As many of you may be aware, and as I discussed on VexedTech, Jason Calacanis of Mahalo fame (as well as other ventures and who may be referred to as a new-media socialite), wrote his dissertation against Apple entitled, “The Case Against Apple-in Five Parts” to his email subscribers (link to blog post version).  Below is my response to his email.

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Jason,

I’m glad you opened up this dialogue, because I think there are many in the tech community who think like you, but haven’t been able to articulate it quite as you have.

That said, there’s a fundamental issue I have with most of your argument regarding Apple. If you believe in free market, which I know you do, how do you ignore that the market has spoken and chose Apple?

Let’s begin with MP3: If you recall the dawn of the MP3 player, Apple was not the inventor. There was iRiver, Creative and about 200 little Chinese and Taiwanese manufactures in the space. Attending CES back in the 90s, I remember all sorts of tiny, innovative players. My company even considered marketing a few of these, but in every single interaction with these products, the same issue came up; all these units were a complete pain in the ass to load up and modify music playlists. Companies like Creative were not new to the computer space, yet completely ignored the user experience. All of these companies approached their product/software mix as that of a techie/hobbyist, when a majority of the public couldn’t even figure out how to set their VCR’s clock.

Fast forward to iPod and Apple uses their skills at design and usability to create a compelling combination, using their “digital hub” concept. First and only on the Mac, then a year later on Windows. A year! And yet, no one in the space could come understand what made the iPod sell. In my opinion, this is truly a case of bizarre corporate ignorance. When iTunes launched for Windows, Apple had a tiny bit of market-share compared to iRiver and Creative, who I believe were the leaders in the space at that juncture. Even Sony, the innovator of the Walkman, couldn’t figure out how to make a digital player a compelling purchase. Over and over I would tell people, “it’s the software, stupid!” and yet, year after year I’d attend CES and shake my head in disbelief, watching companies throw millions at product development with no usability advantage.

Anyone could have eaten Apple’s lunch in portable media player space, but they were asleep at the wheel.

So the market spoke and Apple’s player becomes number one. Subsequently, they convince the record companies to sell music digitally–a deal no other organization had been able to close upon previously. It’s a runaway success. Again, the market spoke–even laden with DRM.

If Apple is so evil, why wouldn’t they keep DRM active? Seems to me, DRM would keep people locked in and using iPods if they buy iTunes music, right?

iTunes the app is free and so are many other applications that do similar functions, including Microsoft’s own Windows Media Player. People can still buy digital media players from Sandisk, Creative, Sony and Microsoft, but they stick with Apple. They can buy their music digitally from Napster, Amazon, Real and eMusic. They can buy physical discs at many outlets.

How is their choice to use Apple’s iPod and Apple’s iTunes jukebox application to consume content monopolistic when there are so many other choices?

Your argument against opening up iTunes is not in the interest of Apple. They don’t sell iTunes and they don’t make much on music. They simply sell devices. If you don’t like the device, then you’d use another application. The Zune application doesn’t work with iPod or the Sansa–should Microsoft be called a monopoly for this action? Apple’s building a complete solution and non-techie people really appreciate a computer, no, a consumer electronics device, that actually works without a whole lot of tinkering–just like their DVD Player, television and microwave.

I think the iTunes part of your Case Against Apple is as ridiculous as the continual bullshit EU-legislation against Microsoft for Internet Explorer. Just because Microsoft was better at gaining market share for an OS, they shouldn’t be spanked down for it, unless they used monopolistic practices to get there. Last time I checked, Apple never forced anyone to package iTunes or iPods with other products by giving them discounts or creative incentives. They simply built a better product and the market responded.

