Gruber takes on the Apple bears

“In a sense, there are two rational Apple bear arguments. The first is that it doesn’t matter whether Apple can create superior products and experiences — the low-end competitors will eventually reach a ‘good enough’ point that will disrupt Apple’s business,” John Gruber writes for Daring Fireball. “The automobile industry analogy has forever been used in arguments about Apple, but I think that’s because in a broad sense it’s quite apt… Apple is sort of like BMW, Mercedes, Porsche, and Lexus all rolled into one. There just aren’t that many competitors for this segment of the market in phones and tablets, and most of them aren’t very good.”

“The second Apple bear argument comes from those who think Apple has already lost its design and experience advantage — that devices from Samsung, Amazon, Google and whoever else have already equalled or surpassed Apple’s, and at lower prices to boot,” Gruber writes. “To these critics, the nine million people who bought new iPhones in its first weekend simply haven’t woken up yet. Me? I think this second group is wrong about the state of Apple’s design advantages.”

“There is a third school of Apple bears… [subscribe] to the theory that iOS is the new Mac, Android is the new Windows, and Apple is about to see the 1990s all over again.,” Gruber writes. “The Mac today has roughly 10 percent of the PC market, but it’s not just any randomly distributed 10 percent of the market. Quite the opposite — Apple’s 10 percent of the market is entirely comprised of the high end of the market. Mac users are discriminating, willing to pay more for a product they deem superior… So the irony here is that iOS vs. Android (or, if you prefer, iPhone and iPad vs. commodity smartphones and tablets) is in fact a replay Mac vs. Windows — but not in the way that most who make the comparison would have you believe.”

Much more – recommended – in the full article here.

MacDailyNews Take: Quality products attract quality customers.

In other words, as our own SteveJack explained a year ago:

Newsflash: Apple sells premium products at premium prices to premium customers.


  1. John’s argument makes me think of the small enclave of mammals persisting during the long reign of Tyrannosaurus Rex and its ilk — today still maintaining a tiny market share amongst the proliferation of life forms — yet having emerged smarter than the rest, and dominating most of the planet’s resources.

  2. Well said this idea that Apple needs 40% plus market share is ridiculous it would likely be a disadvantageous in a mature market in fact because it would mean it is competing at the lower end where the Asian manufacturers will eventually win out anyway over time. Apple even in computers is amongst (some say leads) the profitability stakes. Apple introducing a new product will inevitably have a large market share and equally inevitably will decline to somewhere below 50% (depending on product) because it is only aiming for the upper to middle segments. You get the ludicrous Apple’s market share dropping means it is in decline from those who simply don’t understand the dynamic. The real argument is simply how far into the middle sector it should go and in that respect there is room for argument and criticism, the iPhone being a prime example till recently, but the iPad was late to that also which in the end cost profits and growth for short term money printing. However there is no future for any major Western company attacking the bottom end and and someway above that too, even Japanese companies are failing there. Always thought around 20% market share probably the aiming point long term, it offers the right sort of balance between profits and market benefits but this has to be flexible depending upon market, opportunity and product, not to mention realities.

    1. Good point. What would Apple have to give up to get to 50% market share? Product quality, customer service and profit margins come to mind. Possibly even absolute profitability. Why bother with goals like that?

      Almost everybody’s transportation goals could be met with a Chevy Aveo. Many of us find it less expensive to go with a Honda (or Toyota). TCO is less and reliability is greater. Some would really like to go with a Tesla, but just can’t manage the upfront costs. There are plenty of Aveos in the computing marketplace, no Hondas. But Apple has the sweet spot of great TCO and low enough upfront costs that the decision is like having a Tesla at a Honda price.

      1. The whole low price / market share argument, by logical extension, would suggest everyone should sell like WalMart.

        Clearly, huge numbers of people shop at WalMart.
        And equally clearly, huge numbers of people prefer higher quality products or better service, or both.

  3. Last I checked, publicly held companies are valued on their earnings and cash flow growth, not market share. In fact, a look at any company’s 10K financials fails to reveal any details about market share.

    The arguments are old and in my belief, meaningless. Little is said against a Cartier for not having the market share of Seiko, Timex or Swatch. Nobody compares the market share of a fine restaurant to the market share of McDonalds. But when Apple is the topic of conversation, logic leaves the room.

