You see interesting things when you go over numbers, and re-read old press releases. Things that didn’t seem significant at the time. Things that didn’t appear connected. Things that, well, now look really, really, strange.
S|A has been playing with this for a week now. It’s a down right weird story, because it isn’t a story. It’s a series of disconnected events, occurring over a long (for the tech industry) period of time.
While the events are disconnected, in time, in technology, and in short term effect, they do connect. The main co
nnection is two of the titans of tech, Apple Inc. (Nasdaq:AAPL ) and Microsoft Corporation (Nasdaq:MSFT ).
Let’s go back in time to when Apple was doing a good imitation of an out of control passenger liner, cruising at full speed through a field of ice bergs, while the band played dance tunes. Then something curious happened. A small company called NeXT somehow took over Apple.
This isn’t what the books say happened. But effectively? This is what happened. Pre-acquisition Apple was producing Apple products. Post-acquisition Apple was producing NeXT products with first an Apple, and later a modified and combined Apple/NeXT operating system named OS X. Compare pre and post acquisition product brochures – the difference is striking.
One of the founders of NeXT was Steve Jobs, who had earlier been one of the founders of Apple. Steve Jobs was also the main force behind the design of the original Macintosh computer. Much of the change in design philosophy can be traced to him. A practicing Buddhist, he had always believed in simple, practical, yet functional, and powerful designs that empowered users. His vision of tools that enabled consumers to get things done, with a minimum of effort, set the tone for a resurgence at Apple.
Steve Jobs has been called a visionary. The problem is, he doesn’t share his visions. No one knows what lurks in his mind. We assume that he’s had a long term plan for Apple. Based on Apple’s sales results he’s executed it well.
What was once considered a joke, has now become the most valuable company in the tech industry by stock value, passing Microsoft. As of today, Apple’s yearly sales per employee number is a seriously impressive $1,320,000.00, compared to Microsoft’s $702,607.00 per employee. Just think of that – Apple makes $617,393.00 more per employee than Microsoft does! That’s almost double the per employee efficiency – an incredible feat!
But what matters is what happened to bring Apple to where it is today, and we’ll start in 1996 with the Apple-NeXT acquisition/merger/assimilation/fusion or whatever exactly it was, since it is the start of what happened.
DEC-10, 1996 – Purchase of NeXT
DEC-10, 1996 – Purchase of Steve Jobs (listed separately because they had different impacts though the same event)
JUL-09, 1997 – Steve Jobs takes over as Chief Executive Officer
AUG-06, 1997 – Steve Jobs announces Microsoft Office and Internet Explorer for Mac deal, Bill Gates addresses MacWorld crowd. Famous Steve Jobs quote ‘We have to let go of this notion that for Apple to win, Microsoft has to lose.’ Everybody at this point forgets that business leaders do not always tell the truth.
NOV-10, 1997 – Apple online store opens
The actions above are innocuous. They are the sort of action that anyone would have taken. The actions below are different. Think about the title of the article. Then add all of these together. Stop. And think. Sure, all of these do make sense from a business sense. But why, oh why, does each one seem to be a dagger aimed directly at Microsoft?
Et tu Brutus?
While we went with dates above, from here on in, we are going with product names. The date will be included with the product name.
1 – The OS X Operating System
March 24, 2001 – What many people forget today is that in the late nineties the tech press was full of articles suggesting strongly that Apple should dump its aging Mac OS and license Windows. This suggestion was met with less than universal enthusiasm at Apple, where many of the old timers still regarded Windows as an illegal rip off of Mac OS, even though a court had said otherwise.
The problem was, from Microsoft’s point of view, while it couldn’t force Apple to switch for anti-trust reasons, an independent Apple was a dangerous example. Apple’s decision to do whatever it did with NeXT and produce OS X wasn’t something that Microsoft wanted to see, but it also wasn’t something it could stop. Happenstance.
2 – The Apple Retail Stores
May 15, 2001 – Apple had a problem. Most of its resellers also sold less expensive Windows boxes next to Apple brand products, and often price, not value was the selling point. To avoid this problem, Apple opened it’s first two company owned stores in 2001. Analysts worldwide panned the move, predicting immediate disaster.
