Apple's Mac OS X, iOS now fueling 3.5 times the profits of Microsoft Windows

Posted:
in macOS edited January 2014
Apple's dramatic growth in hardware sales has reversed the longstanding notion that software licensing is the best way to make money in the tech industry.



A revenue comparison published by Asymco blogger Horace Dediu demonstrates that Apple's hardware-centric business model is now enabling the company to generate 3.5 times the profits earned by Microsoft licensing Windows to third party PC makers.



While both companies have long developed rival desktop and mobile operating systems, Apple has almost exclusively used its software to drive hardware sales, while Microsoft has derived almost all of its Windows-based revenue by licensing its software to others.



During the 1990s however, Microsoft quickly outpaced Apple's growth in both revenues and profits by bringing DOS and then Windows to a much wider audience, prompting observers to insist that Apple needed to mimic the same business model to remain relevant.



Apple eventually began licensing both its Mac OS and its Newton OS, but neither effort resulted in success. After founder Steve Jobs returned to Apple in 1997, the company terminated both of its operating system licensing programs and began focusing on using its software assets to sell the company's own hardware instead.



While other companies that attempted to copy Microsoft's licensing-centric business model also failed (including Palm and Be, Inc), there was not much optimism held out for Apple to be able to significantly expand its Mac hardware sales as a proprietary platform.



However, Apple has not only dramatically increased its Mac sales over the past half decade four fold, but has also added a huge new influx of mobile devices running iOS. Over the same period, Microsoft has struggled to replicate its Windows-like licensing business among mobile devices.



The result, as noted by Dediu, is that Apple is now generating $9.8 billion in profits from its operating systems through hardware sales, while Microsoft reported sales of $4.445 billion and profits of $2.764 billion from its Windows licensing.



While Mac market share is hovering around 9 percent of all PCs sold, Mac OS X itself generates half the profits of Windows for Apple. Separately, iOS generates 2.3 times the profits of Windows.



Dediu contrasts Apple's growth with the overall PC industry, "which has seen both volume and sales decline while prices have eroded along with profitability. On top of that, growth has nearly evaporated."



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Comments

  • Reply 1 of 33
    magicjmagicj Posts: 406member
    Apple deserves credit for its amazing success, as does Microsoft.



    But I'm not sure the success of either company can be reduced to their licensing models. Both models have been used by many other companies and, more often than not, both models fail.



    Perhaps the success of these two companies can be attributed to their meeting customer demands, and their failures (which they've both had) attributed to failing to meet customer demands?
  • Reply 2 of 33
    michael scripmichael scrip Posts: 1,912member
    If you buy a Mac.... Apple gets money from both the hardware sale as well as the software.



    When you buy a Dell... only Dell gets the hardware sale... while Microsoft gets a small license fee for the software.



    I'm not sure how this is news... but OK
  • Reply 3 of 33
    shadashshadash Posts: 470member
    Quote:
    Originally Posted by Michael Scrip View Post


    If you buy a Mac.... Apple gets money from both the hardware sale as well as the software.



    When you buy a Dell... only Dell gets the hardware sale... while Microsoft gets a small license fee for the software.



    I'm not sure how this is news... but OK



    Still, Apple is more profitable than both combined. Dell only made $927 million last quarter.
  • Reply 4 of 33
    shunnabunichshunnabunich Posts: 160member
    Dan wrote an article without using the words "frantic" or "desperate". I'm kind of impressed.
  • Reply 5 of 33
    christopher126christopher126 Posts: 4,254member
    I still maintain Microsoft's shoddy approach to OS design has cost people and businesses untold billions of dollars in lost productivity. I'm so happy I went Apple 20+ years ago!



    Best
  • Reply 6 of 33
    solipsismsolipsism Posts: 25,726member
    Quote:
    Originally Posted by christopher126 View Post


    I still maintain Microsoft's shoddy approach to OS design has cost people and businesses untold billions of dollars in lost productivity. I'm so happy I went Apple 20+ years ago!



    Best



    There is certainly an argument to that, but there is also an argument to had for Windows-based machines being considerably cheaper per unit than Apple?s simple Mac solution which could have saved them billions more over the years.
  • Reply 7 of 33
    firefly7475firefly7475 Posts: 1,502member
    Didn't we have this story last week? Apple makes more profit selling hardware/software than Microsoft do selling just software.



