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AAPL, a long term investment; MSFT, a long term decline; GOOG, past its peak

|Includes: Apple Inc. (AAPL), GOOG, MSFT
Aren’t you sick of another piece on Apple yet? Here comes another one, and I aim to offer you some unique perspectives. I won’t be speculating the success of iPad or the next generation of iPhone. I will focus on what makes Apple a long term success, and therefore, a long term investment, Buffet style, hold it till you die.
Three key factors make Apple a long-term success.
First, it is its track record of product successes. Its consistent track record reflects the superior product development capabilities in the organization. Now, I don’t necessarily think that the people in Apple are the smartest (they are very smart though). And I don’t think that Steve Jobs came up with all the great ideas. What made them so good was a product development (or innovation) organization put together the right way. They have a visionary and hard charging leader, Steve Job, on top. And they have a bunch of smart people glued together with the right culture. This type of organization tends to be highly innovative. Apple’s organizational capability in product development is not something that can be easily duplicated by the competitors. Google, Motorola, Microsoft or Sony cannot duplicate it. Google so far is still a one hit wonder. It is actually quite like Microsoft – generate a lot of cash from one product to support all of their other “hobbies”, of which the value propositions are typically “free”. Microsoft is in a long-term decline. Google’s peak is also over or not too far away. One risk to Apple is Steve Jobs. He is the guy putting the organization and the culture together. If he leaves, this type of organization tends to fall apart. He should worry about developing a strong and increasingly visible succeeding leader.
Second, Apple is in a unique position to provide differentiated products. Apple controls the OS, the software, the apps, the hardware, the chips (where it makes sense), and the online stores, all under one roof. This is something none of the others have. Apple can create coherent user experiences and in control to develop products that others have found hard to duplicate. Use Microsoft as an example. If MSFT wants to develop a certain user experiences, they need co-operations from hardware (e.g. intel) capability, and OEM design (how to put different hardware together). But all these other firms have their own interests and plan. What eventually get to the consumer is somewhat a Monster. This type of machine is great for corporations, who will spend the money on IT organization to customize the various technologies anyway. So what they are looking for are cheap commodity products, because the real value is derived from the customizations on top of the OEM machines. When you go to the consumer side, you also have a large populations of people who favor cheap machines, because two possible reasons: 1) it is the technical people who, again, derive the value from their own work on the machine; 2) people who simply cannot afford it, and they typically have a lot of time on their hands (i.e. marginal return on their time is low). They can afford to spend time trying to make things work. The populations that Apple is aiming at are: busy people whose marginal return on time is high. They want something that just works and works well. I read an article just a few weeks ago that said, even though the Apple image is very young and hip, most of the people who own an Apple computer are in 40s and 50s….
I wandered off a bit. In summary, Apple’s control in all the pieces give them the ability to innovate like nobody else.
Third, growth space for Apple is still ample. They still have less than 10% of the computer market share. They have virtually no market share in the corporate world. But, I will not assume that Apple will go right in to compete with the PC in the corporate world. Apple’s business model is to do a few very common things (needs or value) exceptionally better than others. The large corporations have very complicated needs. Apple will fail if, day one, they try to replace all the PCs in GE. I would suggest that they focus on small businesses, which tend to have fewer needs in terms of IT. And their needs tend to be uniform (billing, a simple web site, accounting, etc.). This patter will fit Apple’s business model very well (i.e. meet only a few needs, but do it VERY WELL). If we look at iPhone/iPod/iPad model, where Apple controls the release of Apps, Apple can do similar things for the small business, by controlling apps and services available and even provide IT help desk services for a fee.
I will start worrying if Google is following Apple’s business model in the mobile device world. But, it seems that Google’s culture is a bit like Microsoft’s – be all things to all people…. Until they change that mentality, they are unlikely to achieve the same kind of success as Apple. They could be the Microsoft in the mobile world though. If they are successful in doing so, they will certainly benefit the consumers. But I am not so sure that they will benefit the investors. And it will not be a threat to Apple, because it will gain follow the Microsoft pattern – innovation takes huge amount of coordination among firms.
Disclosure: I own Apple stocks. And I plan to own them till I die (or till Steve Jobs quit/die without a convincing succession, or till Google or another firm starts to duplicate the Apple business model I laid out above).

Disclosure: I own AAPL