Microsoft and Apple: Follower and Leader

The Bootleg Beatles

I think it was about 6 years ago that I went to "A Lark in the Park" in Hyde Park in London - a show that was an extension of the "Last Night of the Proms" via a huge screen, but also included a live performance in the park by none other than the Bootleg Beatles. The Bootleg Beatles, perhaps the best known of all tribute groups, provide a passable impersonation of the Beatles and their music. One of them looks like John, one looks like Paul, one looks like George and, let's face it, nobody looks like Ringo. Their live performance sounds very close to the original Beatles sound and they are genuinely entertaining. They don't come even close to the real thing, but that surprises nobody.

Blue Screens and Viruses

In the past decade, Apple's (AAPL) competitive strategy against Microsoft (MSFT) has been to remove the obstacles to using Apple computers. Apple did not go on an out-and-out orgy of innovation that humbled the PC and convinced people that they really should switch vendors. This is what happened:

• After the acquisition of NeXT, Apple improved the NeXT OS (OS X), incorporating many of the features of the old Apple OS (Mac OS) and then switched the two. Mac OS was then gradually phased out and OS X was gradually improved. OS X is really a GUI layer sitting on Free BSD Unix, with the Mach kernel underneath. Unix with the Mach kernel provides a very stable foundation for an OS.
• Microsoft never saw the Apple Mac as a threat until a few years ago, even though Windows users were becoming dissatisfied. That's because the main Windows problems were (and to some extent still are) defined by the words: Blue Screens and Viruses. They were fixable.
• Microsoft had many competitive advantages over the Mac: The Mac was niche, many computer users had never even seen a Mac, the Mac was relatively expensive, it didn't use the x86 chip, a good deal of important applications didn't run on the Mac, the Mac required you to learn a new user interface, very few people used Macs at work and that wasn't about to change. Microsoft simply continued with its "drag along" monopoly strategy, dragging its users behind it.
• In early 2001 Apple opened its first two Apple stores. Microsoft never took much notice. Many commentators declared it an initiative that was doomed to fail. But Apple understood that many people didn't buy Macs because they never got to touch them or play with them. As Apple stores proliferated, Mac sales rose.
• In late 2001, Apple's iPod was released. As time passed, this unassuming device shifted the goalposts, but Microsoft never recognized the danger. Apple set up iTunes to sell music for the iPod and Microsoft still didn't see it as competition. In time iTunes became the fastest growing software product on the PC. Millions of PC users were now running an Apple application. iPod users began to buy Macs.
• Apple's OS incrementally improved with each release. Soon people were comparing the iMac "look and feel" favorably to the Windows look and feel. And this coincided with the time that Microsoft allowed the Longhorn project slip for years. These were lost years for Microsoft.
• In 2005 Apple announced the switch to Intel (INTC). This was probably the time the Microsoft actually began to take notice, but by now there was little it could do to respond. It was the Intel switch that set Apple on a solid rising growth curve. (To get a sense of this read: Apple's Market Share Is Bigger Than You Think and The Sound of Breaking Windows.)
• In 2007 Apple introduced the iPhone which fast became another consumer item that attracted consumers to Apple. Apple overtook Microsoft in the mobile phone market almost instantly with the iPhone. (See How and Why the iPhone Changes The Game for detail on the impact of the iPhone. Also see What is the Dark Apple Halo Effect?)
• In 2008 Apple introduced the App store, converting the iPhone into the dominant mobile platform surrounded by a large and rapidly growing software ecosystem. That put it way ahead of all mobile phone competition and it must have made Microsoft wonder why it had never thought to do something similar with Windows Mobile. Financial analysts are currently predicting dramatic growth for the iPhone, even in this economic environment, with Gene Munster of Piper Jaffray suggesting that the installed base will be around 60 million iPhones by the end of 2009.

