Apple's Incredible Efficiency

Scott Francis
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This post on the Silicon Alley Insider really impressed me:
Turns out, Apple’s run of incredible products (and growth) has been achieved with a staggeringly low R&D spend. How low? Apple only spent $4.6 billion on R&D over the past four years, while revenues soared from $25 billion to $43 billion. In contrast, Microsoft spent 700% that amount on R&D during the same period, a whopping $31 billion, while growing at an anemic pace, despite flippant M&A. Likewise Cisco and Intel spent about 400% as much as Apple on R&D – $19 billion and  $23 billion respectively. These are astounding differences above Apple’s research and development spend, especially considering that during this period Apple developed the iPhone and iPad. In fact it’s rumored that Apple brought the iPhone to market for a mere $150 million, doing so organically without acquisition outside of a touch gesture recognition company named FingerWorks.
That’s pretty incredible.  And it points back to something we’ve posted previously, that while Apple’s design process may look expensive, it is actually more efficient than the alternatives.  Anyone who has spent time in the software business (as I have) knows that a badly designed software feature costs a lot more *after* sale than it does to build.  And well-designed software, which may not only cost next-to-nothing to support, but also may increase sales by creating positive impressions and network effects, doesn’t cost that much more to build.
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  • Scott, it is tempting, but vastly misleading to compare Apples R&D spend in the last 4 years against their revenue in the same period. I think we should factor that investment in R&D usually does not show results pronto – it will be interesting to see what Apple invested over the last say 10 years and similarly look ahead and see what MS is going to announce in the next few years or more. Results of R&D lag.

    Seeds need to be sown, nurtured and groomed. And then one needs wait – and pray the weather (mkt) helps all the effort to allow the big tree to rise up on your front yard!

    Of course I am not puporting to diminsh or question the efficiency of the method that is used to sow the seeds, that is used to nurture and groom them.

  • Fair points, but if you go back 10 years, the results are even more in Apple's favor than if you just look back 4 years. And if you look forward, likely Apple will look even more efficient a year or two from now than it does now (iphone investments continuing to pay big dividends).

    Of course, past history is no guarantee of future results :) MSFT or AAPL may stumble or succeed differently, rendering the R&D expense less (or more) efficient :)

  • btw, tough quote from siliconvalley.com (http://www.siliconvalley.com/news/ci_15166897?n…)

    “I don't think Apple is done innovating,” said Scott Rothbort, president of LakeView Asset Management, who owns Apple shares in his personal and client accounts. “Microsoft stopped innovating a long time ago.”

    Steve Blank, a retired entrepreneur who is a lecturer at Stanford and UC Berkeley, was even more blunt, comparing Microsoft with Wang Laboratories and DEC, technology giants that continued to grow for a while but eventually disappeared after they missed significant shifts in the market.

    “They're dead and they don't know it,” he said.

  • What would be the top three innovations from Microsoft?

    Bing! Err i mean Bingo!

    Actually we should ask people this question with 15 seconds to answer – top 3 from MSFT and top 3 from Apple. we might find some interesting insight.

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