Seeking Alpha
Long only, long/short equity, value, special situations
Profile| Send Message|
( followers)  

The Consumer Market Is Not The Enterprise Market

Apple Inc. (NASDAQ:AAPL) has an unparalleled worldwide consumer brand. Although Apple has a small but fervent following who desired to deploy Apple products in the enterprise, these fans were frequently shut out by IT managers demanding a product monoculture in the hope of realizing operational efficiencies. Apple's brand had no value to enterprise customers. The surge in international demand for Apple products has led to Apple product deployments in enterprise - driven not by grass-roots demand, but led by example from the boardroom.

This article does not argue that Apple ascendance in the enterprise is inevitable. Far from it. Although Apple is taking some enterprise business from mobile device competitors whose products' success has been tightly tied to enterprise, Apple has not made a serious push into the business market in years. The licensing of ActiveSync to support Exchange integration in iOS did not spearhead a major investment in selling to the enterprise market, but merely removed one barrier to adoption of iPhones by users who needed to get business email.

Apple And The Enterprise Market

Argument that the Enterprise is somehow beyond reach to non-Microsoft platforms flies in the face of the substantial infrastructure migrations to non-Microsoft platforms since Apple first released its Unix desktop system. Unfortunately for Apple, these migrations were not to an Apple platform, but to a different Unix-like operating system with a much cruder interface. Apple, which gave as little attention to enterprise buyers as it did to government decision-makers, has allowed competitors to lock in customers with platform-dependent custom applications that make it harder for Apple to sell them products.

Which is rather a bummer for fans of Apple, who have watched Apple squander opportunities to make a name in enterprise. For example, consider the history of WebObjects.

At the time Apple bought NeXT, that company's WebObjects technology - a rapid application development platform that produced web interfaces to enterprise business solutions like the one through which Dell (NASDAQ:DELL) ran its online store - was of interest to enterprise and had some high-profile customers, such as Dell. Once Apple bought NeXT, however, interest in WebObjects evaporated. Dell - under pressure from Microsoft (NASDAQ:MSFT) - scrambled to replace its WebObjects deployment with a solution driven by Microsoft products. Apple's own efforts to make WebObjects relevant were failures: Apple alienated its traditional developer base by migrating its development language to Java, while alienating potential customers with the alarming fact that Apple would be responsible for development and maintenance of WebObjects. And the concern over Apple's ownership was warranted: it didn't take long for Apple to allow the highly-regarded WebObjects to die. WebObject licenses dropped steadily in price from the NeXT-era $50,000 until it shipped free with every Mac server, all without any observable effort to market the product to enterprise. With the prior version of Apple's server (OS X 10.6 "Snow Leopard"), WebObjects didn't ship at all. Outside Apple (which uses WebObjects for the high-volume Apple Store and the even more-high-volume iTunes Store), WebObjects is used by Toyota Canada (check the URL) and as of 2009 was also in use by a variety of other sites.

But how many enterprise application developers have even heard of WebObjects? Apple hasn't marketed it even to the people who would care about it. The internal applications that consume 90% of the WebObjects deployments that existed in 2009 are exactly the kind of investments that keep enterprises married to their platforms. Advertising to developers, encouraging training of developers in the tools and technology, and other kinds of platform development efforts are what causes an effective technology to succeed. Apple can't expect products to sell themselves in enterprise any more than it can reasonably expect the products to sell themselves in the consumer arena.

And think what Apple has done in the consumer arena: carefully-staged product launches designed to make the consumer products a high-profile news item, followed by consistent advertising in print and video all over the world. These are not the same techniques that would effectively promote an enterprise platform technology, but think for a moment about the level of effort placed in Apple's consumer advertising. Then see if you can find me a copy of any Apple enterprise advertising not appearing on its own site. The comments are open, and I'm dying to see it.

Apple's disinterest in selling to enterprise is not limited to WebObjects. Apple was awfully slow to implement technologies that supported Mac clients in networks full of Microsoft servers, and it hasn't offered drop-in replacements for Microsoft's leading enterprise tools. Think for a moment about the number of dependencies in a modern enterprise network that lead back to an Active Directory server, and ask why Apple hasn't bothered to do what Microsoft did in the '90s and cobble together LDAP and Kerberos to offer a drop-in replacement. The fact that Apple could write something as complex and feature-rich as the launchd with which Apple replaced init as PID 1 in its Unix is strong evidence that Apple can write solid code capable of handling harsh treatment and rough demands of the sort expected in the Enterprise market.

