10
Jan 11

CES 2011: putting Apple in its place

It only takes 2,700 exhibitors to put Apple in perspective.

The annual Consumer Electronics Show is unimaginably huge. More than 33 football fields’ worth of displays. I left my measuring tape at home, but I suspect Sony filled one of those football fields all by itself.

While Apple declines to show up at such gatherings, their absence allows us to make some interesting observations. Much the same way that astronomers draw conclusions about planets by examining the forces surrounding them.

First, just to keep the astronomy metaphor going, it’s hard not to appreciate the “speck in the universe” aspect of Apple when you walk around CES. Apple is dwarfed by the sheer volume of its competitors. It is also dwarfed by the many lines of products offered by its biggest competitors.

Having been to enough Macworlds in my day, it’s easy to imagine what Apple’s booth would look like next to the booth of, say, Sony or Samsung. It would be a fraction of the size, simply because Apple focuses on a relatively small number of products — featuring only single lines of desktops, laptops, music players, phones and tablets. The other guys have product lines out the wazoo, churning out everything from TVs and DVD players to washers and dryers. I imagine it will be a while before we see Apple going up against Whirlpool.

Apple’s accomplishment, however, becomes more amazing given the number and size of its competitors. Creating far fewer products, selling to far fewer people, Apple generates more profit than every last one of them. By far.

Standing in that Sony booth, being awed by the depth and breadth of that company’s product offerings, watching the enthusiasm of the crowds, it defies belief that Apple is the more successful — and more valuable — company. In my opinion, it’s the ultimate tribute to the power of simplicity.

There’s only one reason, of course, why any company would bother with CES in the first place. It’s that one time of the year when they can buy themselves some great PR and generate excitement for their new products. In other words, they have to pay for what Apple gets free all year long. While some may grouse about that, let’s not forget that Apple doesn’t derive this benefit because journalists, bloggers and media companies have such big hearts. Apple gets the buzz because over a couple of decades, they’ve repeatedly created new categories by innovating so successfully. They’ve built expectations that are in themselves newsworthy.

Last, I did want to offer an observation about the many tablets on display at CES. Rather than bore you with model-by-model reviews, I’ll just say that there are a number of solid contenders out there. There is every reason to believe the tablet market will evolve much as the smartphone market did. Apple takes the early market share lead by reinventing the category, then Android and the others step in with more features and lower prices. Fans of those platforms will find much to like. Ultimately Apple will sell fewer units than the others, but as is the case with computers and smartphones — they will continue to generate greater profit.

As long as Apple continues to innovate as it does, there will be a large audience willing to pay the premium.

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  • Riz

    Apple is changing consumerism. We are so accustomed to have ‘the choice’ that we end up forgetting why we needed that ‘choice’ in the first place.

    I don’t want to choose between the right smartphones (iPhone) and the stupid ones (most Nokia N series). The stupid companies that produce stupid devices should not have been there if the public wasn’t stupid. Finally the public realised that they had been stupid and started to pay Apple over the odds to buy the right device.

    We must get rid of the notion that choice is good for us. It is not!

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  • Ken Jackson

    “Creating far fewer products, selling to far fewer people, Apple generates more profit than every last one of them. By far.”

    Well except their biggest competitor, Microsoft. MS still earns more profit than Apple.

  • RattyUK

    @Ken. “MS still earns more profit than Apple.”

    Not as of last quarter, I’m afraid.

  • rd

    @RattyUK.

    MSFT earns more profit.
    Apple surpassed them in revenue.

    MS has higher profit margin as it
    doesn’t sell hardware and pays very
    little taxes because of Ireland.

  • Synth

    I agree with your main point about the amazing simplicity of Apple’s strategy, but I don’t think the tablet market is going to be like the cell phone market where Android had explosive growth.

    1. No artificial or technical limitations of the telcos. Note how Apple started selling the iPad with Verizon with NO CDMA chip and no two year contract. Also note how Apple started selling the iPad in China in less than six months, no telcos involved.
    2. No telco subsidy shell game with slates. Apple is not letting the telcos hide the true costs of slates behind two year subscriptions and I doubt most consumers will buy into yet another subscription mobile device.
    3. Apple really does have vast economies of scale with the iPad sharing major components from the iPod touch, iPhone and AppleTV. Apple can plan on selling 10s of million of iPads, no single Android OEM can really do that. I don’t think anyone can really undercut Apple on price in the tablet arena, not without painfully obvious compromises in weight, size or battery life.
    4. The Android OEMs will beat each other’s brains out over components, telco subsidies, shelf space, marketing and mindshare.
    5. Virtually all of these competitors still aren’t ready–which frankly stuns me–and Apple is just about to release iPad 2 which will further reduce the size/weight and add the missing cameras and probably increase the battery life.
    Generally, I just get the feeling that Apple is going for the jugular on this product, by the way they’ve ramped up production, kept the price low, expanded retail and international distribution and completely sidelined the telcos. For example, it took Apple forever to get the iPhone distribution to the level of iPad distribution. China iPhones were about 3 years later, in a kneecapped version.

  • KenC

    Perhaps, RattyUK was referring to last quarter, being the just concluded Christmas quarter, where I will go out on a limb and say, Apple handily beat Microsoft in PROFIT. We’ll know for sure in a couple weeks, but I think it’s a pretty safe bet.

  • Think you’ve got it right Synth

  • ken segall

    @Synth:
    Great points, thanks for taking the time. I still think, in total, Android will end up with greater market share (as they will with smartphones), but that share will be split amongst a wide assortment of manufacturers. So getting an Android tablet will be a different experience for everyone, vs. the consistent experience that iPad represents.

  • rd

    @KenC,

    You wanna bet.

    previous quarter,
    Apple earned $4.31 billion on 20.34 billion.
    while Microsoft earned $5.41 billion on $16.2 billion

    21.1% vs. 33.3% net income.

    So if Apple make 26 billion it will only get them $5.4
    billion. so all Microsoft has to do is little accounting
    magic and they will get $6 billion easily.

    It is going to take few more quarters for Apple
    to surpass MS in profit.

  • Marian

    I personally don’t think that in terms of market share iPad is the next iPhone. I feel it’s the next iPod.

  • Drew

    It will be interesting to see if Apple can overtaken MS in profit. Keep inmind that Ford cars and trucks with MS’s $400 Sync system are flying off the lots (about 3 mill with Sync in 2010). Q4 is big for auto companies too. Also, MS had Kinnect going in Q4 (about 6 mil). So there is a lot of new revenue/profit potential for MS.

    Apple does have the perfect storming going though:

    High Priced Items
    Consumer “Must Have” status
    Sustainability

    That is a reallllly good recipe for making cash.