The iPhone/AT&T tie-up thing is another argument oft-debated. Here’s what I think many people miss, including Leo Laporte who often preaches that Apple should’ve released the iPhone as Nokia has the N95 (which has sold like gangbusters in the USA, right?): Apple knew nothing about making phones when it began the iPhone project–it needed a carrier partner to reinvent the mobile phone. How does a company, with no experience in the mobile phone space, suddenly develop a mobile device that performs among the best in the business? It has to align with a partner. It needs help with field testing, co-developing software on both sides for a new style of voicemail and creating a quick and easy purchase experience at its retail stores. None of this, particularly the latter, could have been accomplished by simply developing a phone and throwing it onto the market. Look at the G1 for example. The G1 is a phone built by an experienced mobile manufacturer, but lacks on so many levels compared to nearly every other smart phone, that it’s a total dog. Abysmal battery life, mediocre call quality and slow operation are all things I’ve heard about the G1. Adam Curry mentioned that his G1 was a great device, it just sucked at being a phone.

I believe that Apple’s focus was to build the best phone it could–great call quality, great audio, great purchase experience and to reinvent every other stupid element of most mobile phones (that we just sort of accepted for years). With that directive, and being relatively naive to the space, it found a partner in AT&T to roll it out. Who else would they have chosen? Verizon, with it’s nearly unused-worldwide CDMA network? T-Mobile, arguably the #3 carrier in the States? Sprint having both CDMA and being smaller going against it. Verizon also suffers from the “build it our way or we won’t offer it” mentality–by disabling Bluetooth data and “genericizing” interfaces on many of its devices.

Do you really think that Apple truly believed their phone, at $599, would be the runaway success it has become? Steve Ballmer certainly didn’t! Do you think the wizards at Apple marketing thought they would achieve such amazing market penetration in such a short time? Lambasting Apple for choosing a carrier partner in the USA to help it with R&D and subsequent launch, growing pains and all, is ludicrous. The product has only been out for just over 2 years–give ‘em a break!

Apple built a better mousetrap, the market spoke once again and now they are a monopoly?

By the way, carrier agreements and locking phones to a particular carrier is nothing new, so I’m not sure why people are so vocal about the iPhone. I can’t take a Blackberry from Sprint to T-Mobile. I can’t currently use a Palm Pre on AT&T. Carriers and manufacturers make these deals to get a product to market and make money (gasp). There are other choices, Jason. The aforementioned Palm Pre, Windows Mobile devices, RIM devices and Android phones do the same thing as the iPhone–they make calls, go on the Web and read and write email. So why is everyone so pissed at Apple?

It’s like a bunch of people in the tech space with entitlement issues, wanting their iPhone and their carrier choice, too. If open platforms were truly better and compelling to consumers, wouldn’t Linux be the number one OS by market share? Wouldn’t Og-vorbis be the choice of audio format? Opening a platform is a techie-guy, community-based ideal, not in the best interest of Joe Consumer, who wouldn’t know what to do with the open-platform to begin with.

The App Store discussion, I’m almost in total agreement with you on. In Apple’s defense, I’m going to cite growing pains and I’m guessing they are as surprised as some of us are regarding what’s transpired with it over the year it’s been around. That being said, I think it’s been poorly managed and needs more transparency, especially with its developer partnerships. It’s just bad PR, too. I keep thinking, “when’s someone in Apple’s PR department going to raise their hand and say, ‘we need to fix this before it becomes a PR disaster’.”

Flash: I think Flash, like all other Adobe products, has become a hog–a resource hog in this case. On Windows or Mac, my fans whir up like crazy when I watch a lot of flash content. If watching Flash means my battery will die in 30 minutes, I don’t want Flash on my phone–I don’t even want the choice. I’d like to see Flash be used less and less in the market–I think it’s not good for the consumer and I bet if you polled consumers, they rather not deal with it. Other than live video, most people I know hate flash content on sites.

