Cracking the China code: Microsoft vs. Apple
Microsoft’s CEO bemoaned that revenue in China was about 5% of what it obtained in the US. Yesterday Apple’s CEO suggested that revenue from China will overtake the US in the near future.
The contrast is even more stark when one considers the time and effort each company has made in China. Microsoft has been investing and promoting itself in China for decades while Apple barely had any presence 3 years ago.
To put a finer point on this I show below Apple’s sales by region:
Apple’s China net sales in fiscal 2009 were only 769 million. In 2012 they were $22.8 billion. That is a figure greater than US sales three years earlier. Put another way, China sales grew in three years as much as they did in the US in 33.
The growth rates were astronomical: over 250% in 2010 and 350% in 2011. In 2012 the growth slowed to 83% but that is still almost twice the US or the global average. The growth rates are shown in the following chart:
I added an estimate for growth into the future moderating to 50% for China and 20% for the US. If that happens then China will become the largest market for Apple by 2016 as shown below.
The reason for this growth is, of course, the iOS product lines. Growth started when the iPhone was introduced and surged with the iPad and every time updates were released.
The contrast with Microsoft now comes back into focus. China and the US have a roughly equal number of PCs but the mobile users in China exceed the US by a factor of three to one. The pool of users is so great that Apple obtained its growth even with reaching only 30% mobile network distribution coverage.
Without a mobile portfolio Microsoft is severely hampered. Of course, Microsoft is trying and has made several attempts to place its Windows Phone in the hands of Chinese users. It’s a tough sale however because Microsoft must work through partners. They need to get vendors to license the OS and the operators to range the devices and retailers to push it. Given the flood of “free” Android variants they are having trouble even starting down that long road.
But more fundamentally, Microsoft’s software licensing business model is severely limited in China because what it offers is not what is valued. Both on the PC or on the mobile device, what China values is the tangible. Software can be made valuable only if it can affect the purchase decision of hardware and it can do so only if it’s sold as part of an integrated product. With Surface, Microsoft shows that it understands this. What does this imply for a Microsoft phone?
Solutions Engineer
11 年The problem for Microsoft is that they aren't a hardware company in the sense that Apple is.
Performance Recovery in a Post-Lean & Six Sigma World | Manufacturing Intelligence | Decision Science | Complex Businesses & Operations
11 年We are comparing here 2 different business models: Apple sells a "masstige" product which is very similar to what luxury groups such as LVMH are doing for decades. Sales revenues cannot be compared as Apple manufactures, distributes and sell through its own channels. In order to have a fair comparison, you need to aggregate the margins left to independent intermediaries across the value generation chain. Unlike Microsoft, Apple takes the time to develop a close-to-perfection product, through a tight lean manufacturing approach. Microsoft's strategy is to be the first comer on the market, and gets the users report on software or hardware issues which are fixed (when they are) at the back end of their strategic process (marketing comes first, manufacturing comes last). Apple does it the other way round, like Toyota for their Nexus product line. It takes more time to implement but on the long-run, having a lean value generation process = going for profits first and making sure you don't lose your margins even if your sales revenue grows fast, which is why a company should exist. Apple is further protecting itself by investing massively into manufacturing operations in the US without disclosing in their balance sheets the nature of their investments. Steve Jobs learned the lesson Dell took from Asus, or the one Apple was given by Samsung, which is their largest subcontractor. The model is very solid and is likely to last for a while.
Owner, Write Well at Work
11 年Microsoft has a bigger problem than just China, or piracy in China. With the blooming of the App Store and its ilk, software is now just another form of digital media. And, as with tunes, show, games, and books, the prices are collapsing to around a buck. Good luck selling software unpackaged in hardware. Anywhere.
Squad Leader at Embed Limited
11 年China has shocked the economy of the whole world!