While the big financial IT story of today is Microsoft's loss of $30bn in value (equal to one half of an Apple or a Dell), Apple has crept up and has again as of this moment (slightly before close) exceeded Dell's market cap at around $60bn. It managed this feat earlier in the year before dropping quite significantly from a high of $86.
This time seems to be a combination of Dell's recent disappointing marketshare losses, and perhaps recent comments by Steve about not being interested in a bigger role at Disney and about Apple's great products coming soon.
While again this may be a temporary phenomenon, I think we'll see the two companies trading close together for a longer period than last time.
28 April 2006
25 April 2006
La methode Francaise
I have always enjoyed meeting French people, but French politics I just do not get.
I blogged a few weeks ago about how Chirac just doesn't get it. And here he is again from today's FT (subscription required):
To my French friends: Do you really, really think this sort of thing is a good use of your tax euros?
To Google investors: Better short Google, this is obviously the end of the line.
I blogged a few weeks ago about how Chirac just doesn't get it. And here he is again from today's FT (subscription required):
French president Jacques Chirac will on Tuesday seek to shore up his political legacy with the reinvigoration of Franco-German industrial policy spearheaded by the launch of a €1.7bn ($2.1bn, £1.2bn) series of innovative grand projets – including the creation of a multimedia search engine to rival Google.
To my French friends: Do you really, really think this sort of thing is a good use of your tax euros?
To Google investors: Better short Google, this is obviously the end of the line.
24 April 2006
Further proof of competition argument
No sooner had I posted the articles on Apple and Microsoft no longer competing than I came across this story reported at TGDaily today.
Essentially, Microsoft attorneys in front of the EU's Court of First Instance used the success of iTunes to argue that competition for it does exist.
Now, you may argue that blows away my argument that they're not competing. But I believe it just confirms my thoughts - that Apple's success is beneficial to Microsoft in allowing it to argue to be free of restrictions being placed on it in terms of what it can do in the marketplace. As Apple's success now only tangentially affects Microsoft (and barely, if at all, revenue-wise), it is going to milk these opportunities as much as it can to boost it's ability to compete against those it really needs to be fighting.
Incidentally, I think their claims are a bit disingenuous. Windows Media still has the largest marketshare of any of the players, despite iTunes/Quicktime success. And Apple succeeded in this not because of Microsoft restrictions but because they took their eye off the ball and missed this (iPod) market completely. The other primary competitor in this area - Real Networks - has already, of course, taken close to $1bn of Redmond's money in settlement (no blame admitted!) of claims. What is ludicrous of course is that because this has taken so long to sort out, technology has started to make the argument even more obscure and show how ineffectual the EU has been in achieving meaningful actions.
Essentially, Microsoft attorneys in front of the EU's Court of First Instance used the success of iTunes to argue that competition for it does exist.
Now, you may argue that blows away my argument that they're not competing. But I believe it just confirms my thoughts - that Apple's success is beneficial to Microsoft in allowing it to argue to be free of restrictions being placed on it in terms of what it can do in the marketplace. As Apple's success now only tangentially affects Microsoft (and barely, if at all, revenue-wise), it is going to milk these opportunities as much as it can to boost it's ability to compete against those it really needs to be fighting.
Incidentally, I think their claims are a bit disingenuous. Windows Media still has the largest marketshare of any of the players, despite iTunes/Quicktime success. And Apple succeeded in this not because of Microsoft restrictions but because they took their eye off the ball and missed this (iPod) market completely. The other primary competitor in this area - Real Networks - has already, of course, taken close to $1bn of Redmond's money in settlement (no blame admitted!) of claims. What is ludicrous of course is that because this has taken so long to sort out, technology has started to make the argument even more obscure and show how ineffectual the EU has been in achieving meaningful actions.
Blogger.com problems
Apologies to anyone whose had a problem accessing these posts lately. I've been unable to post on blogger.com for the last day or so, and so has every other user too! That's a pretty serious problem and there are many upset users over on the forum. Posting now is very, very slow and intermittent with many error messages (which indicates an entry hasn't posted when it has)
Of course, it's a free tool, so do we have any rights to be upset? I don't really know, but I think it's a warning sign for Google (blogger.com owner). This is not the first problem, and notifications about the problems are very poor. Gmail has also suffered problems. I'm not sure Google has yet come to terms with what is expected of it (even if services are free) as it massively expands these services around the world.
Of course, it's a free tool, so do we have any rights to be upset? I don't really know, but I think it's a warning sign for Google (blogger.com owner). This is not the first problem, and notifications about the problems are very poor. Gmail has also suffered problems. I'm not sure Google has yet come to terms with what is expected of it (even if services are free) as it massively expands these services around the world.
