Apple, Health Care, and Starbucks

It’s been a week since I spent much time discussing the iPhone and Apple, but the comments keep rolling in.

Here’s subscriber Rory Sprouse on why the iPhone might have a chance in corporate America:

I graduated college back in 2000 and went to work for a software company, one of the products that I worked more with was a PIM and e-mail synchronization tool for handheld devices. It was manufacturer agnostic, meaning that it could sync any Palm, Windows Mobile, or WAP device to the information on any Exchange, Domino, or standardized mail server.

I was talking with a friend of mine who works for a large storage company and was intrigued to hear that he’s looking for a device to replace his BlackBerry. Turns out that corporate policy is changing and his company will no longer be allowing new users to purchase and use a BlackBerry on the corporate server.

A BlackBerry is a staple in most corporations these days. It is a fairly versatile device, but it does one thing really well and that is get push e-mail: when a message arrives on the server, it is pushed to the device instantly. So if you are at your desk or sitting on the beach, a message arrives on your device right when it hits the server.

BlackBerry Enterprise Server is a middleware product. You have to have a dedicated server to handle all of the BlackBerry traffic. The server communicates with the Exchange or Domino Mail server. So, for example, I send this e-mail to your corporate account. It travels across the net and gets to your corporate server. The BES (BlackBerry Enterprise Server) has monitoring on your mail server, which intercepts the message and triggers a copy to be sent to RIM’s headquarters in Canada and then it is sent over the cellular networks to your device where you get it instantly if you are within a coverage area.

So, the total cost of ownership for this service is expensive. You have to purchase the BES, a moderately powerful server to handle the software, whatever costs you incur to have an extra server on the network, and then you must purchase a license for every device, buy the devices themselves, and subscribe to a data plan for each device.

Microsoft announced Direct Push technology for Exchange some time last year. Basically the Exchange Mail server has the functionality built in to talk to phones and/or hand-held devices over a network (wireless or cellular). When mail hits the Exchange box, there is no middleware. But the Exchange box has network connections that make it just like you are on the local network, and pushes the message instantly to the device where you get it.

When I was working with this technology, we had a trigger if the device was offline to send an encrypted text message to the device to synchronize and securely download the message over the data network. I’m not sure about the specifics on how Direct Push Active Sync works these days, but it is similar.

The key point here is that the push capability is built-in to MS Exchange. It supposedly offers very robust functionality. You can send a command to “kill” the device if it is lost or stolen. It will wipe all data from the device with the command. I assume RIM has this, too, but am not sure. But the interface is 100% Microsoft so it is familiar to people. And any Exchange administrator can handle it as it is basic functionality built-in to the software that they are supposed to be experts on.

Using Microsoft Exchange instead of BlackBerry’s middleware dramatically reduces the cost of ownership. You need no additional box or software for it and no additional licenses for clients. You can purchase any Windows Mobile or Palm device to use. They have the ability to wirelessly sync in real time built-in to their default mail clients. You don’t have to purchase any software other than the device. The other key here is that a Palm or Windows Mobile device has additional functionality and the ability to run other third-party applications such as CRM for sales forces, native opening and editing of office documents, and so on.

Plus, most people carry a BlackBerry in addition to a mobile phone, so there’s no need for the extra data service on the BlackBerry if they already have it on their phone. Most U.S. cell carriers charge less per month for device data than for BlackBerry data.

As companies discover that they can save money while getting the same functionality, we may see a trend away from BlackBerry.

There are rumors that the iPhone will have Active Sync technology built into the mail client in a near-term firmware update. People are always impressed by some of the things I can do with my Treo. The unbelievable screen on the iPhone has got to be even better. And don’t discount Jobs’s vision to the future to go after business users or come out with a more reasonably and competitively priced device.

Since at least one leading large Technology company appears to be moving away from BlackBerry, others might be thinking about it as well.

The iPhone could be just the device to fill the hands of people seeking a replacement for their forbidden BlackBerry. Something tells me that if such a trend got underway, RIM would adjust its pricing and methodology in order to retain its appeal, but upsets happen in business all the time so maybe Rory has identified the bridge over RIM’s moat that Apple will use to break into the market.

