Mac vs. PC All Over Again

Avi Greengart / August 27th, 2014

The latest round of company quarterly financial results illuminate three trends in the device market:

  1. Apple continues to generate record profits largely due to growing iPhone sales (iPad sales are slowly declining, Macs are growing, iPod sales are mostly gone, and Apple’s services revenues are growing)
  2. Samsung’s profits are steadily declining (though from such a high level they remain quite high)
  3. Nobody else is making money at all1

Jan Dawson from JackDaw Research has a terrific chart illustrating the difference in margins that has made its way around Twitter (and here on Tech.pinions) a few times. To my eye, this looks like the PC market, all over again.

Screenshot 2014-08-07 09.46.57

I’m certainly not the first to point out the mobile market looks a lot like the PC market of 30 years ago; some financial analysts have been using this as part of an argument predicting Apple’s imminent collapse. Just as Apple lost the PC wars to a horizontal solution, Apple will lose the smartphone wars the same way. Apple apologists have responded the phone market is different: there are carrier subsidies, lock-in effects, or what have you.

Financial analysts aren’t dumb. The parallels are real. The phone market is turning into the PC market, only with Google taking Microsoft’s place as the OS provider. The similarities are striking. Apple redefined the market with a proprietary OS, innovative UI, and vertically integrated hardware. While it took a few years to catch up, the competition responded with a similar UI on an OS widely licensed to OEMs. In both PCs and phones, Apple targeted a narrow high end customer and lost the market share battle, while the competition aims wider and controls significantly higher market share. Apple monetizes its software by selling high margin hardware; OEM competitors fight each other to provide low margin commodities.

Screen Shot 2014-08-26 at 6.40.39 PM

There are also two interesting differences in the PC and smartphone eras: due to the way the smartphone market evolved, Google chose not to monetize the OS the way Microsoft did, instead monetizing services through advertising. The phone market is also different in size – it’s a lot larger than the PC market ever was.

The problem with analysts using these comparisons to predict Apple’s decline is they ignore the fact Apple won the PC wars. During the 1980s, Apple grew both revenues and profits. After a near death experience in the 1990s – more on this later – Apple reemerged as the most profitable PC vendor. If you count iPads along with Macs, it is now the largest PC vendor by unit sales, too. That is not to say there were no other winners in the PC market. Steve Jobs was correct when he said, “For Apple to win, Microsoft does not have to lose”. Microsoft also won the PC wars. As did Intel. At various points, IBM, Compaq, Dell, HP, and Lenovo have won battles, too (though some of them clearly lost the war).

What We Can Learn From History

The most crucial lessons from the parallels between the PC and smartphone markets are how 1) Apple should behave to successfully compete with Google, 2) the lessons Apple needs to learn from its near death experience during the PC era, and 3) the lessons today’s hardware OEMs – including Samsung – should take from PC OEMs.

1. Apple vs. Google
This one is really simple:

  1. Google does not have to lose for Apple to win. Steve Jobs’ anger towards Google was counterproductive. For that matter, Samsung does not have to lose for Apple to win.2

2. Lessons for Apple from the 1990’s
Apple lost its way in the 1990s when Microsoft caught up in user interface and Apple stopped innovating in both software and design. That impacted the Mac’s software ecosystem, ruined its premium value proposition, and forced Apple down market (which it tried to attack with a licensing strategy). Once Apple invested in a narrow range of high-design, premium products with regular software updates, sales and profits returned.

To win the smartphone market, Apple must continually refresh its software so its overall value proposition remains differentiated at the high end. However, software for smartphones goes well beyond the device capabilities and UI. It encompasses services and apps.

    1. Google excels in services; if Apple is to succeed long term, it will need to continually meet the “good enough” threshold on services. Given that requirement, the half-baked launch of Maps was a potentially franchise-destroying disaster. Apple has recovered from the worst of the Maps debacle, but it still has work to do on the services front. Apple next big challenge is creating a response to Google Now.
    1. Apple does not need to beat Google on services as long as Google extends most of its services to iOS. Google monetizes users, not Android. As long as Apple maintains a significant share of premium customers its advertisers want to reach, Google has to work with Apple.
    1. Apple excels in the app ecosystem, but Google is catching up. It is too early to predict whether this will keep Apple ahead, but the need to maintain an edge in the app ecosystem explains why Apple is opening up iOS 8 and giving developers more flexibility. It is also why Apple is investing in a new development language.
  1. Apple must continue to set the standard for design so consumers are willing to pay a premium for its hardware. Larger screen sizes and bezel-free designs are the only real holes in Apple’s approach; otherwise it’s doing a pretty good job.

Even if Apple pulls off this balancing act, it does not guarantee explosive growth, which is what Wall Street is looking for. However, if Apple does follow this path, it will maintain a stable, growing base of customers, apps, and assets it can use to attack new areas. The iPod and iTunes led to the iPhone which led to the iPad.

Lessons for OEMs competing with Apple and each other

There should be a market for premium Android phones, but with lots of OEMs targeting it, even vendors who can differentiate on design and hardware components will have lower margins than Apple. Margins don’t have to decline to zero, provided there is still enough value in differentiated component technologies or design. This is why Samsung’s insistence on sticking with durable, easy to manufacture, cheap plastic construction is so maddening. As the unique value of Samsung’s components has declined over time, Samsung should have been putting more emphasis on premium design and construction.

It may be possible to differentiate on software above Android, but few provide enough positive differentiation that consumers recognize and are willing to pay a premium for. Motorola, Meizu, and Xiaomi are the only ones who come close; LG is adding value by stripping out much of the excess it once had. It is worth noting carrier meddling can mess up even the best laid software plans; it requires a direct-to-consumer channel or extremely strong brand clout to build a singular software experience and get it on carrier shelves.

Below the premium tier, margins trend towards zero. Lenovo makes money in PCs in this environment by managing the supply chain and manufacturing. PC vendors were making money by preloading crapware; some smartphone vendors (and some carriers) are following suit. Another approach is to sell hardware at cost, and make money on ancillary products or services. Digital stickers work for messaging vendors, advertising supports television, and in-app purchases drive mobile game developers. Watch for variants on these approaches from hardware manufacturers. Amazon is trying to do this with its tablets, but not its phones where it tries to have its profits and sell you some cake, too. Xiaomi’s business model seems to be predicated on giving you a phone at cost, then selling you a stuffed animal.

  1. Not consistently, or in the case of some Chinese companies who don’t break out device profitability, not verifiably []
  2. I think we’re seeing the application of this principle in Tim Cook’s détente with Samsung. Ironically, Jobs was able to get past his feud with Microsoft, but Samsung’s IP infringement was personal. For its part, Samsung is finally willing to compromise because it is realizing it cannot maintain its margins, and an expensive legal fight it can’t win is not worth pursuing. []

Avi Greengart

Avi is the Research Director for Consumer Devices at Current Analysis. He is responsible for the Mobile Devices and Digital Home Devices groups, including CurrentCOMPETE (market, company, event, and device competitive analysis) and Wireless Tracking (pricing, promotions, availability, and device feature data and analysis) content.
  • pk_de_cville

    Avi,

    Well written and insightful post to us.

    Care to include the security issue: iOS vs Android?

    It’s my opinion this is a ticking time bomb which Google needs to solve. I bet they have a large project focused on the security of their Open Android platform.

    What are the chances they will succeed and stay open? The easier challenge would be to ship a walled garden Android and go into Protect Mode as Apple has, but can it be done within an Open platform?

    Another issue is Privacy of personal data: Can Google make strong privacy policies and enforce them as Apple has?

    To me, Security and Privacy are Android challenges that rise to the level of the “king has no clothes’. What do you think?

    • Avi Greengart

      Thanks. Security is an issue for Android, but security did not kill the growth of Windows in the PC era; Microsoft really got serious on security starting with Windows 7.

      Privacy is tougher; Google’s monetization model depends on collecting personal information and then using that to sell advertising. Google can get tough on security. Google can’t fully enforce privacy and feed its business model.

      • pk_de_cville

        Avi,

        “Security is an issue for Android, but security did not kill the growth of Windows in the PC era; Microsoft really got serious on security starting with Windows 7.”

        You are minimizing a //huge// Android challenge. Security is so poor in most of the Android world that they have 100,000s of copied fake malware apps. The impact of this malware distribution model, alone, is huge.

