This Absurdly Overpriced Laptop Is Apple’s Worst Nightmare
Sam is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Right now, I’m writing this from the PC of the future -- the Google (NASDAQ: GOOG) Chromebook Pixel. This article isn't meant to be an advertisement for the Pixel -- frankly, I wouldn't recommend it to anyone -- but the Pixel’s very existence represents a dramatic shift in the PC industry -- a shift that could ultimately disrupt Apple’s (NASDAQ: AAPL) entire business model.
Chromebook Pixel: the ultimate halo product
The Chromebook Pixel is the ultimate halo product. It’s intended to show off the potential of a Chromebook, but not actually sell well. Google investors, then, shouldn't put any stock at all in the Pixel’s sales figures.
Although the Pixel is a fantastic looking device with a screen superior to the Retina Macbook Pro, as I said, I don’t think anyone should buy it. Because, for $1,300-$1,500, consumers get a laptop that can’t run any programs.
More useful than you might imagine
Can’t run any programs you say? Why on earth would anyone want one? Despite the fact that the Pixel can’t run Microsoft (NASDAQ: MSFT) Office, Skype, or PC games, the laptop is surprisingly capable.
The Pixel runs Chrome OS, Google’s other operating system (the first being Android). Although “OS” is tacked on the end, Chrome OS is more or less just Chrome, Google’s popular Internet browser.
The truth is, for many people, that’s all they need. This piece, for example, is being written in Google Docs -- Google’s Internet-based alternative to Microsoft Office. Earlier, I was chatting with a friend using Facebook messenger. After this, I might go watch some Netflix or play a Zynga game -- all possible with Chrome OS.
Computing is shifting to the cloud
It’s no secret, but the growing trend in computing over the last few years has been a transition to the cloud. Of course, many people misunderstand exactly what this entails. They hear “cloud” and think iCloud -- Apple’s cloud storage system.
Rather, the cloud represents a different form of computing entirely -- applications are no longer run on the user’s own PC, but instead, on some distant server.
This brings us back to the Pixel, and why it’s so absurdly overpriced. Although its robust internals make it snappier than rival Chromebooks, the experience one gets on a Pixel is fundamentally no different from the experience one gets on other Chromebooks. Google Docs and Facebook Messenger are just as available and useful on the $1,500 Pixel as they are on Samsung’s $250 Chromebook.
Gets better with time
The most interesting thing about the Pixel is that it’s perhaps the only PC out there that will actually get better over time.
Time is the enemy of most PCs -- parts wear out, the machines become too dated to run the latest applications. To be fair, the Intel i5 powering this Pixel will slowly wear out in the coming years, but the applications the Pixel can run will only increase -- not decrease over time.
This is because an increasing number of applications are being brought to the cloud. Microsoft doesn't offer a full version of Office on the cloud (yet), but it does have Office Web Apps, a simplified version that can be run through a browser.
In time, Office will likely become fully cloud compatible, along with Microsoft’s other applications. Microsoft has demonstrated they take the cloud seriously, and are rumored to be working on a full cloud-based version of Windows.
Then there’s Microsoft Azure -- not an application most end-users would be familiar with, but its potential was enough to draw the hedge fund ValueAct into the name. Azure is a product for developers -- it allows them to create cloud-based applications on Microsoft’s server.
As more developers create cloud applications, ValueAct believes that Azure will turn out to be a gold mine for Microsoft.
A total disruption of Apple’s business model
If Apple doesn't radically alter its business model, cloud computing could dramatically disrupt it.
Apple’s founder Steve Jobs once spoke about how his company was able to own the portable music market with the iPod. A market that companies like Sony had created and dominated for so long.
“If you look at the reason that the iPod exists, and that Apple’s in that marketplace, it’s because these really great Japanese consumer electronics companies who kinda owned the portable music market...invented it, and owned it, couldn't ..do the appropriate software. Couldn't conceive of, and implement the appropriate software.”
The iPod replaced the Sony Walkman because Sony (and similar companies) couldn't tackle the problem of software. Now, Apple will face a similar threat if it can’t tackle cloud.
Apple’s entire business model is built around selling high quality, high margin electronic devices -- iPods, iPads, iPhones and the Mac. All of these devices are fantastic in the sense that they offer some of the best local software.
OS X, for example, has long been seen as a better alternative to Windows -- it’s more stable and less susceptible to viruses. Similarly, although iOS may lack the features and customizability of Android, it’s generally considered to be more secure and intuitive.
Apple’s business model, then, really is based around selling these local operating systems to consumers. As Jobs said:
“An iPod is really just software...and it’s in a beautiful box, but it’s software. If you look at what a Mac is, it’s OS X...if you look at what an iPhone will hopefully be, it’s software.”
It won’t happen overnight, but as more applications shift to the cloud, consumers will derive increasingly less value from Apple’s local operating system. If the computer itself isn't running any applications, who cares how robust OS X is?
If a consumer spends their time using Google Docs, they can get the same experience on a $250 Chromebook as a $2000 Macbook Pro.
Cloud computing could be bigger than mobile
Ultimately, the shift to cloud computing from local processing could be far bigger than the introduction of mobile devices. As local applications fade away, consumers will become device neutral, and device makers will scramble to react to the shift.
We’re not there yet, but the trend is well established. The Chromebook Pixel is proof of that.
Joe Kurtz has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!