The Devil's Advocate - If Apple Buys Adobe, Is the Operating System Market up for Grabs?by - December 16th, 2005
The Devil's Advocate - If Apple Buys Adobe, Is the Operating System Market up for Grabs?
If Apple buys Adobe, is the operating system market up for grabs? It doesn't take a brain surgeon to see why. Borrowing heavily from Mr. Cringely's terminology, there are several industry realities and stories, each having its own vector/trajectory that might lead one to seeing the importance of Adobe to Apple's well being. Adobe owns key graphic sector applications. Meanwhile, Microsoft has a strangle-hold over Apple with Office for the Mac. Were Apple to buy Adobe, it would give Apple the leverage it needs to ensure Microsoft keeps making Office for the Mac.
Make no mistake, Apple is much like Blanche DuBois; it relies on the "kindness" of Microsoft. At any given time, all Microsoft has to do to put Apple down like a sick pony is stop making Microsoft Office for the Mac. Right now Microsoft will not do that for a slew of reasons, e.g., antitrust issues, Microsoft makes a boat load of money on sales of Office to Mac users, etc. Nevertheless, were it to become threatened as Apple transitions into more markets, Microsoft will not hesitate in pulling the plug on Office, and down the tubes Apple will go.
You say "What transitions? Why would Microsoft do that!?! How is Apple ever going to seriously challenge Microsoft?" (Or you may be saying "get to the f'n point" and if so, hop to the "Adobe is Key" section and skip a lot of suppositions and history). Well young grasshopper, through long and drawn-out series of bad analogies and metaphors, let me paint you a picture.
Transition One: Apple's is building its own office suite
Developing it at a glacial pace, Apple's office suite, iWork, consists of a sub-par Microsoft Word replacement called Pages and a great presentation program called Keynote. It's relatively likely (as gleaned from its trademark filings) that a spreadsheet will be added to iWork. Moreover, Apple does have enough other applications in place to supply an alternative to Outlook as well, namely in the form of Mail.app, iCal and AddressBook.app. With enough time, Apple may get iWork to feature parity with Microsoft Office. So that is one vector: Apple is building an Office suite just in case Microsoft tries to pull the plug on Office.
In another related vector, Microsoft may finally make its Office file formats open enough that third party developers could make programs 100% Microsoft Office file format compatible. I know what you're saying "you idiot, that would mean that iWork could be 100% compatible and Microsoft Office will become irrelevant." Relax, not so fast. The reality is it won't matter even if there is 100% file compatibility. It's not enough for businesses.
Opening the file formats does little to nothing to open up the rest of Office's APIs. There is a huge vertical market that depends on interfacing applications with Office APIs. Billing, accounting, document management systems, etc. all tie directly into Office and the rest of the corporate world depends on these vertical business applications; the corporate world cannot and will not simply abandon these very expensive and integrated systems. So compatibility with the Office file formats themselves won't be enough. Businesses rely on actually plugging into Office.
So at the intersection of those two vectors you can see Microsoft holding Apple up by the short hairs (it doesn't have to tug or squeeze very much to bring Apple to tears), and Apple's strategy to get loose is akin to trying to grow the short hairs long. It may work given enough time and slack, but it's not the best strategy.
Developing an Apple Office suite signifies that Apple realizes it must do something to decrease its reliance on Microsoft's "kindness," but it is not likely to succeed any time soon. Even if the corporate sector had the inclination to do so, it will take too long to transition vertical applications to any hypothetical Apple office suite APIs. So strike one.
Transition Two: Beyond Intel, the target is Windows
There is another transition that's going on. It's blatantly obvious too. Apple is putting its operating system on Intel machines. For now Apple is saying that its operating system will run only on Intel Macs and not on other Intel based machines (e.g., Dells). Apple wants everyone to believe this, Microsoft in particular. Apple does not want Microsoft to feel threatened by it in the Intel operating system market; at least not yet.
However, I'm willing to bet that Apple, eventually, will compete with Microsoft despite its protests to the contrary. For me the only real question is how will Apple allow its software to run on non-Mac Intel machines: On Windows itself, on a version of Mac OS that will run on any Intel machine, or both? I'm betting on both.
An old friend has popped up as of late in the rumor mills: Yellow box for Windows, apparently now code-named Dharma. Before Apple bought NeXT, NeXT used to have a technology called OPENSTEP (aka Yellow box) for Windows. With it, a NeXT or Windows developer could write one program, hit one build button and it would compile into a single fat binary that would run on OPENSTEP for Motorola and Intel processors, and it would also run on a Windows machine that had OPENSTEP for Windows libraries installed.
