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It's the Apple Indicators, Not Market Share that Spooks Microsoft

TMO Analysis - It's the Apple Indicators, Not Market Share that Spooks Microsoft

by , 4:10 PM EDT, October 27th, 2008

In market warfare, just as in military warfare, one of the key tools is the analysis of Critical Failure Points. The essential element is that a opponent may have mistaken assumptions about its strengths or strategy or the intentions of the opposition, and those elements constitute a set of critical failure points that can be exploited. Apple appears to be exploiting Microsoft's critical failure points.

It all started when Steve Jobs returned to Apple and ruthlessly canned any project that wasn't essential to Apple's survival: Heavy hardware discounts for any developer, the Apple Masters program, the Newton, photography and printing.

That management approach was part of a larger philosophy, later implemented, which said that any activity or project that was not making money was to be cancelled. No pet projects were maintained for image or vanity. The net result of such thinking was that Apple started to surge on all fronts in a way that would compound itself in financial growth.

The cornerstone of that approach was Mac OS X. A team of very good people who understood Unix, Avadis "Avie" Tevanian, Bertrand Serlet, Jordan Hubbard and others architected a modern approach to Unix that would lead to growth and new technologies while successfully making the painful transition from Mac OS 9 via the Blue Box/Classic.

Just like the current economic crisis, when a sequence of objective financial realities starts to domino, there's no stopping the collective action of the whole process.

The key critical failure points are now becoming evident.

  1. Vista would be good enough sway XP users to migrate because of Microsoft's past performance.
  2. Because of its accumulated wealth, Microsoft could afford to engage in money losing projects to achieve broader agendas.
  3. Apple would forever settle for single digit market share.
It has become clear to Microsoft lately that despite an overwhelming worldwide market share compared to Macs, that the real emerging problems is:
  1. Apple's financial strength.
  2. Apple's ability to define the terms of the war with the "Get a Mac" TV ads.
  3. Apple's retail presence.

A good historical example of how an opponent can misjudge, in military warfare, was the 1973 Arab-Israeli war. Israel surmised that Egypt, disgraced after the six-day war in 1967, wouldn't mount another attack until they could achieve air superiority. Instead, Egypt used a combination of Soviet air defenses and Scud missiles to negate the Israel air superiority and provide an umbrella for its advancing tank forces. It was a classic case of critical failure points.

Microsoft, by comparison, has trumpeted the fact that its vast market share is an indicator of its product desirability and success instead of a legacy that could be attacked at weak points. For example, Apple is now grabbing one in three laptop dollars in retail stores.

Apple rate of growth in Mac sales, compared to the PC industry, has been running at a steady factor of two to three for some time now. Concrete financial factors like that pass fleetingly by, for the moment in news reports, but accumulate into alarming numbers over time. For example, as recently as Apple's Q2, 2006, the company sold 1,112,000 Macs. In the most recent quarter, the number was 2,611,000.

Apple's revenue growth now dwarfs Microsoft's, it has more cash on hand, and in the most recent quarter, Apple's non-GAAP profit was $2.44B compared to Microsoft's $4.37B. See chart below.


Source: Seeking Alpha

Other data from Monday shows that Open Office.org has been downloaded at least 3 million times since the launch on October 13. Of that total, there have been, to date, 320,622 Mac OS X downloads and a "staggering" 2.5 million Windows users. (Because OpenOffice can be freely distributed, the numbers from the Mozilla website are a floor.) While many customers use both, if Microsoft had captured all that revenue in equivalent MS Office sales, it would come to just under a billion US dollars, not a small piece of change.


Early OpenOffice 3 Downloads

The net result of these critical failure points in Microsoft's overall strategy is that while Microsoft continues to tout a significant market share, other economic indicators, a gathering of open source clouds, and a hard nosed approach by Apple have forced Microsoft into a defensive position that has required a US$300M ad campaign to counter the damage. When that news was unveiled, Apple, in an almost military-like counter-punch, went for the jugular and teased Microsoft for not spending that money on Vista's problems.

