To support a margin compression theory, the article begins by using institutional selling as proof and presents increasing Android market share as an argument. Let’s take a closer look.
1. Institutional Selling
The two examples provided (one institution selling and another expressing worry) are insufficient to support the conclusion that big money has started to dump Apple. What’s happening in the aggregate? Might other institutions have initiated positions or increased their holdings? Unless this table (http://www.nasdaq.com/asp/holdings.asp?symbol=AAPL&selected=AAPL&FormType=Institutional) is out of date (It does include Capital Growth Management’s sale.), there is no significant net change in the number of shares held by institutions.
Now, one could argue that CGM’s Heebner and FEAM’s Obuchowski are such stellar managers that their opinion warrants special attention. Well, Heebner’s CGM Focus fund is only a two-star Morningstar rated fund (http://finance.yahoo.com/q/pr?s=CGMFX+Profile). Heebner “knows how to count”, as the author writes, I suppose, but he doesn’t know how to outperform; Obuchowski’s FEAM50 (http://www.1empiream.com/FEAM50_Q3%2010.pdf) and APA125 (http://www.1empiream.com/apa.htm) funds have beaten their benchmark. However, he’s expressed concern about holding Apple two years from now. He hasn’t sold yet.
The article hence doesn’t provide either quantitative (as the number of shares held has not changed significantly) or qualitative (as no star manager is cited as selling) evidence of big money starting to dump Apple because of margin compression. For the one under performing manager cited for selling, no reason is provided. As a matter of fact, there’s no evidence for net institutional selling of Apple, period.
2. Increased Android Market Share
With a 35% profit share in 2009 (http://www.businessinsider.com/chart-of-the-day-revenue-vs-operating-pro...), the hardware industry's highest, hasn’t Apple been successful in the personal computer market? I would say so, and yet it had only captured a 7% market share. How has it accomplished this feat? By offering something different that consumers value at a premium.
The author writes: “Jobs also (understandably) failed to mention that the “commodity’ Androids materially outperform the iOS products in terms of features and functionality. This is pretty much in direct contravention to the concept of the term “commodity”, isn’t it???? I don’t think many Samsung Galaxy S, Droid X or HTC Evo owners will characterize their devices as “commodities”.”
A product’s characterization as a commodity is not a function of the quality of its features and functionality or user opinions thereof. The Android clones are commodities because there’s fundamentally little difference between them. One might have a bigger screen, another longer battery life, and yet another a thinner form factor, but they all run the same OS and hence offer the same functionality. If an innovative feature proves popular, it can quickly be duplicated. There’s little that sets one phone apart from the other. They are interchangeable. As such, they must compete on price. You might prefer the Galaxy S, but settle for a Droid if its price is sufficiently lower to sway you. Their makers will generate lower profit margins, just like Windows PC makers.
The iPhone, on the other hand, offers something different: superior aesthetics, greater ease of use, no bloatware, superior integration with related products (Mac & iPad), a certain prestige, but mainly a distinct OS. It offers the whole package. Its hardware competitors might best or equal some features, but not the whole. If you value this different product, you can only buy from Apple. By maintaining full control of the iPhone experience, Apple prevents it from becoming a commodity like all the Android clones and, so long as it’s able to produce a superior experience on the whole, ensures premium pricing and high profit margins.
The author also writes: “…its business model may prove unassailable unless Apple makes some drastic changes (ex. allowing cloning)…”
What if Apple did pursue the Google model and licensed its OS? If it allowed iOS clones, it would cannibalize its sales and its margins would be obliterated, as it would lose its main differentiator. Would it be able to keep generating a $238 profit per phone (http://www.asymco.com/2010/10/31/making-it-up-in-volume-how-to-view-unit-profitability-vs-volume-in-handsets/)? In light of the fact that Google is giving Android away, it’s highly unlikely.
Android has already won. The battle for market or unit share, that is. Apple will henceforth never sell as many phones. That’s OK because Apple will probably keep generating the lion’s share of profits (http://www.asymco.com/2010/10/30/last-quarter-apple-gained-4-unit-share-22-sales-value-share-and-48-of-profit-share/) by executing a business model proven successful with the Mac.
As it reaches critical mass, Google’s model might indeed become unassailable. No other company will beat Google at its game. Apple has chosen to play a different game that might also be unassailable. They’re two different ways to win. Google will attempt to monetize Android through market share dominance, while Apple will maintain its profit share dominance among hardware makers through innovation and differentiation. Apple’s margins will suffer significantly only if it’s unable to keep offering something different, valued at a premium by consumers.
