"Customers set up a hierarchy of values, wants, and needs based on empirical data, opinions, word-of-mouth references, and previous experiences with products and services. They use that information to make purchasing decisions."
— Regis McKenna
When I was selling Apple products to the Federal Government, I reaffirmed that it’s often difficult to get beyond the local heros who champion Apple products and get plugged into the business side of the customer. That’s because Microsoft understands how to cater to the entire spectrum of an organization’s needs. Of course, this was nothing new. I’ve been writing about that effect since 1998, but I bring it up to make a point.
This broad spectrum of business needs is not something that’s understood by everyone. The home user, for example, has a rather limited system configuration. If she’s lucky, she has a firewall and a backup system. Some try to get along without even that.
In contrast, corporations not only have a rich technical environment, with lots of things going on like Voice over IP, video conferencing, Exchange servers, SAN storage, Proxy servers, spam filtering, monitoring and security software, but also must comply with various regulations like "SOX," the Sarbanes-Oxley act, and engage in various quality initiatives such as "Six Sigma." All this, of course, is what makes working in IT departments so miserable, but it also creates huge opportunities for Microsoft to succeed as a business partner.
So no matter how cool Apple products have been from a personal standpoint, there is always the IT department’s infamous list — the check boxes of features and functions that Apple products must comply with. If not all the boxes are checked, then Apple isn’t considered a full-fledged player in the enterprise. (Microsoft’s business products generally check all the boxes.)
Along the way, learning from this stiff business competition, Apple learned something valuable about how to enter a market and maintain control. If one were to make a list for the digital media device market, for instance, it would look like this.
- Use technology, industrial design, and innovation to seize the MP3 player market.
- Seek to obtain as large a market share as possible, quickly.
- Make your product interoperable with your friends and not interoperable with your foes so that your friends make lots of money and have a vested interest in your success.
- Provide the complete solution: the hardware (iPod), the software (iTunes), and the purchasing mechanism (Apple ID).
- Advertise to create demand and solidify the brand.
- Partner with key players (Record studios) who want to make lot of money, then lock them into an irresistible business proposition.
For clarity, this list is specific to iPod and music, but it can easily be generalized to any market.
Upon reflection, this is what Microsoft did with the Windows infrastructure, and this is what made it so hard for Apple to compete in the enterprise.
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What I’m seeing, however, is a steady and deliberate expansion of the iPod business model into all aspects of Apple’s business. By that I mean that Macs and Mac OS X no longer need to be under the pretense of being a competitor to Windows in the business world. Rather, Mac OS X simply forms the technical foundation for an expansion of the above list of business rules in the home entertainment and digital lifestyle market.
Remember, nothing is absolute. Even as I say this, some businesses are snapping up Intel Macs. As I’ve written before, Apple doesn’t think in absolutes. They think in terms of incremental success in multiple efforts. So, along these lines, Boot Camp and Parallel’s Workstation are offering business professionals some tantalizing technical opportunities they’ve never encountered before. In fact, I’ll address that in a future column. What I am saying is that now that Apple has perfected how to do business in the same style as Microsoft, we can expect to see them expand on that model until it includes almost all their products.
I find this idea particularly ironic because for a long time, Apple writers and readers on the Internet bitterly complained about Microsoft’s business practices that ended up excluding Apple products from the work place. (I am referring here only to legal business practices.) In some cases, it was even characterized as evil. We see now that business practices like those cited above weren’t evil in themselves because they have a sound foundation in sales to customers and working with business partners. But it was assumed to be evil because it defeated our favorite computer, the Macintosh.
Lest we forget, previous Apple executive management got into that poor positioning, and getting Apple out of that mess is clearly a priority for Apple for the foreseeable future.
What that means is that while we can expect to see some considerable fuss about Macs running Windows, we can also expect to see Apple invoke these new iPod-derived business practices in everything they do. And that leads to predictions. Namely:
1. Why design and sell a so-called Apple iPhone if it can’t leverage off the huge market share of the iPod? Apple sells, very roughly, 40 million iPods a year, but Nokia, Motorola, Ericcson, and others sell a half billion cell phones each year. What this suggests to me is that it’s unlikely that Apple will sell an integrated iPhone and iPod that’s nothing more than the sum of both. [1] In accordances with the rules above, Apple will need to create and dominate a new market in a new way that the cell phone manufacturers have so far failed to imagine. Apple, a company that provides your digital lifestyle products, is in a good position to create that vision.
