Apple’s Cash Cow Is Dying

We don’t usually quote Sir Bill on this site, but it is obvious that he has been reading my articles concerning the idea that computer hardware will be almost free in a few years. Either that, or he recently came back from a weekend think-fest where he was mining the thoughts and ideas of others, who have probably been reading my articles. =)

“Dinosaur On Your Desk”

“The Final Solution”

This is what Bill said about computer hardware:

“Ten years out, in terms of actual hardware costs you can almost think of hardware as being free.” – Sir Bill Gates. Here is the link.

Another thinker reported that Intel is ceasing to use speed as an effective tool to sell their computer chips, because they are already so fast and powerful it doesn’t matter anymore.

“When Intel said last week that it plans to stop using gigahertz figures to market its microprocessors, analysts said it was about time. A chip’s clock speed is almost irrelevant in determining the overall performance of a computer.” – Amit Asaravala. Here is the link.

So this means that Apple’s Cash Cow is dying. Their main business and their profit is hardware. Computer hardware, not just neat gadgets like the iPod and the iPod mini.

The concept here is quite simple. Computer hardware is both becoming more powerful and less expensive. They will continue to do this until hardware ceases to be major profit makers for all computer hardware companies, such as Dell, HP and Apple.

The first Mac II I bought a decade ago cost $5000. It had a 25MHz processor and 8MB of RAM, with a 60 MB hard drive.

Compare that to my current $800 eMac with 1GHz processor, 512 MB of RAM, and a 40 GB hard drive.

You see where this is all going, right? Even Bill Gates has gotten the clue here.

What does this mean for Apple Computers? Eventually they will be a software company instead of a hardware/software company (except perhaps for Servers). Right now, their cash cow is in their most excellent and world-class hardware. But the time will come when selling their venerable and legendary OS X and media software suites (in their latest versions) will be critical to their bottom line.

Therefore, if Apple is smart, they will begin to market their OS and their wonderful suite of media software to a much broader market (read PCs here). I don’t think they will have a choice. They must migrate their OS and software to Intel and AMD computers in order to stay in business.

Now is a much better time to do this than it would have been before, back when the PC computer hardware was so varied, incompatible and weak. Apple will not have to face the drastic problems of iterations and stability that used to plague PCs. (The only real weakness of PCs now is Windows.)

And when they finally do migrate their Mac OS to the PC, Sir Bill will see his Windows market share erode big time. That is, if he is still into computers and software by then.

If Apple is smart, brilliant and wise, they will do this much earlier rather than later, preferably before 2006, when Windows Longhorn comes out. Right now, Microsoft Windows’ market share is already failing, and rightfully so, because that OS is over-patched, insecure, bloated and poorly written. Which is why Longhorn has been repeatedly pushed back from release.

Won’t doing migrating Apple’s Mac OS steal sales from their hardware? Yes it will. But their hardware will eventually become less of a means of profit, so they will need to do this anyway. It won’t kill them to do it. They do have a 4 billion dollar buffer, don’t they?

(For those of you who think I’m completely nuts here, you are probably right, but I’m taking my meds anyway, so at least I can appear lucid and coherent.)

What about peripherals and thing like the iPods? They will continue to be popular and to make money, but the computer hardware manufacturers days of relying on selling $4000 computers is going to go away. It’s just a matter of time. You can quote me on that, Bill.