You say to stop using the 2% figure because it is misleading and then you quote the 6% figure for Apple market share which you know full well is also misleading.
That's EXACTLY why I used it!
That was the point I was making.
People will say that the Zunes numbers are low, so that proved it sucks and will never make it.
But then those same people will look at Apple's low numbers, and say it proves that most people don't know what they are doing, and are just following the leader.
First off, I don't think 9% of the HD market (2% overall) is all that good, considering we're talking Microsoft here. They're the biggest company in tech, that puts a spotlight on everything they do, and they've thrown incredible resources into the marketing and hype of this device.
Second off, like you, I have doubts as to whether the 9% figure is sustainable, considering Zune sales are probably on a spike due to early adopters and being the 'new kid on the block'.
Longer-term, I wouldn't be at all suprised to see even their small current share of the HD player market drift down.
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I don't think it matters that it's MS. They are just another company in this space.
Indeed, they are not even a hardware company, except in an offhand way.
You are assuming that they didn't take any share from Creative, Toshiba, etc. That is not a very good assumption, and the data do not support it (e.g., Apple's total share has declined by only 0.8% even as Zune captured 2% of the market).
I'm not assuming anything in that statement. I just gave the numbers. It's about an eighth of what Apple did. Where it came from, no one seems to know clearly yet.
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Please see my post above. Apple is capturing 6% of the computer business in the US while charging margins that are as much as 50% above manufacturing costs (Apple computer hardware margins are generally 25-30% of average selling price, and that includes discounts). That is not laughable at all.
Apple would LOVE to have 50% margins on a hardware item. It just isn't happening. The Pro models do a bit better than 30%, and the rest go lower, to a bit over 18% for the lowest Mini. Not that that isn't very good! The stores are seeing maybe 10%, no more.
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Microsoft is capturing 2% of the MP3 player market in the US while charging margins of NEGATIVE 20% or below. That is laughable...or rather, it would be laughable if I did not have a stake in MSFT stock.
We don't know what MS's margins are on the Zune. They can be anywhere from )% to your -20%. We just don't know. MS says they are breaking even. No reason not to believe that.
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Indeed. But it pays even less to make stupid business decisions and throw good money after bad, which unfortunately for us MSFT shareholders is exactly what the company is proceeding to do.
The key things to remember are:
(1) Anyone can gain some share if they are willing to sell things for a loss.
(2) You can only sell things for a loss for a limited amount of time. (And often you can't even do that unless you're a big company that has deep pockets to begin with.)
MS is different from other companies.
Their software has margins for them of up to 90% (OEM).
They get into business's that they think are going to be important down the road. They can afford to l9se money for as long as it takes.
Look at the games division. Before XBox, it was small, but making a profit.
After XBox it has been losing $1.2 billion a year.
But, MS can afford that. They think it's going to be manditory to be in that market, with the advances in gameplay over the internet, as well as streaming entertainment of other kinds.
I, for one, hope that MS starts doing better sales with it's ZUne and starts selling more models. Not that I'd ever buy one, but Apple seriously needs someone with deep pockets to keep it motivated in bringing the best out of the iPod.
The $64,000 question, of course, is how this compares to the release of the 1G iPod. Well, I've found those numbers. The short answer: 1G iPod did at least 5 to 10 times better than Zune.
In the first two months following its release (Nov/Dec 2001), the 1G iPod sold 125,000 units, or 62,500/month (source: Apple quarterly earnings release). In 2001, the worldwide MP3 player market was approximately 3.5 million units, or around 300,000/month (source: In-Stat/MDR chart, Feb 2002).
Assume holiday sales rates are 2x the rates of the quarters preceding them.* That means that MP3 players were selling to the tune of 600,000 units/month during the 2001 holiday season. I will also conservatively assume that iPod had a credible worldwide launch.**
Even under these conservative assumptions, the initial iPod captured over 10% of the market, or 5 times better than Zune's 2%.
However, as melgross and others have argued, Zune isn't currently competing in the flash market. They say the relevant market is the HD player market, of which Zune got about 10%. Of course, iPod also was only competing in the HD market initially (then, as now, most players were flash based), so by the same argument the 1G iPod might have captured as much as 50% of the HD market. Again, Zune looks bad in comparison.
But it gets better. Recall that the 1G iPod was only compatible with Macintosh when released!!! Generously assume that Apple had 5% market share, and assume Mac users buy MP3 players at a higher rate than Windows users (say, 2-3 times higher). Then the iPod was competing for at most 10-15% of the market. So, again by the melgross et al argument, iPod captured between 67 to 100% of the relevant market when it was released. That is up to 10 times better than Zune...and that is still assuming that almost all Mac users buy HD players instead of flash players.
But it gets even better. The iPod cost $399 and had significant positive margins. Zune has negative margins. This means that Zune has much more favorable pricing conditions at launch than the 1G iPod did, but it's still doing 5-10 times worse. Put another way, the growth prospects of Zune look worse than the growth prospects of the 1G iPod did. This is because future generations of Zunes will eventually need to make a profit, which means they either have to increase their price relative to competing MP3 players, or they have to add capacity/features more slowly than competing MP3 players.
In summary, the 1G iPod did at least 5 to 10 times better than Zune on release. Furthermore, even though it was already doing 5 to 10 times better, the 1G iPod still had better growth prospects than Zune because it wasn't relying on the ultimately unsustainable crutch of money-losing prices to try to boost sales.