Bootleg Apple

Microsoft's attempts to compete with Apple in the past 3 years have been very much after the fashion of a "tribute group" as the following list of events reveals:

• Vista released in late 2006 with the Aero interface. Suddenly Microsoft had started to care about user interface eye candy and was trying to gain parity with OS X. Unfortunately not all versions of Vista supported the interface and there were many other problems with Vista. (See 10 Reasons Why Vista Is A Disaster for the full litany of problems.)
• In mid-2007 Microsoft introduced Microsoft Surface. This was about 6 months after Apple wowed the world with the iPhone touch interface. At least it wasn't a complete shadowing of Apple, but Microsoft was obviously beaten to the market by Apple.
• In late 2007 Microsoft released the Zune, in an attempt to compete head-to-head with Apple. It had little success.
• In 2008 Microsoft announced that it was going to fight fire with fire as regards advertising to combat Apple's "I'm a PC, I'm a Mac" series of adverts. It produced two mystifying adverts with Bill Gates and Jerry Seinfeld and then proceeded with a series of ads where a wide variety of people claimed to be PC users. If the word response applies, and I'm not sure it does, it was a feeble one.
• A week or so ago (February 2009) Microsoft announced that it would have an app store for its Windows Mobile OS, just like Apple - and Nokia (NOK) and RIM (RIMM) and Samsung (SSDIF.PK) and Orange. All of these "me too" initiatives are going to have limited success. The point is that developers will have to choose which platform to develop for or which to develop for first. Apple is going to be the choice of the vast majority. It's far too late to catch Apple.
• A few days ago (February 2009), Microsoft announced that it will open retail stores just like Apple.

There are two problems with Microsoft's second mover strategy.

1. A second mover strategy can be very effective against a first mover that has neither the reach nor resources of the second mover. Microsoft has proved time and again how well it can outdistance the competition in such circumstances.
2. It focuses attention on the fact that Microsoft can think of nothing better to do that imitate Apple. If it wishes to catch Apple, it will have to innovate and differentiate. Right now it is doing neither.

Disclosure: no positions

Comments

[brewer:]

You analysis is dead on. The only thing I would add is that you could take this all the way back to the original IBM PC (a copy of the Apple II in many ways) and Windows was a VERY weak copy of Macintosh until at least Windows 95 (and never managed to catch the old Mac OS in functionality or usability).

Feb 23 09:18 AM

[Zoltan L. K...:]

Apple's competitive efforts and successes were not against MS in the first place. They were much more about positioning against a Wintel ecosystem, both on the USP, and on the cost side. Apple had to reach critical mass in order to get cost efficient, and it had to configure the right portfolio of its offerings, build its own ecosystem. OS X and partnering with Intel were really the opening steps of Apple's manoeuvring a growth strategy. An own affordable and integrated software offering, "digital lifestyle", and exploiting the internet were the next. Now the focus is moving towards building a platform for mobile communications and computing. Apple is not excluding MS, they are even partnering to some degree, while Google is really building muscle relevant to Apple and MS aswell. Google is in fact now building its own ecosystem, not just for mobile devices. This is were the new competition is.
Microsoft's opening of retail stores could partially be an imitation strategy, although I wouldn't call it a second mover strategy, since it means something different to MS, so it is really a different movement. It could mean getting in touch with customers. To Apple it is much more than that.

Feb 23 09:59 AM

[davesmall:]

One of the best blog articles I've read in a long time. Thanks for putting it up here. Really puts things into perspective.

Feb 23 11:04 AM

[jack dee:]

You are just attributing motivation how and where you see fit to make a good story. You simply do not know what internal MSFT thinking was , it is a fantasy, to suggest otherwise.

You also completely neglect to include the Success MSFT has had over the last ten years. MSFT has made more money with is move to enterprise software than apple has made in the last ten years in total.

In fact it is the MST platform that allowed the iphone to work, without MS software the iphone could not even send mail.

You appear to have a crush on a company that has left its users high and dry many times. Apple is a great branding company, they sell a cool factor and manage to brand themselves as the good guys.

