There I was, writing this very criticism of Apple (Nasdaq: AAPL) when my MacBook Pro suddenly died on me. For a minute, crazy thoughts raced through my head: "Does Apple know what I 'm writing?" "Did my Mac rat me out?"
In the end, Apple repaired my faulty graphics chip free of charge, and I remain a happy customer.
But as a potential shareholder, I still don't feel the love.
"Good to customers" isn't the same as "good to owners"
Remember Webvan? The service cheerfully set out to replace the weekly grind of grocery shopping for thousands of satisfied Americans, and then the company went bust. Shareholders lost everything, although Amazon.com later resurrected the brand name.
A company can likewise be bad for customers and good to owners. Cigarette companies produce a product that has a nasty habit of killing its own customers. Yet historically the companies themselves have been wonderfully profitable ones to own.
I choose "good to owners"
Like the cigarette companies, a truly great business can continue to succeed without having to reinvent the wheel. Microsoft (Nasdaq: MSFT) fits the bill: Almost all of Microsoft's profits come from virtual monopolies (such as Windows and Office) that are indispensible to business. Market share in Office Suites, for instance, exceeds 94%.
But if Apple were to stop innovating, customers (and shareholders) would drop them like a hot potato, because Apple faces fierce competition in its bailiwicks.
In the computer space, Apple faces lower-priced competitors from the likes of Sony (NYSE: SNE) and Hewlett-Packard (NYSE: HPQ).
In smartphones, there's real competition from Google Android-based phones as well as Research In Motion’s (Nasdaq: RIMM) BlackBerry.
And although the iTunes Music Store may well be the dominant provider of music going forward, customers aren’t captive to the iPod anymore since iTunes went DRM-free more than a year ago.
So Apple must continue to innovate to fend off competitors, but history says that its odds of doing so indefinitely are next to none.
In consumer electronics, a competitor inevitably ends up building a better mousetrap, usually for cheaper. Just ask RCA about the TV, Sony about the Walkman, Motorola about the StarTac -- followed by the Razr -- and Apple itself about the Macintosh.
So when given the choice between a company that depends on innovation (Apple) and one that can succeed without it (Microsoft), I suggest choosing the latter -- because 10 years from now, even though we'll all probably be using smartphones, they probably won't be iPhones.
More on Microsoft and Apple:
- Yet Another Reason to Buy Apple
- Here's How Apple Is Making So Much for You
- 7 Stocks to Consider Before Buying Apple
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