Apple however had done its homework, and rather than providing a standard retail experience, provided a focused experience that showed off Apple products at their best. The stores provided the already popular IMac personal computer with a significant sales boost.
To date Apple has opened over 324 stores worldwide. Some major metropolitan areas have several. Toronto for example has six. Exactly how much this has cut into Microsoft’s sales is unknown. During Apple’s last earnings call Steve Jobs claimed that Apple now had gained a 20% share of the personal computer market.
Microsoft reacted by opening their own retail store chain, and has 8 stores, however they do not appear to have been a success. Coincidence?
3 – The IPod Music Player
November 23, 2001 – On November 23, 2001, Apple changed the music world. Most people blamed Napster for the revolution that followed, but it was really Apple’s nearly simultaneous reinvention of the MP3 player made the difference. Suddenly music aficionados could listen to what they wanted to, when they wanted to, where they wanted to.
Apple’s support for the DRM unencumbered MP3 file format was heavily damaging to a rival company which had been trying to sell its own proprietary DRM format to the Music Labels. Microsoft. Are we starting to see a pattern here? This is number three. Enemy Action. But wait, there’s more.
4 – The Safari Web Browser
January 7, 2003 – The public beta of the Safari web browser was released in January 2003, and it was an interesting beast. It wasn’t Internet Explorer compatible. It was web standards compatible. This was a deliberate design choice by Apple. Apple had the programming capability to build an Internet Explorer clone, and didn’t.
The real attack came when Apple released a Windows version of Safari in 2007. In effect, Apple was telling Microsoft that Internet Explorer wasn’t good enough.
Safari will never be the most popular web browser. It doesn’t need to be. All it needs to do is offer an alternative to Internet Explorer, that serves to remind people that Apple computers are a viable alternative, the next time that Windows decides to crash.
5 – The ITunes Store
April 28, 2003 – Apple opened the ITunes store as an online music store with 200,000 items ready for purchase through the ITunes software. Originally the software was only available for the Mac, however a PC version was later released, and became wildly popular.
Apple makes no money from the store itself. It takes a 30% cut from each item sold, which goes towards operation of the store, including bandwidth, server costs, administration, etc. A large number of items are available at no cost (university lectures for example). The ITunes store exists for one purpose only, to sell more IPods, and this it does extremely well. An in depth explanation of Itunes and the Itunes store is here.
The ITunes store was an attack on the Windows Media DRM system, and a wildly successful one. No Windows Media DRM store has ever been successful. Ever. Apple destroyed Microsoft’s hopes of becoming the “DRM Gatekeeper of the World” with ITunes.
6 – IWork Applications Suite & Mail with Exchange Support
January 22, 2005 for IWork, Various Dates for Mail. Office is Microsoft’s “Cash Cow”. Nearly half of Microsoft’s profits flow from it. Apple’s launch of IWork at the price of $49.99 could have a serious impact on it’s own. Pair it with Mail which is included for free with every copy of OS X, and it looks worse. After all, Microsoft was, and is, selling Mac Office for $250.00, five times the price of IWork!
Apple even went further. IWork is capable of importing OOXML files (Office 2007 and later). It can import and export classic Microsoft .DOC format (Office 2004 and earlier) files, enabling it to communicate with an office full of Microsoft Office machines.
While it may never take off in the Enterprise directly, many executives use MacBooks as their personal computers when traveling and IT departments have learned to support them. The Mac’s ability to use Exchange Email Servers, and read Microsoft Office files is invaluable.
For the typical home user, the Mac is probably less expensive over the life time of the computer. While geeks do their own repairs, ordinary users take their Windows boxes to a repair shop. Geek Squad charges $199.00 for in store virus removal, and $299.00 to do it in your home. General ‘tune up’ work is $99.00 in store. Since Mac’s don’t have virus problems, yet, and generally just work until the hardware fails…
7 – The Move to X86/X86-64 Processors
January 10, 2006 the first Intel based Macs arrived. While this could be regarded as a standard PC, Apple left out the legacy ports that other manufacturers were still including, and used modern EFI firmware.
Porting the operating system was easier than most might think. The original NeXT OS had an X86 version, and had been ported to Power PC for use by Apple. NeXT OS was based on the open source BSD Unix, which was designed for processor portability. It is rumored that during the entire time that OS X was used on Power PC processors, a parallel branch was kept running on X86 processors, so switching back was easy. Apple also developed a Universal Binary, an executable file format capable of running on both processor types.