2. We’ve all been expecting Apple to leverage the successful business model of the personal digital lifestyle into home video. That’s where lots of money is spent and made, and Apple is probably thinking about how to intelligently solve the piracy problem that plagues the U.S. movie industry. What if Apple could build a home theater device (with a key aggregation of essential technologies) that just wouldn’t play pirated movies and also give home customers considerable (perceived) latitude in the storage and manipulation of their movies? Just as Apple quickly became the number one legal source of music with iTunes and FairPlay, you can be sure they’ll seek to leverage a successful business model and an unanticipated combination of technologies to achieve the same with movies.
In order to maintain the required flexibility and control, Apple would never switch to a Vista kernel — although they would certainly improve their own kernel technologies to support their corporate goals.
3. We are seeing a slow demise in the desktop computer in preference to portability. Bill Gates in particular is similarly convinced of this phenomena, and that’s why we see isolated products like the tablet computers and the small video players. But what is happening to Microsoft is that they are being marginalized in the personal market just as Apple was in the business market, and I find it humorous that Microsoft is making the same mistakes that Apple made in the 1990s.
That is, Microsoft believes that if they can just produce a cool enough small toy, people will flock to it, and they’ll steal market share from Apple. But that doesn’t work because it doesn’t fit into the home and personal infrastructure in a productive and sensible way. It doesn’t "check the boxes" for the consumer.
So Microsoft (and Sony) keep announcing how they are going to kill the iPod, but they try to do it as a point solution. That never worked for Apple Macintoshes in big business, and it won’t work for Microsoft in the consumer market.
4. The movement to portable computing suggests some kind of convergence. These days, a business person on travel carries (maybe) a GPS navigation system, a cell phone, an iPod, and a notebook computer. Eventually, technology, innovation, and great industrial design will lead to a merger of these technologies. As I have mentioned here previously, Microsoft doesn’t show signs of being able to contort Vista (or derivatives) into a system that can support this convergence. As a result, I would expect that Apple will be planning to expand their rumored "thin book" and the iPod into next generation personal tools that can leverage off the new (iPod) business model.
The result will be that Microsoft, which has had the luxury of being the default computer of choice for home users, will find things more and more difficult in that market. The consumer market is more dynamic than the business market, and Microsoft and Dell don’t have a clear vision for what home computers ought to evolve into. (Except to be cheaper and cheaper.) Since Intel Macs run Windows, Apple is free to innovate on the Mac OS X side while still placating the home user who must use Windows. As a consequence, I predict Apple will begin to see its market share increase first amongst home users who are sick of Windows and PCs, but not in the business place where Microsoft still rules. This explains a lot about the messaging in the current "Get a Mac" campaign. It also explains the desperate attempt at spin when Steve Ballmer says he prefers "real PCs."
I could go on, but you get the idea. By looking at the six rules of engagement above, it’s possible to get some insight into how Apple might proceed. It’s now reasonable to predict that the consumer Macs will slowly morph into a personal tool that simply does more than boot up and put a trash can or a telephone keypad in your face.
Future Apple consumer "iPads" (hypothetical name) could serve as, for example, a verbal companion, tutor, a security guard, a flight recorder, a life recorder, a biosensor, a secure purchase fob, and a communications center. (Yes, I am aware of the "Knowledge Navigator.") Or likely something we haven’t thought of yet. Apple has shown in the past that they have a fairly sensible and keen understanding of what people need from their personal computers, and as technology and miniaturization progress, there will be new markets for Apple’s unique insight into consumer needs.
However, the crucial thing is that future Apple consumer products absolutely cannot be designed as stand alone devices. (As Apple did in the past and others are doing now.) They will, like the iPod, slowly evolve until the competition realizes too late that it’s not about cool toys. [2] It’s about a complete solution. This new iPad could plug into various components of the U.S. communications, knowledge, security, service and entertainment infrastructure. And it will invoke the very same business rules above that Microsoft used so successfully for years. It’ll check all the consumer’s boxes.
Apple has gone from zero to roughly 50% of its revenues based on the six business rules above. I’ll bet they’re shooting for close to 100%.
[1] The Motorola ROKR comes to mind. [2] Don't we all have enough of those?