Hidden Dimensions - The Secret of Apple's Secrets

by John Martellaro
July 10th, 2006

The Politics of Secrecy

Recently there have been a couple of articles about how Apple's product secrecy has hurt their business. These were good articles, but they didn't go into some of the aspects I thought they would, or mention things that I would have discussed. The first article was at the Wall Street Journal on 28 June 2006 (on-line registration is required, or read via this reprint. While it had some good anecdotes, it didn't really seem to take a business approach -- given that it was in a business publication.

The second one was David Sobotta's Apple Peels from June 29, 2006. David's thesis is "Why does the secrecy that Steve imposes matter to any of us or in fact Apple?" Later in the article he discusses the impact on the Enterprise market, and that's the area I want to focus on in more depth.

There are hidden factors that affect how Apple approaches product secrecy in the consumer and the enterprise markets. Let's look first at the consumer market, then contrast that to the enterprise.

The first thing I want to recap is that there is a fundamental disconnect between, say, the operation of a good-sized organization that doesn't have the public limelight and isn't going out of business and, say, a company on the brink of extinction. I like to compare the latter to a ship at sea in combat.

I appreciate the ship analogy because it's a fairly well understood part of our military culture and training that if a single person on a ship, in combat, fails in their duty, the ship could be destroyed and all hands lost.

Apple was in that situation in 1996. As Young and Simon point out in their book iCon in Chapter 8, Apple VPs were out of control when Steve returned. If their pet project was threatened, they would leak a story to their buddies in the press and the CEO could be embarrassed into changing his mind.

When Steve came back, he used a familiar axiom, "The main thing is to make the main thing the main thing." That means that Apple was on the brink of bankruptcy and that required all hands on deck, complete loyalty to him and the cause, and no more self-serving leaks to the press. This decision, necessary at the time, has created an unalterable foundation which affects enterprise sales -- which is what I really want to get into in the second half of this column.

At Apple, there is loyalty to a cause, and it's not unrealistic to think of Apple as on a war footing in the consumer market with innovation, deception, strategic surprise, and tactical maneuvering as key components of its business strategy. Even though Apple is now very successful financially and no longer on the verge of annihilation, there are grave challenges in the massive high tech consumer industry that could still lead to disaster.

As a result, it's not realistic to suggest that Apple could ease up on their secrecy in the consumer market. It's just part of warfare in that arena. Time and time again, this policy has reaped huge rewards and visibility for not a whole lot of advertising dollars. It will likely continue.

However, in the business world, the rules are different. Success in the enterprise depends on allies and partnerships. Companies engage in business partnerships with vendors as suppliers of products in order to further their own business objectives. So if a vendor considers you someone to be manipulated and an untrustworthy entity, then you will turn elsewhere. This is the biggest reason for Apple's legacy of difficulties in the enterprise, the inability to become a trusted business partner. For all of Microsoft's shortcomings, they perfectly understand this key idea.

That Enterprise Thing You Do

In considerable contrast to Apple's war footing in the consumer market, Apple also seeks gentlemanly sales and success in the enterprise market. They sell a modest number of desktop Macs, AppleCare, Xserves and Xserve RAIDs to businesses of all sizes plus local, state, and the federal government. And this is not an idle effort. Apple has a designated VP for Enterprise sales. Sales expectations continue to rise, and they'll rise even more now that Apple can compete on level ground with HP and Dell as a supplier of computers that can run Windows on the raw metal.

Let's look at how the enterprise market contrasts to the consumer market.

1. The average consumer has no idea what an Xserve is or how to exploit it. They couldn't care less what its specifications are. There isn't even a picture of it on Apple's consumer store. But there sure is a picture of the Xserve and RAID at, for example, Apple's Federal Smart Pay page. (Just click on the Smart Pay link, click "I Accept", and you can peruse that version of the store.)

2. Given Apple's movement into entertainment and portable computer systems, it's a stretch to think that those who might be briefed on Apple's plans for the Xserve family can extrapolate to products for the consumer.

3. The mainstream press and Mac Web pay little attention to Apple's enterprise products. Only a few are even qualified to discuss the products; the rest are not exposed to them on a daily basis.

4. Apple's Enterprise VP is under the gun for increased sales to business and government, and yet Apple's executive team refuses to grant permission for non-disclosure agreements, in general, to most enterprise customers on exclusively enterprise products.

