The Only Thing Apple Really Sells

By Brian Barrett on at

A recent Wall Street Journal article posits an interesting question: Is Apple a hardware company or a software company? Does it sell iPhones or iClouds? The answer has deep implications for how analysts evaluate the company's worth. It's framed as an identity crisis, one with deep, dangerous implications for one of the most dominant consumer electronics companies in the world. There is much gnashing of teeth.

Let's save them the anguish. Apple isn't a hardware company, or a software company. It's not iOS or iMac. Apple, like Google and Microsoft and anyone else that wants to survive in the 21st century, sells only one thing: an ecosystem. The most powerful one in the world.

What Apple realised before anybody — and what Amazon, Google, and Microsoft have slowly but aggressively come around to — is that the act of buying a phone or a tablet or a computer isn't an isolated incident. Gadgets don't exist on islands. They're one-way tickets to platform archipelagos, to fiercely guarded fiefdoms where everything works in harmony within high and fiercely guarded walls. And the longer you're inside, the harder it is to leave.

An iPhone isn't just an iPhone. It's access to nearly a million apps that only work on Apple products, to 1.5 million books that you can't read on a Kindle. It's a remote for your Apple TV, a place to pluck your iTunes music and movies out of thin air. You don't buy an iPhone for the A6 processor or for iOS 6. You buy an iPhone for Apple, every bit as much as you buy a Chromebook Pixel for Google or an Xbox for Microsoft.

That's the endgame. An ecosystem so interconnected, entwined so tightly, that you can't leave even if you wanted to. It's not hardware, or software. It's a family of products, apps, services, and accessories with the gravitational pull of a black hole. And Apple, today, simply does it better than anybody else.

It's true — and wonderful — that Android is giving Apple the best competition it's had in the mobile space since forever. And that Microsoft is pursuing relevance with the dogged patience that Gerard pursued Kimble. But breaking up with Apple isn't as easy as divorcing Dell. We're willing captives of our gadgets of choice these days, and the ransom for leaving — new chargers, new apps, even the time spent just getting set up — is often just too damn high.

The Only Thing Apple Really Sells

Why do these categorisations -- hardware company, software company, neither, both --matter in the real world? They don't much, day to day, not to you and me. But to Wall Street analysts, pressured to quantify every aspect of a company's performance and impact, it matters a great deal. Hardware companies are vulnerable to consumer wanderlust and technological leapfrogging; just ask Sony how many Walkmen it's sold lately. Software companies, though, are nimble, and they have more opportunities for repeat business.

It doesn't take an MBA to figure out how Wall Street views Apple. The company's stock price has plummeted since last fall, making £180 billion in value vanish in just six months. To them, Apple's a hardware company, or at best, a hardware company that also sells software. And when Cupertino reports its earnings this afternoon, analysts will scramble to explain why more iPhones weren't sold, why laptops are a dying breed. What they can't see, and what anyone who actually uses these things day to day knows instinctively, is that all of that is secondary.

All that matters is the size of the garden, the strength of its walls. If you want to know what Apple's worth, figure out a way to quantify that.