Apple – Most Valuable Company in World? How is this Possible?

Woo-boy…  Apple and its stock continues to streak along.  This Techcrunch post breathlessly outlines how Apple is poised to overtake Exxon for the title of “Most Valuable Company in the World” – predicting that it will happen some time this fall.  Of course the author also crowed about how Apple is more profitable than Microsoft – which isn’t true – Apple generates more profit because it has more revenues – but isn’t more profitable… so perhaps one should take the hype and prediction of stock glory from this source with a grain of salt.

What is more important than market caps or profitability when discussing Apple, is to look at how we got here at all (by “here at all” I mean debating the relative value of Apple as the globes ‘s “Most Valuable” corporation), what that means for the tech industry in general, and whether Apple can maintain its position as tech top dog over the long term.

I think the answer to the first is quite interesting as others seem to be moving in slow motion to stem Apple’s onslaught, the answer to the second is tied to the first – meaning expect a shuffling of the deck chairs regarding the status quo of the last 15 years in technology as others figure out what Apple did years ago, and I am doubtful of the third – though to be honest right now it isn’t clear who will step up to dethrone them anytime soon.

For some time now I have been arguing that the two most important trends in technology as a whole are a.) the consumerization of technology consumption around cloud and mobile and b.) the mobilization of computing in general.  These are huge sea changes in the business of technology.  They are having a massive impact on the structure of IT deployment (particularly if you look where growth opportunities lie), the nature of where technology early adoption and innovation occurs, to the very structure IT companies as traditional approaches to company building and IT selling cycles begin to give way to new markets, new customers and customer types, new funding trajectories and new business relationships.

So why Apple?  Simple – people like cool gear.

Apple was very, very early to identify and act on these two trends.  It’s entire business is based on these trends and one important fact – consumers aren’t companies.  In my estimation Apple is still the only consumer computing hardware company out there… From design to distribution, Apple’s focus on the consumer as the primary driver for the selection of laptops, smartphones and tablets – not co-incidentally the three biggest growth sectors of hardware – has paid off.  The Apple store is a stroke of brilliance – compare that experience to say going to an AT&T store or Verizon store (shudders)…  Where is Google with the Android store?  Apple long ago figured out that consumers care about experience not specs… I can’t tell you the processor in my MacBook Air – but I do like to show off how light it is.  On the other side – the move toward cloud computing has begun to mute Apple’s traditional weakness in corporate computing – if you are accessing your apps and data through a browser – the operating system matters a lot less.

As for can Apple continue its hegemony, and therefore meteoric growth, is questionable.  It’s approach to control, and interest in extracting a toll wherever possible, chafes the natural chaos of technology development – but application and software developers aren’t stupid – and until someone else figures out how to deliver high quality consumer and mobile computing devices to consumers that doesn’t involve Best Buy or banging your head against the wall at the AT&T store – Apple will continue to steamroll along.

The most obvious potential combination to assail Apple’s position is some combination of Android and consumer electronics manufacturers – e.g., Samsung, LG or others.  These companies understand how to design and build consumer attractive devices – though they are years behind Apple understanding the differences between building and selling TVs or DVD players and computing devices.  This poses the biggest long term threat to Apple’s future as (in a booming TV announcer voice) “The Most Valuable Corporation in the World”.  Provided Apple doesn’t stop Android cold with legal action – the implications of which have will have a HUGE impact (not good BTW) on the overall tech industry – one would expect Apple’s ability to manage premium pricing for devices, its dominant marketshare and ability to extract tolls from other players to erode, and probably pretty quickly once the trend takes root.

So will Apple become the “Most Valuable Company in the World?” At the risk of this post ending like one written an equity research analyst, I will say the following.  Apple’s stock appears to be somewhat expensive compared to other players – e.g., you are paying nearly double for growth compared to Microsoft (though that may be just as much a comment on Microsoft’s growth prospects as Apple) – this combined with the huge size of Apple now means that it must grow ever more borg-like to meet expectations (and I don’t see how this growth continues to be sustainable as the systemic shift Apple has ridden begins to mature), but on the other hand, I have seen this movie before, and I for one wouldn’t want to step in front this bus – not right now at least.


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