Apple has been capable, but historically unwilling, to market to Enterprise.

Apple's Enterprise Objective

When Apple was younger, its mission was to free enterprise from the products of International Business Machines (NYSE:IBM). Both the BlueBusters video (a Ghostbusters spoof) and the "1944" video (expressly shot for Apple's sales team) depict Apple's Enterprise-directed aspirations when Apple first launched the Mac. Even Apple's externally-directed advertising campaign launched (in the "1984" ad) with an ad promising to free corporate workers from their drudgery - but the company only ran the ad one time. Apple's early delivery of networking in every Mac made it an early favorite for schools; PCs requiring networking needed special additional hardware.

When Apple later sold Unix in every desktop and offered high value-for-the-dollar rack-mounted servers capable of supporting a top-10 supercomputer, Apple didn't bother to solve enterprise infrastructure problems that could have begun earning it a place in a recurring-revenue market at a time Microsoft's reputation for security and customer service was at a nadir. Apple acted as if it only needed to build a product, and customers should flock to it. Then, in 2010, Apple unexpectedly announced the end of its XServe product - angering its enterprise customers and reassuring the rest of the Enterprise market that it was right to suspect Apple of being too unreliable to act as an enterprise partner. Apple's suggestions in its "transition guide" were laughable (Mac Mini as XServe substitute? did they read their own products' specs? consider the performance aspect?). Even the iOS program for enterprise application development and deployment has problems (how should enterprises buy bulk licenses, manage remote app installation, etc.?).

Is Apple its own worst enemy in the enterprise?

Safe Haven For Competitors

By ceding Enterprise to the likes of Microsoft, it provides an ongoing stream of competition-free profits from which competitors can fund attacks on Apple's critical business selling high-margin consumer products. Considering how attractive those consumer products are to Enterprise customers (who want MacBook Pro and iPad products on their desks and in their hands in meetings), there is no reason Apple should not provide server products as a back-end adjunct to the client devices now deployed so broadly in Enterprise. Enterprise needs enterprise-wide control of OS updates, application installation/licensing/updates, mail (including secure email), authentication (including authentication usable by non-Apple clients), internally-directed web apps (WebObjects?), and a whole host of technologies Microsoft is currently selling for a fortune with no credible competition.

And this market is not small. Enterprise profits in Microsoft's Server and Tools division was last quarter virtually the size of Microsoft's entire Windows division, despite that enterprise is also a major customer of Microsoft Windows licenses. Without credible competition from Apple, Microsoft easily sells enterprise on the notion that only Microsoft can supply desktop and server needs, and only Microsoft can assure customers that the products will all work together. Microsoft's share of the enterprise market is over $10 billion per quarter.

Because Apple hasn't bothered to compete with Microsoft in back-end systems, Apple has doomed its client products to second-class status on enterprise networks administered with tools created by a mobile device competitor that not only is planning a major OS release later this year, but is subsidizing hardware vendors to sell Microsoft products to undermine Apple's share. And where is that subsidy money coming from? The uncontested Enterprise market.

To the tune of $250 per Lumia handset (minus an OS royalty) and $600,000 per phone application.

A little competition in the enterprise market could level the playing field nicely.

Conclusion

Apple has been alternately inept in the enterprise market or outright hostile to its concerns. Despite this, Apple is projected to grow its enterprise business more than 50% this year - not just iPads, but Macintosh as well. Apple has a golden opportunity to capitalize on this goodwill by selling complementary enterprise products - to support the needs and expectations of enterprise customers in administering Apple clients and any other client - in order to protect Apple's products from subsidized competition.

Apple certainly can compete. Apple ships in every Mac a battle-tested mailserver, an authentication server that supports single-signon, a world class web server, a few different file servers, and a host of tools for administering the Mac locally and remotely. Without material impact on Apple's bottom line, Apple could deliver replacements for numerous third-party enterprise products. With some marketing effort and some reassurance of buyers regarding its intentions in the Enterprise market, Apple could capture enough of the enterprise market that it would ensure years of faithful repeat business while simultaneously making difficult competitors' effort to funnel enterprise profits into subsidies to undermine Apple's consumer product profits.

Apple has enormous internal expertise in managing a major international enterprise. Apple should follow Amazon's example in developing solutions for its own needs and, as the solutions are ready, selling them to others. Apple has a great opportunity in Enterprise, and should strike while the iron is hot.


Source: Back To The Future: Apple In The Enterprise