Let’s take a look at where Apple’s main competition gets their revenue and compare it to our favorite Cupertino company.
Microsoft makes huge amounts of profit from Windows and Office, and not much more. Bing is a failure. Xbox isn’t a profitable platform. That lack of diversity seems to have hurt Microsoft’s stock which has mostly flatlined for a decade.
Google makes huge amounts of profit from search engine advertising; approximately 95-percent by most accounts. Google’s forays into other forms of revenue have met with failure. Android. Tablets. Smartphones. Motorola. To date, those failures to diversify have yet to harm the company’s stock.
Amazon is hardly profitable at all, continues to lose money on new ventures and has yet to release any sales numbers for Kindle Fire models. Yet, the company remains a darling stock on Wall Street.
The rest of Apple’s competitors, save one, are a laundry list of high tech companies which continue to flail away at the market as a fly does to flypaper. They’re stuck in the 1990s and don’t know how to get out.
Now, compare the competition to Apple’s stool legs. The Mac is highly profitable, and has been for years, but in the post-PC era, Mac sales are not expected to grow. That’s the original leg of the stool, which has been eclipsed by the iPhone business, the iPad business, and Apple’s ecosystem.
Ecosystem? Yes, as a profitable leg of the revenue stool, Apple’s iTunes is a highly profitable business so much so that Horace Dediu calls it the fourth leg.
Indeed, if seen in isolation, iTunes+Accessories combined is a bigger business in terms of revenues than any of the other phone vendors except Samsung
As a percentage of Apple’s total revenue and profits, the Mac share is shrinking, yet remains highly profitable. What computer manufacturer wouldn’t want to have Apple’s Mac line?
It’s that percentage of Apple’s revenue and profits which tells the tale. The iTunes and Accessories business is growing at over 30-percent per year, and the iTunes Store (including apps) is already greater than the iPod business, and Dediu thinks the iTunes business may overcome the Mac this year.
That makes it another leg on a highly profitable, rapidly growing stool. Four legs?
Microsoft has two. Google has one. Amazon has none. Only Samsung can be seen as a competitor with a number of profitable legs (soon to be less so as Apple moves its chip purchases to other vendors). Yet Apple’s stock price, relative to the number of profitable legs, and the price to earnings ratio– all relative to competition in the marketplace– gets not respect.
What’s wrong with this picture?