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John Dvorak's Second Opinion
March 25, 2011, 3:00 p.m. EDT
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By John C. Dvorak
BERKELEY, Calif. (MarketWatch) "” One research firm has predicted that Apple Inc.'s market capitalization will soon make it a bigger company than IBM and Hewlett-Packard Co., among numerous others.
When I hear this, I immediately ask myself, "How can a company with essentially four products get this big?"
Everyone (myself included) misses the point when considering this perspective. The first thing you do is compare Apple's four /quotes/comstock/15*!aapl/quotes/nls/aapl (AAPL 351.54, +6.57, +1.90%) items "” Mac, iPod, iPhone and iPad "” with IBM's /quotes/comstock/13*!ibm/quotes/nls/ibm (IBM 162.18, +2.14, +1.34%) huge range of products, services and licensing. Or with H-P /quotes/comstock/13*!hpq/quotes/nls/hpq (HPQ 42.53, -0.57, -1.32%) and its scope. Even Microsoft Corp. /quotes/comstock/15*!msft/quotes/nls/msft (MSFT 25.62, -0.19, -0.74%) delves into more things than Apple.
Jomo Moir/MarketWatch Consumers line up for the iPad2 at an Apple store in San Francisco.
Yes, well, what's overlooked is that Apple is not getting rich from four products. Apple is not first and foremost a hardware maker, a software maker or a dream maker. Apple turns out to be one of the world's greatest retailers.
And that is the real reason why Apple is huge. It should not be compared with H-P, IBM or anyone else in the tech industry. Apple should be compared with Wal-Mart Stores Inc. /quotes/comstock/13*!wmt/quotes/nls/wmt (WMT 52.35, -0.24, -0.46%) , Target Corp. /quotes/comstock/13*!tgt/quotes/nls/tgt (TGT 49.95, -0.66, -1.30%) and even Macy's Inc. /quotes/comstock/13*!m/quotes/nls/m (M 23.43, +0.37, +1.60%) . Best Buy Inc. /quotes/comstock/13*!bby/quotes/nls/bby (BBY 29.22, -0.91, -3.02%) is a better point of comparison than H-P.
Heck, Apple has more in common with McDonald's Corp. /quotes/comstock/13*!mcd/quotes/nls/mcd (MCD 75.25, +0.32, +0.43%) than with H-P.
Apple stores, which are modern event-driven showcases, have made the company what it is today. Using some of the most advanced ideas in retailing, Apple married Silicon Valley to retailing, using its sense of style to make each store a Vegas-like experience.
The store itself is a form of entertainment, and often when people are bored, they will just go to an Apple store, hang out and help create the atmosphere of a perpetual "happening." The store itself is an event.
While there were plenty of smartphones on display at CTIA, the Snapfon is decidedly at the other end of the spectrum "” and proudly so. Like the better known Jitterbug, the Snapfon prides itself on big buttons and simplicity, aiming at the growing market for seniors.
Even before the first Apple store opened, I often said that computer companies need their own owned-and-operated sales palaces so they can control the sales pitch just like an auto dealer. Other companies have tried, but their formulas were off.
Not being in any meetings regarding these failures (CompuAdd, IBM, Gateway, etc.) I don't know what they were thinking. Someone at Apple thought different, and it had to be Steve Jobs and his esthetics.
I say this because an Apple store is actually a Bang & Olufsen store writ large: a high-concept store selling high-concept designer items. The Apple store wouldn't work if its products looked like black-box Dell Inc. /quotes/comstock/15*!dell/quotes/nls/dell (DELL 15.06, -0.08, -0.53%) computers. The Apple store is a gestalt of appealing modernity.
These observations will become more apparent when Microsoft rolls out more stores, and their designs seem to ape Apple's "” as far as the stores themselves are concerned.
However, this won't work because the Bang & Olufsen product-design element will be missing. The experience will be incongruous and off-putting.
I think I need to get a look at Microsoft's effort. All I know is that the company predates Apple with an experimental retail store in San Francisco (since closed).
Few people ever went to this Microsoft store, but it was slick and professional and could be best described as one of those Discover stores where all the nature and science toys were replaced by boxes of Microsoft Office.
Back to Apple. What I've concluded is that to understand the future of Apple and its valuation, you have to have a firm understanding of what the company really does that makes it different and so successful. And that's retailing. This is not your father's Apple.
The famous venture capitalist, John Doerr, years back once described Apple jokingly as a vertically integrated advertising agency. It was a cute comment that didn't quite make sense, but was memorable.
But now I think it can be rephrased accurately. Apple is a vertically integrated retailer. And if investors want to understand the company's future and its value, this must be understood.
John Dvorak writes John Dvorak's Second Opinion for MarketWatch, he's also a columnist for PC Magazine, Info! (Brazil) and BUG Magazine (Croatia). Dvorak does a weekly TV video podcast "Crankygeeks" as well as a daily tech podcast called "Tech5" and weekly podcasts "This Week in Tech" and "No Agenda" with Adam Curry as well as working as the Tech Channel VP at Podshow Inc. He's been featured on CNBC as a guest analyst. He has written for Forbes, Forbes Digital, PC World, Barron's, MacUser, PC/Computing, Smart Business and other magazines and newspapers. Dvorak has authored or co-authored 14 books. He was a 2004 Award winner of the American Business Editors Association's national gold award for best online column of 2003. That was followed up by an unprecedented second national gold award from the ABEA in 2005, again for the best online column (for 2004). He also won the Silver National Award for best magazine column in 2006.
Goldman Sachs has always been able to count on M&A advisory for revenue and bragging rights, but it's being challenged in 2011.
10:15 a.m. March 25, 2011
"Color seems like a program written by the CIA to be used by the FBI. http://goo.gl/0ZL2o I do not see the benefit to anyone except a stalker" 5:53 p.m. EDT, March 25, 2011 from THErealDVORAK
"Why are we starting a war in Libya? Three reasons, Hillary Clinton, Samantha Power & Susan Rice: http://goo.gl/9fFYp" 6:13 p.m. EDT, March 22, 2011 from THErealDVORAK
"stop the AT&T -- T-Mobile merger!! http://www.pcmag.com/article2/0,2817,2382330,00.asp" 12:23 p.m. EDT, March 22, 2011 from THErealDVORAK
"consensus is 7Zip at 7-zip.org time to challenge end: 40 seconds.Wow...and thanks." 5:51 p.m. EDT, March 21, 2011 from THErealDVORAK
"crowd sourcing challenge: so what is the absolute best .RAR encode/decode for Windows? Must be Freeware." 5:45 p.m. EDT, March 21, 2011 from THErealDVORAK
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