And if you still have any doubts, consider this: at current rates, Zune will sell maybe 300,000 units during the holidays. This is only 2.5 times the number of units the 1G iPod sold in the same timeframe, even though the relevant MP3 player market is over 300 times larger (overall MP3 player mkt has grown at least 20 times, and Zune is selling for 90% of the world's computers rather than 5%). So Zune may be doing as much as 100 times worse than the original iPod (I told you the assumptions I was making above were conservative!!!).
*This number is in line with the seasonal trends in iPod sales - holiday quarter sales rates are usually around 100% higher than sales rates for the quarters preceding them.
** This is unclear from the press releases, and this assumption is likely to seriously bias downwards our iPod market share estimates (since iPod generally does better in the US than worldwide).
Apple would LOVE to have 50% margins on a hardware item. It just isn't happening. The Pro models do a bit better than 30%, and the rest go lower, to a bit over 18% for the lowest Mini. Not that that isn't very good! The stores are seeing maybe 10%, no more.
You are confused; please reread the post. I specifically said up to 50% above cost, which implies a margin of 33% or less.
In their most recent 10-K, Apple reported overall gross margins of 29%. This includes A LOT of sales of lower margin items (i.e., iPods), and a much smaller amount of sales of high margin items (software). Overall it is not unreasonable to assume average margins of 25-30% across the Macintosh line, which implies pricing 33-43% above cost. Note that I did not include the Mini in my analysis, but rather the MacBook and the iMac (which are undoubtedly the median Macs, in terms of price).
Overall, the sample iMac/MacBook prices I threw out were actually a bit high because margins are based on the marginal revenue Apple gets for a given Mac, but I was basing the prices off the suggested retail price of each Mac (which is higher due to edu discounts, promotions, the retailer cut, etc).
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We don't know what MS's margins are on the Zune. They can be anywhere from )% to your -20%. We just don't know. MS says they are breaking even. No reason not to believe that.
Wrong. It is well known that Zune is a money loser. Microsoft does not expect it to make money until at least 2008 (see http://www.latimes.com/business/la-f...lines-business). A common estimate is that they are losing around $50/player (see, e.g., http://www.macnn.com/articles/06/09/...g.ms.partners/), which works out to a little under 20%. Probably the most telling fact is that Microsoft already said they were going to lose money back in July (see the first article I posted), and at that time they still thought they were going to be able to sell it for $299.
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They get into business's that they think are going to be important down the road. They can afford to l9se money for as long as it takes.
Wrong - eventually shareholders get angry and demand changes.
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After XBox it has been losing $1.2 billion a year.
But, MS can afford that. They think it's going to be manditory to be in that market, with the advances in gameplay over the internet, as well as streaming entertainment of other kinds.
They will wait it out.
The goal of XBox 360 is to break even (fortunately, this goal has been aided by Sony's overly ambitious PS3 design, though my guess at this point is that Wii will beat them both). You are mistaken if you believe MSFT is planning to lose money on every successive generation of XBox just for the sake of maintaining a bigger market presence.
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The Zune won't cost nearly as much to maintain.
They can afford that too!
No one else can.
Please stop spreading the very silly myth that no other company can afford to fund as much as Microsoft (i.e., that it is the most profitable company in the world). This is easily debunked by looking at any financial website. GE's net earnings are about 30% higher than Microsoft's. Exxon-Mobil's net earnings are about 200% more than Microsoft's. Either of these companies could "afford" to take much bigger losses for the sake of maintaining presence than Microsoft could.
The simple fact of the matter is that Microsoft is a big, mature company with limited opportunity for revenue growth. The advantage of this is that they have a large, predictable profit stream out of which they can take (stupid) risks to fund money losing products like Zune. The disadvantage is that they are under constant pressure to show earnings growth, and they can't do that by selling even more Windows and Office licenses to an already saturated market. The only way to boost earnings then is to cut deadweight loss, which means that within the next couple years, either (a) Zune's price gets set so that it no longer loses money or (b) Zune eventually gets thrown overboard. I'm betting on (a).
It has been noted that Microsoft was seeding comments on influential blogs and forums where the Zune was getting poor coverage. All of a sudden you'd get new users coming in praising the Zune.
And even then it still tanked.
I find it funny when MS posts 2% market share in less then two months, the Apple faithful boast that it tanked. Did you say the same when Apple only had 2% market share on their entire product line?
If it wasn't for intel they would still have 2% of the market, Steve Jobs didn't save Apple, Intel did.
It's like Apple fanboys hang on to the ipod for dear life because it's the only Apple product in history with decent market share.
MS did not create the first gen Zune to take over the ipod they created it to get into the game, same as the Xbox which by the way has taken over the console gaming market.
Creative makes a good mp3 player, Zune is a fine Mp3 player and Apple makes a good Mp3 player. They all work well, I still can't figure out this need to hold a market share higher than MS.
The fact is the better Zune does the more creative Apple will have to become to hold their market share. If the Zune does tank thats bad for everyone because competition creates innovation. Same goes with the computer line, now that Apple is in the intel world they will have to keep pace or being cute and thin just won't be enough.