In short, the article fails to show an institutional dump of Apple shares. It doesn’t even show that the one (marginally competent) institutional manager mentioned for selling did so because of expected margin compression. Moreover, it is misguided in using Android’s unit share dominance to deduce margin compression at Apple. Apple’s profit margin will only suffer significant compression if it fails in the execution of its business model.
To further the analysis, is Google’s licensing model superior to Apple’s integrated model, as many seem to believe? In the personal computer market, Microsoft made money by selling Windows to hardware makers. In the mobile phone market, Google is giving Android away, while planning to monetize market share dominance through services (search and others). The hurdles it faces with this model are not insignificant. Its lack of control over its OS is a liability: witness Verizon’s pre-installation of Bing on some Android phones (http://www.broadbandreports.com/shownews/Verizon-Bing-Wont-Be-Exclusive-On-All-Android-Phones-110294). Its platform is a customizable OS that hardware makers and wireless carriers can tailor to suit their own ends, which may be to Google’s detriment, and they don’t have to pay for it. Its success is far from assured. Might Google be going back to producing its own branded phone because its current strategy is proving difficult to monetize (http://www.engadget.com/2010/11/11/this-is-the-nexus-s/)?
Apple, on the other hand, is already monetizing the iPhone. As a matter of fact, it made as much money in Q3 2010 as all other phone makers combined (http://www.asymco.com/2010/10/30/last-quarter-apple-gained-4-unit-share-22-sales-value-share-and-48-of-profit-share/), in spite of commanding only 4% market share. Apple won both the unit share and profit share battle in MP3 players with the iPod, as no worthy competitor came forth. This is not the case in smart phones with the emergence of Android. Nonetheless, the Mac, with 35% of PC profit share in spite of only 7% market share, has proven that Apple’s model can thrive even in the face of strong competition.
In a deal years in the making, Apple’s Steve Jobs announced Tuesday a deal for iTunes to carry The Beatles’ catalog. Peter Lauria on what took so long, why the band stalled, and how Apple stands to gain.
It’s either a testament to The Beatles’ lasting impact or a commentary on the quality of today’s artists that the Fab Four’s finally coming to iTunes is the music industry’s biggest news story.
Let’s go with the former, as this is a joyous occasion for the music industry and we don’t want to put a damper on it by reminding the major record labels that their business model is in a death spiral. The Beatles were about hope and optimism, after all.
Apple the computer company, record label EMI, and Apple Corp., the umbrella company for The Beatles’ interests, have reached a deal to make the band’s music available for sale legally on iTunes. The “for sale legally” part is very important because The Beatles have wrongly been identified as “one of the most prominent digital holdouts,” but the truth is that the band’s music has been widely pirated in digital formats for years now.
Ever the showman, Apple CEO Steve Jobs, who was afflicted with Beatlemania at a young age, posted a teasing message on the company’s website yesterday proclaiming, “Tomorrow is just another day. That you’ll never forget.” And while The Beatles coming to iTunes has been rumored for years without ever proving true, this time Jobs, EMI, and Apple Corp. are each motivated enough individually to mutually align their interests in favor of a deal.
The Beatles have sold 177 million albums in the U.S alone and ranked second only to Eminem for most sales in the last decade.
But first, some background.
Periodically over the last 32 years, Jobs’ Apple and Apple Corp. have swapped trademark infringement lawsuits over their corporate monikers. As The Wall Street Journal notes, the lawsuits have been filed and settled various times over the years—in 1981, 1991, and 2007—as Jobs’ Apple has increasingly moved into the music business. Jobs has been forced to pay at least $50 million to the band as a result of the litigation.
Now, back to the present day.
Though Jobs controls roughly 90 percent of the digital music market through iTunes, which now ranks as the world’s largest music retailer, Apple executives have said that the store is a “breakeven” proposition (i.e., it doesn’t make money; just sustains costs). After years of growth, digital music sales have flat-lined in the last few years. Moreover, new services like Pandora and Spotify have stolen some momentum from iTunes. A splashy announcement about catching The Beatles is both a perfect buzzkill for the upstart hotshots and a nice enticement to drive fans to the iTunes store.
The Beatles’ aversion to technological advancement in the distribution of music—as the Journal notes, the band came late to the CD revolution as well—is ironic given the band’s reputation for pushing the limits of sound and reshaping our notions of music. Not to be underestimated, however, is the fact that The Beatles aren’t just a band—they are a corporation, and as such feature the same bureaucratic red tape and dysfunctional communication dynamic of any large organization. To put it more bluntly, just like the band members themselves, the estates of John, Paul, George, and Ringo can’t agree on anything either. The holdup in making The Beatles music available digitally is as much a function of infighting among the estates of the various band members as anything else.