        If Google restricts users to its official App Store, that would be a “walled garden” strategy, wouldn’t it? So the question is back to you: How does Google deliver security without a walled garden?

        • Avi Greengart

          There are a lot of approaches that Google could take. It could require developer certificates like Symbian used to, it could add a review stage before posting (like Apple and Microsoft, though that hasn’t kept crap out of Microsoft’s Store), it could aggressively review/pull apps after they’re on the shelves, and there are probably a few other options somewhere in between using automated systems (for cultural reasons, Google is unlikely to staff up with human gatekeepers). Walled gardens would not be a problem for Google’s business model, just its ethos. If walls need to go up to defuse a “ticking time bomb” (your words), they’ll go up..

          • pk_de_cville

            Thanks Avi,

            I think you’re right about the walls not being a problem for the Google ethos.

            If Google did the walled garden thing, I guess we’d hear less from critics about Apple’s walled garden efforts in service of security, privacy, reliability, and UX simplicity.

    • klahanas

      “The easier challenge would be to ship a walled garden Android and go into Protect Mode as Apple has, but can it be done within an Open platform?”

      Actually, that’s how it is now in it’s default state. You actually have to allow “unknown sources” to install apps outside the Play Store. If you want to install other stores you actually have to download their app, like Amazon App Store.

      • pk_de_cville

        Thanks klahanas,

        Apple’s walled garden doesn’t allow the choice you write of. You see, Apple users’ hands are tied: they can’t screw themselves because Apple doesn’t allow it. As a result of taking the innocent user risk away from the problem (and other measures too), Apple has almost no malware in the wild.

        Can Android control security and privacy while leaving the barn door open?

        And there’s also the friendly geek problem: Geek tells innocent and ignorant friend, “Hey there’s this great app in the “Android Fun Store”, easy to download; I’ll do it for you.”

        So, what’s with that? The geek isn’t a bad guy, but he’s just taught someone clueless how to risk malware when the friend doesn’t even know how to spell “malware”.

        • klahanas

          It is definitely an outlook. The door is not so much open, as it is locked. The owner holds the key. To your point, what’s to stop a geek friend from jailbreaking an iPhone and doing the same thing?

          I truly appreciate your well intentioned point. Computers, like all tools, involve responsibility of the user. Some (millions) choose to abdicate that and leave things to Apple, to leave the keys with them. In my personal outlook, that’s fine as long as I can get the keys to my device on demand. The user OWNS it.

          Since computers are tools for the mind, having others hold the keys bugs me. A lot!
          But that’s me. As a divested Apple customer, but still an active consumer, I’m left “wanting” by their offerings. But that’s my outlook, and why fortunately for me, Android exists.

          • pk_de_cville

            “Computers, like all tools, involve responsibility of the user. Some (millions) choose to abdicate that and leave things to Apple, to leave the keys with them. In my personal outlook, that’s fine as long as I can get the keys to my device on demand. The user OWNS it.”

            Who’s the ‘user’ who OWNS? An uber geek, teen ager, grandmother, spouse, compuphobe, grocer, teacher?

            The point of one article out there is this: If you’re an OWNING ubergeek and you just want it your way, you have two //easily// modifiable choices:

            Android

            Jailbroken iOS

            Your choice on the merits. So, why do //we ALL// need easily malware ridden cell phones all the time. Each user has a stark choice today:

            Android risk or iOS lock up!

            Choose!

          • klahanas

            Dear friend,
            The user that owns it is the very same one that paid money for it. No more, no less.
            I do appreciate the way you put it, “risk” iOS lock up. I indeed chose Android. Of course I would love to have more choices…. Though I do have an axe to grind with Apple personally, I’m Android by default for this reason alone.

          • pk_de_cville

            “The user that owns it is the very same one that paid money for it.”

            I’ll try again.

            Some car owners don’t know or care how they work, but they know how to use them. (Some of these people are geniuses in their chosen field, so they’re not stupid.) These people buy cars that don’t break down, don’t need to be fiddled with, that are reliable, “just work”.

            You, a person who wants to be able to fiddle with Android, says, “Computers, like all tools, involve responsibility of the user.” Let’s try this on cars:

            There are millions of sane car owners who want only to be responsible for driving legally, filling the tank, cleaning the car, knowing how to get somewhere. The car is a tool they use and own and they don’t give a damn about and don’t want to be told that they are responsible for how to fix and maintain it and prevent if from breaking down.

            That is someone else’s job. Not theirs.

            I don’t know about you, but I know tons of people who hate having to fiddle with their phone to make it work or keep it malware free.

            Being responsible for keeping a damn phone working isn’t what most people want. They just want to make a call, text, take a picture, use an app. Many of these people pay a premium to Apple to have Apple make sure their phone works.

          • klahanas

            You’re absolutely right that most people choose not to fiddle with their cars. So they don’t. Some do. That’s the way it should be.

            Some prefer to have their cars maintained at the dealer, other’s prefer to use “their guy”. Also as it should be.

            In either case, the owner bears the responsibility of maintaining their car. It must meet legal (as in democratic) standards for road worthiness, must pass inspection, etc. The driver also is not absolved as to which neighborhoods they travel and park. No one prevents them from going wherever they choose though. If iOS were a car, I wouldn’t be allowed to travel to a bad neighborhood at all. You know, for my own good.

            In another discussion, a fellow reader has me almost convinced that Apple is rightly a “club”. That this benefits the member. Elitism aside, I’m beginning to agree with that person. I prefer to NOT join the club, just give me the gizmo.

          • pk_de_cville

            Seems where we differ is this personal sense of responsibility or obligation that you imply everyone has for //needing// the keys to the kingdom so each can fiddle with it.

            In your case and others as geeky smart and informed as you are, I’m fine that it’s a choice: Android or jailbroken iOS.

            Let all informed Android buyers smile and be happy as they’re getting the whole gizmo, including the unsafe parts with the key they’ve bought. The same for iOS jail breakers.

            An informed buyer of iOS, makes a choice for “no key” and safety, reliability, privacy, ruggedness, service, apps, yada yada.

            (Would you like to discuss the state of “informed’ buyers at this point? No surprise here: I want everyone of my uninformed Android friends who are dealing with lack of service, malware, easily broken phones, fake apps, and yes, even the growing level of extortion_ware (an Android exclusive) to wake up, smell the coffee and buy iOS next time. (I am not suggesting you buy iOS; this is your rightful choice.))

          • klahanas

            There are risks in life. Especially where there is more freedom.

  • jamesdbailey

    Nearly stopped reading at “Apple apologists”. I expect better from Techpinions.

    • Avi Greengart

      You don’t think there are people who reflexively back Apple?

      • stefnagel

        It’s your framing: financial analysts vs. apple apologists? How about this: analyst nitwits vs. analyst intelligentsia?

        • Avi Greengart

          LOL. Sorry, I know too many smart financial analysts.

          • stefnagel

            There you go again.

          • Avi Greengart

            Fine, I’ll play along. How about dumb financial analysts vs. smart market analysts?

          • pxlated

            Answering a question with a question is a great diversionary tactic. Can you answer stefnagel’s question?

            Like another comment, I almost quit with the loaded term “apologists” – enthusiasts maybe, but apologists not

          • Avi Greengart

            Yes, there are financial analysts who are long on Apple because they believe in the platform/ecosystem story. And there are financial analysts who don’t. But that wasn’t the point I was making. I have seen the argument over and over again that “the mobile market is the PC market all over again, therefore Apple is doomed.” The analogy is correct. The conclusion is wrong because they focus on the mid-90’s Apple collapse rather than the overall run. Apple won the PC wars overall. So the correct analogy/conclusion pair should be “the mobile market is the PC market all over again, it’s good to be Apple.” Then we can talk about what that means for Samsung/HTC/Huawei and whether they can avoid the fate of Gateway and Dell, and also learn from Apple’s 90’s collapse.

            But rather than say, “hey, you’ve got the right idea, but the conclusion is wrong because Apple actually won the PC wars overall” too many people react to the negative conclusion without considering that the premise — PC era = mobile era — is correct. That’s the reaction of an apologist, which is why I used the term. And if you reflexively reject the parallels between the eras, you’ll never get to the lessons you can learn from them.

          • hiramwalker

            Still waiting for the name of that smart financial analyst, of which you know too many.