Apple and Microsoft Competition Conclusions
In the last two posts I've argued why Apple no longer strategically views Microsoft as the key competitor or even a major competitor, and why indeed Microsoft welcomes a strong Apple.
I wanted to wrap up this series of posts with some other observations. If you buy into the arguments I've made about Apple and Microsoft not really competing, then there are other implications of this. For instance, it is clearer what Apple will NOT do. One key area that I'm constantly seeing hypothesised is that Apple will license OS X to other computer manufacturers. Given Vista's delays and paucity of features, lots of manufacturers (say they) would love to sell Mac OS X on their machines. And, I'm sure they might (though I wonder how much they would actively market it). But to think it's simple and profitable for Apple to do so is to misunderstand the difficulties of developing software. There are enough reports of problems of making Mac OS X work on Apple's own computers. Sure, we don't have the BSOD problems of Windows, but can you imagine the sorts of problems of people running Mac OS X on their 3 year old computer with a Brother printer, Lenovo scanner, Logitech webcam etc.? The average user would most likely have many problems - some of which would be down to their own hardware, but some down to lack of drivers, and others down to basically user error. Do we really think most users would be able to install OS X on their computers and be fully functional? What happens when they think Mac OS X has reduced their battery life on their laptop by 50%? Who gets the support calls? And, who gets the blame?
Some people think selling an OS for $150 is like printing $150 bills. Microsoft may have some internal problems, but I'm sure that a vast amount of its time and resources is to ensuring its software remains compatible with the massive installed base of legacy systems sold by the Wintel manufacturers. Apple's luxury is that it controls the hardware that its software runs on. Take away one of those controls and the game is completely different. MS makes 76% margin on its Client OS sales because it has truly awesome scale. Apple will never have that scale in the OS area.
Using the car analogy again I used in the previous post, if BMW really had a great fuel that its cars could use that was lots better, but that its cars were also compatible with the generic fuel too, would they sell the fuel to other car manufacturers? If Apple really believed they could sell 10x as many Mac OS X copies as it can Mac computers AND maintain a seriously healthy margin on such sales, then a strategy of selling Mac OS X to anyone might be a valid one to pursue. As it is, such a strategy would kill Apple as quickly as licensing clones almost did.
An alternative strategy that has been predicted by some (eg John Dvorak) is that Apple would just adopt MS Windows and give up on OS X. But while that accepts the argument that MS and Apple are no longer competitors it makes no sense either. Apple's formula is Hardware + Software = Competitive Advantage. How would it compete with Dell if it didn't have OS X? By great design alone? In my opinion, Apple has always had the best mousetrap. Unfortunately it meant you buying Apple's cheese on their terms. Now, you can still use Apple's mousetrap with Apple's cheese for the best effect, but if you prefer the cheese that you can get anywhere else that everyone else uses, then you can do that too.
So, the war of words will continue on both sides. There's been much comparing of Vista and Tiger/Leopard OSes, and debates about Apple/Quicktime/DRM/iTunes vs Microsoft/WMA formats. But at the strategy level, there is not so much competition as tacit acknowledgement that what is good for one is probably not bad for the other and vice versa. Apple AND Microsoft can both be successful, and indeed the success of one can in fact help the other to succeed in its primary objectives.
I wanted to wrap up this series of posts with some other observations. If you buy into the arguments I've made about Apple and Microsoft not really competing, then there are other implications of this. For instance, it is clearer what Apple will NOT do. One key area that I'm constantly seeing hypothesised is that Apple will license OS X to other computer manufacturers. Given Vista's delays and paucity of features, lots of manufacturers (say they) would love to sell Mac OS X on their machines. And, I'm sure they might (though I wonder how much they would actively market it). But to think it's simple and profitable for Apple to do so is to misunderstand the difficulties of developing software. There are enough reports of problems of making Mac OS X work on Apple's own computers. Sure, we don't have the BSOD problems of Windows, but can you imagine the sorts of problems of people running Mac OS X on their 3 year old computer with a Brother printer, Lenovo scanner, Logitech webcam etc.? The average user would most likely have many problems - some of which would be down to their own hardware, but some down to lack of drivers, and others down to basically user error. Do we really think most users would be able to install OS X on their computers and be fully functional? What happens when they think Mac OS X has reduced their battery life on their laptop by 50%? Who gets the support calls? And, who gets the blame?
Some people think selling an OS for $150 is like printing $150 bills. Microsoft may have some internal problems, but I'm sure that a vast amount of its time and resources is to ensuring its software remains compatible with the massive installed base of legacy systems sold by the Wintel manufacturers. Apple's luxury is that it controls the hardware that its software runs on. Take away one of those controls and the game is completely different. MS makes 76% margin on its Client OS sales because it has truly awesome scale. Apple will never have that scale in the OS area.