Over the last few years, however, signs have been emerging from the solo work of The Beatles’ band members that made today’s announcement inevitable. Timed to the 25th anniversary of its death in 2005, Yoko Ono and EMI agreed to a deal to make the solo work of John Lennon, which includes such songs as “Instant Karma” and “Imagine,” available digitally. Solo material from McCartney, Harrison, and Starr is also available digitally.
Four decades after they last recorded together, and despite the rise of piracy, albums from The Beatles are perennially among the music industry’s best sellers. Fans of the band, which has the most No. 1 albums in history, have been willing to shell out money over and over again to replace hits like “Hey Jude,” and “Lucy in the Sky with Diamonds,” “I Want to Hold Your Hand,” and “Help,” in new formats. According to the sales statistics quoted in The New York Times, The Beatles have sold 177 million albums in the U.S alone and ranked second only to Eminem for most sales in the last decade. Critics frequently rate the band’s “Revolver,” as the best album ever.
That leads us to EMI, which has served as The Beatles’ record label home since the band’s inception and owns the famed Abbey Road studio where it recorded the legendary eponymous album. The timing of the iTunes deal is particularly serendipitous for EMI. The world’s third-largest record label was just the subject of a nasty legal battle between its owner, Guy Hands, a towering figure in the world of international finance, and its primary lender, investment bank Citigroup. Hands, who paid $6.7 billion for EMI in 2007, said he was duped into buying the record label by Citigroup, which he claimed misled him about other interested buyers. We’ll spare you the boring financial details and cut to the chase, which was that Hands got his ass handed to him in the trial and now he needs to increase EMI’s revenue or risk running afoul of his credit agreement with Citigroup, which would allow the bank to take control of the record label via a bankruptcy proceeding. A boost in sales from The Beatles’ catalog could help avoid that outcome. In short, as it has done numerous times in the past with The Beatles catalog through remastering, special editions, and box sets, EMI is essentially asking the band, “Won’t you please, please help me.”
Only difference is, this time around the label isn’t the only one in need of some assistance. Jobs needs a jolt, too. That’s The Beatles everyone: Saving the music industry since 1960.
Peter Lauria is senior correspondent covering business, media, and entertainment for The Daily Beast. He previously covered music, movies, television, cable, radio, and corporate media as a business reporter for The New York Post. His work has also appeared in Avenue, Blender, and Media Magazine, and he's appeared on CNBC, Bloomberg, BBC Radio, and Reuters TV.
Like The Daily Beast on Facebook and follow us on Twitter for updates all day long.
For inquiries, please contact The Daily Beast at editorial@thedailybeast.com.
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Entrepreneurs and small businesses are important to economic recovery. This we hear on the news regularly. But it is also important that entrepreneurial efforts.
benchcraft company scam
To support a margin compression theory, the article begins by using institutional selling as proof and presents increasing Android market share as an argument. Let’s take a closer look.
1. Institutional Selling
The two examples provided (one institution selling and another expressing worry) are insufficient to support the conclusion that big money has started to dump Apple. What’s happening in the aggregate? Might other institutions have initiated positions or increased their holdings? Unless this table (http://www.nasdaq.com/asp/holdings.asp?symbol=AAPL&selected=AAPL&FormType=Institutional) is out of date (It does include Capital Growth Management’s sale.), there is no significant net change in the number of shares held by institutions.
Now, one could argue that CGM’s Heebner and FEAM’s Obuchowski are such stellar managers that their opinion warrants special attention. Well, Heebner’s CGM Focus fund is only a two-star Morningstar rated fund (http://finance.yahoo.com/q/pr?s=CGMFX+Profile). Heebner “knows how to count”, as the author writes, I suppose, but he doesn’t know how to outperform; Obuchowski’s FEAM50 (http://www.1empiream.com/FEAM50_Q3%2010.pdf) and APA125 (http://www.1empiream.com/apa.htm) funds have beaten their benchmark. However, he’s expressed concern about holding Apple two years from now. He hasn’t sold yet.
The article hence doesn’t provide either quantitative (as the number of shares held has not changed significantly) or qualitative (as no star manager is cited as selling) evidence of big money starting to dump Apple because of margin compression. For the one under performing manager cited for selling, no reason is provided. As a matter of fact, there’s no evidence for net institutional selling of Apple, period.
