Does Wall Street Properly Value Google/Apple Brand Loyalty?

The tech-ticker on Yahoo! Finance had an interesting article about Apple zealots posting extremely critical messages in response to an article by Barron's Eric Savitz which highlighted negative comments by Toni Sacconaghi, a Bernstein Research analyst. It got me thinking about why companies have such loyal fan boys?

Two Silicon Valley companies come to mind, Apple (AAPL) and Google (GOOG). The stock for both these firms has been hammered by recession fears. Though the sell-off after the big run-up of last year was expected, the size of the fall has taken many by surprise. Having spent time working both in the valley and Wall Street, I often wonder whether Wall Street put sufficient value to the value of the brand which each company represents.

Apple's Cult

Apple's brand loyalty is legendary. There are user groups out there still supporting the ill-fated Apple Newton. It is not hard to understand why people like Apple. Their products offer an unparalleled blend of functionality and elegance. The iPhone's touch interface seems to have intelligence; as if it knows what I would like to do next and makes doing that so simple. The interface is intuitive enough for a three year old toddler to an 80 year old granny to use with little training. Users feel a connection with Apple's products which is hard to replace.

 There is a reason why Steve Jobs has a cult following and it has nothing to do with hypnosis.

The Google Halo

Google is often criticized for their dependence on revenue generated via paid clicks and their inability to monetize other products. Analysts are also critical about Google's investments in their non-core businesses like alternative energy (RE < C ) or the Google Lunar X Prize. Though on the surface these investments seem like a distraction, they have a bigger goal: to build a halo around Google which loyal users can associate with at a deeper level.

Web-Search is an industry where the effort to switch providers requires a single click. Google Earth has allowed me to revisit places dear to me half the way across the world. And if the army of users who have built applications on top of Google Earth (and the related Google Maps) I am not alone in enjoying what Google offers. Similarly GMail with its no-fee POP downloads, huge storage capacity, and relevant links provides a significantly better user experience compared to Yahoo! Mail where I am expected to upgrade to Yahoo! Mail Plus.

Another example of Google's focus on end-user experience is YouTube. You can watch and share videos on YouTube without being bothered by any ads. Google is trying out ads on YouTube, but they appear in a small Picture In Picture type window briefly. If you are interested in the ad, you can click to view the entire ad. This provides Google a way to monetize the YouTube audience without being too intrusive. Contrast that with the way video ads are served by other sites like cnn.com where you are forced to watch a 15sec ad clip about a topic you may have no interest in.

Google was very clear about their objective of donating one percent of Google's equity and profits to help address some of the world's urgent problem. Google's founders have been very generous in sharing their wealth with the rank and file of their company. Apart from the greater good of mankind, their investment in alternative energy has a clear business objective also: to reduce the cost of running data-centers as the cost of energy and the amount of data which has to be stored grows exponentially.

Other firms can come up with a better search engines or a better phone; but can they duplicate Google's halo or Apple's cult? Go ask Microsoft (MSFT).

Comments

[User 156414]

Excellent article!

[JIM]

Extremely well reasoned.

So unlike that clown Savitz at Barrons and his sideshow, sell-side analyst Toni S. Completely devoid of scruples and journalistic integrity.

[CliffA42]

Right on! You see something that most folks don't think about because they are too close to the trees swaying in the wind---the forest.

[digivision]

there is definitely plenty good reason why Apple fans are so attached to the brand...
I still have my Newton the best PDA ever made

[Tom B]

"It is not hard to understand why people like Apple. Their products offer an unparalleled blend of functionality and elegance."

Exactly right. Many commentators get into the "trendy" or "fashionable"... meme, which totally overlooks the fact that the products blow past the competition in terms of functionality.

One reason we fans are somewhat vocal on the web is to counter all the disinformation that's out there. Many people get paid to shill MSFT products. Perhaps not overtly, but they know who butters their bread. We try to counter that.

"Google Earth (and the related Google Maps) I am not alone in enjoying what Google offers. Similarly GMail with its no-fee POP downloads, huge storage capacity, and relevant links provides a significantly better user experience compared to Yahoo! Mail where I am expected to upgrade to Yahoo! Mail Plus."

I use the "GMap pedometer" to map out jogging routes while CALCULATING DISTANCE. How cool is that? GMail is great-- 1000X better than the Outlook I use at work. YouTube is not all skateboarding dogs. My 6 year old asked about how glass was made the other day, and I pulled up videos of glassblowing at the Corning museum right then and there-- what a great educational tool!

I think the 90's were MSFT/Dell/Intel (at least in terms of economic impact); the "naughts" will be Apple/GOOG/Intel

[garolina]

The the two companies have halos over them because they both consistently create such consumer friendly easy-to-use software, services and products.