This was no beta app. It was a real and shipping development platform. And today, we have rumors abounding that it may be back; except now it is updated and working with Cocoa libraries.
After all, Steve Jobs admitted that OS X had been living a "secret double life" where Apple was keeping the Intel version of OS X up to date with the PowerPC version. It's a relatively safe bet that Apple has also been updating the OPENSTEP for Windows libraries so they are current with today's Cocoa libraries. Look no further than WebObjects for Windows, which relies on similar library sets.
Now it may make a lot of sense for Apple to make it easier for developers to cross develop programs for Windows and the Mac (no doubt there are risks involved too, but that's a whole other article). The general idea would be to lure developers into using Apple's development tools because a) they're pretty good, and b) it's nice to develop once and release the app for multiple platforms.
So eventually, if enough developers use Apple's development tools, enough programs could work on both Windows and Mac OS (and potentially Linux as well), and then Apple may position itself well. If more and more programs work on both platforms, you may have more people that switch, i.e., "all my apps work on both OSes and Mac OS is prettier, less buggy and virused up, why not switch." But again, it would take quite a bit of time to get enough developers to use the Apple development environment for cross platform development. So really, that makes for strike two.
You poke my eye, I poke yours, we all go blind
However, the cross development tool vector does give you a taste of a strategy for Apple. What Apple really wants is some mutually assured destruction action. And what Apple needs are some apps that it can hold over Microsoft's head the way that Microsoft holds Office over Apple's.
Should Apple release Dharma it would signify that Apple understands that controlling the development tools for killer apps on both platforms would give it leverage over Microsoft. Although Dharma and its cross development tools might eventually provide such applications, it won't happen anytime soon.
Transition Three: Apple Media Dominance is No Charm
Right now the closest things Apple has to killer apps on Windows is iTunes and QuickTime, but in reality, MS would be only too happy to see iTunes and QuickTime go away. So there really is no leverage for Apple there. So this gets me to why would Microsoft try to kill Apple? Well, threatened market share is why Microsoft would do this. Microsoft is totally losing market share to Apple's third transition (from a computer company and into a Media/Consumer Electronics provider with the iPod, iTunes and QuickTime).
As soon as Microsoft loses enough market share to Linux and to Apple, and its revenues start declining, Microsoft may feel emboldened to dump Office for the Mac so that "it can focus its energies on more profitable platforms." True, Microsoft makes a boat load of money on Office for the Mac, but how much revenue does it account for relative to Windows and Office? Office for Mac is just a drop in the bucket.
If Microsoft goes down to "only" a 70% market share, there's no reason Microsoft couldn't get away with killing Office for Mac. Microsoft could argue that Apple has a majority share in the media market and use that dominance as an excuse to concentrate the extra resources to compete against Apple and Open Source. Think it unlikely? Well don't forget Microsoft basically won the antitrust war in the U.S. As for Open Source Office replacements, again, they won't work for the same reasons Apple's office suite won't replace Microsoft Office any time soon. API interoperability et al. will keep business users away.
The question is, what's next? Extending my cheesy baseball metaphor, will it be strike three, a foul ball, a base hit? What can Apple do to hit a home run? One of the options Apple has to better situate itself to compete head-on against Microsoft involves buying Adobe. Adobe basically owns the creative graphics market right now with its suites of Web, photo and illustration products. It also owns the professional imaging market with Postscript and Acrobat.
Were Apple to buy Adobe (and what the heck, maybe Quark), it would own enough key applications necessary to Windows users to thwart Microsoft. Should Microsoft threaten to pull Office from the Mac, Apple could then threaten to pull the Adobe products from Windows. This would be bad for both companies, and basically get them into a big ole game of mutually assured destruction (or at least mutually assured losses of revenue).
Could Apple do this? Sure it could. Adobe's market cap is around $17 Billion. Apple has well over $7 Billion in cash and its market cap is over $60 Billion. Apple has enough cash and stock for a buyout. And if Apple purchased a majority stake, the stock would soar for both companies; you might even see a dip in Microsoft stock. That would be a home run for Apple.
Apple could give itself the time it needs to transition developers to its development tools and get more and more people to use software that would run on Mac OS. Eventually, it could give Apple the opportunity to move out if it's niche and compete against Microsoft for dominance in the operating system market for the first time since the introduction of the Macintosh.
On the other hand, Microsoft could buy Adobe even more easily than Apple. If that happens, Apple will be so dependent on the kindness of Microsoft, that you can expect Apple's eyes to well up with every move Microsoft makes.