Using the car analogy again I used in the previous post, if BMW really had a great fuel that its cars could use that was lots better, but that its cars were also compatible with the generic fuel too, would they sell the fuel to other car manufacturers? If Apple really believed they could sell 10x as many Mac OS X copies as it can Mac computers AND maintain a seriously healthy margin on such sales, then a strategy of selling Mac OS X to anyone might be a valid one to pursue. As it is, such a strategy would kill Apple as quickly as licensing clones almost did.
An alternative strategy that has been predicted by some (eg John Dvorak) is that Apple would just adopt MS Windows and give up on OS X. But while that accepts the argument that MS and Apple are no longer competitors it makes no sense either. Apple's formula is Hardware + Software = Competitive Advantage. How would it compete with Dell if it didn't have OS X? By great design alone? In my opinion, Apple has always had the best mousetrap. Unfortunately it meant you buying Apple's cheese on their terms. Now, you can still use Apple's mousetrap with Apple's cheese for the best effect, but if you prefer the cheese that you can get anywhere else that everyone else uses, then you can do that too.
So, the war of words will continue on both sides. There's been much comparing of Vista and Tiger/Leopard OSes, and debates about Apple/Quicktime/DRM/iTunes vs Microsoft/WMA formats. But at the strategy level, there is not so much competition as tacit acknowledgement that what is good for one is probably not bad for the other and vice versa. Apple AND Microsoft can both be successful, and indeed the success of one can in fact help the other to succeed in its primary objectives.
Why Microsoft really loves Apple
In the previous post, I argued that Apple is in essence no longer competing with Microsoft. But how does Microsoft see Apple? Do Bill and Steve wake up each day wondering how they're going to kick Cupertino's ass that day?
I took a look at their Microsoft's most recent filing on quarterly performance to get an idea about where MS makes its money.
Their revenues are reported broken out along the following lines:
Client (ie desktop OS): 29%
Server/tools (MS Server OS, SQLServer etc): 24.5%
Info Worker (ie. MS Office): 25%
MS Business Solutions: 2%
MSN: 5%
Mobile: 0.85%
Home and Entertainment (eg XBox): 13%
The most profitable parts are the Client and the Info worker parts of the business in which gross margins are greater than 70% (nice if you can get it!). But just who are Microsoft's biggest competitors, and where are the challenges? When you're in all those businesses, then in fact, you're competing with just about everyone. In servers/tools, it's people like Sun, IBM, Oracle. In the traditional core businesses of Client and Info Worker, the danger isn't from existing competitors which essentially have been marginalised, it's about facing up to the replacement of that business model by something else. The biggest challenges there are from open source which changes the landscape significantly, and from someone like Google - moving processing, software and data off the desktop to the internet for instance. Other challenges come from technologies such as virtualisation - and it's effect on licensing models.
In these mature business lines, the strategy is to defend the status quo of the current business model. This will hopefully (but not necessarily) come from innovation. In the other business lines, MS doesn't yet have a completely dominant position but is using its financial strength to muscle into these areas. It sees mobile as a key market as well as Home and Entertainment where the XBox is a key product for it. In services, MSN is it's primary offering, competing against people like AOL, Yahoo and of course Google. Where is Apple then on the Microsoft radar? I think if we're honest we can say it's not very visible at all. I'm sure MS will take every opportunity to take pot shots at OS X and the iPod for instance - but it is not worried about Apple taking over the OS crown because Apple is not trying to do that, and nor would it succeed. Yes, MS would like it's own music store (in conjunction with MTV), but it is only doing that after seeing how Apple has succeeded at creating this market and deciding it should not ignore it. And, in home entertainment, Apple could become a competitor too as convergence happens. But for now, MS has enough to do in that market fending off Sony and to a lesser extent, Nintendo.
So, while Apple fans like to think there's a David vs Goliath struggle going on, the reality is that David isn't going after Goliath, and Goliath has his hands full elsewhere. And, in fact, I think Goliath actually wants a bit of David's help too. Why do I say that? Well, look at the other challenges they face.
