Why Apple’s proprietary system and small market share are a good thing

by Tanner Godarzi Jan 26, 2007

Many would gaff at such a claim, as the fact that OS X cannot be installed on any generic box is a deal breaker for some. Looking beyond that limitation, Apple has succeeded in areas others would dare not venture to. Their proprietary system has only helped Apple access these areas, but at some cost to the consumer.

Since the return of Steve Jobs, Apple’s market share has increased tremendously. However, Apple still commands about 5 percent of the U.S. computer market share and about 2 percent worldwide. For the competition, Apple was no big threat, but their small piece of the market provided one thing every company wanted: a massive testing platform. Apple’s small slice provided just that, allowing them to introduce new products to a wide but limited audience, providing real world results and further optimizing future products.

One of Apple’s biggest hits, the iPod, not only took tremendous planning and execution but required the music industry’s approval. Piracy was a definite concern with record labels, as they had no intentions of promoting a player encouraging piracy, especially after the recent defeat of Napster in court.  Apple and the labels came to agreements on which platforms the iPod would be available for at launch. From its introduction in October 2001 and until 2 years later, the iPod was only supported for the Mac platform, including OS9 (support was stopped in version 3 of iTunes) and OS X. Going Mac-only for the launch of the iPod was due to the need for a testing platform that would provide real world results and evaluate the potential of the player. The small market share of the Mac not only provided the perfect testing platform needed for Apple and the record labels, but gave them a chance to showcase that piracy was a non-issue at the time, further increasing support for the yet-to-be-launched iTunes Music Store. Then in 2003, two years after Apple introduced the iPod, Windows was supported under iTunes along with the new iTunes Music Store. The iPod was now available to a much larger audience, which would not only revolutionize how you listened to music, but also how you purchased it. Had OS X and OS 9 not had such a small market share, selling the iPod and convincing record labels that the iTunes Music Store would not promote piracy would have been a much harder task to accomplish, or may not have happened at all.

The word proprietary is often associated with restriction, incompatibility, and unsupported. In the short run proprietary systems mainly benefit companies without offering much to the consumer. However, looking into the long run, Apple’s use of proprietary systems has offered a lot more than consumers realize. Apple’s two poster children for proprietary systems are Mac OS X and the iPod. Looking into these systems has not only created revolutions and evolutions, but has proven that proprietary systems can offer a lot for consumers, more than they think.

It’s well known that in order to run Mac OS X legally it must be done so on a Macintosh. Although versions have been hacked to run on generic PCs, it’s an option most consumers wish to avoid. Even with hacked versions of Mac OS X, most hardware configurations are not supported, often times crashing, and updates are few and far between. Many have criticized Apple because Mac OS X will only run on a Macintosh with most Macs supposedly out of their price range (although whether a Mac is more expensive than a PC could be debunked). And one could argue that quality does not come cheap. With OS X running only on the Mac platform, Apple has unique advantages over other manufacturers, including Microsoft. What others lack, Apple more than makes up for, especially in the communication department. Computers can be customized thousands of ways with each company going at its own pace, oftentimes surpassing the competition, but this in turn brings the quality down because software designed for other machines is not optimized for newer models. The introduction of Windows XP Media Center Edition, 64 Bit Edition, and Pen/Tablet Edition have shown how uncoordinated the PC industry is. As each new major feature manifested itself into consumer PCs, a new version of Windows was needed to take full advantage of these new additions. However, Apple is in control of their hardware and can tailor OS X for full optimization on each machine. While Microsoft creates new editions of Windows, Apple waits to incorporate all of these new features into OS X, creating a true multi-capable Operating System. Apple also has the opportunity to create simple and seamless transitions no other company would consider. The move to Intel chips from the PowerPC architecture was in the works ever since early versions of OS X. The only reason Apple could pull it off is their control of what hardware is used. If Microsoft were to support a new architecture and eventually phase out support for AMD and Intel chips it would require approval of each PC manufacturer and coordination, which they lack.

Apple has not been known for making new things no one has ever done before. Apple is known for taking an existing product and improving on it in such a way that new concepts and markets spawn from the introduction of a new product.


  • Oh why don’t you tell us All Knowing…

    xwiredtva had this to say on Jan 29, 2007 Posts: 172
  • Here’s an interesting tidbits of market trend for the next 5 years by 10layers.com showing Apple’s annual revenue to catch up to MS.



    “The graph [sic] shows an extrapolation of Microsoft’s linear and Apple’s almost exponential revenue growth.” according to 10layers.com.

    This is what I have been referring to as market trend%. This is the growth curve and it is fact for the last five years.

    Will Vista boost MS’s trend% trajectory to more exponential like Apple’s? The fact that Vista will only replace current XP machines and keeping the same status quo, I doubt that very much.

