Last week, Apple passed Microsoft in market capitalization for a number of reasons. I agree with Gary Marshall, who argues in “Apple beats Microsoft? Not so fast, Fanboys” that the two companies aren’t even in the same race. I’d even add that the only reason Apple moved ahead in valuation is because we don’t count stock owned by employees, and Bill alone has around US$40 billion of that.
However, I also agree with much of what Geoffrey James says in “Top 10 Reasons Apple Beat Microsoft” — essentially, that Apple’s relative success really has more to do with decisions made at Microsoft than decisions made at Apple. Having said all of that, Microsoft is still the most profitable company in the segment, and as Jobs himself would point out, it is all about profit.
However the one saying I’ve made famous is that “perception is 100 percent of reality,” and the perception is that Apple did and continues to beat Microsoft. The executive Microsoft had positioned against Apple was Robbie Bach, who ran Microsoft’s entertainment and hardware division, a division that became a vampire division, and this got me thinking that Apple’s greatest strength may be its secret fifth column.
I’ll address all of that and close with my product of the week, which is a technology from Qualcomm that could obsolete both the iPad and the Kindle.
Apple’s 5th Column
We frequently talk about Apple’s fan base, both as an asset and a liability, but one thing we don’t talk about is that it often seems Apple’s competitors go out of their way to fail. The first time I became aware of what looked like covert activity on Apple’s part was when I ran down the background on the HP iPod.
In the post mortem on that failed effort, it appeared clear that Steve Jobs initially knew more about this product than HP’s own CEO Carly Fiorina did, and Steve used the information to play her so that HP never entered the market with its own product and was effectively locked out until Apple had monopolized that market.
I watched what appeared to be a similar lead on the killed Dell MP3 player. Information got leaked, and Apple’s supporters turned perceptions of the product so negative that Dell never released it. There was no hard evidence of Apple’s direct involvement — but when taken on top of the HP event that Apple did directly manipulate, the apparent connection was hard to disregard.
In the case of Palm and the Palm Pre, the firm had largely been rebuilt with ex-Apple employees. The Palm Pre was received with iPhone-like raves, yet it was systematically attacked — not by Apple, but by Palm employees who crippled every aspect of it. Individually, each item seems random, but collectively and in hindsight, each looks as though it was planned.
The Palm Pre Story
From the moment the Palm Pre was released, the effort began imploding due to a series of mistakes that were textbook stupid.
Apple’s weakness was AT&T; the only carrier less liked was Sprint, and Palm inked an exclusive with Sprint.
Apple does targeted demand-generation advertising, and it had showcased the strength of head-to-head marketing with the Mac vs. PC campaign, which Verizon emulated successfully with its Droid campaign. High-concept ads have never worked in this segment, and companies like Microsoft and Intel failed with them. (Their joint“Digital Joy” campaign — and I’m not kidding — turned out to have the same name as a big European porn site.) Did Palm do solid demand generation? No. It did expensive high concept advertising — a huge waste of money.
Apple does a targeted review program: Only hand-picked high profile reporters and reviewers who constantly praise Apple products get them early (or at all). Palm gave Palm Pre phones to lots of folks early, but gave those same Apple supporters an earlier disclosure date, assuring initial mediocre reviews and pissing the hell out of everyone else. I’ve never before seen a situation in which an embargo is enforced after major publications publish on an announcement. (Most everyone else immediately broke their NDAs but were pissed anyway).
One or two mistakes, sure. But when a firm screws up everything — a firm made up of people from Apple who should have learned from Jobs the right way to do things — you begin to wonder if there was a plan, and whether Apple was behind it.
What Is a 5th Column?
The term “fifth column” was created in World War II, and it referred to a successful effort by Germany to place loyalists behind enemy lines to disrupt defenses during what became a series of very successful invasions. I first saw what appeared to be the use of this practice in Siemens while I was working there.
