Apple For Enterprise: Yes, Change Does Happen 9 comments
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Unfortunately, I frequently find myself peeved because this type of myopic thinking is everywhere, and always has been. Why? Probably due to the social psychology concept called framing, e.g., we are systematically given the messages that dominant companies, technologies, social and political mores, etc. will persist indefinitely, and therefore find it hard to move away from these beliefs. It could also be just plain idiocy, but I'll opt for the more textured and academically-appropriate answer for now. We clearly know this to be the case yet we keep on making the same stupid, short-sighted judgments again and again and again:
• GM (GM)? Unbeatable. Yeah, right. Toyota and others have systematically kicked their butt - design, engineering, production - across every conceivable dimension.
• Eastman Kodak (EK)? Invincible. They used to make film, right? Can you say late to the digital photography game?
• IBM (IBM)? Who can touch them? Alive and kicking but not the force of nature they once were. Who would have thought that a couple of long-haired brainiacs offered them the keys to the OS kingdom, only to turn them down?
• Microsoft (MSFT)? The $600 billion Evil Empire. Well, they've been chastened a bit, haven't they (if you call being chastened losing over $300 billion in market cap)? Being shackled to the legacy desktop-centric, software-laden culture has weighed heavily on their growth prospects.
• Google (GOOG)? The movie still has 90 minutes left. Come back later. But they will invariably come up against their own demons before long. They always do. Creative destruction and the challenges of scale ensures that this is and will likely always be the case.
The Punch Line
Given the investment community's poor track record of long-term prognostication, why should we believe them when we hear "Microsoft owns the enterprise. Apple is and will continue to be a non-player in the enterprise space." Answer: we shouldn't. Because they are consistently wrong and are likely to be wrong in this case as well. And besides my somewhat irreverent tone, there are actually really good reasons why investors should wake up to the possibility that XP/Vista/etc. won't be the dominant desktop platform forever, and that Apple could represent a new paradigm in enterprise computing.
The Case for Apple
The Wall Street Journal ran an interesting article a few days ago concerning the impact of a Mac's ability to run Windows, and how this has opened doors to small businesses, educational and professional users who previously wouldn't have considered buying from Apple. That said, there is more than a little cynicism from, yes, Wall Street:
Helping Macs gain a bit of ground within the workplace are a growing array of programs that let the machines run Windows or Windows applications on Macs with little loss of performance.
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No one believes Microsoft's dominance of the professional market, which includes businesses, education and other non-consumer fields, is in any imminent jeopardy. Analysts say such organizations, especially big companies, have far too much invested in Windows for Apple to ever win a big share of the market. Apple, tacitly conceding as much, puts more focus on the consumer market, with products like the iPod and forthcoming iPhone.
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"I would say the opportunity there is very limited," Charlie Wolf, an analyst at Needham & Co., says of the professional market.
Apple is making small inroads in the professional market with its critically acclaimed line of Mac desktop and laptop computers, and even slight market-share gains can bring meaningful new business to the company... Apple's share of total new PC shipments in the U.S. jumped to 5.4% last year from 4.5% the prior year, Gartner says. Nearly all of the rest of the market is Windows.
Over the holiday quarter, Apple sold 1.6 million Macs, 28% more than in the same period a year earlier and nearly five times the growth in global PC shipments overall in the period. Apple Chief Executive Steve Jobs this year said the company's research showed more than half of all people buying Macs were new to Apple computers.
Apple's move to Intel microprocessors -- which act as the brains of PCs -- has helped the Mac business by giving the machines a performance boost. Macs may also have benefited because they have been largely free of viruses and other security woes that plague Windows PCs.
Uh, I'm not really sure I agree with the assessments of "Analysts say..." or Mr. Wolf. They sound so sure of themselves, even in the face of the frequently-occurring yet statistically unexpected 3 standard deviation events and the examples of empires being toppled every generation. Companies are "too heavily invested" in Windows to ever switch to Apple? The opportunity for Apple in the enterprise is "very limited?" You've gotta be kidding me. I wish I could be that sure of myself - but I know it would be false security, anyway.
I've written a little bit about Apple and its leadership in the rise of the Consumer Era of Computing. This does not mean that Macs are only for the consumer, but that Apple as a company is laser-focused on delivering the best user experience, be it in the home or at the office. Check out a little of what I had written around the time of Microsoft's release of Vista, and how the market was handicapping its adoption rate:
I guess the question is whether or not those 73 million households are a gimme. A lot has happened in the consumer market since the release of XP: the rise of the Mac Book, the popularity of iTunes, the ubiquity of the Apple consumer experience. Analysts frequently love to base projections on previous product adoption cycles. Is Mr. Schadler correct in assuming that Vista will enjoy the same uptake as XP did when it went live? Today's world is clearly different, my friend, and woe be those who are bounded by yesterday's thinking in projecting tomorrow's reality. Even a small dent in Microsoft's OS market share would have a huge impact on its P&L (with the benefit going straight to Apple).
And let's not forget: James Allchin, Microsoft's Head of Vista, said he covets a Mac; Pat Gelsinger, General Manager of Intel's Digital Enterprise Group, bought two Macs.