For every Linux computer sold, MS makes precisely zero. For every Mac sold, MS has a chance of selling an MS Office license. And, as of last week, it also has a chance of selling an XP (and later, Vista) license. Not only that, but Mac licenses are pretty profitable as they tend to be at higher prices due to retail purchases of the full product. I've never seen the statistics, but I'd take a bet that as many business Macs have a legal copy of MS Office as business PCs and that as many home Macs do too (in percentage terms). It has oft been stated that the Mac Business Unit at MS is one of the most profitable divisions. Every MacWorld Expo, there is always a presentation by the Senior VP of the Microsoft Mac Business Unit (Roz Ho, I think?) - and it's more than just a charade (incidentally, there's also a great blog entry doing the rounds from David Weiss, a member of the Mac BU giving a tour of the facilities at Redmond - these guys are REALLY committed to the Mac platform) So, MS can in fact make as much from a Mac as they can from a PC. Microsoft has the skills to develop Mac software, and it could in fact make more of its products available for Mac (eg Visio, Project etc). So, financially, MS has little to lose by Macs taking market share from it's traditional PC allies. And, if it had a choice between a Mac sale and a Linux sale, there is no doubt what it would prefer.
But I think MS needs Apple even more than this. I think that Apple has been a constant source of ideas for Redmond, and that it has benefited from taking those ideas in the past and will continue to do so in the future (sure Apple learns from Microsoft too, but I think one direction is more prevalent!). Whatever Apple does in the living room, MS will surely copy, refine and exploit. And, as Paul Thurrott notes in his recent article which I linked to last week, much of Vista is indeed a copy of what's best about Mac OS X Tiger. MS needs these ideas not to fight Apple but to fight Linux, and to fight Google. Apple's business model comes from the same vintage as MS - hardware sales with commercial software licenses etc. Apple's success in that way shows that model is still essentially valid. Cupertino is Redmond's R&D facility. It has used this very effectively in the past to profit at a level Apple could never achieve. It has (had?) cross-licensing agreements with Apple that allow it to use many of these technologies. It's own internal innovation has become crippled because of its own management failings, the need for constant legal overview (see below) and the sheer difficulty of supporting the vast numbers of platforms sold by it's partners.
But, there's even another level on which Microsoft needs Apple. It showed this when Apple was on the ropes and needed cash. It injected $150m and agreed to continue to develop MS Office for the platform. Sure, it has made money from the Mac BU as discussed above (and as it turned out, it made a lot of money when it cashed in that investment). But in my opinion that investment was always about Microsoft preferring a weak competitor around than no competitor at all. That's because, even back then, it knew it's biggest problems were not from it's (weak) competitors (esp Apple) but from the competition authorities. And today, that is an even bigger problem. Every product feature that MS would like to introduce is probably endlessly debated by lawyers internally as it will no doubt be challenged somewhere as anti-competitive. Add an MS version of iLife? There'll be some companies (eg Adobe) that will be upset by it and cry foul. For heaven's sake, they can't make the OS more secure without upsetting the antivirus and anti-spyware companies that make their living off MS' insecurities. But if Apple has 10% of the market for OS, wouldn't it be a lot easier for MS to argue that it needs to be free to innovate as that proves that the free market is working? The client OS is still a growing business, so this does not imply a loss of revenue - just a slowing down of that growth. The trade-off for Microsoft in its other areas of ambition is potentially huge.
That's why I think Microsoft would actually welcome Apple's success - at least for the next few years.
Read the final part of this series with what this means Apple will and won't do as a consequence of this strategy.
(Edited to add links between Articles)
I took a look at their Microsoft's most recent filing on quarterly performance to get an idea about where MS makes its money.
Their revenues are reported broken out along the following lines:
Client (ie desktop OS): 29%
Server/tools (MS Server OS, SQLServer etc): 24.5%
Info Worker (ie. MS Office): 25%
MS Business Solutions: 2%
MSN: 5%
Mobile: 0.85%
Home and Entertainment (eg XBox): 13%
The most profitable parts are the Client and the Info worker parts of the business in which gross margins are greater than 70% (nice if you can get it!). But just who are Microsoft's biggest competitors, and where are the challenges? When you're in all those businesses, then in fact, you're competing with just about everyone. In servers/tools, it's people like Sun, IBM, Oracle. In the traditional core businesses of Client and Info Worker, the danger isn't from existing competitors which essentially have been marginalised, it's about facing up to the replacement of that business model by something else. The biggest challenges there are from open source which changes the landscape significantly, and from someone like Google - moving processing, software and data off the desktop to the internet for instance. Other challenges come from technologies such as virtualisation - and it's effect on licensing models.