At the time, I was working for ROLM, a company that Siemens had purchased from IBM, in the competitive intelligence organization. This is the corporate equivalent of the CIA. One of my highly classified reports concerning our competitive weaknesses showed up at Kaiser Permanente, which was our largest Western account. The head of sales wanted me fired immediately for creating and leaking the report. I’d been arguing that, based on my research, our sales losses to Northern Telecom weren’t due to product or pricing failures but rather to intentional sales mistakes.
However, I was also — as luck would have it — in charge of security for our division, and I was a sneaky SOB. As a result, I could identify who had received each copy of the report I’d published, and the leaked report was traced back to a guy who worked — wait for it — directly for that same sales VP. We couldn’t prove it, but it looked like he had actually instigated the leak. He later left the company and became head of a targeted group at Northern Telecom focused on stealing ROLM accounts.
It seemed, in hindsight, that this was a job he had held while working for us as well, and he had effectively been a very powerful competitive insurgent in our midst. In short, he appeared to be part of Northern Telecom’s fifth column and likely not the only one.
Microsoft’s Entertainment and Hardware Division: An Apple Fifth Column?
Microsoft’s model is based on the specialization change that was first emphasized in the Industrial Revolution. Once in place, assuming everyone does their jobs, the older vertical integration model is too inefficient to compete effectively — yet Apple clearly did.
The division supposedly positioned against Apple was the entertainment and hardware division, but it became Apple’s (and Google’s) ally inside of Microsoft — their fifth column, so to speak. Let me explain.
Xbox initially was a hedge against a threat from Sony that never actually emerged. It siphoned away gaming resources from Windows, pissed off the OEMS (it is seen as basically a Microsoft PC by them) and effectively eliminated the high end of the Windows PC market. Apple now has about 90 percent of the high-end PC market. The effort should have been to obsolete the gaming console concept, not build a better PlayStation. In the ’80s, Microsoft didn’t try to build a better Mac — it worked to make the vertical integration concept under the Mac, mainframe and Commodore obsolete. Apple is attacking the concept of horizontal specialization, not just Windows, and it is winning — with Microsoft’s help.
Zune killed off PlaysForSure — the application of Microsoft’s successful horizontal model in the iPod space. After massive spending, it occupies a small fraction of the market today and serves only to allow Apple to argue that it isn’t really a monopoly. Zune actually helps Apple more than hurts it, as it faces its own antitrust issues.
Media Center and Media Extenders were failures, but they opened the door for Google TV and the announced partnerships between Intel, Sony and others to spread Google’s platform where Windows technology might otherwise exist. They plowed the field but let Google plant the seeds. (While this sounds like a discord on the theme, realize that Apple moved on this opportunity first with Apple TV but failed to execute.)
While Kin phones haven’t yet killed off the Windows Phone platform, they did confuse the effort. (Google tried something similar with the now killed Nexus One, which made me wonder if Apple has folks in Google’s camp.) This, coupled with the apparent lack of business tools in Windows Phone 7, removed one of Microsoft’s sustaining advantages over Apple, and Microsoft continued to bleed partners. The collective phone moves likely contributed significantly to the decision by HP to buy Palm and step away from Microsoft on emerging platforms.
Wrapping Up: Real Corporate 5th Column or Fiction?
Had I not actually seen Apple and others do the fifth column thing before, I’d probably think — as you may — that this is all so much interesting fiction. The odds favor the fiction explanation, but I wonder if there could be intelligent intent behind the apparent foolishness.
In total, that’s an impressive number of accidents, which suggests to me they might not be accidents. What do you think? Is Jobs that good? Steve Ballmer has stepped in personally, and as Windows 7’s success would indicate, he can do impressive work when focused — but does Steve Jobs have other folks in Microsoft working to ensure Ballmer fails?
