While Microsoft’s results confirm the company continues its slow and steady pivot to build its business around high-value enterprise services, Apple, its more star-spangled PC industry sibling, makes a play of its own for platform proliferation.
As we hit earnings week for both firms, what have we learned?
What’s happening with Mac v. PC?
You can see what’s happening at Microsoft in great depth here. The takeaways appear to be growing services income (particularly around cloud and SaaS) while PC sales and licensing revenue continues a decline that predated the COVID-19 pandemic.
When it comes to PC sales, Microsoft blamed its weaker results on COVID-related production shutdowns in China, which it says dragged down the entire PC market and reduced Windows sales. (In a related item, it is interesting to note the vast difference between IDC and Gartner’s current predictions about PC sales.)
What Microsoft isn’t saying is that PC sales are also feeling the impact of growing interest in what Apple offers. The introduction of Macs running Apple Silicon has arguably generated a big spike in the company’s fortunes, with consumers and enterprise customers investing in Apple’s new notebooks rather than in PCs.
The inconvenient truth is that partly on the strength of the iPhone, what had become traditional resistance to deployment of Macs in the enterprise has been evaporating for years. Yes, you’ll still find diehard PC users who’ll argue that Macs are not computers, but when it comes to getting work done without costly tech support and accessing the cloud-based services Microsoft and others provide, Macs evidently play as peer platforms today.
“The way the demand is growing and the expectations of younger generations joining the workforce, Apple devices will be the number one [enterprise] endpoint by 2030,” Jamf CIO Linh Lam said recently.
For Microsoft’s Windows partners, any increase in Mac marketshare poses an additional challenge, as the PC market is highly competitive; margins are slim, as manufacturers try to compete on price. Apple’s newly-introduced M2 MacBook Air poses a real challenge to PC makers, given its computational performance per watt and roughly $1,200 sticker price. I anticipate Apple will push hard at upgrading its entire fleet to the M2 during the next 12-months, prepping the ground for the Next Big Thing in Mac, the 3nm chips that will take Apple’s current power/performance lead up another few notches.
We know from Apple supplier TSMC that it expects to begin manufacturing 3nm chips (presumably for Apple) next year, which itself implies a steady road map for Mac development in future.
What’s happening in the clouds?
Cloud services is another big strand to Microsoft’s business. We also have data from Google, which this week confirmed Google Cloud grew revenues 35.6%. That contrasts with Microsoft’s own cloud services (including Azure) which grew 20% in the quarter, compared to 26% in prior quarters.
Given that we know adoption of cloud services is increasing, this suggests intensifying competition between vendors in the enterprise cloud space. That’s likely to pose an ongoing problem to smaller vendors, given just how much share is occupied by the big players.
Apple also has a cloud services presence, but from a non-enterprise angle. Already, these extend from consumer-friendly offerings such as Apple Music all the way through to primarily business-focused offerings, such as Apple Business Essentials.
Apple will announced its latest financial results Thursday July 28, and while many in the industry insist on seeing it as a product-driven firm forever exposed to fluctuation in hardware sales, others point to its successful transition to services and the robust nature of its platform as a core strength.
Citing “Apple’s industry-leading retention rates and expanding ecosystem of hardware and services,” Morgan Stanley recently proposed a trillion-dollar upside still to be explored as Apple proliferates its own services.
What’s happening in digital transformation?
The App Store also gives Apple a powerful position from which to generate revenue from the ongoing digital transformation of the enterprise. From a recent report based on surveys across C-suite executives, Gartner says it does not expect enterprise technology spending to slow as business users understand the need to keep pace with digital change to improve efficiency and scalability.
“Implementing digital in a way that boosts the productivity of workers, assets, and working capital will be a necessity going forward,” Gartner Vice President for Research Randeep Rathindran said in a statement.
We’ll gain a clearer insight into how future platform sales are likely to pan out when Apple takes the wraps off its own data — but don’t ignore the power of its services streak to shore up revenue, even as the next gold rush of the metaverse awaits the Apple-given kiss of life in 2023. Apple execs will be hoping that, like iPod, iPad, and iPhone, history repeats. Meta less so.
Copyright © 2022 IDG Communications, Inc.