Feb 23 12:20 PM

[RattyUK:]

@jackdee

"In fact it is the MST platform that allowed the iphone to work, without MS software the iphone could not even send mail."

That is simply a lie. In the latest update Apple added the ability to connect to Microsoft Exchange servers but up until that point the iPhone / iPod have been able to send and receive mail using all the open standards, pop IMAP etc.

Feb 23 12:29 PM

[jack dee:]

@RattUK


Of course an iphone could send mail without MS, but why let facts get in the way.

Rob doesn't

in fact did you know that the iphone may cause brain tumors in children!

Feb 23 12:55 PM

[RattyUK:]

@jackdee

You sir are a troll.

Feb 23 01:00 PM

[who:]

Good article.

One minus in apple laptops is price. For better specs a windows laptop costs less 30%, a huge difference. Like you wrote, most people grow up using windows. Although, ipod and iphone have made heads turn. Nokia, etc. still hold major market share.

It would be interesting should apple take a lower end or compete on price route instead of its premium only strategy.

Feb 23 02:55 PM

[another.ana...:]

Well who,

Factor in the TOTAL cost of Wintel in business, including IT cost to keep the blame things running, keep them virus/malware free & all the other problems--Vista anyone?--Windows machines are prey to, & that 30% HIGHER cost becomes a LOWER cost. Factor in that AAPL machines--out of the box--handle graphics & sound WITHOUT any additional costly hardware/software, wear like iron, & AAPL looks like a bargain to me.

Ayuh

Feb 23 06:05 PM

[Hayweed:]

Who, BMW could make a $10,000 car but they won't, so why should apple. Better computer with better software so you pay more. Kind of like buying a great car versus the cheapest one you can find.


On Feb 23 02:55 PM who wrote:

> Good article.
>
> One minus in apple laptops is price. For better specs a windows
> laptop costs less 30%, a huge difference. Like you wrote, most people
> grow up using windows. Although, ipod and iphone have made heads
> turn. Nokia, etc. still hold major market share.
>
> It would be interesting should apple take a lower end or compete
> on price route instead of its premium only strategy.

Feb 23 06:46 PM

[Jon T:]

I think the writer has been very generous to Microsoft in this article.

It truly is a failing company with no vision, no innovation, no ability to execute well, no ability to satisfy customers or understand them, and is still arrogantly strutting around in its own hubris thinking the world hasn't changed.

Microsoft is going to receive some major shockwaves over the next 7 years.

Feb 24 09:18 AM

[Tom B:]

Excellent analysis.

Since MSFT has yet to even upgrade to UNIX, I really can't see them catching up. Even volunteer, Open source OS's (LINUX) beat MSFT technology-wise, by a wide margin.

90% of Windows guys are about "penny-wise, pound foolish". They are all about "as cheap as possible". Now we see netbooks cannibilizing Windows laptop sales. On the high end, gamers, who might have spent big bucks on fancy PC's, are cannibalized by Wii, PS 3, MSFT's money-losing XBox.

I see no strategic vision emanating from Redmond to lead them out of this mess. And, as someone who has had to use MSFT products a lot, I feel NO sympathy for their self-made plight.

Feb 24 10:08 AM

[mollytjm:]

thank you! such a wonderful article. i heard the 'stores' would be the 'within a store, store' thing, like Apple use to do with CompUSA. (and had CompUSA put THAT store up front...they might still be in business)

Microsoft made the mistake of feeling it was so big and powerful that no one could go against it and win and they left innovation out of their plans.
This is death to a tech company. Apple makes innovation and customer satisfaction it's top concern (after profits, of course:)).

A Microsoft store would be quite entertaining to watch. How in the world will they ever staff it with people who are knowledgeable? I can't see it working to satisfy enough customers to make a difference. I heard the tech people will be called gurus. It takes more than a name to make a person an actual informed teacher. But it'll be interesting to see them try, especially since Apple will keep churning out more cutting edge and cool products.

Feb 24 12:17 PM