Wednesday, May 04, 2011, 02:00 pm PT (05:00 pm ET)
Apple's Mac OS X, iOS now fueling 3.5 times the profits of Microsoft WindowsApple's dramatic growth in hardware sales has reversed the longstanding notion that software licensing is the best way to make money in the tech industry.
A revenue comparison published by Asymco blogger Horace Dediu demonstrates that Apple's hardware-centric business model is now enabling the company to generate 3.5 times the profits earned by Microsoft licensing Windows to third party PC makers.
While both companies have long developed rival desktop and mobile operating systems, Apple has almost exclusively used its software to drive hardware sales, while Microsoft has derived almost all of its Windows-based revenue by licensing its software to others.
During the 1990s however, Microsoft quickly outpaced Apple's growth in both revenues and profits by bringing DOS and then Windows to a much wider audience, prompting observers to insist that Apple needed to mimic the same business model to remain relevant.
Apple eventually began licensing both its Mac OS and its Newton OS, but neither effort resulted in success. After founder Steve Jobs returned to Apple in 1997, the company terminated both of its operating system licensing programs and began focusing on using its software assets to sell the company's own hardware instead.
While other companies that attempted to copy Microsoft's licensing-centric business model also failed (including Palm and Be, Inc), there was not much optimism held out for Apple to be able to significantly expand its Mac hardware sales as a proprietary platform.
However, Apple has not only dramatically increased its Mac sales over the past half decade four fold, but has also added a huge new influx of mobile devices running iOS. Over the same period, Microsoft has struggled to replicate its Windows-like licensing business among mobile devices.
The result, as noted by Dediu, is that Apple is now generating $9.8 billion in profits from its operating systems through hardware sales, while Microsoft reported sales of $4.445 billion and profits of $2.764 billion from its Windows licensing.
While Mac market share is hovering around 9 percent of all PCs sold, Mac OS X itself generates half the profits of Windows for Apple. Separately, iOS generates 2.3 times the profits of Windows.
Dediu contrasts Apple's growth with the overall PC industry, "which has seen both volume and sales decline while prices have eroded along with profitability. On top of that, growth has nearly evaporated."
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