In closing, I’ve often thought that companies could use an executive in charge of the “don’t do stupid stuff” department whose job is — wait for it — to make sure firms don’t do stupid stuff. At Microsoft, maybe part of that job would be to get rid of folks Steve Jobs or Eric Schmidt should be paying.
Product of the Week: Qualcomm Mirasol Display
I was at the SID conference last week, a display-focused event. I saw some really interesting stuff, like a Microvision pico projector tied to a gaming rifle that could put the game on any wall you were aiming at.
Also on display was the technology that has the greatest chance of changing the Kindle/iPad dynamic (the Kindle is great at reading and sucks at everything else, and the iPad sucks at reading): the Qualcomm Mirasol display.
Mirasol offers high-contrast, outdoor-viewable text that’s easy on the eyes, like the Kindle’s e-paper. Also, it can display multimedia like a regular flat panel, similar to what an iPad can do. It’s rumored that the next-generation Kindle will have a display with this or similar capability. It looks very sharp in person, and it has a number of touch and lighting options, so you can use it when it’s pitch black out.
As one of the folks at the event pointed out, the iPad sucks when you have a lot of ambient light, and the amount of light it shines in your eyes makes it tiring to use as a reader.
It would be nice to be able to do more with the Kindle than just read. Technologies like the Mirasol display will likely define the next generation of e-book readers and iPad-like devices and, as such, it is perfect for my product of the week.
Rob Enderle is a TechNewsWorld columnist and the principal analyst for the Enderle Group, a consultancy that focuses on personal technology products and trends.
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Although plots of a secret 5th column get more attention, I think the root cause of this spreading chaos has more to do with Steve’s ineptitude as a CEO who can create something that lasts beyond his direct manipulation. More thoughts in my blog on this: http://bit.ly/9boblO .
Didn’t you know that "Rob Enderle" is a fictional character created by John Dvorak?
Okay, so here’s my view on the real ‘fifth column’. People like Enderle spend all their time dissing Apple, its products and its strategy, predicting its demise and the failure of whatever new product has been unveiled, so it’s no wonder competitors follow their logic and opt for completely different strategies that don’t work with products that aren’t as good because, like Enderle and co, they spend all their time prophesying why Apple will fail instead of looking at why it succeeds. So, actually, the real fifth column is Rob Enderle.
Rob,
Aren’t employee stocks publicly traded?
Market Capitalization: The total dollar market value of all of a company’s outstanding shares
They would already be included in this definition. Here’s another definition.
Market capitalization represents the public consensus on the value of a company’s equity. An entirely public corporation, including all of its assets, may be freely bought and sold through purchases and sales of stock, which will determine the price of the company’s shares. Its market capitalization is the share price multiplied by the number of shares in issue, providing a total value for the company’s shares and thus for the company as a whole.
Two possibilities here. Either you wanted to boost your readership by spewing some of the most comical nonsense I’ve ever read, or you really are as delusional as everyone has been saying.
If the first… bravo.. you succeeded!
If the second… one word…. medication!
Oh, Rob you had gone off of your olanzapine AGAIN!
Basically, I want the 5 minutes of my life that I spent reading this crap back.
I’m a 10-year .NET developer by day and a Mac household by nite. Had you call you on this linkbait BS:
"Apple’s relative success really has more to do with decisions made at Microsoft than decisions made at Apple."
…right. You mean like Microsoft’s decision not to enter new markets w/ innovative, easy-to-use, run-away success products such an an iPod, an iPhone, mobile app store, and now an iPad? That’s why Apple is a success — and not because Apple chose to invest in these endeavors? Okkkkay…
Sorry, that just doesn’t hold water. Apple is successful because of their own R&D, user-centric design, and risk taking. Nothing else.
"I watched what appeared to be a similar lead on the killed Dell (Nasdaq: DELL) MP3 player. Information got leaked, and Apple’s supporters turned perceptions of the product so negative that Dell never released it."
