Microsoft’s Illusion: Netbook & Linux Threats Can be Neutralized

| Hidden Dimensions

"The most dangerous thing is illusion"

-- Ralph Waldo Emerson

Apple enthusiasts like to think that Steve Ballmer stays awake at night worrying about Apple. The facts in the market place, driven by the recession, netbooks, mobile users, however, suggest that simpler, mobile OSes are a much bigger threat. How Microsoft and Apple deal with those issues will determine their success over the next few years.

For a long time, Apple enthusiasts have watched with amusement as the Windows OS has grown to become a monster on the desktop. Typical users are befuddled by the modern Windows OS, like Vista, with its Registry and complex maintenance issues. As a result, users just ignore potential problems, then get into trouble, especially with the security of their data.

Mac OS X is just as complicated, but Apple's design philosophy has allowed it to make life easier and more understandable for its users while Microsoft has been constrained to meet the needs of IT managers. That status quo might have continued indefinitely except for two whammies that came at the same time: mobile computing and the deep recession.

Getting Mobile, Getting Cheap

Many PC users, realizing that they are totally overwhelmed and under-equipped to be a system administrator for a personal computer that has a CPU with a billion transistors and a terabyte of storage have turned to the simpler solutions imposed by mobile devices. It's not that more people are more mobile. Rather, it's that people like the solutions presented by mobile devices, devices whose constraints drive the design to become more palatable.

Accordingly, cloud computing -- which has come along at the same time -- is more of a crutch than a solution. It allows the user to spend less time worrying about local file management and put the responsibility on some other entity. For example, why store and manage URLs on a local device when we can use Instapaper.

During the economic boom before 2008, there were many illusions and conceits that lingered on, often with no particular penalty. But this recession is turning out to be like a war. Poor decisions and self-serving illusions have brutal consequences.

The fact is that millions of PC and Mac customers are liking the breezy, lightweight approach to communications. In fact, considering what most people do with their notebooks netbooks, and smartphones, communication seems to be the bottom line -- whether it's writing a corporate memo on investments or using Twitter.

As a result, it's sensible for PC companies to ask themselves the classic business question: "Am I in the PC business, or am I in the communication business?"

Attacking a Business Model with Technology

Asian companies like Acer, Asus and MSI as well as Apple figured this out before Microsoft did. John Dvorak recently pointed out, with well constructed logic, what's going on as the netbook presents the user with a financial and technical solution that will forever undermine Microsoft's business model. That's exactly why, in a recent address to investors, Microsoft's CEO Steve Ballmer labelled Linux as the principal threat to Microsoft.

That's because Microsoft depends on PC sales to drive its business, and as PCs become cheaper and cheaper, Microsoft is in a poor position to extract large fees for its relatively complex OS and office products. After all, as Dvorak pointed out, with atypical clarity:

"Right now, for example, I can get a complete Intel motherboard with an Atom processor, ready to install in a box, for about $100. All I need is a $30 memory module, an inexpensive hard disk ($50) and a case/power supply ($75). For $255, I can have a pretty nice cheap machine. Now I have to add the most basic version of Windows for $199? And Office for another $399 (standard no-frills edition)?

"Let's add this up: Hot little computer: $255. Basic low-end Microsoft software: $598.

"What's wrong with this picture?"

The simple fact is that while Microsoft is acutely aware of the Linux threat, their particular illusion is that there is some action they can take, given the constraints they've placed on themselves, that it is within their power to successfully deal with it.

Apple's Role

Apple has been successful in steering away from the debilitating PC price wars that put companies out of business or detract from R&D dollars to make customers life better. That has positioned Apple as a premium brand, and, as I've discussed before, many people like having that option. Using a first class instrument is pleasing to the human spirit, and that will never change.

However, as the PC market slides into worthless hardware, free Linux OS, mobile communication supported by the cloud, Microsoft will have to transform itself from a company that offers complex, agenda supporting solutions to friendlier products -- if only because the common culture, even in the corporate world, demands it. Windows 7 and Windows Mobile 6.5 leading to 7 are Microsoft's best efforts to deal with the threat. With Steve Ballmer getting older and possibly out of touch the with trends by younger consumers, there's a question whether Microsoft can weather the storm. How fast can Microsoft compete with itself before others do?

Apple meanwhile, has maintained its nimbleness thanks to its profitability. As our own Bryan Chaffin's report concluded on March 6th:

"That downsizing has effectively completed the end-goal of PC vendors such as Dell, Acer, Asus, eMachines, and others to fully train customers to understand that PCs have no value. The race to the bottom, in other words, is just about over.

