Apple
and Dell
7 Nov
05
''As technology
becomes more complex, Apple's core strength of knowing how to make very
sophisticated technology comprehensible to mere mortals is in even
greater demand. The Dells of the world don't spend money [on design
innovation]. They don't think about these things.''
Steve Jobs, Apple CEO, in The New York
Times, 30 Nov. 2003
While the
Jobs quote above is from 2003, the autumn of 2005 has showcased the
power of Apple’s disciplined and aggressive innovation.
On October 12th,
just five weeks after the launch of the iPod Nano, Apple launched its
new video iPod. In the course of
10 months, Apple has completely replaced its existing iPod product line,
discontinuing its most successful products at the height of their
popularity.
Apple’s stream of new
products is propelling the company’s performance. Its stock price is up
75 percent this year, and hit a new 5-year high of $60 on November 3.
Dell, on the other hand,
has had a difficult year. On 1 November, Dell lowered its earnings and
sales estimates for its fiscal third quarter. Analysts had expected
revenues of $14.3 billion for the quarter. Dell forecast sales of about
$13.9 billion. The announcement sent Dell’s stock down about 8 percent,
to a new 52 week low. For the year, Dell stock is off about 30%.
Apple vs Dell stock price in 2005
Both companies have been
consistent in their business approach. Apple emphasizes design and
customer experience; Dell emphasizes price and service. In the past,
Dell’s approach has given the company a high degree of control and
predictability, while Apple’s ride has been more volatile.
Yet in 2005, the roles
have reversed. Dell is now missing its forecasts, while Apple’s
aggressive and disciplined new product launches are propelling sales and
profits.
This wasn’t the way most
analysts had the story playing out. In November, 2003, Dell was
preparing to launch its “Jukebox,” a less expensive iPod with longer
battery life, using the MP3 standard. At the time, Rob Glaser, the
chairman of RealNetworks, predicted that Apple’s share of the player
market would decline to less than 5 percent by 2006.
He will be wrong by
several orders of magnitude. Currently, Apple’s share of music players
runs around 80 percent, and its new product launches should push its
share even higher.
Apple’s
Aggressive Innovation
Few people predicted how
aggressively Apple would launch new products and phase out successful
old ones. Steve Jobs noted the paradox as he introduced the new video
iPod:
“What about the
white iPod? It’s been a huge success for us … and therefore it’s time
to replace it.”
Apple CEO Steve Jobs, announcing the new
video iPod, 12 Oct 05
Apple’s video iPod
As with the Apple Nano
launch of 7 September, the video iPod was immediately available for
purchase, replacing Apple’s core “white” iPod at the top end of the
line. As with the Nano, tech writers like Stephen Wildstrom of
Business Week have been delighted with the product. And consumers
have responded with a surge of demand.
Over less than a year,
Apple has completely replaced its existing product line. The new lineup
of iPods, with six models, covers price points from $100 to $400, along
with a large range of features and sizes:
iPod Product Line – 3 platforms, 10
variants
Rather than allowing
prices to decline as components become less expensive, Apple maintains
prices by offering new features and designs. The margins on the nano
are about 15 percent better than they were on the iPod mini, which the
nano replaced.
Dell’s limits to
growth?
Dell has stumbled this
year as growth in personal computer volume has moved to rapidly
developing countries like China and India, where Dell’s direct sales
approach has less appeal than it does in the US and Europe.
In its recent
announcements, Dell has emphasized that it is moving away from the
lowest price levels of personal computers – it will accept slower growth
for improved margins. In September, it announced a new line of “luxury”
laptop and desktop computers.
Dell is not known for
product innovation. As it moves away from competing on price, Dell runs
the risk of getting caught in the middle. Low cost competitors like
Lennovo are growing faster, while design innovators like Apple are
capturing the high end.
More Information:
1.
Here’s a video clip of
Steve Jobs introducing the new white iPod.
2.
My
September update on the iPod Nano.
3.
A New York Times report on
Dell’s November 1st earnings announcement.