2. Increased Android Market Share
With a 35% profit share in 2009 (http://www.businessinsider.com/chart-of-the-day-revenue-vs-operating-pro...), the hardware industry's highest, hasn’t Apple been successful in the personal computer market? I would say so, and yet it had only captured a 7% market share. How has it accomplished this feat? By offering something different that consumers value at a premium.
The author writes: “Jobs also (understandably) failed to mention that the “commodity’ Androids materially outperform the iOS products in terms of features and functionality. This is pretty much in direct contravention to the concept of the term “commodity”, isn’t it???? I don’t think many Samsung Galaxy S, Droid X or HTC Evo owners will characterize their devices as “commodities”.”
A product’s characterization as a commodity is not a function of the quality of its features and functionality or user opinions thereof. The Android clones are commodities because there’s fundamentally little difference between them. One might have a bigger screen, another longer battery life, and yet another a thinner form factor, but they all run the same OS and hence offer the same functionality. If an innovative feature proves popular, it can quickly be duplicated. There’s little that sets one phone apart from the other. They are interchangeable. As such, they must compete on price. You might prefer the Galaxy S, but settle for a Droid if its price is sufficiently lower to sway you. Their makers will generate lower profit margins, just like Windows PC makers.
The iPhone, on the other hand, offers something different: superior aesthetics, greater ease of use, no bloatware, superior integration with related products (Mac & iPad), a certain prestige, but mainly a distinct OS. It offers the whole package. Its hardware competitors might best or equal some features, but not the whole. If you value this different product, you can only buy from Apple. By maintaining full control of the iPhone experience, Apple prevents it from becoming a commodity like all the Android clones and, so long as it’s able to produce a superior experience on the whole, ensures premium pricing and high profit margins.
The author also writes: “…its business model may prove unassailable unless Apple makes some drastic changes (ex. allowing cloning)…”
What if Apple did pursue the Google model and licensed its OS? If it allowed iOS clones, it would cannibalize its sales and its margins would be obliterated, as it would lose its main differentiator. Would it be able to keep generating a $238 profit per phone (http://www.asymco.com/2010/10/31/making-it-up-in-volume-how-to-view-unit-profitability-vs-volume-in-handsets/)? In light of the fact that Google is giving Android away, it’s highly unlikely.
Android has already won. The battle for market or unit share, that is. Apple will henceforth never sell as many phones. That’s OK because Apple will probably keep generating the lion’s share of profits (http://www.asymco.com/2010/10/30/last-quarter-apple-gained-4-unit-share-22-sales-value-share-and-48-of-profit-share/) by executing a business model proven successful with the Mac.
As it reaches critical mass, Google’s model might indeed become unassailable. No other company will beat Google at its game. Apple has chosen to play a different game that might also be unassailable. They’re two different ways to win. Google will attempt to monetize Android through market share dominance, while Apple will maintain its profit share dominance among hardware makers through innovation and differentiation. Apple’s margins will suffer significantly only if it’s unable to keep offering something different, valued at a premium by consumers.
In short, the article fails to show an institutional dump of Apple shares. It doesn’t even show that the one (marginally competent) institutional manager mentioned for selling did so because of expected margin compression. Moreover, it is misguided in using Android’s unit share dominance to deduce margin compression at Apple. Apple’s profit margin will only suffer significant compression if it fails in the execution of its business model.
To further the analysis, is Google’s licensing model superior to Apple’s integrated model, as many seem to believe? In the personal computer market, Microsoft made money by selling Windows to hardware makers. In the mobile phone market, Google is giving Android away, while planning to monetize market share dominance through services (search and others). The hurdles it faces with this model are not insignificant. Its lack of control over its OS is a liability: witness Verizon’s pre-installation of Bing on some Android phones (http://www.broadbandreports.com/shownews/Verizon-Bing-Wont-Be-Exclusive-On-All-Android-Phones-110294). Its platform is a customizable OS that hardware makers and wireless carriers can tailor to suit their own ends, which may be to Google’s detriment, and they don’t have to pay for it. Its success is far from assured. Might Google be going back to producing its own branded phone because its current strategy is proving difficult to monetize (http://www.engadget.com/2010/11/11/this-is-the-nexus-s/)?
Apple, on the other hand, is already monetizing the iPhone. As a matter of fact, it made as much money in Q3 2010 as all other phone makers combined (http://www.asymco.com/2010/10/30/last-quarter-apple-gained-4-unit-share-22-sales-value-share-and-48-of-profit-share/), in spite of commanding only 4% market share. Apple won both the unit share and profit share battle in MP3 players with the iPod, as no worthy competitor came forth. This is not the case in smart phones with the emergence of Android. Nonetheless, the Mac, with 35% of PC profit share in spite of only 7% market share, has proven that Apple’s model can thrive even in the face of strong competition.
