Paul Krugman, New York Times’ columnist and Nobel Laureate economist, gave some insight on what he feels is the inevitability and eventual decline of Apple Inc. (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT). In his articles, he discussed network effects and economies of scale.
These two factors have helped Microsoft to attain heights in Windows and then Office, and have been a key factor supporting Apple’s iOS recently, says a report from Forbes by contributor Tim Worstall. Krugman believes that companies prosper with such sort of network effects and draw billions in revenue; however, when neglecting the same factors, companies often decline and go deep into the red.
Deprival Super-Reaction Syndrome And Investing. Part four of a short series on Charlie Munger’s Human Misjudgment Revisited. Charlie Munger On Avoiding Anchoring Bias Charlie Munger On The Power Of Prices The Munger Series - Learning . . . SORRY! This content is exclusively for paying members. SIGN UP HERE If you are subscribed and having an Read More
Apple selling slightly better products at premium prices
In his post, Krugman said that Apple Inc. (NASDAQ:AAPL) is not selling anything more than standard level product, while competitors are already selling that level of gadgets in the market and at lower prices than Apple. “It’s selling products that are little, if any, better than competitors, at premium prices,” Krugman wrote.
Apple relatively less secure than Microsoft
Krugman notes that Microsoft Corporation (NASDAQ:MSFT) is an incredible success story and maintained its supremacy in PC for decades, but “it’s just that the market is changing.”
Comparing Apple Inc. (NASDAQ:AAPL) and Microsoft, Krugman believes that Apple is relatively less secure, in part because the company is dependent on the loyalty of the individual customers—contrary to Microsoft, which primarily relies on the loyalty of corporate IT managers, who are known to be more conservative by trait.
Krugman on the rise and fall of companies
Through an example of medieval Arab thinking, Krugman tries to explain the rise and fall of companies, saying “the uncouth nerds” who formed Microsoft Corporation (NASDAQ:MSFT) earned a fortune, but then they became “couth” and, as a result, lost their “edge.”
According to Krugman, Apple Inc. (NASDAQ:AAPL) remained successful partly due to Steve Jobs, and also because of being a “disappointment” in its initial years. In a warning tone, Krugman says that if Apple’s plans to construct a “high-tech Versailles” are any indication, then the highly popular and successful firm may follow the same path “as its one-time nemesis.”