          • stefnagel

            And … still waiting … not holding my breath.

          • benbajarin

            This whole comment thread is getting quite long! But I’ll chime in anyway on this point of the financial analyst community. Of course, if you understand it, you know there are sell side and buy side financial analysts. The sell side guys are the ones to typically run their mouths to get attention because they sell a service to firms who are buying stocks and want an “edge” on what is happening with Apple. It is the sell side folks who mostly give analysts a bad name. I don’t speak with any of them.

            I do however, speak with the large hedge fund guys on the buy side. They are not public and they are generally extremely smart. They have to cut through all the noise of the sell side after all. 🙂

            Granted many of the buy side analysts who got into Apple during the growth stages, and consequently had too lofty of expectations of them, did have an effect on Apple’s overall stock when many of them got out, realizing it wasn’t a growth stock any longer. But many I know who say Apple transition from a growth stock to a value stock are exceptionally smart. But they just don’t get be public in any capacity.

          • stefnagel

            Fair enough. Nitwit financial analysts abound.

          • benbajarin

            see my comment below.

      • aardman

        There are. There are also people who reflexively disparage Apple. We should take both sides into account, not just one.

      • Steve__S

        There are certainly less insulting ways of describing groups. When you resort to “reflexively” insulting groups of individuals based on a position they take, you lose any sort of notion of impartiality yourself. Further, if you take issue with the position someone takes, address it specifically on it’s own merits. When you fail to address the issue and instead summarily dismiss the issue and attack the group of people raising the issue, you’ve already lost the debate.

  • stefnagel

    Apple is in much better shape than this writer suggests. And Google in much worse shape.

    * Patents: Never assume Apple is nutty. Can Apple not defend its patents? Does screaming really loud at Samsung not scare off other patent leeches? What if … Apple has always known what it’s doing?

    * Services: Apple has dealt with the maps issue and there really aren’t other critical apps. Take the king of Google services, search: Bing can do the job in search. In app searches are replacing chunks of Google search. And Siri will replace Google search over time.

    * Ecosystem: It ain’t Apple that lost the ecosystem war. Google has given up on hardware. It cannot do the hard work of designing, manufacturing, marketing, selling, servicing, and supporting hardware successfully. Consequently, only Apple delivers UX. Android is milk delivered mostly in honey wagons. That’s when it gets delivered at all. Or when someone doesn’t morph Android into a Googless OS.

    Google does not have to lose for Apple to win. But it will.

    • aardman

      Apple Maps has actually taken a significant toll on Google Maps views. But has anyone seen a the-sky-is-falling-on-Google article or posting about this? I haven’t. Oh but when Apple Maps first came out, seems even the long dead were rising from their graves just to declare that Apple is doomed. Or Antenna-gate before that. Or that fabricator and his one man show. It’s a long list.

  • jfutral

    “Apple continues to generate record profits largely due to growing iPhone sales (iPad sales are slowly declining, Macs are growing, iPod sales are mostly gone, and Apple’s services revenues are growing)

    Samsung’s profits are steadily declining (though from such a high level they remain quite high)

    Nobody else is making money at all1”

    When was this ever the case in the Mac/PC (Jobs-less interim) era?

    Joe

    • StevenDrost

      True, people get caught up with comparisons, but you can’t compare the trajectory of smartphones or tablets to the PC three decades ago, because they are all the same thing, a computer. Every component in a smartphone is based on manufacturing and design process which started even before the PC. It’s not that PCs are “good enough” and the smartphone won’t get there for 30 years, the smart phone is based on the same technology is if it’s not already will be “good enough” shortly. But, if the Mac can remain profitable in the face of “good enough” competitors, the IPhone can too. This is uncharted territory.

  • Dan

    Don’t think a PE of 17 indicates a wall street expectation of explosive growth. That is basically a market average.

    • StevenDrost

      I would agree with the author, Wall street is(or was) looking for explosive growth. After years of explosive growth, the short term focused traders came to expect it. When their revenue growth slowed to a level which McDonalds or Exxon Mobile would kill for the stock tanked to a PE of 12.
      But, Wall Street is not crazy to give them a lower valuation. If McDonalds releases a new sandwich that sucks, big deal. If the IPhone 6 tanks then AAPL will lose more than 75% of it’s value.

      • Kizedek

        Why use McDonalds and sandwiches as an example? Why not just come out and say, Apple should make a portfolio of products like Samsung? Or, Apple should “diversify” like MS, whose Surface can tank because it always has the Enterprise, Office, Services and the X-Box (smirk)?

        Yep, let’s face it –– Apple is “putting all it’s eggs in one basket”, and that’s “risky”, isn’t it? Isn’t it more than likely that one of its products is going to tank? That’s just the law of averages after all. What makes Apple so special that it thinks it can escape the law of averages?

        Or, not. Will the iPhone 6 “tank”? Is it just “the law of averages”? Now, here’s a thought: what if Apple very carefully prepares its products having tried all sorts of things in secret? What if it has very carefully worked out a process by which it develops its products, integrating good design practices into all aspects of its development from the start?

        But since Apple is secretive, and since the likes of Samsung spend 12B a year to tell us how un-special Apple is, then, hey, let’s just agree that the lazy non-thinkers on WallStreet who prefer a quick buck over true value have a very good reason to comically under value Apple.

        • pk_de_cville

          What if…

          Microsoft and Google have no idea how to design and mold a device (“Saying no a thousand times.”) for an incredible user experience except by cloning Apple’s devices?

          Accurate or Cynical????

          • Guest

            Not sure what you are saying. Are you saying that it is also somehow generally cynical to suggest that Google and Microsoft don’t put a similar level of care and attention into their products as Apple does into theirs?

          • pk_de_cville

            .

          • pk_de_cville

            ..

          • pk_de_cville

            Some would say “cynical”; others would say “accurate”. It’s a defining call about the opinion of whomever is doing the saying.

            But I say, “Accurate.”…

        • StevenDrost

          I maintain my position that McDonalds is in a more stable position than Apple. Apple is more like a movie studio, they are a hit machine and it’s conceivable that they release a flop. I don’t believe this is likely (and I back up that statement with a large position in AAPL), but I understand why their multiple would suffer.
          But I strongly oppose the portfolio concept. If anything I would argue that their focus has been the key to their success. As an example I would cite the A series CPU. They only design one per year, but then sell it in such great number that they can invest more in it’s design than any competitor. This all but guarantees they go to market with the best CPU. The same is true for how they acquire components, where they order in such great number that they can drive a better bargain than any competitor.

          I agree with you that Apple wants to make products that delight it’s users, but isn’t that statement true of all their competitors. Microsoft for instance is more of a victim of a problem with their business model than their product.

          • jfutral

            “I maintain my position that McDonalds is in a more stable position than Apple. Apple is more like a movie studio”

            From the typical investor/stock market analyst, you are correct. I contend that Apple is more like McDonald’s these days, however, since their products keep selling with a low turnover rate of new products. For instance the menu at McDonald’s hasn’t materially changed in decades, except for the more recent McCafe offerings. McDonald’s thinks long and hard before offering a new menu item. Like Apple, they probably say 1000 No’s before a yes, even with regional offerings.

            After a movie studio releases a hit, their only income after the theater release is DVD/download sales, which are great for a short time, but not any where near the longer term Apple product revenue generation.

            But yes, typical investors think Apple relies on too much on “hits”. but hits never generate long term revenue the way Apple products do.

            Joe

          • StevenDrost

            I agree with you, to understand Apple requires not looking at an individual product, but the whole product line. Any individual device behaves just like a movie, where it spikes in sales during the release quarter and then sales quickly fizzle out. But, if you look at the retention rates and holistically at the whole company they start looking like McDonalds. They don’t sell products, they acquire regular customers.
            What I don’t understand is why this misunderstanding of the company is a bad thing, where I have always viewed it as an amazing investment opportunity.

          • stefnagel

            Samsung is much more akin to McDonalds than Apple is; Apple chooses to live off the hits. I think partly because that’s how it recruits and retains great engineers and the like. The best need to be who they are. Cranking out the next samsunburger special just won’t do.

        • pk_de_cville

  • Glaurung-Quena

    While there are many parallels between the current IOS-vs-Android war and the 90’s Windows-vs-Mac OS war, you’ve omitted a major difference: in the early-mid 90’s when Apple lost the OS war to Microsoft, Apple was sick. Today, Apple is healthy.