The fact is the better Zune does the more creative Apple will have to become to hold their market share. If the Zune does tank thats bad for everyone because competition creates innovation.
I agree that Zune is beneficial for Apple customers. Who knows, its existence may have helped solidify Apple's choice to cut the 5.5G iPod price from $299 to $249. But from the perspective of a MSFT shareholder (such as myself), Zune is ridiculous, and it's simply a symbol of the poor decision making of MSFT execs these days as they desperately try to do something to grow the business beyond the Windows/Office monopoly. Why do you think the shares are lower now (in nominal terms, no less!) than they were 5 years ago?
Selling a product at a loss while still failing to gain significant marketshare and tarnishing the brand name is not a recipe for long term profits. It's a recipe for losing money. If management can't think of anything better to spend money on then silly ventures like this, they should just return it back to the shareholders (through even more stock buybacks or higher dividends). I can do much better just investing the profits in an S&P 500 index fund.
I agree that Zune is beneficial for Apple customers. Who knows, its existence may have helped solidify Apple's choice to cut the 5.5G iPod price from $299 to $249. But from the perspective of a MSFT shareholder (such as myself), Zune is ridiculous, and it's simply a symbol of the poor decision making of MSFT execs these days as they desperately try to do something to grow the business beyond the Windows/Office monopoly. Why do you think the shares are lower now (in nominal terms, no less!) than they were 5 years ago?
Selling a product at a loss while still failing to gain significant marketshare and tarnishing the brand name is not a recipe for long term profits. It's a recipe for losing money. If management can't think of anything better to spend money on then silly ventures like this, they should just return it back to the shareholders (through even more stock buybacks or higher dividends). I can do much better just investing the profits in an S&P 500 index fund.
MS is known for selling hardware at a loss because unlike Apple they understand they are a software, not hardware company. I'm not sure of too many things they failed at, very few would have predicted the MS would take over Sony and it has, Ps3 will fail and the 360has done very well as an example.
MS will attempt to take over with feature in there mp3 player, who knows as ipods need to be replaced they might be replaced by Zunes its too early to tell. Ive used both and honestly I could use there and be happy. I like a nano because its sold state but a zune to me is just a good as a ipod video.
I believe the hardware loss will be short lived as market share increases, if it doesn't increase then I believe you are right it will be a failed venture. People keep bringing up Creative Labs thats not a valid comparision, Creative does not have the pure business power that MS has in the market.
MS is like Walmart, Homedepot and Lowes they have such a strong hold on the market they can lose money short term on one product and there overall product line picks up the difference while the competition gets killed off.
The interesting thing is that no matter when you bought MSFT in the last 5 years, you're only seeing some realistic gains in the past 3-12 months. MSFT seems to be on a strong uptick in the past 3-12 months. ...Actually, where is this coming from? Interesting...
Just to satisfy my curiousity, I worked out: if you bought MSFT (any number of shares) at around $23*,
Bought 1 year ago: Average return per annum is 11%, not bad. Beats savings and a lot of mutual funds.
Bought 2 years ago: Average return per annum is 5%, okay, not great.
Bought 3 years ago: Average return per annum is 4%, hmmm...
Bought 4 years ago: Average return per annum is 3%, not great at all.
Bought 5 years ago: Average return per annum is -12%, sucks a55.
(2-4 year rough calculations based on GoogleFinance, working not shown)
*$23 is taken as around the 5-year moving average, roughly.
One more post, getting exhausted. It is interesting to note that it is about 5 years since the tragic events of 9/11 in NYC, so generally what we see in the past 5 years for most stocks is the recovery from the dot-com bust and 9/11. Obviously if we are looking at stock y'all got say in 1998-2001, then, well, different story, as I don't have to remind you.
Looking at the Indexes is worth noting, assuming you bought "tracking stock" of these indexes*, 5 years ago:
S&P500 = 4.6% gain per annum
Nasdaq = 3.8% gain per annum
DowJones = 4.0% gain per annum
*I don't know how this works exactly but I calculated the above anyways.
Not fantastic from a gain per annum measure, but possibly better than savings and term deposits since the 2002-2005 reserve bank rates (and hence savings and term deposit rates for Cash) for the US were sooo low.
Who knew that at the end of 2001, 5 years ago, one should have just dumped all your investment cash into AAPL.
$1,000 would be ~$7,823 now. $10,000 would be ~$78,300 now. $100,000 would be ~$783,000 now.
Okay peace out. If anyone finds errors in my calculations, please re-post correct ones, I won't have the energy to go back and re-calculate.
I find it funny when MS posts 2% market share in less then two months, the Apple faithful boast that it tanked. Did you say the same when Apple only had 2% market share on their entire product line?
Comparing market share across a broad market like computers to a vertical market niche like mp3 players is asinine. Really, there's no correlation. If you want to do a comparison, at least compare all music players (inc tape, MD, CD, Vinyl) to computers.
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Originally Posted by extremeskater
If it wasn't for intel they would still have 2% of the market, Steve Jobs didn't save Apple, Intel did.
Bearing in mind they were already past 2% with PowerPC that's simply not true. I don't think most people really care what CPU is in there.
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Originally Posted by extremeskater
It's like Apple fanboys hang on to the ipod for dear life because it's the only Apple product in history with decent market share.
I don't even own an iPod so I'm not sure what you're getting at.
