Wired: Apple defying economic principle; flourishing when it should be dead

J. Bradford DeLong’s article “So Much for Economic Principle,” in Wired Magazine’s June 2003 issue, has hit the newsstands. DeLong writes, “I have been buying Macintoshes since 1984. And except for the very first one, I thought each Mac would be my last – that Apple Computer would soon be out of business, or at least in a clear death spiral.”

DeLong explains that despite commonly-held economic principles that should have dictated Apple’s demise long ago, “…here Apple stands, still making money, generating buzz, out-innovating its competitors, and otherwise defying economic expectation… And I’m still buying Macintoshes… Apple Computer’s persistence defies the law of increasing returns.”

DeLong vastly overstates the economic importance of Microsoft’s token investment of $150 million back in 1998, perhaps not realizing that Apple had billions of dollars on hand at the time, by putting that largely symbolic investment in non-voting stock at the top of his list why Apple is still here today. However, the impact of the deal on the general media and Wall Street was of real importance (including the promise of Office for Mac for five years) and came at a crucial moment in Apple’s history.

Another important reason why Apple continues to defy economic principle, according to DeLong, “Apple has managed to stay even with, or slightly ahead of, Microsoft in system software… By setting design and performance specifications of Macintosh hardware, writing system software becomes easier. There are fewer variables to contend with and less testing and debugging required. Such a controlled environment produces excellent code quickly at a lower overall cost.”

DeLong describes why Apple’s embrace of the open source movement and the Unix core of Mac OS X are contributing to its success in the face of what should be daunting odds. “Today, the latest and greatest software is as likely to be an open source project, or a for-profit effort built on top of open source code, as it is a commercial application built to run on Windows. And if its native language is Unix, the second-class implementation is now more likely to be on Windows than on Apple.”

“As long as the world’s programmers continue to speak Unix, Apple’s economic future… is secure. I doubt that my current Mac will be my last,” DeLong concludes.

The June 2003 issue of Wired is not yet available online, but is available on newstands now.

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10 Comments

  1. Wow…that’s a big “WTF?”. This guy has no clue!

    “Such a controlled environment produces excellent code quickly at a lower overall cost.” – Yes that’s partly true, but the speed at which Apple can develop software is mainly due to Cocoa!!!

  2. Neither the $150 million nor the commitment to develop Office for 5 years were voluntary, that guy is a schmuck. They were both part of Microsoft’s settlement of a patent dispute where Apple held significant patents. In exchange, Microsoft got patent licenses. Doh!

  3. Could it be that there is still demand for a differentiated product like the Mac that can command 27% margins. Go buy a Dell or a Gateway; there’s no difference between them but the price. Change their names to AST or Micron and you get an idea of where they are headed.

    Meanwhile, Bill Gates sits at the head of the Amway (er Microsoft) empire and commands more money from every sale than the manufacturer does themself.

  4. Henrietta,

    Who cares about patents? Take Apple out and there is no competition to MS, Anti-trust regulation comes into play and MS is no longer a single company.

    Maybe it is less costly to develop software for MacOS X but what about %5 market share? Is it really profitable to sell to %5 market?:) That’s why we do not see many game titles for Mac.

  5. Here’s another case of someone with blinders on making ridiculous — and unfortunately, very common — assumptions (like: Apple has not had 4 billion in cash in the bank for years) and then being astounded when their predictions are proved wrong.

    Methinks these “commonly held economic principals” are a masquerade for a pro-PC bias. Apple is not defying any economic principals, as their stable economic standing — often ignored by Wall Street — proves. So much for his thesis.

    As a “Mac user”, DeLong should have known better.

  6. Yeah Jonahan,
    and we all know Cocoa has been around since 1984…
    talk about needing a clue.

    And RandomTOX, who cares if you only have 5% market share if your userbase is growing? The last major game release for the Mac that I remember is UT2003 which had over 400000 downloads of the demo in the first day of its release – thats just counting stats at ONE web site.
    So go ahead if you want and ignore 400000+ potential customers – actually its more like 20 million total users – you keep swimming in that crowded windows developer pool. Ill enjoy the profits in the Mac pool.
    Wanker.

  7. “Is it really profitable to sell to %5 market?”

    Ask just about any car manufacturer. Or most PC manufacturers, for that matter.

    Your error is in comparing Apple with Microsoft, with its 95% market share. Microsoft is such a behemoth that it distorts the whole playing field.

    When talking about a company in a stable mostly-commodity market, 5% is *huge* market share. True, Apple has to do its own R&D and is thus has a pricier product mix, but compare Apple with other hardware companies – it’s doing very well.

  8. Regarding RandomTox’s comment about the lack of game titles for Mac… perhaps this is due to the fact that most Mac users prefer to spend their time doing something constructive with their computers instead of squandering their time playing games.

  9. You have a finite about of time on this planet Chris, better get started on something constructive… If I were you I’d start by pulling that stick out of my ass.

  10. Its the government contracts with educational providers that has kept apple alive. Not you home users!

    PS – Try comparing X86 machines and mac’s that have similar price tags when it comes to performance not an X86 that sells for $499 and a mac that sells for $3999.

    I’ll stay with my real unix box – GO SUN!

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