    I'm wondering now how many ways this can be written
  • Reply 8 of 33
    macnycmacnyc Posts: 342member
    Quote:
    Originally Posted by solipsism View Post


    There is certainly an argument to that, but there is also an argument to had for Windows-based machines being considerably cheaper per unit than Apple?s simple Mac solution which could have saved them billions more over the years.



    Devil's Advocate strikes again!
  • Reply 9 of 33
    ecphorizerecphorizer Posts: 533member
    Quote:
    Originally Posted by solipsism View Post


    There is certainly an argument to that, but there is also an argument to had for Windows-based machines being considerably cheaper per unit than Apple?s simple Mac solution which could have saved them billions more over the years.



    But then there's the total cost of ownership. Companies that had near-exclusive Windows installations employed many more IT professionals than did firms who went with Macs. I worked at one Mac outfit where the highest guy in the IT department was also an upper-level R&D guy - splitting his time between managing the IT people and some hardware engineers. And the IT people were fully-trained telephone people who took care of the PBX and the rest of the phone system in addition to their Mac support jobs. And those Macs were like Timex watches - just kept working.
  • Reply 10 of 33
    solipsismsolipsism Posts: 25,726member
    Quote:
    Originally Posted by Ecphorizer View Post


    But then there's the total cost of ownership. Companies that had near-exclusive Windows installations employed many more IT professionals than did firms who went with Macs. I worked at one Mac outfit where the highest guy in the IT department was also an upper-level R&D guy - splitting his time between managing the IT people and some hardware engineers. And the IT people were fully-trained telephone people who took care of the PBX and the rest of the phone system in addition to their Mac support jobs. And those Macs were like Timex watches - just kept working.



    TCO can be a powerful motivator but you'll usually find that quarerly budgetary constraints subspesed that, not to mention Apple's business model makes it impossible for businesses to shop for the best HW options and prices for a given OS.



    Without a major change to this philosophy Apple will never own rgmmte enterprise proper. It's not because they can't, it's because they choose not to.
  • Reply 11 of 33
    suddenly newtonsuddenly newton Posts: 13,737member
    It sounds like Apple (under Steve Jobs) figured out how to make NOT licensing the OS work for them. I clearly remember the prevailing sentiment during the 90s was for Apple to license Mac OS 7 to those clone makers. To do it the Microsoft way.
  • Reply 12 of 33
    Quote:
    Originally Posted by shadash View Post


    Still, Apple is more profitable than both combined. Dell only made $927 million last quarter.



    I wish I only made $927 million last quarter.
  • Reply 13 of 33
    genovellegenovelle Posts: 860member
    Quote:
    Originally Posted by Ecphorizer View Post


    But then there's the total cost of ownership. Companies that had near-exclusive Windows installations employed many more IT professionals than did firms who went with Macs. I worked at one Mac outfit where the highest guy in the IT department was also an upper-level R&D guy - splitting his time between managing the IT people and some hardware engineers. And the IT people were fully-trained telephone people who took care of the PBX and the rest of the phone system in addition to their Mac support jobs. And those Macs were like Timex watches - just kept working.



    And Windows PCs become obsolete after 1 or two years, while the Power Mac I bought in 2001 just lost support under OS-X late last year with Snow Leopard. Still running Leopard thought. Try running Windows 7 or even Vista on on of the Pentium processors that was out back then
  • Reply 14 of 33
    ecphorizerecphorizer Posts: 533member
    Quote:
    Originally Posted by solipsism View Post


    TCO can be a powerful motivator but you'll usually find that quarerly budgetary constraints subspesed that, not to mention Apple's business model makes it impossible for businesses to shop for the best HW options and prices for a given OS.



    Without a major change to this philosophy Apple will never own rgmmte enterprise proper. It's not because they can't, it's because they choose not to.



    Um, Soli, what is "supspesed" and "rgmmte?" Is your keyboard on the fritz?
  • Reply 15 of 33
    MacProMacPro Posts: 18,005member
    That is at first, truly amazing ... then the more I think about it, it makes sense. Windows is on borrowed time and has been for a quite a while.
  • Reply 16 of 33
    firefly7475firefly7475 Posts: 1,502member
    Quote:
    Originally Posted by digitalclips View Post


    That is at first, truly amazing ... then the more I think about it, it makes sense. Windows is on borrowed time and has been for a quite a while.