In a deal years in the making, Apple’s Steve Jobs announced Tuesday a deal for iTunes to carry The Beatles’ catalog. Peter Lauria on what took so long, why the band stalled, and how Apple stands to gain.
It’s either a testament to The Beatles’ lasting impact or a commentary on the quality of today’s artists that the Fab Four’s finally coming to iTunes is the music industry’s biggest news story.
Let’s go with the former, as this is a joyous occasion for the music industry and we don’t want to put a damper on it by reminding the major record labels that their business model is in a death spiral. The Beatles were about hope and optimism, after all.
Apple the computer company, record label EMI, and Apple Corp., the umbrella company for The Beatles’ interests, have reached a deal to make the band’s music available for sale legally on iTunes. The “for sale legally” part is very important because The Beatles have wrongly been identified as “one of the most prominent digital holdouts,” but the truth is that the band’s music has been widely pirated in digital formats for years now.
Ever the showman, Apple CEO Steve Jobs, who was afflicted with Beatlemania at a young age, posted a teasing message on the company’s website yesterday proclaiming, “Tomorrow is just another day. That you’ll never forget.” And while The Beatles coming to iTunes has been rumored for years without ever proving true, this time Jobs, EMI, and Apple Corp. are each motivated enough individually to mutually align their interests in favor of a deal.
The Beatles have sold 177 million albums in the U.S alone and ranked second only to Eminem for most sales in the last decade.
But first, some background.
Periodically over the last 32 years, Jobs’ Apple and Apple Corp. have swapped trademark infringement lawsuits over their corporate monikers. As The Wall Street Journal notes, the lawsuits have been filed and settled various times over the years—in 1981, 1991, and 2007—as Jobs’ Apple has increasingly moved into the music business. Jobs has been forced to pay at least $50 million to the band as a result of the litigation.
Now, back to the present day.
Though Jobs controls roughly 90 percent of the digital music market through iTunes, which now ranks as the world’s largest music retailer, Apple executives have said that the store is a “breakeven” proposition (i.e., it doesn’t make money; just sustains costs). After years of growth, digital music sales have flat-lined in the last few years. Moreover, new services like Pandora and Spotify have stolen some momentum from iTunes. A splashy announcement about catching The Beatles is both a perfect buzzkill for the upstart hotshots and a nice enticement to drive fans to the iTunes store.
The Beatles’ aversion to technological advancement in the distribution of music—as the Journal notes, the band came late to the CD revolution as well—is ironic given the band’s reputation for pushing the limits of sound and reshaping our notions of music. Not to be underestimated, however, is the fact that The Beatles aren’t just a band—they are a corporation, and as such feature the same bureaucratic red tape and dysfunctional communication dynamic of any large organization. To put it more bluntly, just like the band members themselves, the estates of John, Paul, George, and Ringo can’t agree on anything either. The holdup in making The Beatles music available digitally is as much a function of infighting among the estates of the various band members as anything else.
Over the last few years, however, signs have been emerging from the solo work of The Beatles’ band members that made today’s announcement inevitable. Timed to the 25th anniversary of its death in 2005, Yoko Ono and EMI agreed to a deal to make the solo work of John Lennon, which includes such songs as “Instant Karma” and “Imagine,” available digitally. Solo material from McCartney, Harrison, and Starr is also available digitally.
Four decades after they last recorded together, and despite the rise of piracy, albums from The Beatles are perennially among the music industry’s best sellers. Fans of the band, which has the most No. 1 albums in history, have been willing to shell out money over and over again to replace hits like “Hey Jude,” and “Lucy in the Sky with Diamonds,” “I Want to Hold Your Hand,” and “Help,” in new formats. According to the sales statistics quoted in The New York Times, The Beatles have sold 177 million albums in the U.S alone and ranked second only to Eminem for most sales in the last decade. Critics frequently rate the band’s “Revolver,” as the best album ever.
That leads us to EMI, which has served as The Beatles’ record label home since the band’s inception and owns the famed Abbey Road studio where it recorded the legendary eponymous album. The timing of the iTunes deal is particularly serendipitous for EMI. The world’s third-largest record label was just the subject of a nasty legal battle between its owner, Guy Hands, a towering figure in the world of international finance, and its primary lender, investment bank Citigroup. Hands, who paid $6.7 billion for EMI in 2007, said he was duped into buying the record label by Citigroup, which he claimed misled him about other interested buyers. We’ll spare you the boring financial details and cut to the chase, which was that Hands got his ass handed to him in the trial and now he needs to increase EMI’s revenue or risk running afoul of his credit agreement with Citigroup, which would allow the bank to take control of the record label via a bankruptcy proceeding. A boost in sales from The Beatles’ catalog could help avoid that outcome. In short, as it has done numerous times in the past with The Beatles catalog through remastering, special editions, and box sets, EMI is essentially asking the band, “Won’t you please, please help me.”
