Hidden Dimensions - Apple, iPower and The Waiting Game

by
December 1st, 2006

"Our patience will achieve more than our force."

-- Edmund Burke

In many companies, the rapid accumulation of wealth and success leads to internal problems. Some executives who believe they deserve credit for the company's good fortunes seek to solidify and extend personal power. If they handle it correctly, few are in a position to question them. Others, with a slightly different personality use the opportunity to dream up schemes to make life extremely difficult for the competition. After all there's no better time than surging success to stamp out the last vestiges of nagging competition. It keeps the marketing department under control as well.

These days, thanks to the iPod, Apple is accumulating wealth. There is no question about the foundations they have laid for success. And the competition in the on-line music business is scattered, incoherent in their efforts, and grasping at niche-bound straws. So it would seem to be the perfect time for Apple to behave like a rascal. Abuse their power just a little bit. Become the despised monopolist.

I note that it's not happening.

One way to diagnose how Apple is handling this iPod success is to examine ways that Apple could go wrong. That is, things that remind us of what Microsoft may have done in the past.

The Many Ways to Go Wrong

The Christmas Toy Company. Apple hasn't made any sudden moves, of course, because they don't have to. With some very good advertising, the synergy of the Get A Mac campaign, and excellent iPod design, there's no need to do anything that would annoy young customers who are very sensitive to the greed of the record labels. For once the solid discipline over mid-level VPs and carefully controlled message from Marketing Communications has avoided any PR snafus. Apple benefits from having a highly desirable Christmas gift that cannot cause anyone harm, only delight. In contrast, a PC is a complicated system. Its OS can betray your trust, cough up your secrets, and bleed your identity to thieves. An iPod shuffle just plays Christmas music and doesn't fry your brain as some think a cell phone might.

The best option: restraint. Do no harm. Sit back and play Santa.

Obsolescence. One can imagine a meeting in which some sociopath executive proposes that the huge success of the iPod can now be used as a forceful lever to increase Mac sales. Simply make all new iPods announced in 2007 incompatible with PCs. Those potential customers who've been dreaming about a Mac will just have to go ahead and buy one. Dreams of a doubled or even tripped market share will echo hysterically about the room. What junior employee would argue with that?

Fortunately, Apple realizes that the vast majority of iPod purchasers are PC users. The way to win people over to your products is to build great products and not coerce fidgety customers. But then one wonders how Microsoft, if their position were reversed, would handle this option.

Nagging Problems. For years, Apple customers have wondered why Outlook Express for Mac OS 9 and Entourage for Mac OS X didn't have complete feature compatibility with Outlook for Windows. The Mac Business Unit at Microsoft is highly regarded and very enthusiastic about Mac OS X. And yet, customers have continued to wonder if the nagging disparities weren't dictated by Redmond and meant to be a thorn in Apple's side.

It would be incredibly easy to keep iTunes for Windows one version behind or to introduce minor irritations. I'm sure it's been thought of. But then Apple's reputation for always writing brilliant, beautifully designed software would be tarnished. Apple has played this correctly and justly. A lesser company could have gone astray here.

Finish Off The Bad Guys. In a recent Wall Street Journal article, the author described in detail how the competitors to iTunes have sought to find small holes in Apple's strategy and take an indirect approach instead of a head-on attack -- which would be suicidal according to one of the competitors. Apple could pick up on this, analyze these small holes in their strategy, and close out the small market niches these competitors have found. For example, Apple could introduce its own subscription service. That would eliminate the reason for existence of many of Apple's competitors. However, the iPod has so much mind share in the market, it's not really necessary (or wise from an antitrust standpoint) to brutally eliminate the competition. Apple is acting like a porpoise, leaping in joy in front of the sailing ship, leading the way, not like a shark, trolling for men overboard.

Caving for Bucks. As of this writing, only Disney has reached agreement with Apple to distribute selected movies. We all suspect that Apple's failure to reach agreement with the other studios has to do with pricing and DRM. It's not hard to imagine a situation in which Apple would give the studios everything they want in exchange for some critical concessions that would seriously inconvenience us and call into question Apple's ability to stand up to men of greed. Apple could, overnight, increase its movie library by two orders of magnitude by folding like a cheap tent. Fortunately, Apple has time. Sun Tzu advises patience. Apple agrees.

Product Design. Often, after huge successes, mid-level executives gain the power to dictate product design. What do the engineers know anyway, even if their last name is Ive? Then we see changes that suit an egomaniacal sense of design rather than being guided by some industry icons with a keen sense of Design by Buddha. In a company with a weaker CEO, the customer reaction to the next iPod could be, "Oh man, now they've lost it," rather than, "Wow! It just keeps getting better and better."

The Zune Wars

Microsoft had it within their power to design a Zune that could compete with the Apple iPod. A brilliant design, an open architecture, and a beguiling alternative to iTunes could have greatly alarmed Apple. It could have caused Apple, in the fog of war, to make a strategic mistake. It could have caused Apple to engage in some of the dirty tricks cited above. Instead, Microsoft appears to have chosen a different strategy. Be the doofus. Lull Apple into a false sense of security. Make the Zune a joke, just like Windows 2.0 back in 1987.

However, Microsoft knows that it'll take many years to catch up with Apple. They're being patient as well. Apple has had ample opportunity to screw up and abuse their new power in many areas. So far, Apple has wisely declined.

The chess match continues.

John Martellaro is a senior scientist and author. A former U.S. Air Force officer,he has worked for NASA, White Sands Missile Range, Lockheed Martin Astronautics, the Oak Ridge National Laboratory and Apple Computer. During his five years at Apple, he worked as a Senior Marketing Manager for science and technology, Federal Account Executive, and High Performance Computing Manager. His interests include alpine skiing, SciFi, astronomy, and Perl. John lives in Denver, Colorado.

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