While Microsoft’s results confirm that the company continues its slow and steady pivot to build its business around high-value enterprise services, Apple, its starry sibling from the PC industry, is making its own game of platform proliferation.
What did we learn coming into earnings week for both companies?
What Happens to Mac vs PC?
Here you can see in detail what is happening at Microsoft. The takeaways appear to be growing service revenue (particularly around cloud and SaaS), while PC sales and licensing revenue continues to decline from where it was before the COVID-19 pandemic.
On PC sales, Microsoft attributed the weaker results to COVID-related manufacturing shutdowns in China, which dragged down the overall PC market and reduced Windows sales. (In a related article, it is interesting to note the big difference between IDC and Gartner’s current forecasts for PC sales.)
What Microsoft isn’t saying is that PC sales are also feeling the impact of growing interest in Apple’s offerings. The introduction of Macs powered by Apple Silicon has arguably given the company a big boost, as consumers and business customers invest in Apple’s new notebooks rather than PCs.
The inconvenient truth is that traditional opposition to enterprise Mac adoption has evaporated for years, in part due to the strength of the iPhone. Yes, you’ll still find die-hard PC users arguing that Macs aren’t computers, but when it comes to getting work done without costly tech support and accessing the cloud-based services from Microsoft and others, Macs obviously play the game than peer platforms today.
“With growing demand and expectations from younger generations entering the workforce, Apple devices will be number one [enterprise] Endpoint by 2030,” said Jamf CIO Linh Lam recently.
For Microsoft’s Windows partners, any increase in Mac market share presents an additional challenge as the PC market is highly competitive; Margins are tight as manufacturers try to compete on price. Apple’s newly launched M2 MacBook Air presents a real challenge for PC makers given its processing power per watt and sticker price of around $1,200. I expect Apple to be hard at work over the next 12 months to expand its entire fleet to upgrade to the M2 and prepare the ground for the next big thing in the Mac, the 3nm chips, which will take Apple’s current power/performance a few more notches.
We know from Apple supplier TSMC that it expects to start manufacturing 3nm chips (presumably for Apple) next year, which itself implies a steady roadmap for Mac development going forward.
What is happening in the clouds?
Cloud services are another big part of Microsoft’s business. We also have data from Google, which confirmed this week that Google Cloud increased revenue by 35.6%. That contrasts with Microsoft’s own cloud services (including Azure), which grew 20% in the quarter, compared to 26% in previous quarters.
As we know that the adoption of cloud services is increasing, this indicates an intensification of competition between the providers in the enterprise cloud space. This is likely to be an ongoing problem for smaller players given how much of a share the big players hold.
[Also read: Everything-as-a-service, Apple, and the future of business]
Apple also has a cloud services presence, but from a non-enterprise perspective. These already range from consumer-friendly offerings like Apple Music to primarily business-centric offerings like Apple Business Essentials.
Apple will report its latest financial results on Thursday, July 28, and while many in the industry insist on seeing it as a product-centric company forever exposed to volatility in hardware sales, others point to its successful transition to services and the robustness of its platform as a core strength.
Citing “Apple’s industry-leading retention rates and growing ecosystem of hardware and services,” Morgan Stanley recently suggested there was still a trillion-dollar advantage to be unlocked as Apple builds out its own services.
What happens in the digital transformation?
The App Store also gives Apple a strong position to generate revenue from the company’s ongoing digital transformation. From a recent report based on surveys of C-suite executives, Gartner believes that enterprise technology spending will not decline as business users understand the need to keep up with digital transformation to achieve efficiency and scalability to improve.
“Implementing digitalization in ways that increase the productivity of people, assets and working capital will be a necessity going forward,” said Randeep Rathindran, vice president of research at Gartner, in a statement.
We’ll get a clearer look at how future platform sales are likely to fare as Apple unravels its own data — but don’t ignore the power of its series of services to prop up revenue even if Apple’s next gold rush comes from The Metaverse awaits the one Apple given kiss of life in 2023. Apple executives will hope that history will repeat itself like iPod, iPad and iPhone. meta less.
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