    A combination of greedy pricing* and ongoing technical inferiority** are
    what lost Apple the desktop OS wars in the 90’s. And Apple has “won” the desktop OS war today only in the sense that all the other computer makers are bleeding from multiple self-inflicted wounds. If Dell or HP had had the sense to avoid the race for the bottom and instead focus on delivering premium customer service and/or premium form factors, their profit margins wouldn’t have taken the same hit.

    In mobile today, Apple’s phones are technically equal or superior to their competitors and are evolving rapidly. And Apple’s price premium compared to
    other high end phones/tablets is modest, in return for which you get much better
    industrial design, markedly superior customer service, and a device that
    will get several years of OS upgrades, so overall, the extra you pay for Apple devices is quite reasonable.

    Because of this key difference, I think that the Android-vs-IOS war (which is not over yet) is not going to turn out in the same way as the Windows-Mac wars, which ended with Apple having a single digit of market share. In mobile, I think Apple is going to be making a move on the midrange soon, and will eventually (as hardware costs come down and they keep their older, cheaper devices on sale for longer) come to enjoy something like 20% market share, with their competitors fighting over the extreme low-end.

    * The Windows vs Mac wars started in 1990 when Microsoft finally churned out a version of windows that was more or less usable (Windows 3.x). A healthy response from Apple would have been to make their offerings cost-competitive with equivalently equipped Windows machines. Instead they continued to charge a heavy premium for their devices (the cost of each mac was something like 50% profit, IIRC), while more and more GUI apps, including the professional creative apps and home/education that were the backbone of the Mac market, became available for Windows.

    ** As demonstrated by the long time they stayed stuck on System 6/7. While in the 80’s Apple released a new major OS version every year, they coasted on V6 for 3 years and on V7 for 6 years. In the same timeframe Microsoft was improving windows every 2-3 years, to the point, after 1995, where it was clearly superior to OS 7.

    • Avi Greengart

      “…you’ve omitted a major difference: in the early-mid 90’s when Apple lost the OS war to Microsoft, Apple was sick. Today, Apple is healthy.”

      I don’t think I omitted it at all. I covered how Apple “got sick,” to use your phrase, and what lessons it should learn from that period.

      • Glaurung-Quena

        Sorry, poor wording on my part.

        My point was to disagree with your conclusion that the two OS wars were playing out the same way. I think that because of the difference in Apple’s health then to now, there’s the potential for the new OS war (which is not yet over) to play out much differently than the old — I think this time Apple is going to end up with most of the profits *and* a healthy fraction of the market, instead of most of the profits based on a sliver of the market.

        • Avi Greengart

          Anything could happen in the future, but that’s not the way it’s playing out now. Apple is deliberately targeting the portion of the market that supports healthy margins. That may be a larger percentage than it had of the PC market, but it still means leaving the majority of the market to Android.

          • Kizedek

            Congratulations, you have (here and throughout your article) pointed out pretty obvious and oft-trumpeted similarities between PC and mobile. The same similarities most Apple critics continually harp on about, and use to justify an assumption that Apple is “doomed”.

            The same similarities with which an awful lot of vociferous people seem to be rather myopically preoccupied: “open” vs “closed”, church of Marketshare stuff, etc. Stuff they are convinced is all important, having apparently decided that the fates have spoken and that MS in a better position than Apple right now, no matter how floundering MS appears nor how solid Apple appears.

            So, somehow, Apple’s future prospects are more precarious than that of virtually any other company anyone could care to name. Frankly, I find it all a little disingenuous, because it all pretty much presumes Apple is doing absolutely everything wrong while being very lucky to have such a great base of deluded fans who will wake up any day now. And since that narrative is attached to just about every commentary and “analysis” regarding Apple and technology and PCs and Mobile, then I suppose I could be excused for finding the conclusions of such “analysis” more than a little suspect.

            Rather, I think most PC/financial analysts and commentators are lazy and can’t see the forest for the trees. I find a perspective like Horace Dediu’s (and John Kirk’s) rather refreshing, though perplexing as to how solitary they are since it suggests that few people really think for themselves.

          • Avi Greengart

            Kizedek,

            Did you read the article? I say Apple won the PC wars by targeting high value users, and is similarly winning the mobile wars. What part of the argument do you object to?

          • Kizedek

            I guess, as others like Space Gorilla and John Kirk also apparently feel, your article is a little back-handed in giving any credit to Apple, like “damning with faint praise”. And, since you seem to perpetuate the general consensus that the similarities between the PC era and the current are more notable/striking/important than the differences, then you have to conclude, as you do, that Apple is on a precarious path and it must pull off some kind of balancing act to gain any growth.

            How about this instead: simply, Apple has a great strategy and great execution, and it gets better and better at what it does. Simply, others have dubious strategies, if any, and simply go for and inevitably gain “marketshare” at the expense of everything else; and doing so should not in any way give them a pass or make them worthy of praise simply because they have gone for marketshare above all else — as the PC Era apparently teaches is the end all be all, and licensing is the means to that end.

            So, it’s as though you begrudgingly admit that Apple “won”, despite having obstinately taken the wrong path. And here they go, again! Whoa, they better be ready to balance.

            However, how few critiques there are of Google and MS, and even fewer attempts to peek beneath the curtain. What balancing acts must they be needing to pull off as they vascillate this way and that, and try to re-define themselves, having failed to learn a myriad of lessons along the way? Indeed, Apple seems to be the only company that has learned lessons from the past.

            But, like others, you are apparently convinced Apple has not really learned its lessons, as evidenced by its obstinate return to a path that does not pursue marketshare for its own sake! Yet, all this is the forced conclusion of some shaky premises to begin with.

            No, let’s just turn everything on its head for a moment.

          • aardman

            Ordinarily, I would dismiss the subtle anti-Apple bias as you described as of little real import to Apple’s continued success. Except that I blame exactly that sentiment, which permeates almost every discussion, news item, blog post, and analyst piece about Apple for what I believe is the systematic and chronic undervaluation of AAPL. And that affects me, and maybe tens of thousands of other people directly in dollars and cents.

          • Avi Greengart

            I’m really surprised I’m getting “you’re anti-Apple” feedback on this column. I was expecting, “you’re anti-Samsung” or maybe even “you’re anti-Google.”

            Yes, the “Apple lost the PC wars and will lose mobile since they’re playing out the same” argument is biased against Apple. That’s the premise this column debunks.

          • Space Gorilla

            Yes, I think the problem was something you touched on in another comment, setting up the argument and then knocking it down. Maybe the structure of the article made it harder to follow?

          • Avi Greengart

            Maybe. That’s good constructive criticism.

          • jfutral

            Plus, you were very convincing in how you presented the points.

            “It is the mark of an educated mind to be able to entertain a thought without accepting it.” ~Aristotle

            It is a difficult structure and strategy to execute without confusion, especially on a topic as well trodden as this, as well as thoroughly and ubiquitously argued by many who comment here.

            Joe

          • jfutral

            I like how B. Bajarin put it in another article here. It isn’t that history is being repeated. History isn’t done being written. It made my brain hurt.

            Joe

          • Space Gorilla

            I tend to think there are similarities, but what is similar is Apple’s approach, focusing on creating quality products and selling to the segment that is willing to pay for quality and value (choosing good customers). That’s probably a big part of what makes some people so angry when it comes to Apple, that the company ignores much of the market, ignores the demands of many would-be customers, and yet still succeeds. I imagine that is simply maddening to a lot of people. How dare Apple ignore me and continue to succeed!

          • aardman

            I am sorry, I don’t believe at all that you are anti-Apple. I did not mean to convey that sentiment. I am saying I agree with the observation that the terms of the analyst discussion seems to be, despite a track record that is the envy of any business, “Apple has to prove to us that it’s not going to be buried by Google/Samsung/etc.” Rather than “Google/Samsung/etc has to prove to us that they can take on Apple.” Every new competing product out there is the iPhone killer or the iPad killer. Making it sound like iOS’s hold on the market is so tenuous. This negative sentiment permeates the discussion and it affects stock purchasing decisions.

