A well-known tech industry commentator offers thoughtful responses to several widely used Apple (NASDAQ:AAPL) bear arguments. On his Daring Fireball blog, John Gruber outlines and refutes three common arguments that analysts with a bearish perspective on Apple stock have used to repeatedly predict the Cupertino-based company’s inevitable decline.
1. ‘Good Enough’ Beats Superior Design
As summarized by Gruber, the first argument states that, “Superior design doesn’t matter in the long run, the mobile market will be commoditized by ‘good enough’ competitors.” As noted by Stratechery’s Ben Thompson, renowned business professor Clayton Christensen seems to subscribe to this view. Christensen believes that Apple’s integrated product approach to its mobile devices is unsustainable since “modular products,” like Apple’s Android-based competitors, will eventually become “good enough” to eat away at Apple’s high-end market share.
Christensen cites the aircraft, software, and medical device industries as examples of where this type of market disruption has previously occurred. However, as noted by Thompson, Apple’s mobile devices are not primarily purchased by businesses that have a strong cost-benefit interest. Instead, Apple is selling its devices to “irrational” consumers that are willing to pay a premium for a superior user experience. Although Christensen’s theory works well in markets where businesses make most of the buying decisions, it doesn’t apply to markets driven by consumers who are see value in ‘fashion, style, and design.”
According to Gruber, the second Apple bear argument states that, “Quality matters but iOS devices have already lost their edge, and are no longer superior to competing devices from Samsung (SSNLF.PK), Google (NASDAQ:GOOG), or Amazon (NASDAQ:AMZN). iOS devices just cost more.”
However, Thompson notes that, “Some consumers inherently know and value quality, look-and-feel, and attention to detail, and are willing to pay a premium that far exceeds the financial costs of being vertically integrated.” In other words, there are intangible Apple product attributes that can’t be quantified in the technical specifications of a mobile device.
3. Who Cares About Design?
Finally, the third Apple bear argument summarized by Gruber states that, “Design doesn’t matter, app developers and peripheral makers will flock to Android simply because of raw market share, even if that market share is almost entirely at the low end of the market.”
Gruber refutes this argument by citing the history of Apple’s Mac. Despite its relatively small share of the overall PC market, Gruber notes that the Mac has persisted because “its design qualities — hardware and software, engineering and aesthetics — were deemed superior to that of its commodity competition by consumers at the high end of the market.”
Like the Mac, the iPhone has secured a high-end segment of the market that it shows no sign of losing. In other words, regardless of what the Apple bears may argue, it appears that Cupertino-based company’s track record of success will continue in the foreseeable future as long as Apple keeps delivering products with the same intangible qualities that make consumers so happy.
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