In these mature business lines, the strategy is to defend the status quo of the current business model. This will hopefully (but not necessarily) come from innovation. In the other business lines, MS doesn't yet have a completely dominant position but is using its financial strength to muscle into these areas. It sees mobile as a key market as well as Home and Entertainment where the XBox is a key product for it. In services, MSN is it's primary offering, competing against people like AOL, Yahoo and of course Google. Where is Apple then on the Microsoft radar? I think if we're honest we can say it's not very visible at all. I'm sure MS will take every opportunity to take pot shots at OS X and the iPod for instance - but it is not worried about Apple taking over the OS crown because Apple is not trying to do that, and nor would it succeed. Yes, MS would like it's own music store (in conjunction with MTV), but it is only doing that after seeing how Apple has succeeded at creating this market and deciding it should not ignore it. And, in home entertainment, Apple could become a competitor too as convergence happens. But for now, MS has enough to do in that market fending off Sony and to a lesser extent, Nintendo.
So, while Apple fans like to think there's a David vs Goliath struggle going on, the reality is that David isn't going after Goliath, and Goliath has his hands full elsewhere. And, in fact, I think Goliath actually wants a bit of David's help too. Why do I say that? Well, look at the other challenges they face.
For every Linux computer sold, MS makes precisely zero. For every Mac sold, MS has a chance of selling an MS Office license. And, as of last week, it also has a chance of selling an XP (and later, Vista) license. Not only that, but Mac licenses are pretty profitable as they tend to be at higher prices due to retail purchases of the full product. I've never seen the statistics, but I'd take a bet that as many business Macs have a legal copy of MS Office as business PCs and that as many home Macs do too (in percentage terms). It has oft been stated that the Mac Business Unit at MS is one of the most profitable divisions. Every MacWorld Expo, there is always a presentation by the Senior VP of the Microsoft Mac Business Unit (Roz Ho, I think?) - and it's more than just a charade (incidentally, there's also a great blog entry doing the rounds from David Weiss, a member of the Mac BU giving a tour of the facilities at Redmond - these guys are REALLY committed to the Mac platform) So, MS can in fact make as much from a Mac as they can from a PC. Microsoft has the skills to develop Mac software, and it could in fact make more of its products available for Mac (eg Visio, Project etc). So, financially, MS has little to lose by Macs taking market share from it's traditional PC allies. And, if it had a choice between a Mac sale and a Linux sale, there is no doubt what it would prefer.
But I think MS needs Apple even more than this. I think that Apple has been a constant source of ideas for Redmond, and that it has benefited from taking those ideas in the past and will continue to do so in the future (sure Apple learns from Microsoft too, but I think one direction is more prevalent!). Whatever Apple does in the living room, MS will surely copy, refine and exploit. And, as Paul Thurrott notes in his recent article which I linked to last week, much of Vista is indeed a copy of what's best about Mac OS X Tiger. MS needs these ideas not to fight Apple but to fight Linux, and to fight Google. Apple's business model comes from the same vintage as MS - hardware sales with commercial software licenses etc. Apple's success in that way shows that model is still essentially valid. Cupertino is Redmond's R&D facility. It has used this very effectively in the past to profit at a level Apple could never achieve. It has (had?) cross-licensing agreements with Apple that allow it to use many of these technologies. It's own internal innovation has become crippled because of its own management failings, the need for constant legal overview (see below) and the sheer difficulty of supporting the vast numbers of platforms sold by it's partners.
But, there's even another level on which Microsoft needs Apple. It showed this when Apple was on the ropes and needed cash. It injected $150m and agreed to continue to develop MS Office for the platform. Sure, it has made money from the Mac BU as discussed above (and as it turned out, it made a lot of money when it cashed in that investment). But in my opinion that investment was always about Microsoft preferring a weak competitor around than no competitor at all. That's because, even back then, it knew it's biggest problems were not from it's (weak) competitors (esp Apple) but from the competition authorities. And today, that is an even bigger problem. Every product feature that MS would like to introduce is probably endlessly debated by lawyers internally as it will no doubt be challenged somewhere as anti-competitive. Add an MS version of iLife? There'll be some companies (eg Adobe) that will be upset by it and cry foul. For heaven's sake, they can't make the OS more secure without upsetting the antivirus and anti-spyware companies that make their living off MS' insecurities. But if Apple has 10% of the market for OS, wouldn't it be a lot easier for MS to argue that it needs to be free to innovate as that proves that the free market is working? The client OS is still a growing business, so this does not imply a loss of revenue - just a slowing down of that growth. The trade-off for Microsoft in its other areas of ambition is potentially huge.
That's why I think Microsoft would actually welcome Apple's success - at least for the next few years.
Read the final part of this series with what this means Apple will and won't do as a consequence of this strategy.