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Originally Posted by extremeskater
MS did not create the first gen Zune to take over the ipod they created it to get into the game, same as the Xbox which by the way has taken over the console gaming market.
No, no, no. Xbox accounts for about 15% of console sales worldwide as pointed out earlier in the thread. Do keep up.
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Originally Posted by extremeskater
Creative makes a good mp3 player, Zune is a fine Mp3 player and Apple makes a good Mp3 player. They all work well, I still can't figure out this need to hold a market share higher than MS.
Simple. You're on an Apple website. We'd be kind of nuts to be rooting for the competition.
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Originally Posted by extremeskater
The fact is the better Zune does the more creative Apple will have to become to hold their market share. If the Zune does tank thats bad for everyone because competition creates innovation. Same goes with the computer line, now that Apple is in the intel world they will have to keep pace or being cute and thin just won't be enough.
Hint: it's not just about the hardware. It amazes me how PC nerds obsess about the minutiae of their hack boxes when they have to put up with crap like Windows Wireless Networking or endless Wizards.
Hint: it's not just about the hardware. It amazes me how PC nerds obsess about the minutiae of their hack boxes when they have to put up with crap like Windows Wireless Networking or endless Wizards.
Heh. Agreed. ...Said "hack boxes" and "minutiae" (like overclocking) can be fun though. Not to say that your point is not valid.
Creative makes a good mp3 player, Zune is a fine Mp3 player and Apple makes a good Mp3 player. They all work well, I still can't figure out this need to hold a market share higher than MS.
The "need" to hold a market share higher than MS has various reasons. The first is the "underdog" thing - for years Macs and Mac users being sidelined and crushed by the monopolies. So, admittedly, a lot of people look at the MS Zune Poon, and go, na nan a nan an na, suck sh1t !!!11!!1!!
The more "mature" people interested in Apple and Tech and stuff would recognise that the iPod market share, mindshare, and the revenue and profits generated from the iPod and iTunes Store are very key pillars of Apple now, which has enabled Apple to progress strongly on the Mac side of things and maintain, a at worst, a competitive operating system, at best, a superb and brilliant operating system - evolving almost every year while reducing bloat and maintaining decent levels of backward compatibility. The iPod phenomenon has also 1. Given Apple the confidence to go Intel and offer the ability to run Windows and PC Games(!) on Mac hardware, 2. Given Apple the ability to operate in markets outside of the medium-big enterprise, 3. Given Apple the confidence to continue with its core design, operating and marketing philosophy, when it comes to computers.
Comparing market share across a broad market like computers to a vertical market niche like mp3 players is asinine. Really, there's no correlation. If you want to do a comparison, at least compare all music players (inc tape, MD, CD, Vinyl) to computers.
My comparision was based your opinion that 2% market share after 2 months was a failure.
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Originally Posted by aegisdesign
Bearing in mind they were already past 2% with PowerPC that's simply not true. I don't think most people really care what CPU is in there.
Apple couldn't break 2-3% market share for decades. Your fooling yourself if you think people don't care about the cpu or its specs. Even most imac owners were pissed when Apple decided to turn the imac into nothing than a laptop with big screen, using a mobile chip compared to a true desktop, yet a again putting looks before performance.
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Originally Posted by aegisdesign
I don't even own an iPod so I'm not sure what you're getting at.
Still using 8 track tapes? Your telling me to keep up. Your posting about products you don't even use. Ya thats smart.
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Originally Posted by aegisdesign
No, no, no. Xbox accounts for about 15% of console sales worldwide as pointed out earlier in the thread. Do keep up.
"Speaking to the Associated Press about Microsoft's Xbox 360, Gartner Inc, the leading provider of research and analysis on the global information technology industry, recently estimated that Xbox 1 had about 34% of the global game systems market. They also estimated Playstation 2 to have 51% marketshare and Nintendo at 15%."
I believe you need to keep up. Would you like to take a guess on Xbox 360 market share compared to Nintendo and Sony now?
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Originally Posted by aegisdesign
Simple. You're on an Apple website. We'd be kind of nuts to be rooting for the competition.
Competition? Do you work for Apple? This is what you idiots don't understand competition is good for the end user. You know like Intel/AMD, Nvidia/ATI its what keeps progress moving foward. You act like your winning something if Apple can keep a decent ipod market share.
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Originally Posted by aegisdesign
Hint: it's not just about the hardware. It amazes me how PC nerds obsess about the minutiae of their hack boxes when they have to put up with crap like Windows Wireless Networking or endless Wizards.
I know that must be why all the mac users put bootcamp on there computers so they can run Windows programs. You hate the "competition so much but you couldn't run shit without them.
Even most imac owners were pissed when Apple decided to turn the imac into nothing than a laptop with big screen, using a mobile chip compared to a true desktop, yet a again putting looks before performance.
The current model is also the quietest production desktop computer. Maybe most computer geeks generally don't care about noise, but most computer users aren't computer geeks.
Besides, was the iMac ever in its history a high performance machine? I think you have your proportions messed up too, I don't think "most" owners were pissed. Probably just the vocal minority.
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I know that must be why all the mac users put bootcamp on there computers so they can run Windows programs. You hate the "competition so much but you couldn't run shit without them.
That's simply not true. In most cases, it's probably just one app. For new buyers, it's often a fall-back in case they don't like OS X. Switching platforms is a major step.
