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October 22nd, 1999

[Editorial] What the G4 Incident Tells Us About the Nascent Network Economy
by Wes George

You no longer control your company. Your customers have taken over…

              English Goth dude in a PeopleSoft Commercial

Perhaps this (20th century corporate capitalism) is not the final system. Perhaps there's life after meritocracy, especially when one observes that the products and services produced by the meritocrats are not always satisfactory. Just because these hard-charging companies are defeating each other in the market doesn't mean they're winning consumers' hearts and minds. There's something about large organizations which squanders most of the participants' time and energy in producing motion rather than progress. Too often, they seem as competitive with customers as they are with competitors, designing Byzantine structures to lock a customer into a complex dependency when all the customer wanted to do was surf the net or call home. (Or buy a Mac!)

              Britt Blaser, web visionary and entrepreneur

The Law of Accelerating Returns: As order exponentially increases, time exponentially speeds up. That is, the time interval between salient events grows shorter as time passes.

              Ray Kurzweil, The Age of Spiritual Machines

PeopleSoft recently announced that they are taking over Vantive Incorporated. Ironically, Vantive produces the customer tracking software that Apple has used for years. The Vantive interface, which Apple employees universally denigrate as ugly and crash-prone, has a window where customer service reps type in the consumer's complaint, and whatever resolution is reached--or not reached--during the phone call.

Imagine the strain placed on all those carpal tunnels last week as Apple employees dutifully typed the millions of invectives into their little Vantive windows generated by the G4 500 MHz cancellation. Of course, Apple's top brass fully expected their call centers to suffer over last week's brouhaha, nothing a case of Ibuprofen couldn't cure, but they got much, much more than they bargained for.

Something more than what meets the eye occurred last week. But, first bear with me through a brief recap of last week's events for those of you just back from the Moon.

14:30 hr (PST) Wednesday, October 13th 1999

" Just because these hard-charging companies are defeating each other in the market doesn't mean they're winning consumers' hearts and minds."

Fred Anderson, during the decidedly upbeat, 4th quarter conference call with analysts, nonchalantly slipped in that Apple had reconfigured the G4 Power Macs down a 50 MHz notch. Of course, Apple painted those dummies at Motorola as the fall guys again. Motorola won't have the kinks ironed out of 500Mhz G4 chips till January*.

* Apple couldn't possibly have known that the G4 500MHz coprocessors would be ready for shipment at the date Apple pre-announced. Why? Because Apple announced the new G4 configurations weeks before the first G4 chips were off the production lines, and run through tests. The G4 450 MHz and 500Mhz coprocessors are based on a new Motorola mask set. Apple made the decision to expect perfect operation of an untested mask change. Common sense normally dictates a simple heuristic for computer fabricators when setting timetables based on untested mask sets: "what can go wrong, will go wrong".

Apple's G4 strategy, in the eyes of at least one computer designer I talked to, was an irresponsible gamble at best. At worst it was a Machiavellian set up. Apple announced a product they suspected they couldn't deliver in order to appease shareholders and demanding consumers who expected the G4 to be announced at Seybold on Aug 31st. Then Apple later scapegoats Motorola as the villain when it's time to pay the piper, trusting that long time Mac aficionados will remember Motorola's less than reliable delivery schedules from the 86000 days.

Of course, a third scenario would be that Apple felt that by announcing the G4 before it was known whether the new mask sets would work or not, Apple could force a more robust timetable on a lagging Motorola. After all, Motorola is months behind schedule with their delivery of the G4 chipsets.

One might logically assume that lack of 500MHz Power PC coprocessors would only affect that relatively small fraction of G4 customers who ordered a G4/500 MHz. Perhaps less than one in five G4 orders were for the high-end model. Right?

Steve recently told Time Magazine that, "My #1 job here at Apple is to make sure that the top 100 people are A+ players. And everything else will take care of itself. If the top 50 people are right, it just cascades down throughout the whole organization." I wonder what Steve's parameters for the "right stuff" are?

Well, everything else didn't take care of itself. What Apple did was cancel all G4 orders and announce that everyone would have go to the end of the line and re-order a G4 at a new higher price! According to Mr. Anderson, an unfortunate DRAM price hike coincidentally struck at the same time as the G4 reconfigure. Apparently, some clever A+ committee at Apple thought they could take out two birds with one stone by combining a G4 price increase with the order cancellation. Yikes!

" Too often, they seem as competitive with customers as they are with competitors…"

Besides the question of legality, that's a triple whammy to five times the number of customers the G4/500Mhz delay needed to dishevel. Perhaps Steve would do better hiring more people with common sense, like Forrest Gump, rather than overrated but fashionable Santa Clara whiz kids. Within minutes of Mr. Anderson's off-handed announcement, Mount Internet began to rumble.

The rest is history.

On Thursday what could only be described as a cyber version of the Watt's riot ensued. An iMob made up of the Mac media and consumers alike stormed the Cupertino castle via the Internet with torches fully prepared to flame the place to the ground.

Disgruntled hotheads denounced everything Macintosh. Their rabble rousing rhetoric ranged from threats of defection to the PC dark side (an act not dissimilar to self-immolation by Buddhist monks during protests of the Vietnam war) to an ill conceived, self-serving boycott organized merely to exploit Apple's misery for increased Web traffic. Knee-jerk editorials reacted immediately with wholly irresponsible extrapolations of this fiasco's implications for Apple's future. There are those who should be ashamed of their demagogic conduct during this tribulation and perhaps should be boycotted themselves.

