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In the beginner's mind there are many possibilities. In the expert's mind there are few.
- Shunryu Suzuki

Why I’m (still) long Apple

Image representing Apple as depicted in CrunchBase
Image via CrunchBase

A few years ago I bought a few Apple shares (AAPL) in my pension plan. When I got the idea they were trading in the high 20s and when I finally capitulated and pulled the trigger (after chasing it for months with unfilled limit orders) it was in the high 50s. I bought it because the first time I saw an iPod I was blown away and the great experience we had had with our iMac at home after ditching our old Dell. It’s been a pretty good investment and my expectations in terms of their success with iPod/(then iPhone) driving gains in marketshare for their computers has been met or surpassed. I probably should have sold when it ticked over $200 (if only to reload when it traded lower) but that is back-trading and oh so easy. A more useful question would be: is it worth buying today? and if so, what is going to drive the next leg of the company’s growth. I think the answer is yes, and I think you’ll find the kernel of the answer as to why in this graph (hat tip to @azeem for the pointer):
Apple share UVa undergraduates (MacRumours)

The latest computing survey results from the University of Virginia’s freshman class show evidence of continued Apple marketshare growth in the higher education market (via Daring Fireball). The chart above shows that Apple has made steady gains since 2003 in the percentage of incoming UVA freshman who own a Mac. The latest year (2008) shows that 37% of incoming students owned a Mac while the percentage owning a Windows computer had shrunk to 62% from a peak of 96% in 2001.

Ok, so Apple’s selling lots of laptops to college undergrads, nice but not a game-changer, right? Wrong. I think it just might be. And better yet, it’s all about tipping points and power laws and stuff.

Firstly (and most obviously) substantially growing market share with this key demographic (young, upwardly-mobile, educated, proto-professionals), in a product with significant (perceived) switching costs, is great for long term sustainable sales growth. But it gets better (and here is where tipping points come in.) Very soon, over half of university graduates entering the workforce will have grown up / come of age using Macs. And they won’t exactly start doing cartwheels if they are forced to use PCs at work. (As an aside, this will thrust into stark relief the coming colossal collision between big company culture rooted in a 1990s technology paradigm – ie a bright line separation between corporate and personal IT assets and usage – and the reality of the 2010′s when the best and brightest will expect (almost) complete convergence of the two and regard trying to distinguish between the two as ridiculous and anachronistic.) I fully expect a story in Fortune or the WSJ etc. within the next 2-3 years, reporting on graduates

…who had turned down a job with ABC Inc in favour of one with XYZ Inc. because the former allowed only corporate PC’s at work while the later was a (mainly) Apple environment and was happy for employees to buy their own laptops as long as they complied with data and security policies…

Apple as a competitive recruiting advantage. You don’t want to be short the stock the day after this tipping point triggers.

As an added bonus, catalyzed (or at least accelerated) by the current Great Recession, a large number of 30/40/50-something professionals are leaving big corporations and striking out either on their own or in smaller enterprises. Many of these professionals have never worked with anything other than a PC at work and quite frankly never gave it a second thought. But many of them also had Macs at home – they were cooler, easier to use – especially for music and home media (which drove the purchase decision) and could even run Windows easily if absolutely necessary (like for the kids EA game collection…) And when these folks leave Megacorp Inc and start working on their next venture, doing a bit of consulting, writing a business plan, day to day networking…they’re using the Mac at home. And then when it’s time to get an office, it hits them: why on earth would I want to go back to using a PC. So they don’t.