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You say to stop using the 2% figure because it is misleading and then you quote the 6% figure for Apple market share which you know full well is also misleading.
That's EXACTLY why I used it!
That was the point I was making.
People will say that the Zunes numbers are low, so that proved it sucks and will never make it.
But then those same people will look at Apple's low numbers, and say it proves that most people don't know what they are doing, and are just following the leader.
It's a bit more involved than that.
I have my doubts.
First off, I don't think 9% of the HD market (2% overall) is all that good, considering we're talking Microsoft here. They're the biggest company in tech, that puts a spotlight on everything they do, and they've thrown incredible resources into the marketing and hype of this device.
Second off, like you, I have doubts as to whether the 9% figure is sustainable, considering Zune sales are probably on a spike due to early adopters and being the 'new kid on the block'.
Longer-term, I wouldn't be at all suprised to see even their small current share of the HD player market drift down.
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I don't think it matters that it's MS. They are just another company in this space.
Indeed, they are not even a hardware company, except in an offhand way.
I happen to think that the Zune is the Doom.
But, who knows. People are strange.
You are assuming that they didn't take any share from Creative, Toshiba, etc. That is not a very good assumption, and the data do not support it (e.g., Apple's total share has declined by only 0.8% even as Zune captured 2% of the market).
I'm not assuming anything in that statement. I just gave the numbers. It's about an eighth of what Apple did. Where it came from, no one seems to know clearly yet.
Please see my post above. Apple is capturing 6% of the computer business in the US while charging margins that are as much as 50% above manufacturing costs (Apple computer hardware margins are generally 25-30% of average selling price, and that includes discounts). That is not laughable at all.
Apple would LOVE to have 50% margins on a hardware item. It just isn't happening. The Pro models do a bit better than 30%, and the rest go lower, to a bit over 18% for the lowest Mini. Not that that isn't very good! The stores are seeing maybe 10%, no more.
Microsoft is capturing 2% of the MP3 player market in the US while charging margins of NEGATIVE 20% or below. That is laughable...or rather, it would be laughable if I did not have a stake in MSFT stock.
We don't know what MS's margins are on the Zune. They can be anywhere from )% to your -20%. We just don't know. MS says they are breaking even. No reason not to believe that.
Indeed. But it pays even less to make stupid business decisions and throw good money after bad, which unfortunately for us MSFT shareholders is exactly what the company is proceeding to do.
The key things to remember are:
(1) Anyone can gain some share if they are willing to sell things for a loss.
(2) You can only sell things for a loss for a limited amount of time. (And often you can't even do that unless you're a big company that has deep pockets to begin with.)
MS is different from other companies.
Their software has margins for them of up to 90% (OEM).
They get into business's that they think are going to be important down the road. They can afford to l9se money for as long as it takes.
Look at the games division. Before XBox, it was small, but making a profit.
After XBox it has been losing $1.2 billion a year.
But, MS can afford that. They think it's going to be manditory to be in that market, with the advances in gameplay over the internet, as well as streaming entertainment of other kinds.
They will wait it out.
The Zune won't cost nearly as much to maintain.
They can afford that too!
No one else can.
In the first two months following its release (Nov/Dec 2001), the 1G iPod sold 125,000 units, or 62,500/month (source: Apple quarterly earnings release). In 2001, the worldwide MP3 player market was approximately 3.5 million units, or around 300,000/month (source: In-Stat/MDR chart, Feb 2002).
Assume holiday sales rates are 2x the rates of the quarters preceding them.* That means that MP3 players were selling to the tune of 600,000 units/month during the 2001 holiday season. I will also conservatively assume that iPod had a credible worldwide launch.**
Even under these conservative assumptions, the initial iPod captured over 10% of the market, or 5 times better than Zune's 2%.
However, as melgross and others have argued, Zune isn't currently competing in the flash market. They say the relevant market is the HD player market, of which Zune got about 10%. Of course, iPod also was only competing in the HD market initially (then, as now, most players were flash based), so by the same argument the 1G iPod might have captured as much as 50% of the HD market. Again, Zune looks bad in comparison.
But it gets better. Recall that the 1G iPod was only compatible with Macintosh when released!!! Generously assume that Apple had 5% market share, and assume Mac users buy MP3 players at a higher rate than Windows users (say, 2-3 times higher). Then the iPod was competing for at most 10-15% of the market. So, again by the melgross et al argument, iPod captured between 67 to 100% of the relevant market when it was released. That is up to 10 times better than Zune...and that is still assuming that almost all Mac users buy HD players instead of flash players.
But it gets even better. The iPod cost $399 and had significant positive margins. Zune has negative margins. This means that Zune has much more favorable pricing conditions at launch than the 1G iPod did, but it's still doing 5-10 times worse. Put another way, the growth prospects of Zune look worse than the growth prospects of the 1G iPod did. This is because future generations of Zunes will eventually need to make a profit, which means they either have to increase their price relative to competing MP3 players, or they have to add capacity/features more slowly than competing MP3 players.
In summary, the 1G iPod did at least 5 to 10 times better than Zune on release. Furthermore, even though it was already doing 5 to 10 times better, the 1G iPod still had better growth prospects than Zune because it wasn't relying on the ultimately unsustainable crutch of money-losing prices to try to boost sales.