Another Apple development was Boot Camp, which made it was possible to install and run Windows on a Mac. This gave consumers the best of both worlds, a chance to evaluate the Mac experience before fully switching. The chance to use a Mac, with the Windows security blanket on hand in case things got strange, was too good to miss. People took the chance and bought Macs. After all, they already had Windows licenses, licenses for a computer that was often virus infested, slow, and, well, not that attractive. Macs looked great. Why not try one out?
8 – The IPhone
June 29, 2007 – When the IPhone was announced Steve Ballmer said:
There’s no chance that the iPhone is going to get any significant market share. No chance. It’s a $500 subsidized item. They may make a lot of money. But if you actually take a look at the 1.3 billion phones that get sold, I’d prefer to have our software in 60 percent or 70 percent or 80 percent of them, than I would to have 2 percent or 3 percent, which is what Apple might get.
At which point you have to ask exactly how much market share does Windows Mobile have today? About 2 or 3 percent, except possibly in the U.S. where it might be a bit higher. The IPhone is a classical Disruptive Technology. While it didn’t advance the state of the art in mobile phone construction from a technical standpoint, it did mark a radical change in mobile phone design from an Industrial Design standpoint.
The IPhone uses the same basic operating system as does the Macintosh line of personal computers. So do most IPods, except for the earliest ones, which used a different kernel.
After the IPhone, the mobile phone business underwent a radical upheaval. The major player which took the most damage was Microsoft.
9 – IPod Touch
September 13, 2007 – In a rather creative move, Apple sold a version of the IPhone without the cellular radio as the IPod Touch. It used most of the same components, and the same operating system, with some minor application changes. This move completely upset the MP3 Player market. While many MP3 players had provided video playback capabilities, the IPod Touch had a far larger screen.
When Apple started working on the IPod Touch isn’t known. The concept of an IPod based on the IPhone design should have been obvious to Apple’s Design and Marketing people. But there is the curious coincidence that Apple released it into the marketplace only ten months after Microsoft released it’s click wheel style Zune MP3 Player.
Was the IPod Touch an attempt at payback? We may never know.
10 – The Apple App Store (IOS Devices – IPhone, IPod, IPad)
July 10, 2008 – The Apple App Store shares a common point with many of the innovations above. Apple is never the first mover in a market. Quite often it’s third or fourth. Apple is terrible at innovation. What Apple is good at is looking at products that are on the market, seeing what’s wrong with them, and building a better mouse trap.
That’s what Apple did with the App Store. Like with the ITunes Store, with which is shares it’s infrastructure, the App Store takes a small commission on App sales. It was quite amusing to watch the attacks on the Apple App Store for taking a 30% commission on sales, while the writers ignored competing App Stores that were taking commissions as high as 65%!
Then the feigned surprise that developers were signing on with Apple, when Apple had such restrictive conditions. They didn’t point out that Apple’s App Store conditions weren’t any more restrictive than the conditions competing application stores imposed. Google’s Android store is more open than Apple’s App Store, but other competing stores, while they may vary on the details, have similar requirements.
Like the ITunes Store, the App Store exists for one reason. To sell more IOS devices. This it does very well. Microsoft hasn’t been able to match it, which has badly impacted it’s ability to sell Zune players.
Even worse, with the addition of casual gaming to the IOS platform, IOS devices are starting to eat into the mobile game device market, and into the console game device market. While the XBox 360 is a nice machine, it’s tethered to a television set, and an AC outlet. IOS devices allow gaming anywhere, including under a shade tree in your back yard on a nice summer day.
11 – The IPad – The reinvention of the tablet computer
April 3, 2010 – On November 13, 2000 at Comdex in Las Vegas, Bill Gates introduced the Tablet Computing concept. Just over nine years later, on January 27, 2010, Steve Jobs announced the IPad during an Apple press conference at the Yerba Buena Center for the Arts in San Francisco. A few months later, Apple stores all over the United States, and shortly later in other countries, opened their doors to lineups of eager buyers.
For over nine years the history of tablet computing was Microsoft. After the IPad’s introduction, Microsoft became irrelevant in the tablet market.
