Is Apple a hardware company or a software company?

“Hedge fund superstar David Einhorn has been all over the place lately with an important message. It’s the same refrain he recited to the Ira Sohn Conference attendees last month. Einhorn, apparently, is among the chosen few who actually understand Apple,” Rocco Pendola writes for TheStreet.

AAPL’s ability to consistently offer innovative features . . . encourages users to upgrade every couple of years. This provides a recurring revenue stream . . . Rather than view AAPL as a hardware company, we see it as a software company that monetizes its value through the repeated sales of high margin hardware. – David Einhorn

“I’ll be the first to admit it’s a prime ingredient in Apple’s success; however, at day’s end, it doesn’t generate much direct revenue for Apple. Hardware sales take care of that,” Pendola writes. “I’m not missing some higher level point here. Einhorn’s argument boils down to this: Software-based features (though the innovations often come from hardware enhancements) drive repeat sales of high-margin hardware. That’s fine, but, from a long-term standpoint, it’s a flawed perspective.”

“There’s no question that Apple’s entire ecosystem, including iOS, serves as a value add. But, for all intents and purposes, it’s only the diehards who buy Apple products because of iOS’s apparent superiority. The general public buys iPods, iPhones, iPads and Macs because they’re cool, they work really well and they’re beautifully designed. The brilliantly unique hardware hooks people, not the software,” Pendola writes. “Until this changes, Apple will dominate. The iOS, AppStore, iTunes and iCloud ecosystem will not save Tim Cook’s butt if he cannot roll out products the public adopts as quickly as it has iPad and its relatively humble predecessors.”

Read more in the full article here.

MacDailyNews Take: Wrong, Rocco.

The hardware and the software/services are symbiotic. Without one, the other suffers greatly.

A Mac running Windows is just beautiful hardware offering an inferior experience. An iPhone or iPad stuck running Android would be the same: Inferior. A junky, heavy, plastic Dell laptop trying to run a hackintoshed Mac OS X still looks like cheap crap while it falls apart. The user experience suffers greatly when Apple hardware is cleaved from Apple software/services and vice versa.

Apple controls the whole widget for a reason. Apple’s not a hardware or a software company. They are both. It’s the total experience that Apple offers — hardware and software, both designed to complement each other — that is without peer.

People who are really serious about software should make their own hardware. – Alan Kay

34 Comments

  1. Right on, MDN. This whole blindness of black/white seems incredible as a stance, but so many take it. Apple stands on both of its feet, and as such is stable in a world of teetering behemoths, while maintaining the ability to flee swiftly to avoid their lumbering falls.

    1. its so funny, all three points “because they’re cool, they work really well and they’re beautifully designed” apply to the software as much as the hardware. But MDN Take gets it even closer. It’s the two together that give us cool, well functioning and beautifully designed.

      1. Its not “people buy them because they’re cool, they work really well and they’re beautifully designed.”
        -they’re cool because they work really well and they’re beautifully designed.

    2. The simple answer is that Apple is a solutions company.

      Sometimes those solutions are purely software, sometimes hardware, but mostly Apple’s solution is tightly integrated hardware and software.

    3. Off Topic: Speaking of This whole blindness of black/white seems incredible as a stance, but so many take it.

      That applies to the current dichotomy of our US political mess. No one will give an inch so they can claim to adhere to their party’s line. It’s not all black or white (or red or blue).

      /off topic opinion

  2. Wow. He truly believes the majority of people buy iPhones because of the hardware?

    Yes, the hardware designs are great, but software is what keeps them coming back. I’ll take something that looks like butt, but operates well, than something that looks great but operates like butt.

    1. Put another way, I’ll take iOS over Android no matter what hardware it’s running on.

      And if I were forced to use only, say, Dell hardware, I’d do my best to turn it into a Hackintosh.

  3. I would describe Apple’s software/hardware relationship as an integrated one, not a symbiotic one.

    Describing them as separate entities is a pointless exercise of bullet pointing tech specs.

  4. Perhaps it is just because I am more creative than most, but I like to design and attention to detail Apple applies to everything they touch. It’s not unlike visiting Disney World.

    Look at Apple’s website. Unlike most companies, they must have a simple website that deals with, both, hardware and software technical issues and present them in a very easy to comprehend manner for the general public. And, they still make it look impressive.

    There is no reason for Apple to make crap. There are hundreds of companies that produce poorly designed crap every day. The world needs more people that value design, and Apple proved you can be profitable doing it.

    1. Right about the design factor (which rates higher than the form “factor”).

      As a kid we all wore blue jeans: Lee, Wrangler, Levi’s. It wasn’t until later that Jordaches and Calvin Kleins and stuff from Donna Karan came along and we realized that there were designer options. Frankly I use Carhartt since they wear well while mucking around the farm.

  5. As soon as anyone starts speaking about Apple in terms of a business model of other companies, you know it’s time to move on. Why, exactly, should the most successful company on earth adopt the business model of lesser companies?

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