    Fast forward to 10 or 20 years from now. I maintain that earnings and cash flow (and their respective growth) will be the yardstick on which Apple’s stock price appreciation will be measured, not market share and razor-thin margins. As an investor, that’s the basis of my decisions. And if the actions of a Warren Buffet, Shelby Davis or Peter Lynch are any indication, I have their legacies to support my thoughts.

    Thanks, Mr. Gruber.

    1. I can’t quite visualise the mechanism that would change the yardstick even in 20 years. What’s required is retraining the amorphous blob that is the body of investors, analysts, and traders to see Apple with new eyes. Has anyone ever put a leash on that crowd? The voices of a few canny investors haven’t done it—yet.

    2. “Last I checked, publicly held companies are valued on their earnings and cash flow growth…”

      That statement doesn’t seem to apply to Amazon which seems to be treated by stockholders as a philanthropic organization run for the benefit of consumers and not as a for-profit business.

  4. Herein lies some of the fallacy (phallacy?) of Wall Street. Publicly traded companies are actually valued on their ability to be traded for change in value – up or down (since you can make money both ways). When a company is no longer interesting to the world (in Apple’s case because it just stays great, doesn’t get more or less great, and everyone already knows it), there’s not enough change in value to make it a generator of change opportunity (good or bad).

    Is Apple worth a lot as a company? Hells yes. Does it consistently make a boatload of money? Of course. That no longer has anything to do with the stock value. When you accept this, AAPL’s behavior makes sense.

    Apple’s stock lost significant value last year not because the company lost value, but because it was no longer exciting or interesting to trade it. The plateau and the lack of a new ground-breaking, market-disrupting product stuck a pin in the bubble, and then everyone left to go look elsewhere, leaving the stock at a stable place until Apple either a) disrupts things again or b) shows real weakness in its ability to make money (which isn’t likely anytime soon).

    If you want to make money on a stock, look elsewhere. AAPL won’t do much moving until next year at the earliest. iCal it.

    1. An INTERESTING analysis Grrrilla!

      Apple’s stock lost significant value last year not because the company lost value, but because it was no longer exciting or interesting to trade it.

      This sort of fits my ‘Entertain Me, Dammit!’ theory of dull-witted day trading.

      But there has been A LOT more going on behind the scenes than entertainment vs boredom. Because of the current culture of bad biznizz, not-a-thought is given to any kind of future. Everything is ‘in the moment’. Burning AAPL down for a sane level to below a sane level, as we see it now, made certain ‘in the moment’ stock manipulators a mountain of cash. Now parasite manipulators like Carl Icahn are screaming for MORE opportunities to burn AAPL for the sake of making cash ‘in the moment’ with again no concept of a future for Apple the company.

      Apple: Has a future. Therefore it has value.

      Ripoff, can’t innovate companies (hello Android crapufacturers): Have no future. Therefore have no value.

      Parasites: Don’t care one way or the other. They just want money now. Fuck the future. AKA: Total self-destruction.

        1. Fine rants today! I do understand that breathing fire can tire one out. I recommend a nice Chianti, or if you prefer, a fresh green tea, and back-to-back episodes of Laverne and Shirley.

  5. But Apple could easily come up with interesting projects if it wanted to. Spend some cash to build a few proof of concept products like Google has done with driverless cars and Google Glass. Xerox had PARC. Why doesn’t Apple create some skunkworks and toss around a few super-amazing future products. That’s something that could get investors excited and wouldn’t cost Apple all that much money. Apple could really afford a skunkworks with some of the best engineers available. Apple could kill a company like Samsung with something like that. When you come to think of it, Apple has no supercomputer projects or medical research projects going on as far as we know of. Companies with far less money than Apple have managed to do those type of things. Does Apple even have any charitable foundation project going on?

    I hate to say this as a shareholder, but I’d really be happy to see Apple use some of that money it keeps sitting on for pure research of some sort. Apple has a lot of money to do a lot of good for the world besides just sell iPhones and iPads. With great wealth and power comes great responsibilty.

    1. Great comment. It seems there are three possibilities. (1) Apple does all these things—but in the shadows, and for reasons other than industry or market influence; (2) Apple does some of these things and will deploy them according to an internal strategic plan opaque to outsiders, and does not not do the rest of them according to the same plan; (3) Apple is having too much fun rolling on the floor and laughing at other companies’ attempts to get anyone’s attention to these things.

Reader Feedback

This site uses Akismet to reduce spam. Learn how your comment data is processed.