(Edited to add links between Articles)
Apple and Microsoft no longer really compete
I wrote in January that one of Apple's key challenges was to establish more partnerships with key companies, and observed how bad historically it had been at doing this. As I was considering some of the fall-out from the BootCamp announcement recently, it struck me that Apple has actually gone and done this. First it not only made peace with Intel, it made a strategic relationship that looks like it will be beneficial for both companies - Apple needed power (esp in laptop models) and got it, and Intel needed publicity for it's new products to fight back after being trounced by AMD. Of course, we knew about the Intel partnership before I wrote the January blog entry, but I've finally understood that the Intel relationship for Apple was not about performance per watt (though that was important) it was about burying once and for all the notion that it's raison d'être is to kill Microsoft. What Apple has done with the Intel switch is to turn not one but two very large and influential companies from being Apple foes into supporters. Am I going too far in describing Microsoft as a supporter? Perhaps, but bear with me.
Apple's position with PowerPC was always going to be as a small niche player with diminishing marketshare over time and the iPod "halo effect" was not going to turn this around except to provide temporary relief at best while the long term decline contiued. Yet for Apple to be a sustainable business it needs to have serious marketshare in the business it's in. What is that business? It's primarily hardware, and the primary competition is Dell, HP (at the PC end), Lenovo, Acer, Toshiba, Sony, Fujitsu, Gateway, etc. Apple fighting Microsoft doesn't help Apple's cause one bit. Neither did fighting x86. Steve Jobs has known this since before returning to Apple. In a Forbes interview in 1996, he said "The PC wars are over. Done. Microsoft won a long time ago.". Perhaps we didn't believe him, and perhaps that's not what the Mac faithful want to hear. The reality is that Apple is never going to displace Microsoft as the dominant OS. And fighting that battle (and the chip battle) only saps energy from the causes it needs. Apple is still fighting for long term survival in a cut-throat highly competitive business. It's resources must be focused on beating its direct competitors through a sustainable strategy. That strategy involves giving the end-user an unparalleled experience - simplicity, functionality, great design. It is sustainable because unlike most or all of it's competitors it is able to control the whole of that experience by virtue of having it's own OS and software. But it is sustainable in a mass market only if you are able to maintain a meaningful market share. I would suggest that the level of that marketshare for sustainability has to be among the top 5 suppliers, and possibly even in the top 3. That implies a global marketshare of >10%. Ignoring commercial markets (where it will have a harder time) and ignoring less-developed world markets, it will in fact need to have a marketshare in the consumer markets of the developed nations in the region of 15-25% if it is to be sustainable. The iPod halo effect for Apple will be about giving it enough revenue and profit headroom for a period of time to make the changes it needs to head towards this figure. Without this effect, Apple's current transition would have been impossible. It has but one chance left and it is taking it.
While Apple zealots (and a few MS ones too) like the constant talk of OS wars, the reality is that focusing on this was self-defeating (at least for Apple). Why have Microsoft against you when you can have them on your side? Sure, you can maintain a marketing war about which OS is better. It matters more to Apple perhaps that it gets more of the plaudits in this regard. We can even have a "battle" in the music player arena too - after all it seems easy to get Steve Ballmer wound up. But in the music market, it's never really been a battle of Apple vs Microsoft. Microsoft never saw this market appearing - Apple pretty much created it. Sure, Microsoft would now like a piece of it, though it doesn't stand to gain much as it doesn't have any (hardware) products. The biggest danger to Microsoft in the music arena comes from the possibility that Microsoft's standard - WMA - is toppled by Quicktime for dominant marketshare and makes Microsoft's plans for your living room more difficult to achieve. But even here, I think Apple has far more to lose by not getting a toehold than Microsoft has by not being the only choice. At this time, WMA is still dominant, though Quicktime is catching up (purely down to the iPod effect of course).
Even if you accept my argument that Apple has embraced Microsoft, you may argue that Microsoft will not embrace Apple and that will be a constant problem longer term for Apple. In a second post, I am going to look at Microsoft's competitive position and argue that in fact it's best interests are served by embracing Apple as well. I don't expect the war of (marketing) words to stop, nor the wars between the zealots on either side, but in terms of absolute strategy, Apple's success neither depends on Microsoft's destruction and nor does Microsoft's success depend on Apple failing.
In the meantime, Apple will be aiming to take small chunks of marketshare from the other major (and not so major) computer manufacturers. I would liken this scenario to the global car manufacturers. Currently Dell is Toyota, and Apple is perhaps (would like to be) BMW. Few would argue that BMW has a sustainable and profitable business (as does Toyota). Both companies can exist and be successful as long as a few of the others are failing or just middling along (GM, Ford, Fiat, even VW, etc). Unlike the car market which is pretty mature, the computer business is still growing at over 10% a year. So, there is plenty of opportunity for growth and profitability in this market for many companies.
