Macs are amazing but not for the reasons you’re thinking about

Mac computers have been steadily eating away at Microsoft’s share of the PC market the past few years; enough so that Panos Panay appointed the MacBook Air as the Surface Pro 3’s competition.  As PCs become increasingly lifestyle products, the Mac will continue to gain share.

When we say Macs are amazing, you’re probably thinking about its sexy look and premium finish; it’s proprietary software; it’s reputation for reliability (sometimes undeserved); the slick commercials; the aspirational Apple brand; or perhaps even unwarranted PR hype.

But you’d be wrong.  The most amazing thing about the Mac isn’t all those things, things that drive market demand; it’s Apple’s peerless ability to convert demand into profit.  And that’s about good old fashioned operations.

Nothing demonstrates that more emphatically than this research piece from Asymco.

The chart below shows how in terms of shipments Macs have seen steady and unmistakable growth over the past six years:

shipments

While growth is great, assuming the same run rate it would take Apple another 15 more years to approach Bing’s market share in search.  In terms of shipments, Macs are clearly in the minority.

But when you look at share of revenue, Macs have grown much more sharply — over the past six years they’ve gone from mid-single digits to approaching 20%:

revenue

Revenue is a better indicator for demand than shipments because it takes into account the higher amount of value customers ascribe to each Mac, as seen in Macs’ higher price.  Revenue = shipments x price.

This is where product quality, Apple’s premium brand, slick commercials, PR hype and rabid Apple fans play their part.  These drive revenue.

That’s often what we associate most with Apple’s success.  But that’s not what’s most amazing about Apple.

The most amazing thing about Apple is their ability to convert Mac computer revenue into financial value, as amply seen below:

operatingmargin

Apple makes more operating profit than all other PC manufacturers combined.  Wow.

How are they able to do this?

Credit Tim Cook for his incredible work in driving efficiencies in the supply chain.  Steve Jobs gets much of the recognition for Apple’s meteoric rise, and his (and Jony Ive’s) impeccable taste translates to market demand; but it is Cook’s management that enables Mac’s fat operating margins.  In the case of the Mac, Cook’s contribution is arguably more significant.

Credit the product team for not wasting energy on form factors that don’t work.  Every year, MacBook Airs and Pros build on top of the previous year’s designs; these incremental improvements are more efficient than PC makers’ efforts to constantly revamp their product lines in search of their own MacBook.

Credit the marketing team for finding the right combination of features.  While PC laptop makers in the Ultrabook category pushed higher resolution screens, Apple stubbornly stuck to mediocre displays in the MacBook Air to get better battery life.  The market has delivered its verdict: they prefer Apple’s approach, one which happens to be highly profitable for Apple.

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