Apple is poised to move into double digit market share in the U.S, and from all indicators, Microsoft has few obvious strategies available in its arsenal to extricate itself from a continued defensive position and some key failure points.

 


Observer Comments

Show: Subjects Only | Full Comments
Close Name:davebarnes Posts: 130 Joined: 12 Jan 2005
Subject: OpenOffice don't mean a whole lot

I downloaded OpenOffice.
Tried it out.
Trashed it.
Am quite willing to pay $150 USD for Microsoft Office. In my house, that is only $30/computer.

Downloads are a worthless metric.

Close Name:xmattingly Posts: 266 Joined: 31 Jul 2007
Subject: Minor adendum

Quote
... forced Microsoft into a defensive position that has required a US$300M ad campaign to counter the damage
Very interesting and thorough analysis of the current situation over there at M$, Mr. Martellaro. My only minor nitpick is that I don't think there was any external indicator that "required" M$ to spend all that money on advertising. From a PR standpoint, I think they absolutely had to have something to counter-balance the loss of mindshare. Although the "I'm a PC" thing was really too little, too late, and too much money pumped into what appears to be a directionless campaign.

But there is no doubt that M$ is hurting on all fronts. Products they're not making money on, a botched OS release, Firefox taking a big wet bite out of their marketshare, cloud computing, etc. And "I'm a PC" was the best they can come up with?!

Close Name:Guest
Subject: Open Office means a lot!

Downloaded Open Office and tried it out. Hmmmm! Very similar to MS. Of course there are differences, that's to be expected, but it is very, very good. Free 433 page pdf manual (where is that MSWord manual). All it takes is to use it and become comfortable with it. My goodness opens MS documents, Saves as MS Documents. Loads a lot faster than MS...and it's FREE!

Trash it? I don't think so.

Grinning all the way to the bank!

Close Name:Terrin Posts: 414 Joined: 29 Jan 2006
Subject:

I agree. Love or hate Microsoft, Office for the Mac is the best Office Suite for the Mac. Especially, in the Word processing front. At my University, I picked up a copy for $29.95. Despite the deserved criticism for leaving out Macros, Office 2008 has some nice improvements.


Quote
davebarnes wrote:
I downloaded OpenOffice.
Tried it out.
Trashed it.
Am quite willing to pay $150 USD for Microsoft Office. In my house, that is only $30/computer.

Downloads are a worthless metric.

Close Name:Guest
Subject: Stealing Office

Quote
davebarnes wrote:
I downloaded OpenOffice.
Tried it out.
Trashed it.
Am quite willing to pay $150 USD for Microsoft Office. In my house, that is only $30/computer.

Downloads are a worthless metric.


In your house (and everyone else's, for that matter), that would be stealing. You're allowed to install the home addition on 3 computers.

Close Name:Guest
Subject: I've got iWork in my house

and I really like it. I found Open Office to be a little lacking too, definitely still feels like an open source app. Mostly I used Word, I don't honestly know how Numbers stacks up to Excel, I think the last spreadsheet I made was about ten years ago in Appleworks, but that said, Pages is fantastic. If you aren't a heavy duty macro maestro, I recommend it.

And yes, it's glaringly apparent at this point that much of Microsoft's success hinged on a point in time when the majority of people didn't know any better. By and large there never was any innovation there. They truly have very little to fall back on in those terms--one day they'll be glad they can still make Office for other OSes.

Close Name:geoduck Posts: 1922 Joined: 30 Dec 2003
Subject:

First OpenOffice
A year ago I dumped M$Office and went to NeoOffice (a cousin of OpenOffice that runs natively on PPC). It worked great. So this week when I received my new MacBook I didn't even consider M$Office, I just loaded the newest OpenOffice. While I haven't done more than play for a few minutes it seems to work just fine and I'm $150 richer. Sure if I was still at a University where you could get M$Office for ~$30 I might not, but in the world I'm in that's just too much to spend for a word processor.