Where Apple's strength now is that it, and only it, controls one aspect of the technology that it's competitors do not have - the OS. Back to the car market analogy (I know this isn't perfect, but it will make the point), there are perhaps 3 fundamental components of making a car work - the car itself, the engine powering it, and the fuel that is supplied. Let's consider the car design as the computer itself, the engine as the chip, and the OS as the "fuel". For a long time, Apple persisted in having it's own unique combination of these things - it's own designs, processors by Motorola/IBM and it's own fuel. The rest of the world had something else - x86, and Microsoft. Or perhaps Apple was driving on the left in a hydrogen-powered car, and everyone else on the right with petrol. The barriers to change for anyone were perceived as too high no matter how good the experience of driving on the left.
Apple has now overthrown that thinking. It now has the same engine type as everyone else, and it will let you use the same fuel if you like. But it has one ace that even BMW doesn't have. Only it's designs can run a different type of fuel that's a lot better than the one everyone else has. You can go faster and do better mileage with the Apple fuel. But if it runs out, if you can't get it, or you just plain want the other fuel, then that's fine too. And as long as Apple can make it's fuel better and better, while ensuring you can still use the fuel everyone else has, then their advantage can get stronger and stronger. So, it will ensure it's designs are the best they can be, and that it's OS is the best available. It will fight in a competitive market among other companies that it has the resources and ingenuity to beat. And it's success is much more in its own hands than it has been for the last 20 years or so. Success for Apple will be doubling in size, then tripling, while remaining decently profitable. It will be about moving from low down the order of computer manufacturers up into the top 5 and then into the top 3. As that market changes through convergence of devices in the home as well as for mobile devices, it will be about becoming THE leading consumer electronics company through providing devices that people want to use as they go about their daily work and play.
I don't see this as being very negative for Microsoft, and frankly if they dwelled on this competitive threat they would be missing the far more serious threats to their whole business coming from many other quarters (see subsequent post). Paul Taylor, technology correspondent for FT, wrote on Friday (subscription required):
The PC wars are over. Done. Microsoft won a long time ago. Move on.
My next entry will try to articulate why Microsoft is actually a willing accomplice to this strategy.
(Edited to add links between articles)
Apple's position with PowerPC was always going to be as a small niche player with diminishing marketshare over time and the iPod "halo effect" was not going to turn this around except to provide temporary relief at best while the long term decline contiued. Yet for Apple to be a sustainable business it needs to have serious marketshare in the business it's in. What is that business? It's primarily hardware, and the primary competition is Dell, HP (at the PC end), Lenovo, Acer, Toshiba, Sony, Fujitsu, Gateway, etc. Apple fighting Microsoft doesn't help Apple's cause one bit. Neither did fighting x86. Steve Jobs has known this since before returning to Apple. In a Forbes interview in 1996, he said "The PC wars are over. Done. Microsoft won a long time ago.". Perhaps we didn't believe him, and perhaps that's not what the Mac faithful want to hear. The reality is that Apple is never going to displace Microsoft as the dominant OS. And fighting that battle (and the chip battle) only saps energy from the causes it needs. Apple is still fighting for long term survival in a cut-throat highly competitive business. It's resources must be focused on beating its direct competitors through a sustainable strategy. That strategy involves giving the end-user an unparalleled experience - simplicity, functionality, great design. It is sustainable because unlike most or all of it's competitors it is able to control the whole of that experience by virtue of having it's own OS and software. But it is sustainable in a mass market only if you are able to maintain a meaningful market share. I would suggest that the level of that marketshare for sustainability has to be among the top 5 suppliers, and possibly even in the top 3. That implies a global marketshare of >10%. Ignoring commercial markets (where it will have a harder time) and ignoring less-developed world markets, it will in fact need to have a marketshare in the consumer markets of the developed nations in the region of 15-25% if it is to be sustainable. The iPod halo effect for Apple will be about giving it enough revenue and profit headroom for a period of time to make the changes it needs to head towards this figure. Without this effect, Apple's current transition would have been impossible. It has but one chance left and it is taking it.
While Apple zealots (and a few MS ones too) like the constant talk of OS wars, the reality is that focusing on this was self-defeating (at least for Apple). Why have Microsoft against you when you can have them on your side? Sure, you can maintain a marketing war about which OS is better. It matters more to Apple perhaps that it gets more of the plaudits in this regard. We can even have a "battle" in the music player arena too - after all it seems easy to get Steve Ballmer wound up. But in the music market, it's never really been a battle of Apple vs Microsoft. Microsoft never saw this market appearing - Apple pretty much created it. Sure, Microsoft would now like a piece of it, though it doesn't stand to gain much as it doesn't have any (hardware) products. The biggest danger to Microsoft in the music arena comes from the possibility that Microsoft's standard - WMA - is toppled by Quicktime for dominant marketshare and makes Microsoft's plans for your living room more difficult to achieve. But even here, I think Apple has far more to lose by not getting a toehold than Microsoft has by not being the only choice. At this time, WMA is still dominant, though Quicktime is catching up (purely down to the iPod effect of course).