Meanwhile, shareholders, not necessarily the natural allies of customers, looked to the broader horizon. Judging by their cumulative trading activity investors indicated, quite rationally, that they figured the whole issue was a tempest in a teapot with an obvious easy solution, and little chance of residual effects beyond the soiled reputation of a few Apple executives, and some totally expendable Mac columnists.

On Friday, Apple announced, "After a good night's sleep…we have decided to reverse this decision. Please give us an opportunity to reinstate your order." How disingenuous. No one slept good in Cupertino that night with a crowd chanting "We Shall Overcome" out on the ilawn demanding Mitch Mandich's and Fred Anderson's head on a (real) pike.

There's something about large organizations which squanders most of the participants' time and energy in producing motion rather than progress.

Strangely the "Good Night's Sleep" message wasn't the end of it. Those "A+ players" at Apple were so frazzled that the only thing cascading down was a castatrophic failure to coordinate an adequate response to this emergency. Apple's management was flip-flopping like a beached tuna dancing to "Wipe Out" by The Meteors. Different messages were coming from different Apple spokespersons, everyone was thinking different!

A concise, common sense solution wasn't forthcoming until Monday when Emperor Jobs himself made an appearance on the iBalcony to appease the angry Mac peasants by yielding to their demands that the G4 orders be reinstated at the original prices. Peace was finally restored in the Apple kingdom.

Your customers have taken over!

It was clear from Fred Anderson's offhanded announcement of the G4 price hikes, MHz slash, and order cancellations that none of the "A+ players" at Apple had a clue to the firestorm they were about to ignite. Or did they?

The top dogs at Apple surely knew that they were stepping into a minefield of about 90,000 pre-orders when they cancelled them. They knew 90,000 unhappy users would scream bloody murder. They miscalculated that these 90,000 unhappy users could scream at not only $13/hour contract laborers in customer relations, but they could announce their anguish to the whole world on the WWW. Nor did they anticipate that the entire Mac community would rise up in empathy with those few who got stiffed.

The Internet, as everyone who watches PeopleSoft commercials knows, is changing the balance of power between big, arrogant corporate superstructures and the individual consumer. Ironically, Apple is rendered especially vulnerable to web-based opinion by its own wildly enthusiastic supporters. All of which, to no one's surprise, own computers and have Internet connections!

After all, the domain names dellobserver.com, compaqweek.com, gatewayfanatic.com and many others are still available at this writing. Likewise, most Apple message boards around the web almost invariably see many times the traffic of rival PC boards.

If Dell or Gateway pulled the 50MHz stunt it would have passed almost unnoticed except on a few message boards. If Microsoft pulled something like this it would be business as usual. (Although, the makings of a Wintel peasant revolt are at hand, see the end-user "talkback" postings concerning Win2000)

Apple's PR machine has never considered itself fortunate to be covered by dozens of Mac webzines, nor have they made good use of this free grass roots media empire. Del Miller coined this formidable network the "Mac web" in his insightful exposition of this complex issue.

Instead, from the top dog down, Apple conducts a cold war with the Internet's indigenous Mac natives using Kremlin-like security measures interspersed with occasional threats as their management techniques of choice. Ironically, Apple's PR goal is to limit the flow of information. Needless to say, the complexity of the so-called Mac web renders this Luddite goal counterproductive, if not impossible.

Apple's princely leaders know that at least for the Mac faithful they have an absolute monopoly and occasionally this arrogance surfaces as in-your-face callousness. The G4 fiasco is an example of how the informal Mac web can, without any central design, overwhelm Apple's shortsighted and inconsiderate corporate desires.

The lesson of the G4 Fiasco of 1999 is "vendors beware!" The Internet really is fulfilling its promise as the great arbitrageur of quality and mind share. No longer can haughty indifferent boardrooms take liberties with their consumers as if they were mere TV-era peasants.

An iSolution?

What we see around us is surface complexity arising out of deep simplicity

            Murray Gell-Mann

As computers become central to everyone's lifestyle in the next Millennium, decisions Apple make that effect our lives will become too important (and personal) to leave in the hands of a tiny insular band of technocrats beholden only to shareholders. Fortunately, the balance of power is shifting decisively towards the consumer.

More than ever, Apple needs to develop a coherent, transparent, all encompassing, consumer relations strategy.

In the 21st century, the heart of any customer/corporate relationship will not be remotely managed behemoth call centers, but direct one to one interactions over the Internet. A convergence strategy is needed that unites formally disparate departments into one fold. Advertising, marketing, public relations, technical support, fulfillment, and education should merge with a constant connect to the grass roots, Mac-centric web sites that grow synergistically like colorful weeds underneath every Apple product.

Logically, a myapple.com portal, combined with an ISP service, bundled with new iMacs and iBooks could form the natural umbrella organization to deal with the increasingly complex task of managing Apple's information-based empire. The flow of information must form a series of unsuppressed feedback loops.

At first, this may seem to be a more difficult way to manage a company's interface with the world than Apple's hierarchical leadership desires. It surely is a more chaotic, decentralized path. However, something akin to this vision will surely emerge as the primary way 21st century corporate capitalism deals with the complexity of a global, networked economy.



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