"Be that as it may, the analyst said that the price compression the industry is seeing is going to eventually force Apple to lower its prices. So even if the company does remain at the top end of the market, which is likely, that top end will sooner, rather than later, be cheaper than today's top end."

All this would suggest that Apple's continuing vision of quality, mobile products for communication combined with cloud support, MobileMe, is on track. The recession indeed may force Apple to lower prices, but the real question is whether the visions of the two companies are devoid of illusions. That is, how fast can Apple cater to the needs of mobile users for simplicity versus how fast can Microsoft unwind itself from the morass of expensive desktop nightmares. Without a hardware platform to instantiate the necessary vision, as Apple has, Microsoft may finally have found itself holding on to a shrinking lifeline, unable to avoid catastrophe.

The real test of a company is not how well it's doing when times are good. Rather, it's how it responds when times are really bad and illusions collapse.



The real test of a company is not how well it’s doing when times are good. Rather, it’s how it responds when times are really bad and illusions collapse.

As Warren Buffet put it “You find out who’s swimming naked when the tide goes out.”

Microsoft has been playing The Emperors New Clothes for a number of years now and the rise of OSS is about to point out to everyone that they’re naked. I believe that Microsoft is about to run into some very hard times. A buggy, bloated OS that just doesn’t fit on modern devices and a software pricing structure that relies on a lack of a viable alternative to keep customers from jumping ship is a business model that doesn’t work any more. Personally I believe that’s why Bill Gates left the company when he did. He saw that things were about to change so he cashed in his chips while they were still worth something. It will be an interesting spectacle.

I’ll bring the popcorn.


That that spring chicken John Martellaro can present such fresh, provocative, and revolutionary insight must give hope to all us whose spring was quite a few years ago.  While I generally agree with John the Younger’s argument, I make two observations. 

First, the market for computing device is segmenting into those for whom a simpler device such as a netbook, iPod Touch, or and iPhone is enough and those who want or need a computer, such as a MacBook, MacBook Pro, or a Mac Pro, that can fully exploit the capabilities of Mac OS X.  It is true that the market for simpler devices is at least going to be a significant, if not a dominant share of the market for computing devices, so Apple will probably have to address it but do so in a manner that is sufficiently profitable to support R&D and a good return for its shareholders.  But the market for a full fledged Mac computer is not going away and shall remain the most profitable part of Apple’s business, if not that part that generates the most revenues.  To those profitable Mac revenues, it would be reasonable to expect Apple to exploit profitable potential for simpler devices and cloud services.

Second, there is no such thing as a simpler device.  Certain devices are only made to function more simply and intuitively as a result of great design of software and hardware and through useful, if not great, innovation.  It is true that the iPhone and the iPod Touch run a reduced version of OS X, but neither those devices or their version of OS X is simple or easy to create.  In fact, as a piece of hardware, the iPod Touch and the iPhone are at least as complex, if not more so, than any of Apple’s Macs.  It certainly takes extraordinary engineering chops to design the hardware for the iPhone and the iPod Touch, and, even though structure of OS X’ architecture makes it portable and suited to run on everything from appliances to servers and workstations, modifying OS X for a device like the iPhone isn’t simple and neither is the resulting version of OS X.  The trick is that Apple designs OS X so that it is at least as simple and easy as it needs to be, if not as simple and easy as it can be, for its intended purpose and users.  That genius of the iPhone is that it is tremendous complexity made simple in its function for its users, yet it achieves this without sacrificing features and capability. 

And, of course, the iPhone, iPod Touch, and whatever other appliances that Apple designs for the market will be come even more complex and powerful platforms, as their innards become more powerful.  For example, the new iPhone is rumored to have a more powerful processor, more system memory, and much more sophisticated version of OS X that will allow applications to share data, permit global cut and paste, and do some other nice tricks.  None of this could come from a simple or even simpler device.  The new iPhone will be more complex, rivaling, I expect, the complexity of its Mac siblings.  But Apple will make it simple in its functions and easy for its intended users, the ordinary user of a cell phone, to use, without sacrificing any of its power.

And that’s why my money is on Apple, because making the complex simple and easy to serve the needs of its customers, even its sophisticated customers, while maintaining power and flexibility is Apple’s stock and trade; it’s in Apple’s DNA; it’s one of the fundamental elements of Apple’s culture, and it’s one the core elements of Apple’ philosophy that has made it so successful today.


I just have to say: Hell just froze over.  Dvorak actually managed to run two sentences together which made sense.  What next?  Flying pigs?

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