People criticize the smugness of the cool Mac vs. the loser PC commercials but the reality is that this positioning is only gaining momentum amongst some of the most desirable demographic groups in the economy. Here’s a little experiment: if you are a senior executive in a Fortune 1000 firm, send an email to all of your employees (that your currently provide with a PC) and ask them if they could choose what computer to use at work, what would they prefer: iMac/Macbook or a Windows PC? (A few smart-assed geeks might answer they would like a Linux Box but you can ignore them because they are probably using whatever they want already, being smart and geeky enough to have circumvented standard corporate policy.) Warning: only do this survey if you know how you will react if 30% or more say they’d rather use a Mac. Waking sleeping giants and all that…

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Permalink||Comments|Filed under 'Digital Generation, Tools'
  • Chuck Farley
    Plenty of American elementary schools bought heavily-subsidized Applie IIe's and Classic fishbowl Mac's during the 1980's. (This is why you'll provoke weepy nostalgia if you mention the "Oregon Trail" video game to a room of American 30-somethings...) So should we assume Apple's solid performance in the late 1980's (later squandered!) came from this similar inroad? Or are the demographics different enough between college students and (public) school elements kids to matter?
  • I think the demographics are sufficiently different. A college kid today will come into the workforce having basically lived on their Macbook or laptop for the past 4 years, and the distinction between work(school) and play(personal) in terms of the 'deck' they use to access each world will seem anachronistic. Hardware is hardware.

    Plus I think there is another big difference. It's 2009 not 1989 and so the importance of and relationship with a computer in one's day-to-day existence is completely different.
  • While Apple does have great products, I think their current competitive advantage will narrow over time. Most new interaction with software occurs via a browser. It's becoming effortless to switch between windows/mac/linux/iphone/gphone/etc with many apps.

    I do agree, however, that the current trend of people buying Macs will continue. Anything that gets people off of a Windows dependency will be a positive development.
  • Looking forward to the tipping point.
  • I'm not so sure. Apple are doing well out of the consumer device market, but there's a big hole in their strategy around the netbook space. I can understand why Steve doesn't want to go there; it's basically the same problem that MS has - the sticker price on the OS becomes too much when set against the low hardware cost (hence crippled versions of Win7). I know that there's a lot of excitement brewing about the rumored jumbo touch tablet thing (and I would quite like a multi-touch interface to my netbook), but things have gone wrong in this space before - remember the Newton. Whatever they do it should have integrated 3G data (like the Kindle), but I suspect that there will be too many concerns about cannibalising iPhone sales and associated voice/data packages (especially now that Skype are on the scene).

    I wonder what the breakdown of students using netbooks looks like? I'd expect that the portability and cost play right into that segment?

    NB I've already disagreed with the position being bandied around by Apple that people don't want crippled hardware (http://thestateofme.wordpress.com/2009/05/01/netbooks-are-small-not-crippled/). The point is that the typical netbook hardware isn't actually crippled at all - evidenced in the Apple fanboy world by many happy users of netbook hackintoshes. Clearly some lamers get it wrong - http://www.wired.com/gadgetlab/2009/04/six-months-with-a-hackintosh-netbook-it-aint-pretty/, whilst those with the right skilz are happy as pigs in poo - http://www.wired.com/gadgetlab/2009/05/eight-months-with-a-hackintosh-netbook-conclusion-fantastic/. I suspect that many Apple fans out there might actually be willing to pay out the OS-X premium for an official product in the space (particularly if it came with the usual design touches - they need to beat this http://www.reghardware.co.uk/2009/05/19/review_netbook_asus_eee_pc_1000ha/), but Apple have to get into the game rather than standing on the sidelines pretending that the market isn't in the process of being turned on its head.
  • I think the netbook/tablet market could be big but I'm probably less convinced than you seem to be that it will be a game-changer. I'm not saying it won't be, just that I don't know. And to your last point, if Apple decides that it is key and they 'get in the game', I'm pretty confident that they will once again produce a product that is best in class, especially for their installed base of Mac, iPod and iPhone users. Nonetheless until they do, your concerns are clearly justified and relevant.

    But the main point I was trying to make - and I think is bigger than any product cycle - was that Apple is approaching (or possibly is in the process of passing) a tipping point in terms of market and mind share with a very important demographic segment of the population (ie those with the most money in their pockets - both their own and their companies') which will allow them to grow significantly without having to compete in the mass market on price. They can achieve this imo by taking an ever increasing share of professional and SME market share and this without even having to explicitly target the enterprise space. The move to SaaS and cloud computing only strengthens this positioning as their is even less need/excuse to worry about compatibility with an in-house MS data center / server environment.
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