            Another meme that gets my goat is “It’s coming up to three years since iPad and no sign of anything new from Apple; people are saying that Apple without Steve has lost its product mojo.” First of all, three years between new product categories is an exceptionally short period, even for Apple. Second, iPad and iPhone are essentially in the same product category –they are fruits of the same product dev program. Third, “people are saying” -who are those people? Turns out those “people” are analysts who are not aware of the two foregoing points I mentioned, or tech bloggers who are whoring for clicks. (A lot of times, they’re one and the same.)

            Just look at the swoon AAPL went through after it hit 700 a couple of years ago. Is there any objective reason for that occurring other than investors succumbed to the negative sentiment about Apple that permeated the discussion? My son, an arts guy who is not a techie and does not follow the tech industry, comes home from college and declares “Apple is not as innovative anymore now that Steve Jobs is gone.” I asked him what makes him say that. “Well, that’s what everyone is saying at my college.” I slap my forehead.

          • Space Gorilla

            Don’t you think that’s deliberate though, leaving most of the market to Android? Apple needs a Windows to serve the segments it cannot. By focusing on what I call the ‘best customer segment’ AND offering a differentiated user experience, Apple is kind of continually in a ‘blue ocean’.

          • Avi Greengart

            Yes. Hence my use of the term deliberate. 🙂

          • Space Gorilla

            Ha! I should read more carefully.

  • Thorntondw

    Steve Jobs’ vision was based on getting into markets which were not “zero-sum”. In other words, if there are enough potential customers to sell and grow market share with premium products, then go to that market. He proved that PCs are not a zero-sum market. This is even more true with smart phones.

    The market for PCs is probably greater than 1-2 billion purchasers counting enterprises. Assuming an average 5-year user refresh cycle for premium purchasers (assume only 10% of the 2B purchasers) results in 20-40 million premium PC sales per year worldwide. That leaves a lot of growth potential for the Mac line.

    The market for smartphones will probably be about the same size in a few years. The good news for Apple is that their customers replace every 1-2 years. Again assuming 10% are premium users (heavily weighted by the US), that results in 100 – 200 million premium smartphone sales per year worldwide.

    Given Apple’s high profit margins this gives it a lot of profit growth on just PCs and iPhones. The others can chase the budget purchasers and share the paltry profits as long as they want and Apple still has a lot of growth potential until they create another revolutionary highly profitable product.

    • Avi Greengart

      I’m not big on forecasting – it’s not what Current Analysis does – but the smartphone market overall still has quite of bit of growth left globally. The premium segment where Apple plays may be closer to saturation, but there are still *huge* opportunities in China. This is definitely not solely a U.S. opportunity; Apple does most of its sales outside the U.S.

      • aardman

        I think there are also huge opportunities in continental Europe. I don’t think consumers are as familiar with the Apple brand there as they are in the US, UK, and Japan. Or even China for that matter.

  • FalKirk

    “History never repeats itself. The historians repeat each other. There is a wide difference.” ~ Oscar Wilde

    I guess I am an Apple apologist because I could not disagree more with the fundamental premise of this article. Nothing is repeating here. First, if you think the current decade is like the nineties, it’s because you don’t properly remember the nineties. Second, if you think that Apple lost the PC wars, you should take another look at how the Mac is doing today. The price Apple paid for losing the PC wars was to have the Mac dominate PC profits today.

    http://www.zdnet.com/how-apple-took-over-the-only-segment-of-the-pc-market-that-still-matters-7000032801

    I’ve partially written an article on this exact subject and I’ll let it act as my full reply.

    • Glaurung-Quena

      John, re-read the article, Avi acknowledges that Apple won the war as far as profits go. I agree with you that the premise of the article is flawed (see my comments), but it’s not because he doesn’t acknowledge Apple’s victory in the profit share realm.

      • FalKirk

        Thank you for your thoughts, Glaurung-Quena. I’ll reduce my argument to this: History is not repeating because there is nothing even remotely the same about the personal computing markets of the nineties and the personal computing markets of today.

        • Space Gorilla

          Yeah, I think a worst case scenario is history repeats itself and Apple succeeds wildly. The Mac is thriving, and iOS is an order of magnitude larger. But in the hallowed halls of the Church of Market Share Apple is always doomed.

          • Avi Greengart

            Mr. Gorilla, at no point in this article did I suggest Apple is doomed by forgoing unprofitable market share.

          • Space Gorilla

            Yes, my apologies if you thought I was talking about you. You clearly make the point later in your article that Apple didn’t really lose the PC wars. But the conventional wisdom seems to be that Apple’s foray into mobile will be a repeat of Mac vs PC, meaning doom for Apple, when the reality is that the result of the PC wars is Apple dominating the best customer segment of the PC industry, dominating profits, a thriving developer community, great hardware, and so on.

            When most people say it is Mac vs PC all over again, that doesn’t actually mean what they think it means. They haven’t thought it through. Mac vs PC repeating means success for Apple.

          • aardman

            To be fair really, the Windows PC market is still enormously profitable, it’s just that Microsoft is able to expropriate/tax/confiscate/capture (choose the verb that suits your sentiment w.r.t. Microsoft) most of the profits through the Windows licensing fees they charge the PC makers.

          • Avi Greengart

            Thanks!

          • hannahjs

            There seems some confusion about who is decimating whom 😉

        • Avi Greengart

          John, by “personal computing markets of today” what do you mean? PCs? Phones? Tablets? All of the above? Trying to figure out where our arguments diverge.

        • Glaurung-Quena

          “there is nothing even remotely the same about the personal computing
          markets of the nineties and the personal computing markets of today.”

          I guess we have a full spectrum of opinion then — Avi thinks the two OS wars are parallel, I think they have similarities but not at all parallel, and you think they are completely different.

    • Avi Greengart

      John, I say Apple WON the PC wars. It’s right there in the text. I then argue that Apple can learn from its 90’s PC market situation. I’d love to have a proper argument with you, but I’m not sure where we actually disagree.

      • Space Gorilla

        Maybe the issue is that point is a bit buried. It sounds like you do understand that Apple’s strategy worked for the last couple decades with the Mac, and it is very likely to continue to work in mobile, the only difference being the size of the success will be an order of magnitude larger going forward.

        • Avi Greengart

          Yes, I set up the argument before I knocked it down.

    • David Olson

      The thought in the article I liked was that when people people say history is repeating they don’t realize what they are saying. There is a similarity of the PC wars then and now: Apple walks away with most of the profit while others fight over majority market share. I like this twist. But I have trouble with the OEM lessons presented. It seems the lesson should be that the attraction of Windows or Android is an illusion for OEMs. The OS may be fine for the enterprise or for consumers but the hardware manufactures will struggle in a desert created by Microsoft or Google diverting the revenue stream to their own enrichment.

      • Avi Greengart

        Well, to be fair to the OEMs, building a complete software/hardware ecosystem is hard, and at this point, may be impossible. That’s why my advice to Samsung is around keeping margins up as much as possible, not throwing the company 100% behind Tizen.

        • aardman

          But that’s the hard part, isn’t it? Keeping margins up in a market mired in a race to the bottom. And isn’t that the the reason Samsung can’t let go of the Tizen dream? Because in the smartphone market, you can only raise prices and margins if you offer a unique (and of course good quality) OS. Something that takes you out of the race to the bottom.

  • Rob L

    good article but I would add that fragmation works well in Apple’s favour. with a PC, even with bloat ware added in, PCs were pretty much all the same, Microsoft insured that every PC went out with the same software, and like IOS there were very few versions available, XP Vista windows 7. Not only that but every PC looked the same.

    Andriod on the other hand is so fragmented that each phone looks and acts completely different and is blood hell to upgrade.

    What I don’t quite understand is why people move from PC to Mac, I see nothing much to be gained by switching.

    edit: if I were to travel a lot (for pleasure) I’d consider a mac book air only for it’s lightness.

    • StevenDrost

      You actually just made a good argument for a Mac. Free OS upgrades and less fragmentation.

      • pk_de_cville

        Free //automagic frictionless// OS upgrades.

        Long battery life. Continuity. Low cost sw.

        Reliable rugged light and great //pre owned// resale.

        • Absence of pre-installed shovel-ware.

          Near-complete absence of malware.

          Optimized keyboard+cursor-only UI vs Windows 8 compromized hybrid keyboard/cursor/touch UI.

          Free in-person tech support at Apple Stores. (Plus free training courses.)