I agree with Thomas Barta who posted the earlier comment. The "naughts" will be the decade of AAPL/GOOG/INTC

[JIM]

You're seeing a new brand of 'in-your-face', blogger-savvy investor. We will call the propagandists out when they are misrepresenting the facts, manipulating the stock and damaging our investment. It's our right and duty to do so.

Interestingly, this behavior modification seems to have been effective on some of these dunces.

Notice that Savitz has toned down his waterboarding of Apple stock lately. And, he hasn't paraded around any disreputable 'analysts' in the past couple of days...

[techzone12]

I think AAPL is a solid buy right now. I think the up trend has just started. I can see AAPL climbing to ~ $150 in the near future.
Given the economic uncertainties, I am staying away from Google for the time being.

[Shun]

I am a first time 62 years old female IMac owner, I love it so much I bought my daughter a Mac book recently.

I also bought Aperture 2 when it came out last month. Apple products are so friendly to use I just love them.

[SAK]

Brands! Of course, the BRANDS. That wonderful trademarked image that never changes...be it an Apple or a multi-colored gooooogle...the power of brands is often overlooked, but it is the power of brands that allows a 2-year old to recognize an apple computer, and continue to associate that image with computers for the rest of his life. You think Steve Jobs knows Pavlov? haha...great article.

[Tom B]

"Brands! Of course, the BRANDS."

You're still not getting it. Coke has a great BRAND. They almost destroyed it when they launched a bad product ("New" Coke). It's about EXECUTION.

[blah-blah]

I love AAPL - it's the only stock(including GOOG) that breeds such emotion and a cult of fans who go so far as to call anyone trying to debunk it as James Cullen said so well 'variations of ass and idiot'.

I need to look into a way of taking advantage of this the same way I buy banks to take advantage of human greed and the need for instant gratification(credit). Opportunities like this don't come around all the time.

[TanToday]

Amazingly, without fail, wherever and whenever Apple enters a totally new market, with new partners, they report sales and satisfaction numbers the likes of which those partners had never exerienced before:

EXAMPLE, O2, the Apple partner in the iPhone in the UK just released this statement:

>>>> " O2 UK's Q4 2007 buoyed by iPhone

Britain's primary cellphone carrier, O2, reported on Thursday that the iPhone was one of the primary drivers of its success in the fourth quarter of 2007.

Though still refusing to confirm or deny reported sales numbers for the specific Apple device, the provider said the 483,000 net customers it picked up during the three-month span was the most ever for the company. About 276,000 of these had signed a contract and included the iPhone customers in their ranks, as the handset requires an 18-month agreement.

O2 also boasted that the device was the "fastest selling device that [it has] ever had" in the country and that the average revenue per user is about 30 percent higher than for a typical contracted subscriber.

About 60 percent of all iPhone users have come from other providers, and the iPhone has had the highest satisfaction levels yet of any O2 device with a record low return rate, the company said. " <<<

So, you have exceptional sales, NEW customers leaving OTHER providers, and even the companies themselves are happily surprised at how explosive things have been.

Add in customer satisfaction at multiples of other competitors, and web traffic far in excess of the numbers of machines would "warrent" as much as 50 TIMES higher than the next nearest competitor per unit accessing the web.

[Tom B]

"Britain's primary cellphone carrier, O2, reported on Thursday that the iPhone was one of the primary drivers of its success in the fourth quarter of 2007."

One of the minuses with Apple, as a company, in the past, is that you didn't have a zillion partners. Dell or HP advertises a PC; essentially, they are also multiplying Windows' advertising budget. There are historic reasons for this, clearly, but it's an issue.

[blah-blah]

It's all about the money Jim - humans as a mass never learn and their tendancies are predictable, predictability can be used to make money. This has nothing to do with the company itself. Actually one of the things AAPL does really well is also taking advantage of certain aspects about people, they do it better than most.

[Tom B]

"Actually one of the things AAPL does really well is also taking advantage of certain aspects about people, they do it better than most."

And Dell hits a different niche; people who are willing to accept frustration and annoyance to save $5 on a PC.

[STR]

so what's your point? [Comment edited for abusive language. Commenter put on notice]

[PopTheBubble]

the point is.....if people think "Apple First" when shopping, it's a huge multiplier for the entire product line. that's the sort of synergy even little guy investors like me can understand. what I don't understand is this 120 to 130 range we are trading in recently...couple of days to 130 then right back down to 120 in a few days. someone is driving it. don't know if the event next Thursday will pop us out of the funk. if it's light on info re: 3G phone, new partners, limited on email sync, and a delay on the SDK it might get pushed DOWN. i still think (dream) there will be big news sometime in the next few months with a break-through in China before the Olympics. man, even I could make those commercials!

[blah-blah]

Hey Thomas, check this out

www.behance.net/Galler...