Only difference is, this time around the label isn’t the only one in need of some assistance. Jobs needs a jolt, too. That’s The Beatles everyone: Saving the music industry since 1960.
Peter Lauria is senior correspondent covering business, media, and entertainment for The Daily Beast. He previously covered music, movies, television, cable, radio, and corporate media as a business reporter for The New York Post. His work has also appeared in Avenue, Blender, and Media Magazine, and he's appeared on CNBC, Bloomberg, BBC Radio, and Reuters TV.
Like The Daily Beast on Facebook and follow us on Twitter for updates all day long.
For inquiries, please contact The Daily Beast at editorial@thedailybeast.com.
bench craft company scamGood news: Feds to ban caffeinated alcoholic drinks for some reason.
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Entrepreneurs and small businesses are important to economic recovery. This we hear on the news regularly. But it is also important that entrepreneurial efforts.
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bench craft company scamGood news: Feds to ban caffeinated alcoholic drinks for some reason.
MAKE TMZ MY HOMEPAGE; TMZ RSS/XML � iPHONE APP � ANDROID APP � TEXT ALERT � FACEBOOK � MYSPACE � TWITTER � YOUTUBE � TIPS � Sign In | Sign Up. HOT SEARCHES: Sebastian Bach | Princess Diana | Brittny Gastineau � TMZ AOL News ...
Entrepreneurs and small businesses are important to economic recovery. This we hear on the news regularly. But it is also important that entrepreneurial efforts.
bench craft company scam
To support a margin compression theory, the article begins by using institutional selling as proof and presents increasing Android market share as an argument. Let’s take a closer look.
1. Institutional Selling
The two examples provided (one institution selling and another expressing worry) are insufficient to support the conclusion that big money has started to dump Apple. What’s happening in the aggregate? Might other institutions have initiated positions or increased their holdings? Unless this table (http://www.nasdaq.com/asp/holdings.asp?symbol=AAPL&selected=AAPL&FormType=Institutional) is out of date (It does include Capital Growth Management’s sale.), there is no significant net change in the number of shares held by institutions.
Now, one could argue that CGM’s Heebner and FEAM’s Obuchowski are such stellar managers that their opinion warrants special attention. Well, Heebner’s CGM Focus fund is only a two-star Morningstar rated fund (http://finance.yahoo.com/q/pr?s=CGMFX+Profile). Heebner “knows how to count”, as the author writes, I suppose, but he doesn’t know how to outperform; Obuchowski’s FEAM50 (http://www.1empiream.com/FEAM50_Q3%2010.pdf) and APA125 (http://www.1empiream.com/apa.htm) funds have beaten their benchmark. However, he’s expressed concern about holding Apple two years from now. He hasn’t sold yet.
The article hence doesn’t provide either quantitative (as the number of shares held has not changed significantly) or qualitative (as no star manager is cited as selling) evidence of big money starting to dump Apple because of margin compression. For the one under performing manager cited for selling, no reason is provided. As a matter of fact, there’s no evidence for net institutional selling of Apple, period.
2. Increased Android Market Share
With a 35% profit share in 2009 (http://www.businessinsider.com/chart-of-the-day-revenue-vs-operating-pro...), the hardware industry's highest, hasn’t Apple been successful in the personal computer market? I would say so, and yet it had only captured a 7% market share. How has it accomplished this feat? By offering something different that consumers value at a premium.
The author writes: “Jobs also (understandably) failed to mention that the “commodity’ Androids materially outperform the iOS products in terms of features and functionality. This is pretty much in direct contravention to the concept of the term “commodity”, isn’t it???? I don’t think many Samsung Galaxy S, Droid X or HTC Evo owners will characterize their devices as “commodities”.”
A product’s characterization as a commodity is not a function of the quality of its features and functionality or user opinions thereof. The Android clones are commodities because there’s fundamentally little difference between them. One might have a bigger screen, another longer battery life, and yet another a thinner form factor, but they all run the same OS and hence offer the same functionality. If an innovative feature proves popular, it can quickly be duplicated. There’s little that sets one phone apart from the other. They are interchangeable. As such, they must compete on price. You might prefer the Galaxy S, but settle for a Droid if its price is sufficiently lower to sway you. Their makers will generate lower profit margins, just like Windows PC makers.