Never released? The product was called the Dell DJ Ditty. I worked for Dell Retail when it was released. I sold exactly six units between Feb 2006 when it was released and Aug 2006 when it was discontinued. It was really the award winning Creative Nomad/Zen dressed up as a Dell branded product. So please don’t say it was never released. It failed on its own merits – the biggest one being that it was not so easy to use.
rob, apple has passed microsoft because for the last 20 years or so apple has kept an unerring focus on the end-user experience……. unlike microsoft who, like 95% of all tech companies simply does not understand what the average, computer illiterate user (90% of all users) actually wants ….. it’s all about usability and simplicity
Not only does Rob Enderle take speculation to new heights with this expert look at Apple and Microsoft, where facts seem to be optional or open to a somewhat slanted interpretation, but he plays fast and loose with history, too.
The term, Fifth Column, was first coined in the Spanish Civil War as a 5-second check using Google might reveal. That was 1936, while WW2 began for most people in 1939.
Rob, the REAL reason that Microsoft is finally having trouble is poor Marketing strategy at the company. Marketing has NEVER been the secret to Microsoft’s success, and Microsoft has NEVER done a good job in the Marketing area — EVER!
I begrudgingly have to admit that their current Windows 7 Marketing campaign is spot on — irreproachable. But Marketing effects occur over a long period of time, and the excellent Windows 7 Marketing will not erase a quarter-century of bad memories in the minds of consumers. The Windows 7 campaign is only the start, but a good start.
Here’s what has slowly been building, giving us the beleaguered Microsoft we see today: not only does Microsoft not know Marketing, they don’t know Branding.
The instant they announced the Microsoft Xbox, I said, Oh, boy, here it goes. Then I waited.
Microsoft put their brand name on a veritable "toy," and that perception was invariably factored into consumer perceptions of the brand. (Whether a low-end consumer or an IT procurement pro.)
They dominated the market for CONSUMER personal computers with the Microsoft-branded Windows. Computers sold at Wal*Mart and such.
And then they went after the likes of Oracle, SAP and IBM in the high-end enterprise market.
What if an important IT exec went to Wal*Mart on his lunch hour to pick up his kid a Microsoft Xbox, and then returned to work to attend a meeting where a Microsoft sales rep was pitching $100,000 Microsoft enterprise resource planning software (ERP), customer relationship management software (CRM) or supply chain management (SCM) software?
Is it impossible that the IT professional might perceive Microsoft less seriously because of the Microsoft Xbox — pretty much a toy? Might he go with Oracle or IBM or SAP instead?
Microsoft should have pulled a "Procter & Gamble," and created a new brand name to attach to the Xbox and vigeogame content — and keep the Microsoft brand name miles away from it!
I predicted this the day I learned Microsoft would market a videogame console. I just wasn’t sure how long the inevitable damage would take (the chickens to come home to roost). Now I know.
So after all the years of Apple bashing and MS fanboyist crap, he comes up with this rubbish. So Apple can do no right and MS fails because Jobs RDF exerts self destructive influence over MS employees?
Pure link bait sh*t – but that won’t stop this piece being picked up by countless blogs until the call comes for yet another DOJ investigation.
America is self-destructing. You have the proof right before your eyes.
On a serious note, if America’s companies come to rely on shills like Enderle for their guidance, well…. we are all doomed.
I too agree with the previous comments that Mr. Enderle is a small, small man who can’t swallow his pride and give credit where credit is due. Apple did their homework. Microsoft had some great ideas with the courier, but admitted they could never get such a product to work as advertised. To them it was like demoing a light saber, but when it came time to actually produce one, they admit it can’t be done.
You can blame Robbie Bach, but he was a lot better than his predecessor. The Xbox 360 would have been another 3DO by now without him. The real problem is your buddy Ballmer. He needs to go. Gates knows it, but he’s his BFF and won’t do it until the last stronghold they have (Office) ends up getting passed up by Google docs.
