Microsoft's long, slow decline
Back in April, when the new PC Hunter ad campaign started, David Webster, general manager for brand marketing at Microsoft, said the following in an interview with Newsweek’s Dan Lyons:He says the idea was to turn Apple’s “I’m a Mac” campaign to Microsoft’s advantage. “We associate real people with being PCs, [but then Apple] ends up looking pretty mean-spirited, the way they go after customers,” he says. “It’s clear that’s who they are insulting.” At the same time he can’t resist taking a crack at the preciousness of some Mac users. “Not everyone wants a machine that’s been washed with unicorn tears,” he says.
Quoting the above, I wrote:It seems clear that Microsoft’s stance on the Mac’s sales growth is that there’s nothing wrong with Windows or right with the Mac, but rather that there’s something wrong with Mac users.
Now, some of you might agree with Webster but—if you want to tempt people back to using your product rather than your competitor's—then insulting them is not a good strategy. But, as it happens, that is not really the meat of the matter.
Microsoft is no longer ignoring Apple’s market share gains and successful “Get a Mac” ad campaign. But the crux of these ads from Apple is that Macs are better; Microsoft’s response is a message that everyone already knows — that Windows PCs are cheaper. Their marketing and retail executives publicly espouse the opinion that, now that everyone sees Apple computers as cool, Microsoft has Apple right where they want them.
They’re a software company whose primary platform no longer appeals to people who like computers the most. Their executives are either in denial of, or do not perceive, that there has emerged a consensus—not just among nerds but among a growing number of regular just-plain users—that Windows PCs are second-rate. They still dominate in terms of unit-sale market share, yes, but not because people don’t recognize Windows as second-rate, but because they don’t care, in the same way millions of people buy metric tons of second-rate products from Wal-Mart every hour of every day.
If I had a pound for every time that I have heard a friend or colleague say, "I really want a Mac, I just can't afford it" then I would be able to upgrade mine. But Apple just does not compete in the low-cost space.
First, there is an Apple tax—although it is not as much as everyone thinks—but this isn't just to do with brand: you are paying for the research and development that goes into developing novel machines and innovative software.
These costs have to be recouped and—since Apple is the only company that researches and manufactures Apple hardware and software—then, of course, it will be Apple consumers who pay the price for it.
The indication that Apple is right is the fact that so many people think that the price is worth it—and that so many people are fanatical about the company's products (some are not so keen on certain ways that the company operates, of course).
Fundamentally, Apple only competes in the high-end market because that is where the profits are. Research and development has a dollar cost attached to it (rather than a percentage cost): if you need to make, for the sake of argument, $350 on each machine to be profitable then you aren't going to be in the market for selling machines at $450, are you? No, you are going to compete at the high end where your 30% profit margin is going to make the dollar amount that you need.
And, given that Microsoft dominates the low-end market—ironically, since Jobs originally set up Apple with the dream of offering the first sub-$1,000 personal computer—why compete with them in that unprofitable space? What is the point?
Bigger market share? But why would Apple want a much bigger market share? The company is amazingly profitable as it is—a bigger market share can only bring trouble, in the form of viruses and the need to support more hardware.
And, yes, there is the cool factor. Mac-users tend to be creatives, but they also tend to be successful. If you aren't successful, then you won't be able to afford a Mac. Apple Macs are a status symbol—a sign that you are either a creative (and thus unique: every good designer has their own style) or unusually good at what you do. Or, of course, both.
One of the articles that Gruber refers to concerns an NPD analysis that shows that Apple captures 91% of all retail sales of computers over $1,000. 91%! Yes, this is retail only, but Apple has always been popular in educational and research establishments (in the US at least) and they are starting to make inroads into commercial companies too.
And where does this leave Microsoft? It leaves the company making the majority of its sales in the low-end market, with wafer-thin profit margins. It's not the space that I would like to be in, that's for sure.
I’m not arguing that Microsoft will collapse. They’re too big, too established for that to happen. I simply think that their results this quarter were not an aberration, but rather the first fiscal evidence of a long, slow decline that began several years ago.
We will see whether John is right—I suspect that he is.
P.S. Just as an aside, and via Stuart Sharpe (with whom I'm working on a small project), these quotes demonstrate just why I love the Apple ethos.
First up is Steve Jobs, on why Apple doesn't do market research:
“It’s not about pop culture, and it’s not about fooling people, and it’s not about convincing people that they want something they don’t. We figure out what we want. And I think we’re pretty good at having the right discipline to think through whether a lot of other people are going to want it, too. That’s what we get paid to do.”
Next up is Apple's chief designer, Jonathan Ive.
“Apple’s goal isn’t to make money. Our goal is to design and develop and bring to market good products…We trust as a consequence of that, people will like them, and as another consequence we’ll make some money. But we’re really clear about what our goals are.”
As the commenter says, Apple's ethos could be summed up as:
“Make the very best products. Business will follow.”
Now, one can argue whether or not Apple does make the very best products—obviously, I think that they do. Equally, however, my Chairman argues that "there is no such thing as a perfect product"—what is right for one person may not be right for the next one.
However, those of us who are most involved in new product development at my company share Apple's ethos: we genuinely want to make great products that make people's lives easier and more pleasant.
And, as the person who directs the User Interface (UI) in our new products, I can tell you that—although I don't (consciously) plagiarise their work—Apple is a big inspiration nonetheless: not least in the fact that, rather than it being almost an after-thought, the UI is now at the centre of our applications...
UPDATE: a couple of days ago, an exploit using SMS was found in the iPhone. Apple have released a fix for this: just plug in your iPhone and choose
Check For Updatein iTunes.
DISCLAIMER: I own an insignificant amount of Apple shares—which are most definitely on the up again: in fact, they've nearly doubled in price since February.