The iPhone, on the other hand, offers something different: superior aesthetics, greater ease of use, no bloatware, superior integration with related products (Mac & iPad), a certain prestige, but mainly a distinct OS. It offers the whole package. Its hardware competitors might best or equal some features, but not the whole. If you value this different product, you can only buy from Apple. By maintaining full control of the iPhone experience, Apple prevents it from becoming a commodity like all the Android clones and, so long as it’s able to produce a superior experience on the whole, ensures premium pricing and high profit margins.
The author also writes: “…its business model may prove unassailable unless Apple makes some drastic changes (ex. allowing cloning)…”
What if Apple did pursue the Google model and licensed its OS? If it allowed iOS clones, it would cannibalize its sales and its margins would be obliterated, as it would lose its main differentiator. Would it be able to keep generating a $238 profit per phone (http://www.asymco.com/2010/10/31/making-it-up-in-volume-how-to-view-unit-profitability-vs-volume-in-handsets/)? In light of the fact that Google is giving Android away, it’s highly unlikely.
Android has already won. The battle for market or unit share, that is. Apple will henceforth never sell as many phones. That’s OK because Apple will probably keep generating the lion’s share of profits (http://www.asymco.com/2010/10/30/last-quarter-apple-gained-4-unit-share-22-sales-value-share-and-48-of-profit-share/) by executing a business model proven successful with the Mac.
As it reaches critical mass, Google’s model might indeed become unassailable. No other company will beat Google at its game. Apple has chosen to play a different game that might also be unassailable. They’re two different ways to win. Google will attempt to monetize Android through market share dominance, while Apple will maintain its profit share dominance among hardware makers through innovation and differentiation. Apple’s margins will suffer significantly only if it’s unable to keep offering something different, valued at a premium by consumers.
In short, the article fails to show an institutional dump of Apple shares. It doesn’t even show that the one (marginally competent) institutional manager mentioned for selling did so because of expected margin compression. Moreover, it is misguided in using Android’s unit share dominance to deduce margin compression at Apple. Apple’s profit margin will only suffer significant compression if it fails in the execution of its business model.
To further the analysis, is Google’s licensing model superior to Apple’s integrated model, as many seem to believe? In the personal computer market, Microsoft made money by selling Windows to hardware makers. In the mobile phone market, Google is giving Android away, while planning to monetize market share dominance through services (search and others). The hurdles it faces with this model are not insignificant. Its lack of control over its OS is a liability: witness Verizon’s pre-installation of Bing on some Android phones (http://www.broadbandreports.com/shownews/Verizon-Bing-Wont-Be-Exclusive-On-All-Android-Phones-110294). Its platform is a customizable OS that hardware makers and wireless carriers can tailor to suit their own ends, which may be to Google’s detriment, and they don’t have to pay for it. Its success is far from assured. Might Google be going back to producing its own branded phone because its current strategy is proving difficult to monetize (http://www.engadget.com/2010/11/11/this-is-the-nexus-s/)?
Apple, on the other hand, is already monetizing the iPhone. As a matter of fact, it made as much money in Q3 2010 as all other phone makers combined (http://www.asymco.com/2010/10/30/last-quarter-apple-gained-4-unit-share-22-sales-value-share-and-48-of-profit-share/), in spite of commanding only 4% market share. Apple won both the unit share and profit share battle in MP3 players with the iPod, as no worthy competitor came forth. This is not the case in smart phones with the emergence of Android. Nonetheless, the Mac, with 35% of PC profit share in spite of only 7% market share, has proven that Apple’s model can thrive even in the face of strong competition.
In a deal years in the making, Apple’s Steve Jobs announced Tuesday a deal for iTunes to carry The Beatles’ catalog. Peter Lauria on what took so long, why the band stalled, and how Apple stands to gain.
It’s either a testament to The Beatles’ lasting impact or a commentary on the quality of today’s artists that the Fab Four’s finally coming to iTunes is the music industry’s biggest news story.
Let’s go with the former, as this is a joyous occasion for the music industry and we don’t want to put a damper on it by reminding the major record labels that their business model is in a death spiral. The Beatles were about hope and optimism, after all.
Apple the computer company, record label EMI, and Apple Corp., the umbrella company for The Beatles’ interests, have reached a deal to make the band’s music available for sale legally on iTunes. The “for sale legally” part is very important because The Beatles have wrongly been identified as “one of the most prominent digital holdouts,” but the truth is that the band’s music has been widely pirated in digital formats for years now.