Why don’t you admit the truth Rob, Microsoft is too slow to do anything. They were late with making a decent version of Windows, they still haven’t finished the new windows mobile, HP canned the tablet that Ballmer showed off, Sony is beating them in the console wars, and no one wants to buy another version of Office. They killed the sidekick and made the Kin, which is a dud.
So do you still think this is all Apple’s doing? Or maybe it’s Martian sabotage, yeah that’s it. It can’t be Microsoft’s own stupidity.
It’s been obvious for a long time that Rob Enderle is doing some sort of bizarre performance art with his writing, trying to prove that someone who’s never right can continue to be asked to provide analysis of what he’s been wrong about so far. It’s a brilliant act — as comedy or satire. But now he demonstrates that he not only blindly hates Apple, but he’s a conspiracy theorist with paranoid delusions. He hates Apple so much that he can’t just give the company credit for executing its business plan very successfully in a market where its competitors have been making mistake after mistake. No, now he has to posit that Apple somehow has people inside those companies CAUSING the mistakes.
Someone needs to pull the plug on Enderle’s writing career and get an analyst with more knowledge, honesty and intelligence. And it’s time to admit that the whole thing has been an act, because everybody knows that no human being could be stupid enough to believe the things he so regularly writes. He needs to take his paranoid delusions outside to watch for space aliens or secret government spraying from "chemtrails."
Fifth column? What have you been smoking?… Because I’d certainly like to enjoy some too 😉
Now that Steve Ballmer has "retired" two of his key executives, and taken on the role of pseudo-SteveJobs by having the divisions report directly to him, you can be sure that things at Microsoft will get worse than they are now.
When that happens (and it will) are you going to claim that Ballmer is a secret agent working for Steve Jobs???
Buy your home in fantasy land now, because prices are likely to rise rapidly.
As it stands Apple has always been the underdog against Microsoft. Even now as Apple has rose beyond that status. The media still treats Apple as such.
My question is, where is the Windows fans and media who stick up for it even when its stumbles? Their seems to be no end to media stories when Microsoft stumbles. But I never read the hype about any other product like Apple’s products. Does Apple hold the media hostage by hanging a carrot in front of them. Its like this write a bad word about a Apple product and see if you get any early product releases. Maybe Microsoft and the rest should consider the same thing?
It’s stupidity not paranoia but if you want to believe that, clearly there’s no stopping the paranoid.
But as you even admit, MS killed its own high end PC market to take a $600 loss on EVERY CONSOLE and LOST even more because the home console market never becamethe living room gateway.
Nokia is the perfect example. Apple doesn’t need a 5th column because Apple overwelhms them with intelligence. Nokia, Palm, MS, Google are rife with bureaucracy who spend more time getting in the way of each other while Apple has Steve Jobs.
And Bill Gates was smart but unlike Steve Jobs, didn’t understand the internet – had to have a guy write up a PRINTED rreport for him to read about this newfangled internet while Steve Jobs already had a digital living room plan in place 10 years ago and executed it perfectly. That is why MS is in the position they are in. Bill G & Ballmer are smart about selling to enterprise – the rest? Clueless. I cannot imagine either one actually listening to music, watching movies or a TV show not on Sunday morning at 7 AM (or CNBC/MSNBC) … they are done in by their own stupidity. The only Apple reach is in the mind, both literally and in yours – these MS, Nokia, Google employees are buying rich enough to buy Apple products because even they realize it’s the best.
"and this got me thinking that Apple’s greatest strength may be its secret fifth column. "
A long time ago I have been thinking on this. Was really convenient to contract some apple employees to Palm .Making an exception with JR, did these ex apples in the marketing div made wrong on purpose. All those mistakes made on the webos updates before version 1.4.1 that deleted your data and paid apps for a while was just a human being error.
How many wrong creepy ads did kill the Palm Pre from the very start.Who did not control or check out the ads before publication.?
Is Apple staff stills connected with these ex employees?