And if you still have any doubts, consider this: at current rates, Zune will sell maybe 300,000 units during the holidays. This is only 2.5 times the number of units the 1G iPod sold in the same timeframe, even though the relevant MP3 player market is over 300 times larger (overall MP3 player mkt has grown at least 20 times, and Zune is selling for 90% of the world's computers rather than 5%). So Zune may be doing as much as 100 times worse than the original iPod (I told you the assumptions I was making above were conservative!!!).
*This number is in line with the seasonal trends in iPod sales - holiday quarter sales rates are usually around 100% higher than sales rates for the quarters preceding them.
** This is unclear from the press releases, and this assumption is likely to seriously bias downwards our iPod market share estimates (since iPod generally does better in the US than worldwide).
Apple would LOVE to have 50% margins on a hardware item. It just isn't happening. The Pro models do a bit better than 30%, and the rest go lower, to a bit over 18% for the lowest Mini. Not that that isn't very good! The stores are seeing maybe 10%, no more.
You are confused; please reread the post. I specifically said up to 50% above cost, which implies a margin of 33% or less.
In their most recent 10-K, Apple reported overall gross margins of 29%. This includes A LOT of sales of lower margin items (i.e., iPods), and a much smaller amount of sales of high margin items (software). Overall it is not unreasonable to assume average margins of 25-30% across the Macintosh line, which implies pricing 33-43% above cost. Note that I did not include the Mini in my analysis, but rather the MacBook and the iMac (which are undoubtedly the median Macs, in terms of price).
Overall, the sample iMac/MacBook prices I threw out were actually a bit high because margins are based on the marginal revenue Apple gets for a given Mac, but I was basing the prices off the suggested retail price of each Mac (which is higher due to edu discounts, promotions, the retailer cut, etc).
We don't know what MS's margins are on the Zune. They can be anywhere from )% to your -20%. We just don't know. MS says they are breaking even. No reason not to believe that.
Wrong. It is well known that Zune is a money loser. Microsoft does not expect it to make money until at least 2008 (see http://www.latimes.com/business/la-f...lines-business). A common estimate is that they are losing around $50/player (see, e.g., http://www.macnn.com/articles/06/09/...g.ms.partners/), which works out to a little under 20%. Probably the most telling fact is that Microsoft already said they were going to lose money back in July (see the first article I posted), and at that time they still thought they were going to be able to sell it for $299.
They get into business's that they think are going to be important down the road. They can afford to l9se money for as long as it takes.
Wrong - eventually shareholders get angry and demand changes.
After XBox it has been losing $1.2 billion a year.
But, MS can afford that. They think it's going to be manditory to be in that market, with the advances in gameplay over the internet, as well as streaming entertainment of other kinds.
They will wait it out.
The goal of XBox 360 is to break even (fortunately, this goal has been aided by Sony's overly ambitious PS3 design, though my guess at this point is that Wii will beat them both). You are mistaken if you believe MSFT is planning to lose money on every successive generation of XBox just for the sake of maintaining a bigger market presence.
The Zune won't cost nearly as much to maintain.
They can afford that too!
No one else can.
Please stop spreading the very silly myth that no other company can afford to fund as much as Microsoft (i.e., that it is the most profitable company in the world). This is easily debunked by looking at any financial website. GE's net earnings are about 30% higher than Microsoft's. Exxon-Mobil's net earnings are about 200% more than Microsoft's. Either of these companies could "afford" to take much bigger losses for the sake of maintaining presence than Microsoft could.
The simple fact of the matter is that Microsoft is a big, mature company with limited opportunity for revenue growth. The advantage of this is that they have a large, predictable profit stream out of which they can take (stupid) risks to fund money losing products like Zune. The disadvantage is that they are under constant pressure to show earnings growth, and they can't do that by selling even more Windows and Office licenses to an already saturated market. The only way to boost earnings then is to cut deadweight loss, which means that within the next couple years, either (a) Zune's price gets set so that it no longer loses money or (b) Zune eventually gets thrown overboard. I'm betting on (a).
It has been noted that Microsoft was seeding comments on influential blogs and forums where the Zune was getting poor coverage. All of a sudden you'd get new users coming in praising the Zune.
And even then it still tanked.
I find it funny when MS posts 2% market share in less then two months, the Apple faithful boast that it tanked. Did you say the same when Apple only had 2% market share on their entire product line?
If it wasn't for intel they would still have 2% of the market, Steve Jobs didn't save Apple, Intel did.
It's like Apple fanboys hang on to the ipod for dear life because it's the only Apple product in history with decent market share.
MS did not create the first gen Zune to take over the ipod they created it to get into the game, same as the Xbox which by the way has taken over the console gaming market.
Creative makes a good mp3 player, Zune is a fine Mp3 player and Apple makes a good Mp3 player. They all work well, I still can't figure out this need to hold a market share higher than MS.
The fact is the better Zune does the more creative Apple will have to become to hold their market share. If the Zune does tank thats bad for everyone because competition creates innovation. Same goes with the computer line, now that Apple is in the intel world they will have to keep pace or being cute and thin just won't be enough.
The fact is the better Zune does the more creative Apple will have to become to hold their market share. If the Zune does tank thats bad for everyone because competition creates innovation.
