Apple was right all along: vertical market quality trumps horizontal market woes

“I have always had to defend my love of the vertical markets, especially to the hortizontal dominated business world. However, in The Register’s send-off for the departed Sun Microsystem’s CEO Scott McNealy, the commentator made an economic comment that hit me so square between the eyes it summed up the entire reason for the need of there to be an Apple, Google, and other one-integrator strategies that have recently come back in to vogue,” Software Architect Brandon Werner blogs.

Wall Street had long waged war against McNealy’s insistence on Sun as a vertically integrated systems company: one that produces a finished widget. Financial markets prefer to see horizontal vendors, exemplified by Wintel and Dell, because they squeeze the costs out of a business. In reality, the costs are simply transferred elsewhere, usually to the customer in the form of integration woes, shorter buying cycles, and lower reliability.

Werner writes, “Think of that when you buy a $500.00 Gateway from Best Buy. It is true that the majority of people who read this blog are the technological heavy-weights, and might not believe they feel all the integration cost and reliability issues that come from the Windows (Is it really Wintel anymore?) ecosystem. However, I don’t go a day without someone complaining about some lost productivity do to their Windows XP workstation, and these are some of the smartest people to be had in a workforce. Coming home to (and using at work when possible) Apple technology has always created longing looks when I show the one step .Mac sync or the bluetooth pairing for my HID devices, or even my ability to direct music to any stereo in my house with one touch.”

“Participating in Vertical Markets does tend to be more expensive up front, but the cost isn’t non-existent in the Horizontal model, it’s just more hidden,” Werner writes. “Sadly, before most markets move to the costlier but more quality driven Vertical process, there is always the Horizontal market before prices come down enough so that a person can switch brands, not just components. Steve Jobs and Scott McNealy are both people who never gave in to the Horizontal marketplace, never willing to give in to the quality penalty such a move would give their companies and their reputation. They have had to live deep in to their middle-life to see it come back, but in the world of PSP, iPod and Google where entire industries have had sprung up around these Vertical ecosystems, they can finally say they never gave up on the idea of quality and integration championing the dull and the mass produced.”

Full article here.

MacDailyNews Take: Bulls-eye! Apple’s control of the whole widget (hardware+operating system] guarantees as seamless an experience as possible for Mac users. Those using Windows have no such guarantee. Over time, no matter how little you value your time, the Apple Mac is less expensive than Windows, even if it did cost a little more upfront. The more you value your time, the quicker the Mac saves you money versus Windows. Total Cost of Ownership (TCO) is perhaps the most overlooked idea by the vast majority of PC buyers. It’s as close to all-important an idea as you can get when it comes to purchasing decisions, yet it somehow goes completely ignored by most people! The exact same idea holds true for iPod+iTunes vs. also-ran digital music player trying to interact with somebody else’s struggling online music outfit. Control of the whole widget always was, and still is, one of Apple’s main advantages.

Related articles:
Pfeiffer Consulting: Mac vs Windows: Total Cost of Ownership, Productivity and Return on Investment – March 30, 2006
Windows to Mac switchers: recommendations and Total Cost of Ownership analysis – September 29, 2005

85 Comments

  1. I’m tired after reading all that. Should I spend the afternoon trying to resurrect a Windows XP box or go enjoy the 80 degree California weather today and just forget my Windows machine? I mean, I can always rely on my Mac.

  2. In a Mac what exactly does Apple build?
    The processor is from Intel.
    The graphic card is from ATI.
    The RAM is from company X.
    The hard drive is from company Y
    The DVD is from company Z.
    etc, etc, etc.

    Vertical business model means you build the whole widget.
    And why does Apple allow its products to be sold in retail locations it has no control over?

    If this is your definition of vertical then just about every company that makes a product fits it.

  3. I agree 100%..

    It’s Interesting though that MDN finally admits that a Mac is more expensive upfront. Their usual argument is “if you price out a Dell with the same specs, it costs the same.” We all know thats not true.. In the long run, the TCO is highly likely to be lower with a Mac.. But anyway you look at it, you can definitely get a cheaper Dell with similar specs.

  4. I agree 100% with the article NOT Business Major’s comment.

    Apple definitely uses a vertical business model. Even if some of the components are made by company X, the entire hardware and software integration and controlled user expericence is designed by Apple. Unlike Wintel’s horizontal business model where each customer is left to sort out compatibility on their own.

  5. True, but Microsoft is not telling Dell where to get its parts from or what parts it should even get. Similarly, Dell does not tell Microsoft what the OS should do.

    The vertical integration here is about one company doing all the directing. If some parts supplier in Asia is not doing things right and thus causing the hardware to not run the software correctly, Apple can resurrect its OS by firing the parts supplier or making sure they fix the problem. However, Microsoft has no control over Dell’s suppliers. That is the difference.

  6. Apple is a design organization that takes parts from others, has them assembled in a non-apple factory and then retails the products.
    As Gucci or Prada or Rolex is to the fashion world, Apple is a high quality, luxury designer and retailer in the computer business.

    And MDN “control of the whole widget” – what manufacturer doesn´t have as much control of the whole widget as Apple?

    Oh, yeah, and now Apple is allowing a foreign OS (Microsoft) that it has no control over to be in its computers.

  7. Actually it’s Steve Jobs insistence of quality, innovation, fit and finish combined with the vertical market that makes Apple such a success.

    Apple without Steve was bad, despite the vertical market approach. Vertical or not, quality and innovation matters.

    Now some PC companies make a dam fine PC’s, the only problem is they have to install Windows on it, which cheapens the experience.

    But there is too many places where a cheap PC is needed, no glitz required. Like at billions of blind terminals all over corporate world.

    All the IT guy does is walk around all with a few external clone configurations and wipes and clones, wipes and clones.

    Nothing is saved on the individual PC’s anymore, it’s all saved on the servers which gets auto-backed up.

    Mac’s and Mac OS X is for creatives, for those who observe and quality matters. Most don’t have that ability. They will live in a dump for their whole lives without even investigating how to live cleaner, more fashionable lives.

    Windows is the dump the world uses. They are happy with it.

    When the dull and mundane folks go out to have a good time, do they end up at the Public Library?

    Or do they go someplace that’s a change, someplace different, someplace fun? something with atmosphere?

    They come to us, the creatives. The Mac users.

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