5. Apple's enterprise sales are a small fraction of overall sales, (I don't want to get into specific numbers) yet steadily increasing and will become a key component in future efforts in IT security, national defense, and high performance computing.

6. Enterprise customers don't buy Apple's enterprise products out of compulsion or emotion. A purchase decision is not made by individuals, but rather is a considered decision by several people based on what's best for the organization. Cool doesn't matter; price, performance, and service are the key. As a result, it requires keen salesmanship to explain to enterprise customers what the Apple advantages are in concert with a long-term commitment to the customer's funding and planning. Any failure to meet the customer's expectations for Apple being a reliable business partner torpedoes the best efforts of the sales force.

The upshot here is that Apple's secrecy strategy in the consumer space is brilliant, but it stops cold the same kind of explosive growth in the Enterprise market. This is something the company seems to be settling for.

I believe the reason for extending total control over product announcements for the enterprise market is that Steve learned that there must never be a VP in the sales organization who can exercise complete control over the customer experience and relationship. Especially in a market he doesn't understand as well as others. Part of this is fear that a charismatic VP of sales will divert or subvert the mother ship's mission or that he might challenge Steve's authority in certain matters critical to the business market. After all, if a large enterprise customer were to come first, it could deprive Apple's inner team of the absolute authority to which they have become so accustomed.

No one gives up authority and power in order to achieve increased sales in a small market area if it means that customer relationships could possibly hamstring some possible (but unspecified) product decisions. A few astute Apple enterprise customers recognize this as a partnership deal breaker.

Regarding the matter of increased sales quotas, it seems illogical that VPs would be tasked with increased sales quotas and yet not be given the tools to achieve those goals. However, I am told that many companies in this industry operate that way. Typically, ever increasing sales quotas are imposed on everyone in the sales organization as a matter of routine. If sales people and managers meet the sales numbers, the company is so much the better off. But if, even after years of success, they fail to meet their sales goal in one year, they can be released based on a quantifiable metric without fear of repercussions. Basically, this process gives a company the power to churn the sales force and delete those employees who, while good salesmen, have gotten out of line in some other way. So the bottom line is that increased sales goals don't necessarily equate to increased sales support.

Some blame also rests with a few individual enterprise customers. In my experience with Apple customers, there were a few who tried to use their organization's clout in terms of total sales to learn more about Apple's plans for consumer products. (Even though their own budget authority was modest.) That's because these people were enterprise customers of Apple thanks to their personal affection for Apple's consumer products -- which they purchased for themselves and family at a nice discount. The simple solution, if Apple were to go that route, would be to say to these people:

"Look, we know you guys buy iPods and MacBooks in the office, but those are consumer products. We're happy you buy them, but don't expect to get a future roadmap from us. On the other hand, we recognize your enterprise interest in Xserve and Xserve RAIDs, so we'll be happy to provide a Non-disclosure Agreement (NDA) on those products."

That kind of direct and blunt differentiation works. Even so, there are customers who are supremely adept at making it appear that their interest in consumer products has some kind of massive strategic value to their organization - for example (and I'm making this up on purpose) some kind of iPod deployment to military troops or the selection of MacBooks as their preferred computer for their own sales division.

In the same vein, important and respected people in the business world often feel that they have a right to be trusted with Apple's secrets. They keep their own organization's secrets well enough. Being briefed on Apple's enterprise plans feeds their ego and makes them feel part of the family that they want to be associated with. The fact that Apple doesn't entrust their secrets to them infuriates a few of the most egotistical customers. This is rare, but a few notable instances can sway the perceptions of Apple management.

The traditional way of dealing with this is to spin out an enterprise division so that customers have no expectation of dealings with the glitzier side of the vendor. But Apple won't do this, so some customers who would normally behave like sober businessmen get caught up in Apple's frenzy. That seemingly minor sociological fact places an upper limit on how successful Apple can be in the enterprise.

Personally, no matter what organizational structure Apple uses, I believe that it is in Apple's best interest to respect and trust enterprise customers. That leads to a long-term, beneficial business arrangement that is on equal footing with Apple's competitors. Even if a few self-important enterprise customers or Web sites leak some Xserve details, all it does is steal thunder from Apple in a way that doesn't hurt their consumer operations, fans the flames of their enterprise business, and at least demonstrates that Apple has some kind of plan that they divulge to customers who are considered close business partners. Abuse tends to be self-correcting in that community anyway.

But it's not my charter to make suggestions. I just try to explain what's going on.

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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