          Longer hardware lifespan due to higher quality components vs typical lower-priced, lower-quality PC hardware.

    • Avi Greengart

      Good point. UI fragmentation is hell. It can be easier to upgrade from Android to iOS than to go from some Android OEMs to others.

      re: Travel PC; I really like the Surface Pro 3 for that scenario provided you don’t need to use it on your lap much. I spend too much time in cramped press conferences, and the kickstand digs into my legs – or threatens to topple over. So I’m back to the MacBook Air for most trips. But on hard surfaces, the Surface Pro 3 is really nice.

      • aardman

        I always thought that a kickstand is one of the telltale signs of a poorly designed product. Not a fool proof sign of course, but whenever a product needs a kickstand to be deployed under normal use, that usually means the product, as designed, is being asked to defy the force of gravity. A product that is thus physically unstable in its normal state.

        A lot of Surface 3 fans claim that the device works perfectly fine on their laps.

        • Avi Greengart

          I like kickstands; they’re great for passively consuming content. I especially like the one on the SP3. I don’t like it as a laptop for my lap – it’s uncomfortable for me. If you have longer legs/shorter legs/etc your experience may differ. But, yeah, off topic. 🙂

  • aardman

    Lots of things I don’t agree with, especially the simplistic comparison of iOS v. Android to Mac v. PC, but i will focus on one that jumped out at me right away:

    I highly doubt that once the dust settle, there will be a significant market for premium Android phones.

    Android smartphones, like Windows PCs, is a race-to-the-bottom market. Google set Android up that way, Microsoft set Windows up that way, because they want as many Android phones and Windows PCs to be sold as possible. Manufacturers profit, as one might say, is not within their remit. And what IBM, Dell, HP, Acer found out, and Samsung, Motorola and their brethren are finding out, is that in a race-to-the-bottom product, there is no exempting yourself. You may try, but you will fail in the end.

    • StevenDrost

      There was always a premium PC market. Videocards, Soundcards, higher specked processors, more ram, higher resolution screens, better peripherals, faster drives, more memory, etc.

      • Avi Greengart

        Still is. The gaming market niche remains healthy enough to support several companies, especially NVIDIA.

        • markrogo

          It’s odd you think Nvidia is supported by the premium gaming market, not the millions of chips it sells elsewhere. Is there data behind that belief?

          • Avi Greengart

            NVIDIA’s own claims for last quarter’s earnings jump.

          • aardman

            Is it your opinion that chip sales to the gaming market are critical to Nvidia’s long term survival or just icing on the cake?

          • StevenDrost

            I don’t envy the position of a video card manufacturer. Integrated graphics have come a long long way. It’s a good example of low end disruption where NVIDIA and ATI will be forced further upmarket while “good enough” integrated graphics eat them from the bottom.

      • Kizedek

        Such niche markets are present on the Mac side too (such as video production vs gaming on the PC side). In fact, component makers make more profit from Apple because Apple tends to pay up front for huge quantities, and generally uses higher spec stuff to start with, across all its models. For example, how Apple buys up most flash and premium screen components …and now sapphire.

        • StevenDrost

          I like Apple, but they are a bully when it comes to squeezing their suppliers. All the big ones like Intel would prefer that there is more competition. Selling to Apple is a trap. They hook you with large orders and then squeeze you until there are no margins left.

          • stefnagel

            Big bad Apple squeezing poor little Intel. Ha. Gives a whole new meaning to Intel inside.

          • Steve__S

            LOL! Welcome to Business 101.

          • StevenDrost

            If you are not going to read the comment I’m responding to then why pollute the chat for everyone else?

          • Steve__S

            I read the comment you were replying to before I replied to your comment. My sarcastic reply to your post is because you apparently have no idea how business is run. Worse, you seem to have a rather naive sense of fairness or how things should work. Gaining leverage to squeeze suppliers is how you end up with both premium products and reasonable profit margins. Businesses aren’t run as a charity.

      • pk_de_cville

        Wow. A blast from the past.

        Premium Apple market will include iBeats, iWears, and iTVs.

        Premium Android market to include USB and SSD drives!

      • stefnagel

        Your premium PC market? Guess what? Tiny beyond insignificance.

        • StevenDrost

          Last I checked Apple is about half of the premium (1000+) PC market. So if you say the premium PC market is small then you are saying the Mac market is small.

          • Space Gorilla

            I’ve seen a number of sources that put Apple’s share of the $1,000+ PC market closer to 90 percent. It’s interesting though, if you spin the iPad out as a standalone business, it alone is the top PC seller in the world, beating Lenovo by a significant margin.

          • StevenDrost

            Might be. My point was, there was and always will be a highend PC market. Also, as the Ipad and phones eat the low end, it drives the remaining customers further up market to Apples benifit.

      • aardman

        I said no **significant** premium PC market.

  • The Personal Computer was redefined by Apple, to such a degree that it seemed they defined the Personal Computer. IBM defined the business PC using Microsoft software. The customers were different. The bulk of sales, I posit*, were to businesses, not individuals.
    (* – if anyone can point to data on the matter, I’d be grateful)

    The smartphone was redefined by Apple based largely on the iPod, the quintessentially “personal” product. The marketing of iPhone was to the end user, not businesses (until very recently). I posit (again without data) that the bulk of sales & profits are to individuals, not businesses.

    It seems to me that such different market scenarios are unlikely to progress in similar ways. The purchase criteria of individuals & IT departments are orthogonal.
    A legitimate question is whether one is an anomaly, or will future market redefinitions go sometimes to end-users and sometimes to businesses?

    • StevenDrost

      Ben Thompson wrote an excellent piece on this( http://stratechery.com/2013/clayton-christensen-got-wrong/ ) . His point is there is no such thing as “good enough” in consumer markets. You can see this playing out with Android at the high-end. The GS4 and HTC One crushed their competitors last year with over the top specs (Quad Core CPU’s, 1080P 440PPI screens, gesture based software, ect.). You can see this in every consumer market from cars to watches even food (Whole foods is a good example).

  • mcbere

    The difference between PC and mobile OEMS is their customers. For the PC at low end it has always been about the internet and maybe writing papers but for mobile its more complex. Major OEMS need to realize if a person has a choice they’ll take a lg over zte maybe even Samsung

  • Thelonious Mac

    How old are you Avi? I’m guessing you’re fairly young, maybe in your 30s. You don’t actually know anything about how the technology industry worked by during the ancient PC Wars.

    Lemme ‘splain it to you Lucy.

    You see, back in the day there was one company that actually created the market and is never given credit. You don’t even mention it because no one talks about it today. That company is IBM.

    Back in the day Apple computers were cute. Those of us in MIS thought so, but they were problematic. We didn’t control them. They were popping up here and there, creating islands of corporate data we didn’t control, and so on and so forth. Accounts would requisition them under fake names like “office equipment” and before we knew it, they weren’t asking for reports, they were asking for data on floppy disks.

    Well IBM saw this happening also and long story very short, they created the IBM PC, and sought out an OS for it. After initially turning them down, Gates bought an OS called DOS and leased it to them for a cut of their PC sales. IBM didn’t care. They thought the money was in hardware. DUH huh?

    Those of us in MIS saw this new IBM PC with the magic 3 letters on it I B M, and felt this was the way to go. We had a saying. “No one was ever fired for choosing IBM.” Seriously. I can’t tell you how many decisions were made by people chanting that mantra.

    MIS starting buying PCs. Apple was cut out of the market, and Microsoft started getting rich as money poured in. Then when IBM allowed the PC to be cloned, and did nothing about it, we started buying the clones feeling they were blessed by IBM. We all still called them IBM PCs even if they were made by companies like COMPAQ. Poor little Apple was crushed, not by Microsoft, but by our steadfast, religious belief in IBM. With clones growing the market even bigger, Microsoft got even richer. Not for doing anything in particular, but just because of the spread of DOS on clones. Microsoft was the world’s biggest industrial accident, and Apple was the casualty. Injured, but not dead, because consumers still preferred Apple and keep the company afloat.

    This Avi, is the important part. You see, this time around MIS or IT as we call ourselves now, we aren’t making the decisions! Guess who is! Consumers! Consumers have choice now! We in IT are scrambling to change ourselves into Information Concierges, providing services to BYOD consumers and watching over corporate data in the cloud! We aren’t making the rules anymore!