In my July 10 article, I doubted the conclusion from Scot’s Newsletter that Macs are cheaper than PCs. I wrote:

I’m not sure what to make of Scot’s piece. He compares a “tricked out” Dell model to one of the Macs and comes away with the Dell costing some $650 more than the Mac, due to it needing a faster processor. Scot’s analysis is good and he has the data right, I’m just not sure that most people would consider needing the top-end processor at Dell to be equivalent to the Mac in question. Technically, yes, the specs didn’t line up without Dell’s top choice, but I’ve never met anybody who needed the $3,500 Dell M170.

Most people are probably like me in that they look at the hands-on stuff more than the internals of a new machine. I wanted a 17-inch screen, separate 10-key number pad because I do so much with numbers in the stock market, and a general coolness and appeal. These days, nearly any computer can do what you want it to do as far as the internals go. None come with tiny hard drives anymore, for instance, and the slowdown in my work happens more often in my brain than in the computer’s processor. So far, I haven’t been able to upgrade that!

So, my own quick analysis of paying $1,400 for my HP Pavilion dv9000 17-inch when the MacBook Pro 17-inch costs $2,800 seems to support the idea that Macs cost twice as much by the way most people approach it. Also, had I taken the time to gather a few rebates from electronics stores, I could have paid less than $1,400 for the HP. That’s never an option for Macs, as far as I know. Do they ever go on sale?

To that, Scot replied:

I think you missed the point that I was making. I didn’t address just the very top of the Mac line-up. I addressed several parts of it, including the low end.

It’s true that if the PC you have to have or can afford to have fits in between the market positions of Apple’s models, then you’ll be able to find something that costs only a little less (or a little more) than the corresponding Apple model — and that flexibility may hold extra value for you. But that extra value is not transferrable to everyone. It’s about your personal preference. And it also works in both directions.

It’s also not an apples to apples comparison about absol
ute, or intrinsic, value. Most Mac users have no trouble at all picking out a model that suits them. It’s not like Apple has too few models (though I do wish they had a few more). The point is that to get at the true value question you have to review comparable hardware on both sides. Otherwise, all you’re comparing is price.

The only way to get at value is to level the playing field. When computer experts dissect the level of hardware in comparable products, what you find is that sometimes the Apple hardware has more value, and sometimes PC hardware does.

There is another important factor. When you look at this over time, the value fluctuates again. Computer value is always changing. So any one snapshot in time is only one data point. That’s all my story delivered. Were I to do it again now, the results might change. The point is this: It used to be true that Macs were more expensive than PCs. It’s just not true any longer.

By the way, my article was just about the hardware vs. the hardware. I have more coming up about the software and the real world experiences of using both Windows and Mac hardware. As a long-time Windows expert, I think I have a far more objective viewpoint on this than most people writing about it. The honest truth is that Macs have picked up a good deal of steam on the software front.

And, you won’t want to believe this, but Macs are far, far less problematic than Windows PCs — even the best Windows PCs. Literally, this is true: If you count up the number of times that your Windows PC won’t play the DVD, gives you an error message, freezes, requires a reboot, won’t connect to the Internet, and so forth — things that Windows users have learned to endure as if they’re just the cost of using a computer — and compare those same types of maladies on the Mac, the results are surprising:

You are three or four times more likely to experience a stop-everything-and-fix-it-or-give-up-on-it problem on a Windows PC than you are on a Mac.

I’m not saying Macs don’t have issues. They do. It just happens a lot less frequently. I was surprised by how less frequently. OS X in particular has made the Mac far more reliable.

Shortly after sending me that note, Scot posted his July issue which included Mac vs. PC Cost Analysis, Part II.

He’ll get no argument from me about Macs being more reliable than PCs, and I agree that it’s a factor to consider when comparing the cost of ownership. I’ve written here before that I estimate I lose about 10% to 15% of productivity in my office due to chasing down mysterious PC blow-ups. And good luck anytime you have to network or connect anything new. Somehow, there’s always a piece missing.

Perhaps Scot’s right that an apples-to-apples comparison of hardware and software on PCs and Macs will show that Macs no longer cost more. I hope so, because I’m planning to switch my office on our next upgrade cycle. I’ve already had my fill of calls to support centers in India (which never have the answer), useless FAQ-style websites that prove none of my issues are frequent enough to be worth solving, and all the DLL registry blue screen fatal error runaround garbage to which Scott refers. My favorite recent trend is pointing frustrated users to message board systems where issues are supposed to be answered by…other frustrated users! A brilliant cost-cutting measure.

PCs have been an adventure, but I’m a switcher in the making. I just want to get my work done and never think about what happened inside the computer to make it possible. The slogan has bewitched me: Macs just work.

U.S. Health Care
Readers keep commenting on my series on health care in the U.S., spurred by Michael Moore’s new film, SiCKO.

Brent Bradley in Felton, California wrote:

Michael Moore is a certified nutball, right up there with Al Gore. Please do not put any stock in anything the man says. Of course our health care system is broken. The deterioration started in the Lyndon Johnson era, with the implementation of his “Great Society.” Any idea how people were cared for in the pre-Medicare era? It was called charity and all doctors practiced it. In fact, before LBJ, a medical doctor was an upper middleclass profession. With the “Great Society” came an infusion of government money, along with all the bureaucratic redtape. It’s been downhill ever since, made even worse with Bush’s Prescription Drug Plan.

I also refute the claim from one of your readers [Robert J. Manna in Rome, Georgia, whose comments appeared on Wednesday] who says there is no emphasis on “health care,” only crisis and treatment. Every day there is news about the benefits of eating right, exercising, forgoing processed foods, etc. There are constant reminders to have one’s breasts or prostate examined. Mostly we ignore it and then look for a scapegoat when something goes wrong.

I’m very sorry about your mother’s horseback riding accident, but even that was preventable and shouldn’t be a burden on taxpayers. Hopefully people that love your mother will do all they can to help. Beyond that, hopefully her church, horseback-riding friends, etc., will step up. Sucking on the teat of the government is anti-American and anathema to freedom.

America is indeed blessed with a strong spirit of charity. The mountain communities of Allenspark and Estes Park, Colorado, did come forth to help my family during my mother’s time in the hospital. The refrigerator was always filled with homemade food, a church established a paid account at a local gas station for members of our family to make the long drive to Denver without worrying about the price of filling up the tank, and people organized fundraisers that we all attended.

But, is it really a wise national policy to expect such efforts to happen every time a person is involved in a catastrophic accident? Can little Allenspark and Estes Park be expected to raise $2 million at a chili cook-off sponsored by the Caring Allenspark Committee and held at the fire station? Of course not.

The price of health care has reached a point where ordinary folks simply can’t afford it. That happened long ago. We’re quickly reaching a point where even insurance companies are balking, and that means that prices are just unreasonable. The market is not working properly because external forces have intervened: lobbyists. Take them and their price fixing out of the equation, and simple supply and demand would have hospitals scrambling to offer plans that work for people. Otherwise, they’d have no patients.

As for whether it’s the goverment’s job to care for a person injured in a horseback riding accident or other risky activity, not per se. However, horseback riding is not the same as using intravenous drugs. Riding horses is not irresponsible any more than driving a car is irresponsible. Accidents happen no matter what. When they do, is it wrong for people to expect a safety net to catch them?

Call it socialism, call it communism, call it un-American, but it can also be called compassionate and the way of the future. What Michael Moore points out in SiCKO is that socialized health care is working in other countries, and that maybe we should think of some parts of it that might work in the U.S.

When it comes right down to it, most people probably don’t think in lofty terms of free markets vs. socialism. They just want to get well. In Japan, getting well involves merely going to the local clinic with a complimentary postcard from the city where you live. The postcard thanks you for paying your taxes and suggests getting a check-up. In America, good luck.

That’s the difference, and there’s something cold and wrong with “good luck, this is America, you’re on your own” to pay $500 for a bottle of medicine
that’s sold for $5 elsewhere. What’s un-American is a caste system that offers health care to some, but not others; a slap in the face of the once self-evident truth that all are created equal.

Someone who’s closer to Brent’s way of thinking than mine is Lorraine R. in Atlanta, who wrote:

There are a few things everyone should keep in mind.

First, former Colorado Governor Dick Lamb caused a huge controversy when he said “Old people must realize they have an obligation to die.” In his review of medical costs he found that the greatest percentage of medical dollars are spent on old people within six months of their death. Does an 85-year-old with a pacemaker really need a new hip? Should a 70-year-old with a catastrophic stroke really be put on a ventilator in ICU for 3 weeks?

Second, we should all own up to our responsibility to carry health insurance. I hear about the excessive cost but for most people it’s about the monthly cost of a new car. There are an awful lot of luxury cars on the road. Am I to believe someone can afford a Porsche but not health insurance?

Third, malpractice suits need to be limited. [Bad stuff] happens. Sometimes babies are born unhealthy through no fault of the doctor. Sometimes operations go wrong. And, yes, sometimes doctors make mistakes. Unless it’s something egregious, the doctor shouldn’t have to pay for an act of God.

We’ve become a nation of moaners and groaners. It’s always someone else’s responsibility, someone else’s fault. We think there’s a free lunch out there somewhere and we’re missing it.

Why do the wealthy and powerful come to the U.S. when they’re sick if they have such great health care in their socialized medicine country? Castro was almost killed by his Cuban doctors — they had to bring in one from Spain to correct the damage.

Michael Moore tells stories from his personal viewpoint, the truth be damned.

The fact is free competition provides the best quality at the best price for every product, including health care. Doctors should develop a “patient outcome” index that shows how well they diagnose and treat diseases and a “patient satisfaction” index that shows what patients think of the care they’ve gotten, and compete on those. They don’t want to be judged but they do want to be free to charge whatever they think is fair. I say, let the market decide.

Next, here’s Dr. Eric Chu from Canada:

I’m a physician practicing medicine in Canada who recently returned to Canada after four years of critical care medicine fellowship at Boston’s Harvard Medical School.

When I first went to Boston six years ago I (and many of my peers) had a “grass is greener” perception of medicine in the U.S. But after four years of taking care of patients and seeing how other physicians practice medicine in several of the top U.S. hospitals, I have come to the conclusion that the quality of the medical care that patients receive in the U.S. and Canada are very, very similar.

About 1-2% of U.S. patients do get better necessary care, about 20-30% of U.S. patients believe they are getting better care when it is more or less the same, and 5-10% of U.S. patients don’t get the care they should because they are uninsured.

Similarly, about 20% of Canadian patients believe they would get better quality of care in the U.S. than in Canada, but I think this is just a perception. Some patients do get better treatments in the U.S. through access to certain innovative treatments that are not yet accepted as standard of care and may not yet be available in Canada. Also there is better access to elective non-urgent treatments in the U.S. But the vast majority of patients in Canada get the basic medical care they need.

Both the U.S. and Canadian systems are far from perfect and both have areas in which they excel. Both suffer from the problem that health care in not cheap and patients want the best possible care for the least amount of money. The major problem with the Canadian system is that a lot resources are spent on acute care (emergency room patients, urgent surgeries, critically ill patients) and there is less left over for elective non-urgent cases.

Thus, a patient will get his chopped-off fingers reattached “for free” (there’s no wait because you can’t afford to wait), but the patient who needs that same operating room for his cataract surgery might wait nine months because it is not urgent.

By the way, I have read in comments about SiCKO that people wait nine months in Canada for bypass surgery. I have to say that that is absolutely not true. In Toronto, if someone needs cardiac bypass surgery they will get it ASAP — within a few weeks. In Canada, everyone has medical coverage, in the U.S. that’s not the case. In the U.S., if you have good insurance you will get the treatment you need, especially elective non-urgent treatments in a more timely manner.

There are two areas that compound the cost of health care in the U.S:

⇒ The existence of for-profit HMOs and,

⇒ The prevalence and threat of lawsuits

The Canadian healthcare system is administered by the government. It is not the most efficient system, but it is far, far less expensive. Furthermore, it is efficient for patients in that they do not have to think about getting health care, deciding what kind of health care coverage (deductible, cap, in-network/out-of-network, etc.), or worrying about whether they have coverage when they need treatment.

An article in the New England Journal of Medicine showed that health care administration is more than three times more expensive in the U.S. than in Canada:

“In 1999, health administration costs totaled at least $294.3 billion in the United States, or $1,059 per capita, as compared with $307 per capita in Canada.”

The reason for this difference as outlined in SiCKO is that HMOs must make a profit and you, the consumer, are paying for your health care and for the profit of HMOs.

The threat of lawsuits is actually more damaging to medicine than the prevalence of lawsuits in the U.S. One reader [Hans Burkholder, whose comments appeared on Wednesday] mentioned a malpractice premium of $300,000 in Florida.

This year I will pay about $5,000 Canadian dollars for malpractice coverage for practicing critical care medicine and I never have to worry about my premiums going up because of any malpractice claims brought against me. But the biggest reason I chose to return to Canada to practice medicine is because of how the threat of lawsuits has negatively impacted the way physicians practice medicine in the U.S.

As your surgery resident contributor mentioned, doctors in the U.S., out of an unnecessary fear, order “reams of unnecessary tests.” The system is plagued by frivolous lawsuits which have actually changed the way physicians practice. Extra tests mean extra time and effort wasted for the patient and add significantly to the cost of delivering health care in the U.S. There is something wrong when after 11 years of medical training, against your better judgment, you spend your days compelled by fear to order a test that you know is not necessary and which you wouldn’t even order on your own mother.

Years ago an economics major friend argued with me that health care dictated by a free market system would be more efficient and cheaper. HMO’s are the U.S. health care system’s free market and the courts of law are the system of checks and balance. Because of their own self interests, ne
ither of these systems has helped to reduce costs or improve efficiency.

Finally, I am very glad to hear that the health care system worked for you and your mother. I’m sure it makes the exorbitant bill much easier to swallow.

Very well-written, and gets to the point of the free market system being the answer. People think that because we’re talking about America, we’re talking about a free market. We’re not. It’s a controlled health care system where the laws of supply and demand don’t apply anyway, so who are we kidding?

It’s clear from the doctors writing in that frivolous lawsuits have to go. Litigious America is killing itself by driving the costs of health care to levels beyond reason. Any lawyers out there care to comment?

I wrote yesterday that Starbucks looks like a good value to me based on its dominant brand, good partnerships, and growth plans, and that I would look to pick up shares at or below $25. The stock gained 4.6% yesterday, thanks to my article and the market-moving power of my massive readership.

Well, it probably wasn’t just because of my article. It could also have had something to do with rumors that it would strengthen its partnership with PepsiCo and develop a premium hot chocolate drink with Hershey, as reported by Forbes.

One reader, Eric, called me to task for failing to justify my target buy price:

You say wouldn’t buy it above $25/share yet you make no reasoning for 25. Jim Cramer makes these claims all the time, “don’t buy company X under 100.” But Jim Cramer is more suited as an entertainer than an intelligent and rational investor. My question is why $25? Why not $30? Why not $23? Do you see my point? Your $25 seems like an arbitrary number, there’s really no real analysis behind it. I mean, I have no idea if you think this is a 50-cent dollar, a 30-cent dollar, or an 80-cent dollar. If I’m buying a shipping company for half of its ship’s scrap value, it’s clearly a 50-cent dollar or cheaper, but I have no idea about your reasoning behind Starbucks. Any explanation would be quite helpful.

Ah, just when I thought I could sail into the weekend.

Actually, Eric raises a valid point. I did toss $25 out there at the end of the article without explaining it.

The stock bounced off $25 and change twice in the past month. Throughout its history, SBUX has traded at a 1.25 to 1.5 multiple to its growth rate. It’s trying to hit an 18% earnings growth rate this year, but looks ripe for a disappointment. That makes me leery to jump right in, knowing full well that big pops like yesterday’s are always a possibility.

Run an 18% growth rate times a multiple of 1.25 and you get $22.50. Run it against 1.5 and you get $27. Take the average and you get $24.75, slightly less than the $25 I mentioned as my target.

Longtime subscribers know how I feel about targets. They’re flexible until I place an active order. I think Starbucks is ripe for a disappointment and that the stock could well get to the low-$20s before rebounding solidly and convincingly.

A chart-watcher wrote to tell me that the stock’s double bottom off the $25-ish range suggests that it won’t ever get to my sub-$25 target area. Funny thing is, that same chart-watcher told me the same thing about SBUX when it bounced twice off the $29-ish range back in March. Double bottoms don’t always hold, and it’s frequently worth looking beyond chart patterns.

I don’t think there’s a need to rush to buy Starbucks yet.

This weekend to subscribers: What the Fed said, why we’re sitting pretty in semiconductors, how we’re closing in on the stocks we’ve been watching so patiently, and more.

Next Week on this free site: Alternatives to my long- recommended Power Investor software, swing trading versus buying and holding, the accusation that my permanent portfolio strategies are “beyond ludicrous,” weaknesses in Google’s advertising platform, and more.

It’s all part of what one reader called “the best bargain in the business.” Tell your friends.

Have a great weekend!

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