Finally, I think Apple is a very sturdily run company. They are not evil, but they are not nice. They have rules and those rules can be quite rigid. (that’s why the App Store seems to go against their “here are the rules” line of thinking). Overall, I think Apple is a well-managed business, that has built a tremendously loyal following, which has snowballed over the last few years. This snowball effect proves that Apple’s following is not because of a bunch of geeky fanboys chanting “Steve! Steve!” every time Apple does something. The momentum gain is due to great products, that work together well–almost easily–and the market has responded. Once they get a taste of, “you mean there are computer products that work well together and have integrated software and hardware?” they end up buying more of those products. The halo effect, indeed.

I don’t agree with everything Apple does, as I don’t agree with everything Microsoft does (really guys, you’re going to stay with this multiple-version of Windows 7 thing?). I’ve spent hours talking about Microsoft’s stupidity and how they are destined to crash. Many of my friends work at Microsoft–the stories are laughable. MS has become an unmanageable behemoth that is so fragmented, few people within the organization know what direction the organization is going. Sort of reminds me of another company that in the 1990s that rested on its laurels and was so fragmented it almost went out of business.

That company of course, was Apple.

Don’t you love the free-market economy?

Thanks for the conversation.

Best,
Paul Salzman

PS: Not to pander, yet I want to mention that I truly respect your business acumen and impressed with you accomplishments.

A lot is being said about Microsoft’s lack of focus recently.  John C. Dvorak claims that Microsoft suffers from “CADD: Corporate Attention Deficit Disorder” (Marketwatch.com, July 27, 2009).  I have to agree wholeheartedly, yet I agree it’s more than that.

It seems to me that somewhere around Windows 3.1, Microsoft became star-struck.  They were the darling of Wall Street, with stock and earnings rising and rising on an amazing growth trajectory.  Suddenly, Microsoft’s operating system was touting as amazingly advanced and changing the business desktop, as Apple Macintosh fans snickered with their fancy graphical user interfaces.

With great fanfare, Microsoft launched Windows95, hired The Rolling Stones and received unbelievable press coverage.  The pundits exclaimed Windows95 to be a huge breakthrough, while journalists wrote in nauseam, “just like a Mac.”  Microsoft’s trajectory climbed at even a higher pace.  Large  corporate campuses in Redmond and Silicon Valley were added to house all the people needed to handle growth. Geeks became cool and they felt like they were like rock stars.

And the company grew and grew…

Bill Gates was a shrewd negotiator, even at 19 years old.  His game was poker and he used his brilliance to adapt the ideals of poker to the bargaining table.  This is why Microsoft landed that first huge deal with IBM.  Microsoft had dogged determination to be the operating system of choice for the fledging computer industry.  There was a real spirit at Microsoft–that of a forward thinking, dynamic company. In 1984, when the Macintosh was introduced, they got right behind it.  Macs were on many desktops within Microsoft and they wrote some really great software.  Microsoft Excel was first introduced on Mac, while Word really gained major acceptance on Mac.  Macs were cool and Bill was enamored.

Windows95 launched and became wildly successful.  Revenues and earnings shot through the roof, Bill became the richest man in the world and Microsoft gained a war chest of cash like no other.  Microsoft, with it’s college-campus-like atmosphere and heretofore witnessed employee perks, was fat and happy.

The Internet flashed onto the scene and Netscape suddenly appeared.  While Microsoft yawned, Netscape files for one of the most successful IPOs in history.  Netscape made a Web browser, yet had no real business model, but it’s really a cool company.  People bank on Netscape’s unknown future, just like they did with Microsoft, albeit more risky.

Asleep at the wheel, the noise about Netscape and other fledgling Internet companies began to wake the sleeping giant.  Microsoft threw together Internet Explorer, which became the standard on Windows98.  Not long after that, Microsoft decided it should own the internet and began to develop services and languages to run its way, instead of using open standards.

Fast forward to today.  Open standards are just that, “standard.” Microsoft’s arrogance has finally met its match with a community resistance that has rejected their imperious attempts.

This and their still not cool.

