Apple Overtakes Walmart in Market Cap...Investors Reward Innovation
Posted by Mike Harris on Tue, Mar 30, 2010 @ 11:57 AM
Well, this year has certainly been full of surprises so far. One of the biggest just happened today...Apple's market cap of $214.75 billion is now larger than Walmart's market cap of $212.9 billion. Of course that could change any moment but what does that tell us about trends in investing, which reflect trends in business?
It tells us that investors are putting big money into innovation. In 2010 Apple (NASDAQ: APPL) is arguably the world's most respected company for consumer products innovation. Walmart (NYSE: WMT), already competing in a vastly over-retailed world, simply can't innovate any more and there's not a whole lot of room left for footprint expansion except overseas or through acquistions, which are hugely expensive and risky. Sam Walton's idea of conquering the world by competing largely on distribution and supply chain efficiencies was genius in its time. However that particular play is over which means Walmart, like any behemoth, is vulnerable on one or more fronts if anyone decides to take a swing at it.
Apple, on the other hand, just keeps on hittin' the long ball. After all, who should have invented the iPod...really? Why, Sony of course. Sony owned, by far, the best reputation for consumer products innovation. It had the product, marketing and engineering talent. It already owned a vast amount of content (Sony Entertainment). It had global distribution and a huge brand name. Without a doubt there were countless innovators within Sony's own walls that dreamed up the 'iPod' . But someone, probably high up in the company, was too distracted to pay attention to consumer electronics trends and what was driving those trends.
Enter Apple, who ten years ago was having its own identity problems and was hardly a darling of Wall Street. Just the opposite. Although it didn't have the marketing or distribution clout of Sony, Apple regained its unique culture of innovation, personally nurtured by the CEO...which meant middle and upper management couldn't stifle innovation for any of the hundreds of reasons, most based on fear, why creativity gets stifled in larger companies.
The result? An innovative, vertically focused consumer electronics business model that's not dragging a freight train of unprofitable products behind it (yet). Sony can't uncouple it's innovation engine from its freight train of legacy product categories because it would lose distribution, which would cause its hugely volume dependent business model to collapse. Apple, which owns its own distribution plus the software platforms for its products, can focus on true consumer product innovation because it doesn't have to deliver incremental innovations to low- or no-profit products like TVs, DVD players, stereos, etc. Nor does it have to negotiate treaties with operating system providers like Microsoft. In addition, Apple doesn't have to focus on price wars between Walmart and Best Buy, and the many other distractions endured by Sony, Philips, LG and other major consumer electronics brands.
Apple is free to use its innovation resources to address people and market trends which encourages a juggernaut of continuously innovative new products. Today we have the iMac, iPod, iPhone, iTouch and iPad. Tomorrow we'll have products and services like iTV, iMed and probably lots of others if Apple doesn't lose its focus and become "a big company".
Investors see that and are betting their money, and their clients' money, on innovation.