Even if you accept my argument that Apple has embraced Microsoft, you may argue that Microsoft will not embrace Apple and that will be a constant problem longer term for Apple. In a second post, I am going to look at Microsoft's competitive position and argue that in fact it's best interests are served by embracing Apple as well. I don't expect the war of (marketing) words to stop, nor the wars between the zealots on either side, but in terms of absolute strategy, Apple's success neither depends on Microsoft's destruction and nor does Microsoft's success depend on Apple failing.
In the meantime, Apple will be aiming to take small chunks of marketshare from the other major (and not so major) computer manufacturers. I would liken this scenario to the global car manufacturers. Currently Dell is Toyota, and Apple is perhaps (would like to be) BMW. Few would argue that BMW has a sustainable and profitable business (as does Toyota). Both companies can exist and be successful as long as a few of the others are failing or just middling along (GM, Ford, Fiat, even VW, etc). Unlike the car market which is pretty mature, the computer business is still growing at over 10% a year. So, there is plenty of opportunity for growth and profitability in this market for many companies.
Where Apple's strength now is that it, and only it, controls one aspect of the technology that it's competitors do not have - the OS. Back to the car market analogy (I know this isn't perfect, but it will make the point), there are perhaps 3 fundamental components of making a car work - the car itself, the engine powering it, and the fuel that is supplied. Let's consider the car design as the computer itself, the engine as the chip, and the OS as the "fuel". For a long time, Apple persisted in having it's own unique combination of these things - it's own designs, processors by Motorola/IBM and it's own fuel. The rest of the world had something else - x86, and Microsoft. Or perhaps Apple was driving on the left in a hydrogen-powered car, and everyone else on the right with petrol. The barriers to change for anyone were perceived as too high no matter how good the experience of driving on the left.
Apple has now overthrown that thinking. It now has the same engine type as everyone else, and it will let you use the same fuel if you like. But it has one ace that even BMW doesn't have. Only it's designs can run a different type of fuel that's a lot better than the one everyone else has. You can go faster and do better mileage with the Apple fuel. But if it runs out, if you can't get it, or you just plain want the other fuel, then that's fine too. And as long as Apple can make it's fuel better and better, while ensuring you can still use the fuel everyone else has, then their advantage can get stronger and stronger. So, it will ensure it's designs are the best they can be, and that it's OS is the best available. It will fight in a competitive market among other companies that it has the resources and ingenuity to beat. And it's success is much more in its own hands than it has been for the last 20 years or so. Success for Apple will be doubling in size, then tripling, while remaining decently profitable. It will be about moving from low down the order of computer manufacturers up into the top 5 and then into the top 3. As that market changes through convergence of devices in the home as well as for mobile devices, it will be about becoming THE leading consumer electronics company through providing devices that people want to use as they go about their daily work and play.
I don't see this as being very negative for Microsoft, and frankly if they dwelled on this competitive threat they would be missing the far more serious threats to their whole business coming from many other quarters (see subsequent post). Paul Taylor, technology correspondent for FT, wrote on Friday (subscription required):
"If, like me, you have quietly coveted an Apple Mac for years, but been put off by the lack of support for Microsoft Windows software, an answer may finally be at hand".That's the type of view Apple wants people to have. I'm sorry if this seems obvious to you - a quick check of the more rabid mac news sites recently still shows that many seem to think that the overthrow of MS is still the critical success factor for Apple. That is never going to happen! While us Mac zealots may dream of such, we all know that Apple has no real chance of even moderate success in the business market - good design and iLife alone are not going to result in mass replacement of systems running various flavours of critical enterprise software. Don't get me wrong, there's a good part of the business market Apple would like and can indeed get. But that market is not in equipping a call centre with 1,000 machines, so it will be a niche player for the smaller enterprise and in situations where employees can pick their own machines. That is not going to lead to 20% marketshare let alone 50% - the only level at which you could really start to say that Apple has perhaps beaten Microsoft. Without a strategy that openly targets Microsoft as a competitor, Apple has the flexibility of using MS or at least being MS-agnostic to achieve it's aims.
The PC wars are over. Done. Microsoft won a long time ago. Move on.
My next entry will try to articulate why Microsoft is actually a willing accomplice to this strategy.
(Edited to add links between articles)
Subscribe to:
Posts (Atom)