Ever the showman, Apple CEO Steve Jobs, who was afflicted with Beatlemania at a young age, posted a teasing message on the company’s website yesterday proclaiming, “Tomorrow is just another day. That you’ll never forget.” And while The Beatles coming to iTunes has been rumored for years without ever proving true, this time Jobs, EMI, and Apple Corp. are each motivated enough individually to mutually align their interests in favor of a deal.
The Beatles have sold 177 million albums in the U.S alone and ranked second only to Eminem for most sales in the last decade.
But first, some background.
Periodically over the last 32 years, Jobs’ Apple and Apple Corp. have swapped trademark infringement lawsuits over their corporate monikers. As The Wall Street Journal notes, the lawsuits have been filed and settled various times over the years—in 1981, 1991, and 2007—as Jobs’ Apple has increasingly moved into the music business. Jobs has been forced to pay at least $50 million to the band as a result of the litigation.
Now, back to the present day.
Though Jobs controls roughly 90 percent of the digital music market through iTunes, which now ranks as the world’s largest music retailer, Apple executives have said that the store is a “breakeven” proposition (i.e., it doesn’t make money; just sustains costs). After years of growth, digital music sales have flat-lined in the last few years. Moreover, new services like Pandora and Spotify have stolen some momentum from iTunes. A splashy announcement about catching The Beatles is both a perfect buzzkill for the upstart hotshots and a nice enticement to drive fans to the iTunes store.
The Beatles’ aversion to technological advancement in the distribution of music—as the Journal notes, the band came late to the CD revolution as well—is ironic given the band’s reputation for pushing the limits of sound and reshaping our notions of music. Not to be underestimated, however, is the fact that The Beatles aren’t just a band—they are a corporation, and as such feature the same bureaucratic red tape and dysfunctional communication dynamic of any large organization. To put it more bluntly, just like the band members themselves, the estates of John, Paul, George, and Ringo can’t agree on anything either. The holdup in making The Beatles music available digitally is as much a function of infighting among the estates of the various band members as anything else.
Over the last few years, however, signs have been emerging from the solo work of The Beatles’ band members that made today’s announcement inevitable. Timed to the 25th anniversary of its death in 2005, Yoko Ono and EMI agreed to a deal to make the solo work of John Lennon, which includes such songs as “Instant Karma” and “Imagine,” available digitally. Solo material from McCartney, Harrison, and Starr is also available digitally.
Four decades after they last recorded together, and despite the rise of piracy, albums from The Beatles are perennially among the music industry’s best sellers. Fans of the band, which has the most No. 1 albums in history, have been willing to shell out money over and over again to replace hits like “Hey Jude,” and “Lucy in the Sky with Diamonds,” “I Want to Hold Your Hand,” and “Help,” in new formats. According to the sales statistics quoted in The New York Times, The Beatles have sold 177 million albums in the U.S alone and ranked second only to Eminem for most sales in the last decade. Critics frequently rate the band’s “Revolver,” as the best album ever.
That leads us to EMI, which has served as The Beatles’ record label home since the band’s inception and owns the famed Abbey Road studio where it recorded the legendary eponymous album. The timing of the iTunes deal is particularly serendipitous for EMI. The world’s third-largest record label was just the subject of a nasty legal battle between its owner, Guy Hands, a towering figure in the world of international finance, and its primary lender, investment bank Citigroup. Hands, who paid $6.7 billion for EMI in 2007, said he was duped into buying the record label by Citigroup, which he claimed misled him about other interested buyers. We’ll spare you the boring financial details and cut to the chase, which was that Hands got his ass handed to him in the trial and now he needs to increase EMI’s revenue or risk running afoul of his credit agreement with Citigroup, which would allow the bank to take control of the record label via a bankruptcy proceeding. A boost in sales from The Beatles’ catalog could help avoid that outcome. In short, as it has done numerous times in the past with The Beatles catalog through remastering, special editions, and box sets, EMI is essentially asking the band, “Won’t you please, please help me.”
Only difference is, this time around the label isn’t the only one in need of some assistance. Jobs needs a jolt, too. That’s The Beatles everyone: Saving the music industry since 1960.
Peter Lauria is senior correspondent covering business, media, and entertainment for The Daily Beast. He previously covered music, movies, television, cable, radio, and corporate media as a business reporter for The New York Post. His work has also appeared in Avenue, Blender, and Media Magazine, and he's appeared on CNBC, Bloomberg, BBC Radio, and Reuters TV.
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