As far as the analyses above. This jibes with what I've been feeling for a couple of years; that M$ is deeply frightened. In the same way a football or baseball team can feel the momentum swinging away from them, M$ is still in the lead but they are seeing the market turn against them. They may still be up but they just can't seem to help making one screw-up after another. They know that after enough of those, you become a joke.

M$ sees what happened to GM. Once on top of the industry, they were crippled by unwillingness to adapt to changing markets. Now they are loosing money and frantically trying to catch up the Toyota, Honda, et.al., and unload thousands of monster SUVs that few people want. M$ is frantically trying to prevent that from happening to them. Personally I don' know if they can. In the late '90s Apple needed a serious pruning. Jobs and his predecessor cut lines, cut projects, cut manufacturing plants, cut, cut, cut. It hurt like hell but in the end they emerged as a lean, focused company with one goal; to win. Right now with the economy sliding down, it would be a good time for M$ to undergo a similar process, heck they can expect a year or two of bad sales anyway, might as well get all the pain over with at once.

What I see, however, is M$ going through the motions but not the substance. M$ saw how OS-X changed the user interface. They made huge changes to Windows with Vista. They did not understand that the changes to the Macintosh environment were pushed by the new UNIX code base. Aero came in but M$ did not do the underlying changes to the kernel code that Windows really needs so it was all about style, not substance. They still think they can tweak the appearance, fiddle around the edges, and fix the mess they are sliding into. It won't work.

Microsoft is the last company running clipper ships while the rest of the world has gone to steam. They are still building DC-6s while the rest of the world has gone to jets. I don't think true innovation is possible for them.

Close Name:Guest
Subject: Open your eyes to far better MS Office alternatives!

Quote
davebarnes wrote:
I downloaded OpenOffice.
Tried it out.
Trashed it.
Am quite willing to pay $150 USD for Microsoft Office. In my house, that is only $30/computer.

Downloads are a worthless metric.

Quote
Terrin wrote:
I agree. Love or hate Microsoft, Office for the Mac is the best Office Suite for the Mac. Especially, in the Word processing front. At my University, I picked up a copy for $29.95. Despite the deserved criticism for leaving out Macros, Office 2008 has some nice improvements.


Quote
davebarnes wrote:
I downloaded OpenOffice.
Tried it out.
Trashed it.
Am quite willing to pay $150 USD for Microsoft Office. In my house, that is only $30/computer.

Downloads are a worthless metric.


Keep in mind that, assuming you're using a Mac, Office is not the only option you have (unless your school offers it to you for $30, and then it's a no-brainer).

If you're willing to spend $150, why not pick up Apple's iWork software package for presentations, documents and databases ($79)? With the exception of perhaps Pages, Keynote and Numbers are great apps that are way better than MS Office. If you need a real word processor and bibliographic software (for academic writing), Mellel and Bookends come bundled together ($109, $89 for student). If you don't care about Bookends, Mellel is on sale right now for $35 ($29 student). Compared to Word and Endnote's functionality, ease of use and elegance, these Mac products put it to shame. By the way, future upgrade costs for Mellel are negligible when compared to MS Office's policy.

So, to sum up, there is no good reason for Mac users to still be tossing money to the Microsoft Machine (unless you're a student practically being paid to, but even then I'd reconsider). There are so many better products available to Mac users for such better prices that we never have to bother with MS Office again! Spend a few days learning these new products and you'll be glad you did.

Close Name:Guest
Subject: word processing

I second what geoduck wrote about Mellel. I have used Mellel for years for technical writing. It is a full-function word processor that as an added bonus enables me to construct professional-looking mathematical formulas stacked over as many lines as needed without an external formula editor.

Close Name:Guest
Subject: oops

It was not geoduck, but another Guest who mentioned Mellel. Sorry.

Close Name:geoduck Posts: 1922 Joined: 30 Dec 2003
Subject:

Quote
Guest wrote:
It was not geoduck, but another Guest who mentioned Mellel. Sorry.

np

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