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.

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For insight on business model innovation, read my recently released book, Beyond Price.