    And guess what?

    Consumers with money, consumers with education, discriminating consumers are buying iOS. A completely different scenario than we had last time. Microsoft can barely give anything away these days. And Google? Well let’s talk Google.

    They’ve dumped Android on the world and are confounded as to why they can only penetrate low end markets. They can’t touch the golden market that Apple appeals to. Android is seen as a 2nd rate copy of iOS and it is! It appeals primarily to people who hate Apple for whatever reason, anti-social hacker kid types, (the ones who use gender, sexual preference, and racial slurs in online games), people who don’t have the extra cash to pay the Apple premium, and finally people who don’t really care which phone they have as long as they can make calls and send texts. None of those groups are the ones advertisers want to reach!

    You need to adjust your thinking. Consumers, not pocket protectors looking for job security are in charge now.

    It’s a different world.

    • Thelonious Mac

      Oh and Windows? Windows only got big because the I B M PCs were in place. Not gonna happen this time.

    • Space Gorilla

      Well said. I’m also old enough to remember this. The key point I think is that the purchasing decision has shifted to consumers, the end users. People do forget that Microsoft’s success was initially pretty much an accident, or maybe call it an oversight on IBM’s part.

      • Thelonious Mac

        And everything after that was predicated on leveraging that initial accident. Windows didn’t beat the Mac. IBM beat the Mac. Our love of IBM beat the Mac. Windows leveraged that. The Mac was revolutionary but MIS wasn’t throwing out all those zillions of dollars worth of IBM PCs (even if they said COMPAQ on the front.) They wanted the new Windowing UI, but were content to wait for it to work on their IBM PCs. On thing Windows did beat os OS 2.

        That was significant because that was when I first began to actually “see” Microsoft and not just IBM.

        • Space Gorilla

          I often wonder if some of the anger towards Apple stems from people being proven wrong. Humans dislike being wrong. Windows (or IBM PCs) were seen as the right/safe choice. That trickled into the nascent consumer market for PCs. Apple users were ridiculed for using toys (my original 1984 Mac is two feet away from me on my desk). But over the last decade it has become painfully obvious that Apple was a very good choice and Windows was always kind of a mess. It’s very uncomfortable for most humans to realize they made a poor choice and were, in essence, wrong.

          • hannahjs

            To some of these people, Macs are still toys, those who buy them are dupes, and the anger owes its simmer to a conviction that Apple hucksterism — marketing jive — overcame rational consumer choice which ‘ought’ to be based on price, specs, and DIY.

          • Space Gorilla

            Yes, there’s a faulty assumption that Apple’s success was just luck and will be over ‘any minute now’. Better that than admit that Apple earned its success by making good products that deliver value to its customers. Angry nerds I suppose, for them Apple’s success must feel like an evil super villain actually won and took over part of the world.

        • aardman

          How different the landscape today would be if IBM either bought Microsoft outright or demanded and got exclusivity over DOS and its successor OSes.

        • hannahjs

          “They wanted the new Windowing UI, but were content to wait for it to work on their IBM PCs” — and later, a similar attitude was evident with desktop publishing. In fact, every enviable Apple application was forewent until a PC version appeared. This further eroded Apple’s software advantage.

          • Thelonious Mac

            Exactly. I look back Hannah and it was weird, like we couldn’t see anything that wasn’t IBM. It wasn’t about Microsoft, we didn’t hate Apple, it was just those magic 3 letters being involved. No one felt Apple had a software advantage. PCs were basically being used as glass typewriters not much else.

            When Apple created the LaserPrinter with Adobe, desktop publishing departments started springing up in large IBM oriented companies.

            I worked for a company called Digital Equipment Corporation. Even there, we didn’t see Microsoft as the enemy. Our focus was on beating IBM. Apple also targeted IBM. The 1984 ad was about IBM. Meanwhile, Microsoft was stuffing money into mattresses, buckets, everything they could find because it just flowed in.

            To this day I cringe when I hear how much of a genius Bill Gates is/was.

            These days there is no “IBM.” There’s competition and choice. Much more fun world.

          • hannahjs

            …and, distantly, ironic, what today is IBM is an Apple partner, linchpin of a strategic plan to infiltrate Enterprise for good.

          • Steve__S

            I wouldn’t get to excited about the IBM partnership just yet. Let’s see if this materializes into something significant. Few seem to remember, this isn’t Apple’s first partnership with IBM. Overall, I see it as a positive with strong upside potential. I’m just not that excited until I start to see the enterprise really embracing this relationship. Companies have a very different relationship with IBM these days and it’s not always positive. IBM buys many small companies then “blue washes” their contracts with companies. IBM tends to leave a bad taste with those that deal with them regularly. I hope this will prove different.

          • Steve__S

            In a way, Gates was a genius. Not necessarily for engineering merits, etc. However, he was smart enough to negotiate a deal which licensed DOS to IBM rather than simply selling it to them. Gates was smart enough to see which way the wind was blowing and how to leverage his advantage. IBM thought the PC market was all about hardware sales. Gates knew the market would open up and that he could skim off the top from each of the OEMs and let them race to the bottom with low margins while keeping his own high margins. From that perspective, you have to give him credit. IBM clearly didn’t have the foresight to understand this.

        • Mark Langston

          “…Windows did beat os OS 2”

          With all due respect it’s “OS/2” and I remember OS/2 from my days at Electronics Boutique. Yes, Electronics Boutique. During the days when Babbages and EB were the Coke and Pepsi of the software retail world before they merged to create the GameStop we know today.

          To Apple’s credit their cult-like, hippie-dude following in the 70’s has, to some extent, come full circle to help them retain the market/mindshare they have today. As Steve Jobs said, Apple’s philosophy is the convergence of liberal arts and technology. That computers can be and are more than just the sum of their parts but actually address real issues in our everyday lives that expand beyond the cubicle. Microsoft’s inability to move away from an IBM mentality is hurting them now.

          But the most important part of all of this is that now the power of IBM has joined forces with Apple. We may still be a year or more away from seeing the fruits of their respective labors but there’s nothing but upside for both companies to the point that it could lead to a merger.

          Google won’t have to worry as much about this because they have services that the world couldn’t drag themselves away from if they tried. But Microsoft should be very, VERY afraid that IBM and Apple work out.

      • Steve__S

        It was clearly an oversight on IBM’s part. I’m old enough to remember the old “you don’t get fired for buying IBM” days. Younger generations don’t understand that computers were relatively new (even mainframes) and IBM was the gold standard.

        The problem for IBM was they they never saw the PC market coming. By the time they did, Apple was already established as were players like Commadore, Atari, etc. IBM knew they had to fast track a product to market. They set up a team and used off the shelf technology in order to meet their deadline. The only thing proprietary on their PC was their 4K BIOS which was easily reverse engineered by Pheonix technologies. From that point forward, anyone was free to clone “IBM compatibles”. The rest was history. IBM lost control of their own market. They tried to wrestle control back with the PS/2 and the micro-channel architecture, but the market said otherwise.

        In short, that was a “big blunder” from big blue. “TheLonious Mac”‘s account of most of this sounds about right.

        • Space Gorilla

          Something else I think is important to note is that Microsoft was never successful because they made something good. Now that the end user makes the buying decision (consumer market) your product has to be good. When mobile devices began to shift the computing market to be truly consumer-facing, I knew then Microsoft didn’t have much of a chance. I suppose they still have a chance at the low end of the market, where most of Android’s sales are, in that segment you can be good enough (as long as you’re also cheap), but it does seem that Android has good enough and cheap locked up.

          • Steve__S

            Yeah, I generally agree. Microsoft never really had to compete on the merits of their products. On the software side, they’d do things like bundle free Office licenses for a period of time with the purchase of their Exchange server. They were defaulted into OS licenses business and never had the better product in that category.

            That said, I wouldn’t say MS never has better items. Their developer tools were always very good. Visual Studio is a good example. Similarly, XBOX was a good consumer level product. That’s not to say it didn’t have issues. It did. But, it was generally well received in the market it competed for. Even today, I’d suggest Windows Phone is better in many respects than Android. But, it’s not good enough to make people “have” to switch. For MS, this is new territory. Putting out products that need to be more than “good enough” in order to be successful.