So, when you've got your own executives (Microsoft) as well as those of one of the most powerful suppliers (Intel) in the tech sector singing the praises of your competitors' (Apple's) products, all cannot be good. It also raises the interesting question that if Vista requires so much memory and processing power that current XP users would actually need to upgrade machines to properly use the new software, then why not try a Mac? Allchin likes it. Gelsinger likes it. Millions of people love it. And Steve Jobs loves it.
In my earlier post I reconciled the issues of being user-focused while tapping into the enterprise opportunity in the following manner:
Bottom line for Apple: it's not about the enterprise, it's about the user. If the user wants a platform that melds their personal and professional lives, Apple will deliver this reality. If the enterprise follows from the users, that will be their way in. But make no mistake: Apple is focused on what matters - their users. Markets, per se, are secondary. Their users will take them where they need to go.
Conclusion
And this is the point. I know from my own experience in my company how this transformation takes place. We started out being a Dell/Intel/Windows XP Professional-based shop. Then our developers needed better machines, several of whom had Macs at home, and requested hi-test Mac machines for development. They loved them. Told everyone. Then anybody doing graphics/visualization wanted a Mac. Then anybody in a client-facing role who did presentations, online demos, etc. wanted one. Now pretty much everybody has one. It has become "the" supported platform in my company. And it happened in a stealthy, inside-out way, where a core of passionate Mac users got the ball rolling, showed others how awesome it was after which people were beating a path to my desk asking for one.
So change can happen quickly within SMEs. Yeah, we're not talking about Deutsche Bank going Mac tomorrow, but as the PC user experience degrades and/or requires new hardware, and as more and more grass-roots Mac users begin speaking up, some change - material change - will invariably take place. First in small, semi-autonomous groups. Then in larger groups. And then it becomes viral.
I saw this movie with the Blackberry phone. Early adopters were supported by IT in a one-off, kluge way, told others how awesome the device was, a wall of demand was created, and finally the Wall Street firms caved and properly supported the device on an enterprise-wide basis. The same thing can happen with the Mac. And don't tell me that change can't happen and that Apple is out of the enterprise game. Because it can. And because it's not. Really.
Disclosure: Author holds no positions in stocks mentioned.
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This article has 9 comments:
There's another issue at play here. Microsoft Exchange Server. It will not be able to keep pace with the rapid expansion of email, Blackberries, Macs, etc. that are about to swarm the workplace. Exchange is really the only thing keeping Macs out of most workplaces. Yes, proprietary applications are another issue but we're not to the point where that affects the broader issue of en masse adoption. Once the email store gets a makeover and individual server tasks, that are currently under Exchange's domain, get distributed to stronger stand-alone products, the Mac will be more than a no-brainer. I dare say it will be found to be a necessity.
"Necessity?" Yes. It's open-source at it's core, but protected enough to be stable. The hardware is unbeatable, no one touches Apple's hardware engineering. Deployment can happen at rate of 20-30 minutes per seat. Maintenance for a Mac is roughly 2/3 in time and roughly 1/2 in cost. These are important numbers for a company looking to trim costs further and create black ink growth at time when the economy is incredibly volatile and unpredictable.
I'm not trying to paint a fantasy picture of the Mac being sold out for the next ten quarters because every company is selling off their Dells. But I am saying that it's a fantasy to think that Macs won't start playing a much stronger role in the workplace.
Also:
The old credo was IT guys hate Macs because Macs threaten their job security, as troubleshooters. Guess what? Lots of IT is now outsourced anyway-- might as well give the users a break and upgrade us to Macs, IMHO!
I disagree about GOOG. I think they have a bright future. In fact, many companies may choose to outsource E-mail, by encrypted VPN or something, to Google. Who knows.
The only problem I see is that a comparable dell (if you can really call it comparable) is about half the cost of a new Mac. However, like Dan mentioned in a previous comment, mac repair costs are less. I would also add that Macs last much longer then a PC does. With that said, over the next couple years the small sliver of apple computers, as total computers, is going to grow quite a bit.
Aaron
Market Flavor Portfolio Advice
Apple is currently not a stock we are recommending.
The other thing about Dell's XPS computers is that they cost more than Apple's. However, you have to consider Dell has included a special customer support package with them, too. And yet, the base model for an XPS still has to be upgraded some to have the same specs (or rather, close) as Apple's computers, though before upgrading the XPS it already starts out costing more than Apple's. Again, since the parts have the exact same specs, only the XPS are really comparable to Apple's lineup.
The funny thing is that even after upgrading the XPS, it still doesn't have everything an Apple computer comes with by default and costs a whole lot more than a similar Mac. We're talking more than a few hundreds of dollars. Admittedly, there are some upgrade options for XPS not available for Apple's computers when configuring online, and vice versa. Obviously, some things can be purchased afterwards for either system. The point is that the default configuration of a Mac can be greater than that of the default configuration of an XPS while costing much less then the XPS.