    I find it amazing how diverse Microsoft's portfolio is considering the "common knowledge" that they are a one trick pony.



    Windows licenses generated 27% of Microsoft's revenue and 48% of their profits. For Apple 88% of their profit comes from iOS and OSX, 75% from iOS alone.
  • Reply 17 of 33
    michael scripmichael scrip Posts: 1,912member
    Quote:
    Originally Posted by shadash View Post


    Still, Apple is more profitable than both combined. Dell only made $927 million last quarter.



    Oh yeah.... I know that



    I was just saying that Microsoft sells a software license... while Apple sells the whole kit-n-kaboodle.



    It's really no shock that Apple makes tons of money.
  • Reply 18 of 33
    mr. memr. me Posts: 3,219member
    Quote:
    Originally Posted by Michael Scrip View Post


    If you buy a Mac.... Apple gets money from both the hardware sale as well as the software.



    When you buy a Dell... only Dell gets the hardware sale... while Microsoft gets a small license fee for the software.



    I'm not sure how this is news... but OK



    I'm taking it that you never actually purchased a retail copy of Microsoft Windows. Rather than sending you out for a copy, I'll just tell you now. The retail price of Windows is considerably higher than MacOS X. In fact, OpenSTEP was considerable more expensive than MacOS X. There is absolutely no reason to believe that MacOS X is less expensive to produce than Windows. One can make the argument that MacOS X is cheaper than OpenSTEP because its higher volumes make a lower unit price possible. However, that makes it difficult to explain the order of magnitude lower price for MacOS X.



    MacOS X is cheaper because hardware subsidizes the software. Apple may receive money from both hardware and software. However, the money comes from the same source and ends up at the same destination. Think of the Mac and MacOS X as a single unit. However, MacOS X has the ability to continue the cash flow between customer and Apple. Apple distributing this aftermarket revenue flow to addition streams. First came .mac/MobileMe. Now comes the Mac App Store.



    The Dell example is even more intriguing. Your assertion that Microsoft gets a small license fee for software could not be more false. The most expensive component of a Windows PC is Microsoft Windows. Dell, like just about every other Windows PC manufacturer, loses money on every hardware sale. Windows PC manufacturers earn their money just like The New York Times and Seventeen magazine. It is called advertising. However, it is a special kind of advertising. The crapware that Dell ships preinstalled on your new computer pays for your computer. The last time I read the numbers, it was $70 per Desktop icon. Like any other advertiser-supported business, Dell's crappy computers are not its products. Its crappy computers are a product delivery system. Dell's products are you, the people who use its crappy computers. Dell's customers are the advertisers, the people who produce that crapware.
  • Reply 19 of 33
    mactelmactel Posts: 1,275member
    Quote:
    Originally Posted by christopher126 View Post


    I still maintain Microsoft's shoddy approach to OS design has cost people and businesses untold billions of dollars in lost productivity. I'm so happy I went Apple 20+ years ago!



    Best



    Hmmm...I love the Mac and all things Apple (iMac and Macbook) but I wouldn't call Microsoft's OS shoddy. Windows 7 is pretty good as is their Windows 2008 R2 server offering. OS7 to OS9 were bad as compared to Windows95 through XP. Conflict Catcher anyone? The old Mac OS did not have a modern kernel and suffered for that even though its user interface was more well thought out.



    OSX is not superior to Windows 7 nor vice versa. They are both mature operating systems and both have great strengths and weaknesses. The mistake Microsoft made and didn't see coming like the rest of the industry was the flexibility of the kernel underlying OSX. You can be guaranteed to know that Windows 8 will attempt to mimic OSX in that respect. However, by then it will be too late as Android and iOS will be heavily entrenched.



    When Windows 8 comes out OSX will be retired and iOS will be the single OS that Apple will use across its products from Macs to iDevices. Windows 8 will be a great OS but won't be enough to turn the tide away from Apple. Microsoft may have to embrace Apple as clients to their server offerings where they really shine, but there too is under attack by cloud computing efforts. iCloud anyone?



  • Reply 20 of 33
    MSFT is trying to find the Dells and HPs of the mobile world in Nokia and RIM.
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