    • aardman

      Excellent summary. Most people (i.e. the young’uns) don’t realize that at the beginning of time, Apple was a subversive company run by a pair of hippies that no right-minded corporate executive would trust for their IS needs, IBM was the rock-solid Eisenhower Republican that was as buttoned-up and trustworthy as your most staid banker (my how times have changed), and nobody had ever heard of Microsoft.

      When IBM introduced the IBM-PC, it was a knock out at the opening bell, nobody stood a chance. Microsoft’s dominance in PCs wasn’t anything they really worked hard to secure, it was gifted to them by IBM via generous contract provisions that basically gave away the PC empire to Microsoft. Thus thinking of Google and Android in the same vein as Microsoft and Windows is just not applicable. The Microsoft reference doesn’t even pick the critical point in time. It wasn’t Microsoft’s introduction of Windows, that set the basic configuration of the PC market, it was IBM’s introduction of the IBM-PC.

    • Avi Greengart

      Significantly older than that, and I’m well aware of the history.

      • Thelonious Mac

        I gotta say thing your article is a gross oversimplification and completely leaves out IBM who was the center of that universe. I was an advanced technology vp at a bank at the time much of this was happening.

        We bought some Apple II machines for people to run VisiCalc, which was the killer app. But as soon as the IBM PC was launched and VisiCalc was there, that was it for Apple. We moved to the IBM PCs like cult followers. It had nothing in the world to do with Microsoft. I barely knew Microsoft existed. It was some software company that wrote BASIC compilers for hobbyists as far as I was concerned. I might have noted the Microsoft Copyright when booting up DOS, but I barely paid it any attention. All I cared about was IBM. Users had no say in the matter. Accountants were forced to give up their beloved Apple Machines and they were moved to IBM PCs that they hated.

        We loved’em. DOS command line made them difficult to use. Job security!

        Our loyalty to IBM marginalized Apple, nothing Microsoft did, because Microsoft DID NOTHING! Microsoft was drug along by IBM. We just kept pouring money into Gate’s pockets. He was no genius and outside of that one decision, to lease DOS to IBM, he did nothing amazing or innovative to acquire the fortune that was GIVEN to Microsoft. IBM’s screw up did all of that.

        This is a very different situation.

        I have clients that are traditionally Windows users like law firms and financial advisors. I could walk in there right now and say, “We’re moving you all off iOS and onto Android.” I’d be laughed out of the building.

        I get calls form clients now, and they will say “We just hired a new employee.” I don’t go get the standard company PC and Phone, I ask, “What profile?” The client will respond with, “She’s a Mac and iOS” person, or “She’s a Windows and Android person” or some mix. More often than not it’s “Windows and iOS” but “Mac and iOS” is happening more frequently all the time. My actions are dictated by the employee, i.e the consumer. Not the other way around.

        When Steve Jobs talked about the death of the PC, he kinda got it wrong. What has really died is the Windows hegemony. All such hegemonies are gone. High end consumers, Apple’s customers, purchase iOS because they LIKE Apple’s ecosystem, not to mention the nice hardware and software. They are aware of the security issues with Android. No one is making them do anything. They are free to choose, and therein lies the difference.

        • Space Gorilla

          “What has really died is the Windows hegemony”

          Exactly, and it was remarkable how fast this happened. One day it was unthinkable that Windows wouldn’t be the dominant force in computing devices, and the next day they’re at 14 percent share of total devices shipped.

  • Chris BSomething

    Back in the 80s and 90s the cost of PC was like buying a small car in cost. You HAD to save money on the deal, because the cost was enormous.

    The big difference now is that computing technology is cheap, and many people will pay a couple of hundred bucks extra for a luxury product. That’s why its different now, and also why Mac is winning now with the formula that lost in the 80s.

  • Steve__S

    ” if Apple is to succeed long term, it will need to continually meet the “good enough” threshold on services. Given that requirement, the half-baked launch of Maps was a potentially franchise-destroying disaster.”

    The problem with this assessment is that it’s grossly inaccurate. Apple’s Maps was clearly a 1.0 product when it debuted. No doubt. However, most of the fuss was largely around the Apple is known for creating premium products and this 1.0 release wasn’t “perfect” at launch. Neither was Google’s maps on day one either. Further, with few exceptions, most of the issues were related to fly over composting errors… a feature which didn’t even exist on Google’s maps.

    However, the most important point here is that Apple’s Maps (1.0) were better on day one than their previous Maps product which was based on Google’s data. Apple’s previous product did not even have turn by turn directions (only in text format). Nor did it have vector based Maps like Google’s Android Maps had. The point being, when Apple released their own mapping solution, it was far better than their previous solution. That’s hardly the “franchise-destroying disaster” that you speak of. Far from it actually. Further, given that Comscore’s recent numbers shows that in the US, Google Maps have 64 million users and Apple Maps have 42 million. Give that Google’s Maps are available on both platforms and Apple’s Maps are only available on iPhones, that’s pretty impressive. It clearly shows that those who have access to Apple’s Maps prefer it to Google’s Maps.

    • StevenDrost

      I have to strongly disagree with you. While you are right that it was much better than Google Maps was on day one, it was not as good as Google Maps was the day before IOS6 was released. Sure it had some advantages and in the long run was better for the platform, but it was worse at it’s primary task. Also, Google Maps was still available on Android, so for a short period of time if navigation your primary concern, I could not in good conscience recommend IOS.

      But, the bigger concern is the breach of trust with the consumer. As a consumer I don’t want to take a chance with a purchase decision, this is why the warranty and brand are important factors when buying a car. I’m risk adverse and I’m just like everyone else. Ask yourself do you plan or have you planned in the past to buy the next IPhone before it was even announced? If you did, then you have an extraordinary confidence and trust in Apple. If I were them, I would be very careful to guard the brand reputation.

      • Steve__S

        “While you are right that it was much better than Google Maps was on day one, it was not as good as Google Maps was the day before IOS6 was released.”

        You still seem to be missing an important point. Yes, Apple Maps 1.0 was better than Google Maps 1.0, but who cares. That’s more trivia than relevant. You second statement compares to Google Maps before iOS 6 was released. Do you mean the Google product on Android or do you mean the Apple product which used Google data. If you mean the Apple product, then you are incorrect. The majority of issues existed were for features that didn’t even exist on Apple’s previous product. My point was that bugs and all, it was still an upgrade over the previous solution. The internet is like an echo chamber and you hear the same nonsense repeated over and over. The tech press in general would have you believe the product wasn’t even usable. That’s very far from the truth as I have used it reliably from day 1.

        Also, I agree with you in that brand is important. From actual usage statistics, it would seem that everyone that has access to Apple’s maps is in fact using is as their preferred solution. I have access to multiple alternatives on my phone. Choice is a good thing. Everyone once in a while, I try alternatives. Yet, in the end, I’ve had best results with Apple’s Maps and have no reservations whatsoever with recommending it to others. Now, if you have special needs such as the need for intercity transit, etc. then, yes, I would recommend an alternative.

        Finally, I find it priceless that you speak of breach of trust as a consumer while recommending Google products. You are therefore obviously unaware of how Google uses your data each time you use their services. Seriously, the irony in your comment is a bit much.

  • chano1

    This is a waste of time.
    Nothing new here.

  • stefnagel

    Nonseq: Did any one else notice Jan used Who not Whom in the the of his post? I guess Whom is ripe for the tomb.

    • StevenDrost

      The great thing about the internet is that there is so much more great writing on any topic than ever before. The internet reduces cost and allows for different business models that are not burdened by huge up front cost, bureaucracy and of course editors. We can get our opinions from experts in every field, rather than from a professional journalist with a staff of editors, who only learned the topic a week before (if at all). That legacy journalism is still there, spewing out articles only fit for the uninformed and idiots and sadly even they make grammatical mistakes
      So I’m willing to overlook that “Jan used Who not Whom in the the of his post?

      • stefnagel

        Agree. I have been all kinds of editor, and nobody hates editors worse than editors. Did you know that an editor takes text out; an inditor puts text in? Did you know the folks worst at returning library books on time are librarians?

        See what I mean?

  • pk_de_cville

    Just a note to the comment coders . Can you add a ‘delete’ button during the comment editing period? Sometimes we place a comment incorrectly and just want to move it to a better place in the thread. As you can see I have several ‘deleted’ comments that look like this “.”, “…”, “..”. A clean deletion would be much better. Thanks.

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