Zeichick's Take: Apple ascendant
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By Alan Zeichick
August 21, 2008 —
For a few hours last week, and again this Tuesday, Apple's market capitalization exceeded that of Google's. That's astounding, when you consider that Google has been superlatively hyped non-stop over the past few years and has been branded as the destroyer of newspaper advertising, the big threat to Microsoft and the ultimate power on Planet Earth. By contrast, Apple makes music players, mobile phones and Unix-based personal computers, and sells songs and videos online.
Wouldn't you know, there's still something to be said for selling stuff, instead of giving stuff away.
Think about Google's business model. It could be summarized as, "Spend a lot of money writing software and creating databases, and give everything away. Pay for it by selling ads."
By contrast, Apple's business model could be summarized as, "Market really sexy consumer electronics devices, which you sell for a lot of money. Then, sell people content to put onto those consumer electronics devices."
Google is an open system. A lot of its software is based on open-source code. Its APIs are free. Most of its business services, with the exception of things like the Google Apps Premium Accounts, are free. Free, free, free, free, free.
Apple is a closed system. Mac OS X is not open source. The linkages among the iPod, iPhone and iTunes aren't open. The only way to put applications onto the iPhone is to go through Apple. Even its Web services, based on MobileMe, are pricy, at US$99 per user per year. Nearly nothing is free.
If you think that’s just the stock market pushing up a high-profile winner, you’re partially right. Google is trading at a price/earnings ratio of around 32, compared to about 34 for Apple. That’s high for both companies, but not stratospheric. (By comparison, Microsoft and IBM both have a P/E of about 15, and Hewlett Packard is around 14. Yahoo has a P/E of 27, Oracle is at 21, and Sun is at 20.)
If you think that's just the stock market pushing up a high-profile winner, you're partially right. Google is trading at a price/earnings ratio of $32 per share, compared to $34 for Apple. That's high for both companies, but not stratospheric. (By comparison, Microsoft and IBM both have a P/E of about $15, and Hewlett-Packard is around $14. Yahoo has a P/E of $27, Oracle is at $21 and Sun is at $20.)
However, it also goes to show that there's still money to be made in making hardware and software, and in selling content instead of giving it away. While Google's advertising-based revenue certainly is impressive—and continues to outperform the market—it's not the only business model in town.
Alan Zeichick is editorial director of SD Times. Read his blog at ztrek.blogspot.com.
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