Buyers Come for Apple’s Hardware, But Stay for Software

Apple’s tremendous success is rooted in its software platform, rather than its iPhone and iPad devices, according to a recent study by investment firm Goldman Sachs.

The 59-page report, which analyzed Apple’s core business, found that the Cupertino, Calif.-based company’s major advantage is its ability get the most “bang for the buck” over rivals by earning more money per dollar that it spends.

When Apple launched iTunes in 2003, it saw its revenue grow to three times more than its R&D costs. When it started to leverage third-party developers and content providers, revenue surged to seven times costs.

“It’s clear that Apple wouldn’t be successful today if it weren’t for the strategic vision of Steve Jobs. Jobs saw the shifting tides of consumer computing, and he capitalized on this by leading Apple in the development of one of the most powerful software and content platforms in the world,” said Bill Shope, the author of the report. “With that said, the platform is here now and it’s robust.”

Shope added that while consumers buy Apple hardware devices for their design, it’s the software that keeps them loyal. High “switching costs” not only deter consumers from moving to another competitor, but also make it more likely that they’ll buy many more Apple products, since they’re all tied to Apple’s platform.

Once on the brink of bankruptcy, Apple now has a market value of $293 billion — more than McDonald’s, Goldman Sachs and, as of May, Microsoft. To put it into perspective, $1,000 invested in Apple shares on the day Jobs took over in 1998 is worth around $100,000 today.

I Want More Stuff Like This!

Sign up to our daily e-mail and see why technology matters. See Sample.

You Might Also Like: