Examining Microsoft's and Apple's Marketing Spend

(MoneyWatch)  There's been a lot of discussion of the Microsoft and Apple ad campaigns of late, trying to understand which was doing better. From one view, Microsoft played into Apple's hands; and there's the argument that the opposite also seems to have happened. But something we haven't been looking at is spending on marketing, and that reveals something interesting.

First comes a mighty caveat. I'm going to be doing some comparisons of SG&A. For those not familiar with the term, it means Selling, General & Administrative:

SG&A (aka SGA) Selling General and Administrative Expenses (SGA) SGA expenses consist of the combined payroll costs (salaries, commissions, and travel expenses of executives, sales people and employees), and advertising expenses a company incurs. SGA is usually understood as a major portion of non-production related costs, opposing production related costs such as raw material and (direct) labour.

The problem with SG&A is that it lumps a number of disparate things under one category and is not a direct measure of marketing alone. However, it's as close as we can get, and looking at the trends in SG&A of both Apple and Microsoft is interesting.

Apple's filings for the quarter that ended on March 28, 2009 indicate that for the three month period, SG&A increased by 11 percent, or $99 million, over the comparable 2008 level. The company says the increases are "due primarily to the Company's continued expansion of its Retail segment, higher stock-based compensation expenses and higher spending on marketing and advertising." Even though you can't tell from the outside how much of the increase might have been stock-based compensation, the company is clearly saying that marketing and advertising spending has gone up. Apple's SG&A did stay fairly constant as a percentage of revenue: up from 11.8 percent in 2008to 12 percent in 2009.

Compare that to Microsoft, where "[s]ales and marketing expenses decreased $293 million or 9%, primarily reflecting decreased corporate marketing and advertising campaigns and decreased professional consulting fees." So as Apple's spending has increased, Microsoft's has decreased year over year for the same quarter.

We know that Microsoft had a fairly dismal quarter, but remember that it is tied to PC sales. Massive additional spending would not have pulled sales out of the doldrums. Perhaps the company was gathering its resources for the new ad series that just came out and that falls into another quarter.

We already know that Apple's net sales are slipping, which means that the company has to both build products more efficiently as well as bring in more revenue to keep the profits up. On the retail front, per store revenues of Apple's own stores are down, as are sales per visitor, suggesting that portions of its point of purchase marketing are losing effectiveness. Yes, Apple's revenue was up by about 8.7 percent, year over year, but that doesn't match the almost 12 percent increase in SG&A. That would suggest that Apple is getting less efficient in its marketing and sales (at least to the extent that we can distinguish it from the greater amount of stock-based compensation).

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