When I've configured various Dell computers online (other than XPS) to meet the same specs as various iMacs, MacBooks, MacBook Pros, etc., the results have two things in common. One is the way I configure them. I try my best to go cheap with Dell while getting as close as possible to the specs of a default configuration to a Mac. Sometimes I have to upgrade both systems, e.g. the hard drives, to make them the same in a certain spec. Because I try to go cheap with Dell, whenever possible I avoid making the Dell have greater specs than the Mac. The second thing these configurations have in common (and recall, these are not the XPS), is the Dell ends up costing just a little bit more, usually from less than $100 to maybe a $200 more than the similarly configured Mac. Put those points together and you'd realize that the Dells will cost more and still do not have everything that a Mac has by default, and the Dell must be heavily configured to have as much as is included with a Mac by default
Let's not even get into the lack of software the Dell ends up having compared to what's installed on the Mac by default. Also, because of the reviews of MS Windows Vista compared to Mac OS X, lately I've been making sure the Dells have MS Windows Vista Ultimate in order to be as close to Mac OS X. There's only one version of Mac OS X: everything. Interestingly, even the Dells that wouldn't allow Vista Ultimate sometimes wouldn't cost less. And just as interestingly, I got similar results when only XP was available last year, the difference being that the Dells cost a little bit more now and the Macs cost a little bit less now.
It's not that Macs cost more, it's that Macs have more by default. It's like saying an automobile costs more than a dune-buggy. But then again, my attempts to configure a Dell (other than an XPS) to something to a Mac is also like trying to super-mod the dune-buggy into a real automobile. It's just not the same no matter how hard you try and the modifications can become expensive.
So, maybe there's another manufacturer who sells computers with the exact same parts, or close to it, to compare with Apple's lineup. And no, AMD is not Intel is not IBM, so the processors aren't interchangeable for price/performance/ener... use comparison, just like a Core Duo is not the same as a Core 2 Duo. For the parts being used, Apple has a better offer, and looking at their lineup in an economic sense, it's quite obvious why. They don't waste their money with dozens of different lineups, instead they save money on offering only a few lineups.
They also make sure those use modern technology (hence, mid range to high end technology by default) instead of wasting money trying to support 20th century technology like P/S 2 and serial port connections, or fluorescent colors on the back of the computer. Is it any wonder they've been ranked with the best tech support in the computer industry every year in the last several years?
Essentially, just don't expect a suped up dune-buggy to get you as far as an automobile, and don't expect a Dell with MS Windows to have a lower total cost of ownership (TCO) than a Mac. Without those expectations, people should be quite happy with their PCs. :-)
But for those of us lucky enough to be in companies where Macs are the standard, life (for everyone) has become a comparative joy.
And of course wild horses couldn't drag us back to Windows...ever.
They would also be well served to create a very high profile division titled "Apple SuperComputing". This division would highlight Apples high end computing. Move the image from desktop publishing to desktop supercomputing.
With that said, there is one philsophical/company culture difference - MS is built to sell in bulk and focused on decision makers in enterprise. They could care less about ease of use for end users - just like decision maker buyers don't care if Office is bloated - as long as it's within their price range and offers the 500 checkpoints they want - does anyone really need 150 starbursts in powerpoint with 100 of those choices dead horse ugly? It's the largest check on the checklist when compared to the competition. And virus and malware - of little consequence to the CAPITAL budget buyer - since maintanence or IT comes out of another budget - not his responsibility. And of MS is eager to please, they'll do whatever it takes to get the sale or in the 1990's buy up the competition and merge it into their app so it's another checklist item and/or more importantly - eliminating another incompatible choice - look at of MS' attempts at creating "standards" that are not standards or a couple weeks ago when they tried to come up with a new format that was "better" than jpeg - like anyone cares.
But in the case of enterprise, part of Apple's non-success is just a different company culture. MS is eager to please by incorporating anything anyone wants into anything as long as you're willing to pay for it and they'll be happy to talk about what's coming next because they want to sell you what you want. Apple is different in that they'll pretty decide what they consider useful or unimportant and if they say no, that's it. So, in one sense MS is better at customer service but the downside is MS will put in 105 things from 75 different requests because they only care about getting the sale so everything is stuffed to the gills and NOTHING is left out out of the code. That looks good on the checklist but to the user? - ugh. So Apple appears aloof or arrogant to enterprise because they say nothing and simply say, "when we're ready, we'll show you."
10 years ago, it was an MS world but now, it's an Apple world because consumers and small cadres drive technology forward - and that's where Apple shines - we love a good surprise and while we say we want things, we don't necessaeily mean it (otherwise we'd be eating sensibly and execercising) - that's why MS is totally confused. They ask people what they want or they come up things that have a longer checklist but people don't buy while Apple doesn't ask anyone - they just unveil things.
So, it's not likely to change much as Apple is not going to hire thousands of sales reps to pound the pavement nor will they offer much guidance beyond what you can guess what Intel is doing ... Apple will gain more shares but not massive shares but that's okay - when you can generate 60% of MS' revenue with 4-5% marketshare of PC's - imagine what 10-14% will deliver.
The 1990's were to MS what the 1950's were to GM.
They still haven't a clue as Steve Ballmer keeps talking about overtaking Google in months ...