Apple’s business model focuses on making a profit on hardware. Surprise – they have more in cash than the entire net worth of Amazon, which makes the rival Kindle tablet line.

Despite a recent drop in its stock price, Apple is also worth more than double Google, which makes nothing on hardware. In fact, Google may lose money on Nexus hardware. Their goal, of course, is to make that money back (and much more) in software and ‘soft’ services. To date, this strategy has failed – Android has cost more than it’s generated.

Similarly, Apple is worth more than double Microsoft as well. Microsoft licenses its Windows Phone 8 platform and has long made nearly all its money off software. Apple is not just worth more than Microsoft, Apple’s profits are greater as well. If software is eating the world, why isn’t it eating Apple’s profits?

Apple continues to grow: iPhone sales are growing, iPad sales are growing. Its competitors, meanwhile, scrounging to make profits elsewhere, have come to the realization that they must become hardware companies!

Google dropped $12 billion on Motorola. Amazon makes Kindle. I suspect Amazon will soon make their own smartphone line as well. Microsoft introduced the Surface tablet – hardware that they make. CEO Steve Ballmer has strongly suggested that the company will move further into hardware. In the past ten years, has this once great software company introduced any successful product other than the Xbox, hardware?

Is hardware now required to make money in software – at least in consumer markets? Let’s examine recent data points:

Google Android is responsible for 72% of last quarter’s smartphone sales – but Google refuses to give us solid numbers on what revenues those 120+ million devices are generating. A reading of their earnings statement suggests any revenues are relatively minor.
Android has an install base of 560 million devices. Last month, Google CEO Larry Page said “mobile” (not Android) had an annual run rate (from some unspecified time) of $8 billion. That’s revenues, not profits. If we delude ourselves into thinking that this is a legit number and all of it comes from Android, then Google is generating $14 per device per year. Not bad. Remember, though, that’s revenues, not profits. Apple is generating an estimated $300 – $500 on each new iPhone sold. Clearly, hardware is the better business.
Worse for Google, the money on software, services and content can only be realized where these are fully protected. Almost 90% of new smartphones sold in China use Android. These millions of devices, however, generate almost nothing for Google, Google Play, Google Maps, et al., due to China’s restrictions on Google and its services. I have to ask Larry Page: if Apple sells just 5 iPhones in China, say, or maybe 10, have they generated more profits in China than Google’s Android?
Amazon rival Netflix suggests that Amazon is losing close to a billion a year on its movie streaming service – which includes many free movies for Kindle customers. While Amazon will not verify this, we know Amazon’s profits are close to 0. Last quarter Amazon had a $28 million operating loss.
Why the persistent belief then that selling hardware at or below cost is the future? To date, it’s been a huge cost and with little end in sight. Both Google and Amazon continue to offer more and more free services to evermore demanding customers but the bottom line has not improved.

Exactly how much do Amazon and Google need to give away before Apple can no longer make a profit on hardware? Or is this a completely backwards notion of the reality of the market? Show me the money! If software is eating the world, than the world is an empty, zero calorie meal.

Perhaps everyone got it wrong – except Apple and Steve Jobs: make awesome hardware and people will pay good money for it. Make hardware as an after-thought, as a means to sell us streaming movies, for example, or to present more ads to click, and people will pay far less, and may care far less.

Is it possible the software business, instead of forcing Apple to adopt a different business model, has instead diminished itself?

Google gives away Android and works with vendors to make its flagship Nexus devices available at almost no profit margin. Then they offer me free email, free voice search, lots of free apps, a free voice number (in the US), free videoconferencing and more. If the way to make money was on the software and services, than Google would be earning a fortune on Android. They are not! It’s a cost center.

Cost centers are simply not sustainable.

Businesses focus on those areas where they generate revenues (and profits). For Apple that is hardware. For Amazon and Google it’s elsewhere. Is it any wonder then that Kindles aren’t as good as iPads? Is anyone surprised that customer satisfaction is higher for iPhone than any competing Android device?

Right now, only Apple and Samsung, two great hardware companies, are making any decent money on smartphones. Amazon has a PE of 3,000. It’s market value is built on promise, not profits. Google can’t seem to do enough to maintain its profit margins or the value of its once-sacred click. No wonder the company purchased Motorola, no wonder they are building fiber-based broadband service, no wonder they are in talks to partner with Dish on a nationwide (US) 4G network, and seem to be doing everything they can to make money outside of hardware. Only, its not working. Hardware is hard and making great hardware is near impossible.

Why should we believe that this will change anytime soon? Why believe that selling hardware at cost, or at a loss, will kill Apple and allow its competitors to rise up? The evidence has shown this to be false.

The focus on generating profits through software and services, making hardware a cost to be brought down, is fundamentally wrong. Apple keeps printing money. Nearly all that money comes from hardware and nearly all of that hardware is less than 5 years old. If not for Adwords, damn near a 20th century product, Google would have next to nothing.

Is this the final revenge of Steve Jobs?

Let’s dig even deeper. Perhaps the very notion that hardware is a cost and software is where the money is, is dying because software itself is dying. Or, if not dying, being utterly deconstructed. Again, thanks in large part to Steve Jobs.

Consider the iPhone and the iPad, particularly their progression. The very notion of an OS and software is almost non-existent. These devices are now merely a “pane of glass”. Everything we need from them becomes available with a swipe of the finger or, in the case of Siri, a voice command. Software, like the OS, has receded into the background – where people are unaware of it and don’t want to pay for it. It’s a utility. The focus is on the hardware and the human interaction with the hardware.

Software programs have been thoroughly deconstructed thanks to the introduction of the iPhone and the app and app store. Typically, apps are low-cost, highly focused bits of code designed to satisfy very specific and very timely user needs. There is no need for a massive Microsoft Word, for example. Rather, a “notes” app linked with a chart app and an email app will suffice. Can anyone even conceive of offering a $200 “office” software suit anymore? Not in a world where I can get iWork suite – across Apple devices – for $30.

We don’t need software, just give us apps. We don’t want a program, we want a function. True, sometimes we may want to ‘mash up’ many functions and in that case we rely on many different (low cost, function-specific) apps. In this new world, where an ‘app’ offers a specific function and we rely upon a variety of apps for a variety of functions, perhaps what becomes far more important than ‘software’ is the platform. A platform built on second rate hardware, designed as a means to some other end, may simply no longer be viable anymore. At least, not in today’s world when a super-advanced, slick Apple product, the iPad Mini, for example, can be had for $329. Remember just a few years ago that there was essentially nothing from Apple you could buy for under $1,000? Should anyone be surprised then that the whisper sales numbers for the new Windows 8 OS have been awful? Or that Google is generating more clicks but individual clicks are worth less than ever before?

The days of cheap hardware and ‘making it up’ on the software and content may be over. The real money is in hardware, hardware that people are willing to pay good money for upfront. If so, then we have just witnessed the ultimate revenge of Steve Jobs.

Source:http://www.unwiredview.com/2012/11/20/is-apple-killing-software-biz-with-iphone-ipad-and-ios-part-ii-the-ultimate-revenge-of-steve-jobs/