phones and palm pilots:
"Unlike the iPod, there is no iTunes for the phone that makes using a competitor's product impossible. Cell networks are as interchangeable as toilet paper, so the advantage the iPod has is not found on the iPhone. Now price rules. "
Have you heard of the App Store? That has become a gold mine not only for AAPL, but for programmers writing code for AAPL's PROPRIETARY software network. It is much more lucrative than iTunes, IMHO, and exponentially increases its customer base far beyond music and into software apps ranging from translators to tower defense games. It is impossible to use the App Store with competitor products like Samsung's Instinct, which is not even a fair comparison to the IPhone, as much as it wants to be.
The IPhone was the first and only product made by AAPL I have ever purchased. I used to think, like you, that their products were labeled as "higher class" more on form than substance, but after comparing the IPhone to the competition, it blew everything way by miles - it was so far ahead of the competition. The browser alone was REAL - not a single smart phone could look at websites as if it was on your actual computer, except for the IPhone. GRMN, the GPS maker, is now trying to re-define itself, now that its GPS systems are fast becoming obsolete due to the IPhone. Its stock dropped more than 70%, and that was well before October of last year. Other companies' products come somewhat close (G1, Pre), but only after a full year of AAPL's product out on the market, and only after AAPL's 2nd generation (3G) phone already captured the minds and imagination of the public. Even then, the capabilities of competitor products are still dwarfed by what the IPhone brings to the table. I have never seen competition from established stalwarts so utterly trumped by a newcomer, even after given a full year to adjust.
Mr. Sullivan, I suggest you look a little closer at the IPhone before commenting on it. After reading your article, it struck me that you may not have even seen one yet, such was the utter lack of familiarity you displayed regarding the product.
Incorrect. The price drop from $399 to $199 was compensated by raising subscription rates $10/month, equaling an extra $240 in deferred revenue. Again, please do a little more research before writing an article on something you know is going to be picked apart with a fine-toothed comb. Given the amount of media coverage on this product, I am rather disappointed by your lack of even cursory knowledge of the IPhone, and by what you profess as an "expert" opinion on this subject.
Granted, I also think that AAPL is faddish, like SBUX and WFC, which you also mention. However, the IPhone has demonstrated to me that AAPL is still in its prime - I think it is where SBUX was at least 5-10 years ago in regards to maturation. It is simply that much of a superior product.
Why is it that these online sites can't do any better at finding qualified writers instead of the hacks like this? Is it that they simply aren't willing to pay for anything better?
Does Apple's continued success make you feel impotent? Is your ignorance and churlish sniping not keeping you warm any longer?
Spare us the predictions, bone head. Apple was supposed to get killed this Christmas because because the average consumer wasn't going to spend money on quality items, remember? What happened instead was that Apple had one it's best quarters ever, and it continues to have better quarters because people have actually decided to spend their money on items of above average quality and value.
So moan and drip and wail and gnash your teeth all you want. Apple will continue to be successful and you and the other impotent hit whore so-called analysts will continue to be wrong.
On Jan 21 08:50 PM bobomite wrote:
> Wow... there were Apple defenders saying "you say there are competitors
> but can't name one of them."
>
> You would think if you invest in a hardware and device company you
> would already know that there is a small army of devices that are
> aimed squarely at the iPhone buying users. Some are better devices,
> and most are cheaper by far. Including not actually costing a few
> grand with that 2-year contract lockup and the inability to use the
> device reliably on any but one carrier network.
>
> Where to even begin... try reading phonescoop.com or one of the handset
> sites. You will shudder at the iPhone clones already out and soon
> to be out if you are still holding Apple stock.
I still like Starbucks coffee and Whole Foods, and I know that Mac's are light years ahead of PC's. That being said, I buy a LOT LESS coffee at Starbucks (and other coffee shops) than I used a year ago and brew a lot more at home (plus it's organic). I haven't been in a Whole Paychecks in over six months, and high quality organic foods can even be found at WalMart these days. Why the change? Because the last 18 months have been financially devastating.
What a lot of the Apple true believers fail to realize is that a fundamental shift is happening. People who once spent beyond their means are now only spending cash for the things they want. Besides the financial ruin that has occurred in many people's lives, everyday there are more & more companies going out of business and laying off workers on a massive scale. It's tough right now to find a good paying job. While Apple makes top of the line products, they are going to be an increasingly tough sell in a world that has changed it's money habits.
The i-phone may be the world's greatest phone, but more & more people are going to simple cell phones with prepaid plans. The Mac may be the world's best laptop, but how can it compete with the sub-$400 computer at Walmart or the used laptop from the local computer store that will get the job done? Admittedly, Windows stinks, but it still works and at the end of the day, more people are going to go for the computer that costs less. Plus, there is still very little software that will run on Apple's OS. If I have to install Windows on a Mac to do what I want to do, why go to all the trouble and not just get a PC in the first place and save a ton of money? And although the i-pod is a great device, why would I want to buy one when I can get a 2GB MP player the size of quarter for $24.95?
The world has changed, and like Starbucks and Whole Foods, Apple is in for a world of hurt over the next few years.