Again, Apple did nothing innovative. The Tablet Computer concept had existed for years. Large quantities of smaller inexpensive tablets had been sold by Palm. For many years the Palm Pilot, an inexpensive knock off of Apple’s earlier but overly expensive Newton Message Pad was de rigueur for traveling salesmen.
All of the parts of the IPad existed previously, if in smaller sizes. Effectively the IPad is an over sized IPod Touch. The IPad addresses the one issue that the IPod Touch and the IPhone never successfully addressed, and that no smart phone sized device never will successfully address, screen size. The screen on a smart phone sized device is not practical for viewing video, for EBook reading, or for note taking using the virtual keyboard. The IPad’s larger screen solves this problem. There are several writers who have written novels using an IPad as their primary writing platform.
This attack was probably the most blatant. It was a corporate slap in the face, from one company to another. And then Apple really got mean. They ported some of their professional applications, including Pages their professional level word processing application, over to IOS so that you could use the same word processor on your Mac and on your IPad! Then they charged only $10.00 for it. Microsoft depends on the high margins its Office business brings in. Apple depends on hardware sales. Microsoft can’t afford to sell an IPad version of Word competitively against Pages. It would kill them.
Which was made worse because Apple did use the IPod Touch as the basis, with it’s ARM processor, and Microsoft didn’t have an ARM based version of Windows that was ready to go up against IOS yet. The Windows CE/Windows Mobile family of operating systems do run on ARM processors, but they aren’t designed for this sort of application. Word on the street last year was that Microsoft had decided that Windows 8 would support ARM, and that work on Windows 8 had started in the summer of 2009, just after Windows 7 had been Released to Manufacturing. Microsoft confirmed that Windows 8 would support ARM in January 2011. But when will they deliver? That they haven’t announced, and are unlikely to announce until development is nearly finished. Microsoft was hurt badly by the Longhorn fiasco, and they don’t want to go through that again.
12 – The Mac OS App Store
January 6, 2011 – Another Apple non-invention, desktop application stores are common in the Free Software world. Every Linux distribution comes with one. In some cases several distributions share the same one.
But to the average desktop user, it’s new, and exciting. Oh, and Apple has very nicely dropped the pricing on a lot of things! Aperture, which used to cost nearly $200.00 for the boxed set, costs $80.00 for the download-able version. That’s a nice savings. A really nice savings. Just think of all the valuable shelf space that this is going to free up in the Apple stores. Just think of all of the developers who never could get onto the shelves at the Apple stores who now have access to new customers!
Remember Steve Ballmer’s infamous Developer Dance?
Well, Apple’s got the developers. Because you can make money, selling software, at what was once considered insanely low prices. Apple’s Mac App Store makes it easier than ever for you to reach your customers.
The problem for Microsoft is that this pushes software prices down. Apple doesn’t care. Apple is a hardware company. If this helps Apple sell more Macs, it has served Apple’s purpose. Remember Apple’s made the claim that they had taken 20% of the North American market for desktop systems? Don’t you think they’d like to make it 25 or even 30%? Already the most popular laptop on Amazon is a Mac as is the most popular desktop.
Where Does This Leave Us?
I’ve documented twelve actions by Apple which could be interpreted as attacks on Microsoft. Even if you were to come up with reasons to remove half of them, that still leaves six. So what exactly is going on here? Is this a deliberate series of attacks by Apple on Microsoft?
As an analyst, I would have to argue that yes it is. Even if it isn’t, if I was working for Microsoft, I would have to treat these events as if they were attacks. Consider the impacts of a competitor doing this to your company!
Going back to what Steve Jobs said ‘We have to let go of this notion that for Apple to win, Microsoft has to lose,’ we have several options when considering his statement.
- He changed his mind.
- He lied.
- He decided that even though it was true, revenge for Microsoft’s theft of the GUI was more important.
- S|A is totally misreading the situation.
- Microsoft tried to back stab Apple in some way we don’t know about, so the gloves came off.
- There’s something else going on that we don’t know about.
In the end, the exact reasons behind each of these steps does not really matter, individually, they are all good business moves. Still, it does look like Apple has been very effective in combating Microsoft, while making a lot of money.S|A
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