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.