I agree that Zune is beneficial for Apple customers. Who knows, its existence may have helped solidify Apple's choice to cut the 5.5G iPod price from $299 to $249. But from the perspective of a MSFT shareholder (such as myself), Zune is ridiculous, and it's simply a symbol of the poor decision making of MSFT execs these days as they desperately try to do something to grow the business beyond the Windows/Office monopoly. Why do you think the shares are lower now (in nominal terms, no less!) than they were 5 years ago?
Selling a product at a loss while still failing to gain significant marketshare and tarnishing the brand name is not a recipe for long term profits. It's a recipe for losing money. If management can't think of anything better to spend money on then silly ventures like this, they should just return it back to the shareholders (through even more stock buybacks or higher dividends). I can do much better just investing the profits in an S&P 500 index fund.
Wrong - eventually shareholders get angry and demand changes....
One would think so, given MSFT not really performing at all for the past few years. But the stock is interesting.
3 months: MSFT gains 11%, S&P500 7%, Nasdaq 8%, DowJones 7%
6 months: MSFT gains 30%, S&P500 13%, Nasdaq 13%, DowJones 12%
1 year: MSFT gains 11%, S&P500 11%, Nasdaq 7%, DowJones 13%
5 years: MSFT loses 12%, S&P500 +23%, Nasdaq +19%, DowJones +20%
I agree that Zune is beneficial for Apple customers. Who knows, its existence may have helped solidify Apple's choice to cut the 5.5G iPod price from $299 to $249. But from the perspective of a MSFT shareholder (such as myself), Zune is ridiculous, and it's simply a symbol of the poor decision making of MSFT execs these days as they desperately try to do something to grow the business beyond the Windows/Office monopoly. Why do you think the shares are lower now (in nominal terms, no less!) than they were 5 years ago?
Selling a product at a loss while still failing to gain significant marketshare and tarnishing the brand name is not a recipe for long term profits. It's a recipe for losing money. If management can't think of anything better to spend money on then silly ventures like this, they should just return it back to the shareholders (through even more stock buybacks or higher dividends). I can do much better just investing the profits in an S&P 500 index fund.
MS is known for selling hardware at a loss because unlike Apple they understand they are a software, not hardware company. I'm not sure of too many things they failed at, very few would have predicted the MS would take over Sony and it has, Ps3 will fail and the 360has done very well as an example.
MS will attempt to take over with feature in there mp3 player, who knows as ipods need to be replaced they might be replaced by Zunes its too early to tell. Ive used both and honestly I could use there and be happy. I like a nano because its sold state but a zune to me is just a good as a ipod video.
I believe the hardware loss will be short lived as market share increases, if it doesn't increase then I believe you are right it will be a failed venture. People keep bringing up Creative Labs thats not a valid comparision, Creative does not have the pure business power that MS has in the market.
MS is like Walmart, Homedepot and Lowes they have such a strong hold on the market they can lose money short term on one product and there overall product line picks up the difference while the competition gets killed off.
Just to satisfy my curiousity, I worked out: if you bought MSFT (any number of shares) at around $23*,
Bought 1 year ago: Average return per annum is 11%, not bad. Beats savings and a lot of mutual funds.
Bought 2 years ago: Average return per annum is 5%, okay, not great.
Bought 3 years ago: Average return per annum is 4%, hmmm...
Bought 4 years ago: Average return per annum is 3%, not great at all.
Bought 5 years ago: Average return per annum is -12%, sucks a55.
(2-4 year rough calculations based on GoogleFinance, working not shown)
*$23 is taken as around the 5-year moving average, roughly.
1 month return is -9%
3 month return is 13%
6 month Average return per annum is 76% (projected by doubling previous 6 month gain of 38%)*
1 year Average return per annum is 11%
2 year Average return per annum is 78%**
3 year Average return per annum is 245%**
4 year Average return per annum is 253%**
5 year Average return per annum is 137%**
(Rough calculations from GoogleFinance charts)
*I know, you can't just project it to the future that way
**Yes, this is REAL
Looking at the Indexes is worth noting, assuming you bought "tracking stock" of these indexes*, 5 years ago:
S&P500 = 4.6% gain per annum
Nasdaq = 3.8% gain per annum
DowJones = 4.0% gain per annum
*I don't know how this works exactly but I calculated the above anyways.
Not fantastic from a gain per annum measure, but possibly better than savings and term deposits since the 2002-2005 reserve bank rates (and hence savings and term deposit rates for Cash) for the US were sooo low.
Who knew that at the end of 2001, 5 years ago, one should have just dumped all your investment cash into AAPL.
$1,000 would be ~$7,823 now. $10,000 would be ~$78,300 now. $100,000 would be ~$783,000 now.
Okay peace out. If anyone finds errors in my calculations, please re-post correct ones, I won't have the energy to go back and re-calculate.
I find it funny when MS posts 2% market share in less then two months, the Apple faithful boast that it tanked. Did you say the same when Apple only had 2% market share on their entire product line?
Comparing market share across a broad market like computers to a vertical market niche like mp3 players is asinine. Really, there's no correlation. If you want to do a comparison, at least compare all music players (inc tape, MD, CD, Vinyl) to computers.
If it wasn't for intel they would still have 2% of the market, Steve Jobs didn't save Apple, Intel did.
