Kurt's Thoughts

I don’t often refer to other blog entries.  Part of the reason for that is that I don’t want people thinking I approve or disapprove of an author’s line of thinking.  More often than not, I’ll read one entry that I think is spot on, the 24 hours later, I’ll read something else that’s just plain asinine.

But this one caught my eye and considering my background, I feel compelled to publish something about it:  It’s Paul Thurott’s article on Apple Macintosh’s Mac OS X Leopard entitled "Who’s the Copycat Now?"

THE CULT OF THE MAC USER

I stopped being surprised a long time ago at how bizarrely the average Macintosh user acts around me once they discover I work for Microsoft – never mind that I’ve been the Mac software champion locally within Microsoft for several years – none of that seems to matter.   The most professional individual in the world seems to regress into a primordial Mr. Hyde at the mere mention of the word "Windows" as if it were the name of the person that beat up their grandmother.  If it’s not some attack about, "Why don’t you release MacOffice at the same time as Windows Office?", it’s some tired dig about, "Microsoft doesn’t know how to innovate… they copied the Mac’s <insert feature here>."

(By the way, just as a total non-sequitur, have you ever noticed that Mac users are always the ones randomly "hanging out" in coffee bars, tooling around with their Palm Treo(p) devices, driving around in VW Beetles – usually those lima bean green-colored ones, wearing bohemian clothing made of hemp fibers, and walking around with either fanny packs or tattered backpacks with writing on them made with a blue Sharpie?)

STEVE JOBS HAS GONE NUTS

Recently however the Cult of the Mac’s fanatic behavior has taken on a completely new level.  Apparently, cult leader & Apple CEO Steve Jobs has started publicly laying in on Microsoft & Windows Vista at the Apple Worldwide Developer Conference – a move that Apple has until recently held back from acting out.
http://www.winsupersite.com/showcase/macosx_leopar…

Not unlike the former CEO of Sun Microsystems Scott McNealy, Steve Jobs has apparently resorted to sustaining a constant barrage of insults and sneers as his main weapon of choice in his personal war against Microsoft and anything that doesn’t lie within his domain.  It should be noted that just like Apple, Sun’s primary source of revenue was its extravagant hardware margins… effectively killing it in the early 2000’s when it was discovered by the computer market that hardware "wasn’t where it was at".

APPLE:  < 2% OF THE PC MARKET

Even with all the shouting from Cupertino, for the most part, no one in the real world seems to really give a rat’s ass.  I mean, for those of you who weren’t aware, Apple’s marketshare has slid steadily downward over the past 5 years.  That’s right:  Downward.  Macintoshes now occupy around ~2% of the computing market whereas they used to be ~6% just 5 years ago.  All those switcher commericials… all those revisions of Mac OS X… all those iPods sold hoping to hook people into buying Macs… all the hype about moving to Intel…

None of that made a bit of difference.  The world is still moving along to it’s own beat and it’s not using an Apple branded drum.  There’s been no halo effect from iPod sales, meaning there’s no correlation between Mac sales & iPod sales.  There’s been virtually no "switchers" and the move to Intel might make Macs more affordable but they haven’t changed anything in the way of software availability, programmer friendliness, or partner integration.  In fact, the day that Apple has to start dealing with System Builders pirating their OS and putting it on cheaper "clone Mac" hardware, is the day Apple starts to see what a mistake it was to move to Intel.  At least they had a chance while they were on a proprietary non-commoditized platform.

STILL MAKING HARDWARE MARGINS

Apple makes it’s money off of the high margins it gets from it’s hardware, not from it’s OS or services.  If other manufacturers start producing hardware that MacOS X runs fine on and looks like Macs (which we’ve seen many clones of), why would anyone want to pay Apple’s margins in a commodity Intel hardware market?

And that last one is the killer:  Apple’s own agenda is to own everything – the Apple Hardware you buy, the Apple OS you buy, even the Apple applications you buy like Final Cut Pro, Keynote, & Safari… leaving very little of the pie for anyone else.  Ironically, this is the attack most often used against Microsoft by Apple fanatics:  "Microsoft wants to own everything!"  Sure the iPod has succeeded in this model, but the iPod succeeded primarily because as every think tank out there will tell you, everyone else was just so bad at marketing and coordination in this space – Microsoft & its partners included.  From advertising to device-design to end-to-end experience… it’s all been just plain BAD, next to Apple’s moderately good campaign.

THE IPOD:  UNBREAKABLE?

So that’s been their success:  The iPod.  Their second revenue stream.  Mac was somewhat sustainable but while the XServe, Quicktime, and their other investments have virtually tanked (FinalCut Pro, while successful is too small in revenue to really be considered a factor), iPod has essentially become the other breadwinner in the family.  What’s weird though is that for all the talk about what a success the iPod’s been, what people haven’t mentioned is what happened with iTunes Music Store?  It turns out that iTMS is a complete wash for Apple.  They neither lose, nor make money on their investment in iTMS.  They’ve commoditized the cost of selling music down to a level so low that no one can effectively compete with them and turn a profit.

Why would they do that?  Because Apple makes money on the iPod.  That’s right.  Apple makes money on the extravagant prices that people are willing to pay for a high margin item that is technically inferior to most other devices on the market.  In fact, that’s the ONLY time in the iPod lifecycle that Apple makes money.  As soon as the device is sold, that’s the end of Apple’s revenue stream.  The iPod accessories ecosystem brings in virtually nothing in Apple’s 10K financial report.  Meanwhile, iTMS exists simply to provide services to iPod users, and since it’s a breakeven venture, it’s no skin off of Apple’s back as long as iPod device sales continues to make money for them.

Enter Microsoft & Zune.  If Zune can become even modestly successful and begin to take away iPod marketshare with a lower margin, well-integrated, more capable offering, Apple iPod projections could quickly take a turn for the worst.  And even if Microsoft doesn’t do it, how long before someone does?

LINUX – THE DARK HORSE OF MACINTOSH

The irony is that Linux was the worst thing that could have happened to Apple:  Apple’s no longer the only other viable game in town.  With Ubuntu Linux and that bazillion and one distros that are out there, Apple is just another OS vendor, making Apple very vulnerable to the whims of the market.  Microsoft no longer has to continue to support them.

So let’s say that Windows Vista is found to be much more secure than Windows XP, effectively ending the onslaught of security vulnerabilities typically associated with Windows.  Let’s also say that the bar set by Windows Vista in terms of hardware makes it as attractive as Apple visually.  And let’s say Microsoft works with OEM vendors to start manufacturing cool, elegantly designed hardware.  Now imagine a full subscription move for corporate customers to Windows Vista.

What do you think that would do to the Macintosh?  Add to that the threat on the iPod and I’d say you’ve got yourself a head-to-head challenge.

Oops.  Silly me.  All of this has already happened.