Steve Ballmer: Apple's Proprietary Hardware & Software Will Lose to Microsoft

by , 1:15 PM EDT, September 26th, 2008

Apple's business model of offering proprietary software combined with proprietary hardware will lose out to Microsoft's licensing approach in the smartphone market, and keep the company from gaining any more share in the personal computing and enterprise markets, according to Microsoft CEO Steve Ballmer.

Mr. Ballmer made his remarks at the Churchill Club in San Jose, CA Thursday during a dinner/discussion moderated by noted venture capitalist Ann Winblad.

Smartphones

Concerning the smartphone market, Mr. Ballmer posited that all cell phones will be so-called smartphones in five to ten years, and that the vast majority of them would be Windows Mobile devices. That is, according to Mr. Ballmer, because the market will mature into one with separate software and hardware businesses, the model by which Microsoft came to dominate the personal computing market.

Steve Ballmer (Photo courtesy of Microsoft)

For any company to do well in this future market, they'll have to follow Microsoft's business model -- a model that the company already tried to ditch with its own answer to the iPod when it started selling Microsoft branded Zune digital media devices (that lag far behind Apple's proprietary iPod line).

Looking at Nokia's smartphone market leading 30% market share, The Standard reported that Mr. Ballmer said, "If you want to reach more than that, you have to separate the hardware and software in the platform."

When it comes to that business model, Mr. Ballmer said that his company's Windows Mobile platform was more mature than the competing Symbian OS, various flavors of Linux, and Google's new Android platform.

As for Apple and RIM? Mr. Ballmer said they'll be relegated to niche status. "That doesn't mean Apple and RIM wont make lots of money," CNet reported him as having said, but, "[Microsoft is] kind of battling for the big part [of the market]."

Macs & PCs

"Apple's a good company," he also noted. "I won't take anything away from them, but they have a certain kind of strategy. They believe in putting the hardware and software together, they don't believe in letting other people make it."

This will hold Apple back in the personal computing space, too, from Mr. Ballmer's point of view. According to The Standard, Mr. Ballmer said that Apple won't increase its market share for Mac computers because of its closed model.

Apple has been making steady gains in market share for the last three years, rising to 6.6% of the U.S. market in the first quarter of 2008, up from the 2% range earlier in the century.

Internet Search

Mr. Ballmer's most audacious comments came up when he was asked about his company's Internet search business. "You don't really brute force your way into any market," he said, a comment that caused CNet's Ina Fried to report, "I looked around, but I didn't see anyone choke on their water over that one."

Microsoft as a whole and Steve Ballmer in particular spent several weeks blustering over an attempt to buy Yahoo's search business, an effort that included multiple threats of a hostile takeover and an attempt at a proxy battle lead by Carl Icahn on Microsoft's behest.

In the end, all of Mr. Ballmer's bluster amounted to a withdrawal of its offer and a rejection of Mr. Icahn's proxy battle.

In any event, with Microsoft's newfound wisdom about brute force and new markets, Mr. Ballmer said that Internet search was a priority for his company, and that he was willing to lose "5 to 10 percent of total operating income for several years" to improve that business.