Bearing in mind they were already past 2% with PowerPC that's simply not true. I don't think most people really care what CPU is in there.
It's like Apple fanboys hang on to the ipod for dear life because it's the only Apple product in history with decent market share.
I don't even own an iPod so I'm not sure what you're getting at.
MS did not create the first gen Zune to take over the ipod they created it to get into the game, same as the Xbox which by the way has taken over the console gaming market.
No, no, no. Xbox accounts for about 15% of console sales worldwide as pointed out earlier in the thread. Do keep up.
Creative makes a good mp3 player, Zune is a fine Mp3 player and Apple makes a good Mp3 player. They all work well, I still can't figure out this need to hold a market share higher than MS.
Simple. You're on an Apple website. We'd be kind of nuts to be rooting for the competition.
The fact is the better Zune does the more creative Apple will have to become to hold their market share. If the Zune does tank thats bad for everyone because competition creates innovation. Same goes with the computer line, now that Apple is in the intel world they will have to keep pace or being cute and thin just won't be enough.
Hint: it's not just about the hardware. It amazes me how PC nerds obsess about the minutiae of their hack boxes when they have to put up with crap like Windows Wireless Networking or endless Wizards.
Hint: it's not just about the hardware. It amazes me how PC nerds obsess about the minutiae of their hack boxes when they have to put up with crap like Windows Wireless Networking or endless Wizards.
Heh. Agreed.
Creative makes a good mp3 player, Zune is a fine Mp3 player and Apple makes a good Mp3 player. They all work well, I still can't figure out this need to hold a market share higher than MS.
The "need" to hold a market share higher than MS has various reasons. The first is the "underdog" thing - for years Macs and Mac users being sidelined and crushed by the monopolies. So, admittedly, a lot of people look at the MS Zune Poon, and go, na nan a nan an na, suck sh1t !!!11!!1!!
The more "mature" people interested in Apple and Tech and stuff would recognise that the iPod market share, mindshare, and the revenue and profits generated from the iPod and iTunes Store are very key pillars of Apple now, which has enabled Apple to progress strongly on the Mac side of things and maintain, a at worst, a competitive operating system, at best, a superb and brilliant operating system - evolving almost every year while reducing bloat and maintaining decent levels of backward compatibility. The iPod phenomenon has also 1. Given Apple the confidence to go Intel and offer the ability to run Windows and PC Games(!) on Mac hardware, 2. Given Apple the ability to operate in markets outside of the medium-big enterprise, 3. Given Apple the confidence to continue with its core design, operating and marketing philosophy, when it comes to computers.
Comparing market share across a broad market like computers to a vertical market niche like mp3 players is asinine. Really, there's no correlation. If you want to do a comparison, at least compare all music players (inc tape, MD, CD, Vinyl) to computers.
My comparision was based your opinion that 2% market share after 2 months was a failure.
Bearing in mind they were already past 2% with PowerPC that's simply not true. I don't think most people really care what CPU is in there.
Apple couldn't break 2-3% market share for decades. Your fooling yourself if you think people don't care about the cpu or its specs. Even most imac owners were pissed when Apple decided to turn the imac into nothing than a laptop with big screen, using a mobile chip compared to a true desktop, yet a again putting looks before performance.
I don't even own an iPod so I'm not sure what you're getting at.
Still using 8 track tapes? Your telling me to keep up. Your posting about products you don't even use. Ya thats smart.
No, no, no. Xbox accounts for about 15% of console sales worldwide as pointed out earlier in the thread. Do keep up.
http://www.xbox365.com/news.cgi?id=GGPGLLPGLL11130359
"Speaking to the Associated Press about Microsoft's Xbox 360, Gartner Inc, the leading provider of research and analysis on the global information technology industry, recently estimated that Xbox 1 had about 34% of the global game systems market. They also estimated Playstation 2 to have 51% marketshare and Nintendo at 15%."
I believe you need to keep up. Would you like to take a guess on Xbox 360 market share compared to Nintendo and Sony now?
Simple. You're on an Apple website. We'd be kind of nuts to be rooting for the competition.
Competition? Do you work for Apple? This is what you idiots don't understand competition is good for the end user. You know like Intel/AMD, Nvidia/ATI its what keeps progress moving foward. You act like your winning something if Apple can keep a decent ipod market share.
Hint: it's not just about the hardware. It amazes me how PC nerds obsess about the minutiae of their hack boxes when they have to put up with crap like Windows Wireless Networking or endless Wizards.
I know that must be why all the mac users put bootcamp on there computers so they can run Windows programs. You hate the "competition so much but you couldn't run shit without them.
Even most imac owners were pissed when Apple decided to turn the imac into nothing than a laptop with big screen, using a mobile chip compared to a true desktop, yet a again putting looks before performance.
The current model is also the quietest production desktop computer. Maybe most computer geeks generally don't care about noise, but most computer users aren't computer geeks.
Besides, was the iMac ever in its history a high performance machine? I think you have your proportions messed up too, I don't think "most" owners were pissed. Probably just the vocal minority.
I know that must be why all the mac users put bootcamp on there computers so they can run Windows programs. You hate the "competition so much but you couldn't run shit without them.
That's simply not true. In most cases, it's probably just one app. For new buyers, it's often a fall-back in case they don't like OS X. Switching platforms is a major step.