    Apple’s “exponential” growth will surely increase further as the iPhone starts to drive revenues and income along with the iPod and Mac lines. Will Mac LCD panels coming? That is a sure bet from me.

    Robomac had this to say on Jan 29, 2007 Posts: 846
  • Oh why don’t you tell us All Knowing…

    I don’t have to be all knowing to know more than a tunnel-vision Mac enthusiast.  I’ll put it this way:

    If your doing 1/6th the biz with 1/20th the market share your doing better even if your smaller.

    It’s like saying that even though Microsoft has only 2% of the mp3 player market, or 1/30 of Apple’s market share, they are making 6 times as much profit and 2 1/2 times as much income.  Therefore, they are “doing better” than Apple.

    See how your ridiculous comparison leaves out a very key component to the income of these two companies?

    Beeblebrox had this to say on Jan 29, 2007 Posts: 2220
  • I’m still waiting for an intelligent answer with real backing.

    The Zune is being produced at a loss.

    xwiredtva had this to say on Jan 30, 2007 Posts: 172
  • And XBox’es a loss leader (meaning Billions in the red) for MS. And what of the Zune and Origami? OMG, it’s a rotten egg that will stink for many years!

    MS’s Home and Entertainment division, despite the recent news of their positive cashflow, have bled north of 1.2B for 2006. This is worst than 2005 with about -400M and even worst than in 2004 with -1.1B!

    You must realize, MS used to have ~48B nest egg back five years ago. Now that cash has dwindled down to ~30B today even with their latest +10B income for 2006. So what happened?

    Where Apple used to have just over 2B of cash in 1997’s fiasco to +11B today. A change of almost 600% in the cash hoarde! Extrapolate that!

    Robomac had this to say on Jan 30, 2007 Posts: 846
  • The Zune is being produced at a loss.

    Wow, I thought you were kidding that you didn’t realize how inane your “numbers” comparison was.

    I guess I WILL have to explain it in simpler terms (I was honestly giving you the benefit of the doubt).

    While the Zune is being produced at a loss, the iPod certainly is not.  So in your comparison, you claimed that Apple was making 1/6 of the profit despite only 1/20 of the market share.  Which seems good on strictly those terms.  But 55% of Apple’s income comes from a market that it dominates with 75% of the market, which makes your comparison wildly misleading, hugely inflating Apple’s overall income compared to market share of the Mac.

    So if we subtract the iPod sales from Apple’s profits, and subtract the considerable Zune losses, X-box losses, Office, Origami, and other non-Windows products from Microsoft’s profits, then the comparison is not going to be as disproportionate compared to operating system market share.

    Beeblebrox had this to say on Jan 30, 2007 Posts: 2220
  • I won’t deny that apple has alot of potential as a buisness, especially if the iphone works out.

    However, as a “buisness” buisness M$ (normally that’s criticism but i guess in this discussion it’s a complement, funny old world) has it won. Apple markets exclusively to consumers, Microsoft to buisnesses and consumers, and the real money is being made with buisnesses.

    I personally have invested in MSFT but not AAPL for a couple of reasons
    1) Apple is currently overpriced its P/E is 1.5x MS’s.
    2) Microsoft has two huge Cash Cows, Office and Windows, plus good relationships with buisnesses. Apple has the ipod, but as the walkman taught us, overwhelming market-share is much more perilous in the consumer electronic’s industry then it is in the applications.
    3)As much as Apple is introducing new product lines, MS is doing so on a much broader scale, even if some fail (zune + origami, i think the xbox was a good move), it is making many good calls aswell (Windows Mobile which is becoming more and more popular, the deal with Ford etc.)
    If something happens to the ipod/iphone, apple is in alot of trouble, admittedly that is also the case with Windows for MSFT but that is significantly less likely.

    simo66 had this to say on Jan 30, 2007 Posts: 78
  • Apple is currently overpriced its P/E is 1.5x MS’s.

    I appreciate your concern, Simo, but AAPL’s P/E stands at 31 while MSFT is at 26. Where do you get your facts from? Your MSFT stock broker, perhaps?

    For your info, check MarketWatch for AAPL and MSFT.

    What you’ll find very interesting is how AAPL almost doubles MSFT’s per share earnings. That is the key for any smart investor. POTENTIAL! not some made up statistic of P/E ratio BS!

    I happen to have dumped my old QCOM stocks before the tumble to buy then-cheap-as-swap-meet AAPL shares and I have been well rewarded my friend. So much for the mythical P/E hubris.

    Happy sailin’! wink

    Robomac had this to say on Jan 31, 2007 Posts: 846
  • Page 3 of 3 pages  <  1 2 3
You need log in, or register, in order to comment