In November of 2008, Business Week magazine reported that Apple’s cash on hand exceeded Dell’s total market valuation.
These two statistics explain how it happened –
Apple net profit margin = Dell’s net profit margin plus 10 percentage points
Apple operating margin = Dell’s operating margin plus 13 percentage points
There is a vital lesson in the Dell-Apple financial comparison and it goes way beyond new product innovation.
Apple has an incredible company-wide design competency upon which it built a differentiated business model. As a result, it introduces breakthrough new offerings while spending a much lower percent of revenue on R&D than other Top 25 innovative companies. The comparison in R&D spend tells you everything you need to know about the power of advantage and a differentiated business model built upon it. In Quarter 4 of 2008 –
Apple R&D spend of 3.1% revenue = Dell R&D spend of 6.4% minus 3.1%
Apple’s unique value promise is a key part of its differentiated business model. While different target customers might interpret the value promise differently, I define it as “We save you time and eliminate technology’s hassle by enabling you to effortlessly create, use and manage information, photos, videos and music.”
Less time and less frustration – that’s priceless. It’s also why we pay more for Apple products.
What is Dell’s value promise? What is Dell’s advantage?
No answer? That’s Dell’s problem.
For insight on business model innovation, read my recently released book, Beyond Price.