This quick background story is a true example of Microsoft history, which could be framed in a variety of situations in the company’s history.  Over and over, Microsoft jumps into  whatever is trendy; after all, it has billions of dollars in the bank, why not hedge bets?  Online services, online media, search engines (galore), games, toys, publishing, music players, online music and more.  Sony is cool and built a revolutionary game console, so Microsoft jumps into the fray, losing money on each device it ships.  Apple changes the world with iPod, perhaps the coolest device to ever be introduced, so Microsoft counters with Zune, albeit years later.  Apple’s iTunes Store takes the world by storm.  iTunes does little for Apple’s profits, but sells iPods. Microsoft, who already spent millions promoting its Windows Media DRM “Plays for Sure” system, decides to come up with the Zune Store, entirely incompatible with the “Plays for Sure” standard it conned its vendors into the year before.

Not cool.

So think about this: name 5 products that Microsoft currently markets.  What did you come up with?  Let’s take a guess: 1) Office (Word, Excel, Powerpoint), 2) Windows, 3) XBox, 4) Internet Exploer, 5) Bing.  Right?  If you think of any others, leave it in the comments.  The only reason Bing is on the list is probably because you’ve been hit with its $30-million ad campaign.  Of the five answers above, or the five answers you arrived at, how much money is spent marking the first 3 on your list?  Probably very little compared to the stuff not on your list, sans #5′s $30-million dollar campaign currently in effect.

Shouldn’t Microsoft be spending more money on its next generation products that enrich its core businesses?

Microsoft is a company that’s truly lost its way.  However, unlike Sony, which was cool and not only lost its way, but lost its mojo, Microsoft keeps grasping for the cool and trendy, but never really had the mojo to begin with.  Microsoft is akin to a celebrity who had their place in the spotlight, continues to act like a snobby celebrity, while desperately grasping for attention.  Fiona Apple comes to mind as a prime example, no pun intended.

Even the culture at Microsoft’s campuses reflect this, especially Redmond. Employees there are possibly the most snobbish, arrogant people on the planet.  If you need proof, dine with some of them at a local restaurant sometime or interview a local restaurant worker.  Most of them feel like they are the cats meow and look down upon those who use iPods, even within their own circles.

The solution for Microsoft is simple, really.  The company needs to start shedding programs and divisions that do not work, stop trying to chase after companies like Google and Apple and come up with a cohesive global plan for software and services that are interoperable–with both open standards and its own.  Microsoft needs a strong leader with less competitive ego for wanting to beat everyone else at their own game and focus on Microsoft’s game.  Steve Ballmer is not that guy.  He’s a sales guy, a cheerleader and staunchly competitive.  Unfortunately, his focus is not clear and either is the company’s.  Their plans are fragmented little businesses that don’t even communicate with each other.  Sort of like Sony.

Sony builds computers and is competitive in the space.  Sony also has a software division that sells a video editing title called Vegas.  This group has been seen at various trade shows demonstrating their software on Dell computers.  That would be like the head of Ford showing up to a NASCAR race driving a Toyota.  Unreal.

Microsoft is heading down the path to be the next Sony, but cannot fall back on its cool factor as Sony has ridden so long upon.  While Microsoft keeps its vendetta against Apple going, other focused companies are truly innovating in their respective space–like Oracle and IBM.  Microsoft continues to spend millions on a marketing campaign that may help Dell, Sony and HP sell more laptops, yet does little for Microsoft’s image, all while validating Apple as a cooler, premium brand.  Why is Microsoft so focused on battling Apple publicly?  What are they afraid of? Apple has less than 10% of the operating system installed base world-wide, so why fight them?

Perhaps there’s more to this picture, but the author feels this is all about ego. As if to say, “damn you, Apple, how dare you make fun of us!” and combat that with a multimillion ad campaign.  All the while, Apple has dominated the music player industry and is quickly gaining on the smart-phone business, the latter of which Microsoft was a one-time market leader.  Blackberry took this market over, yet strangely it wasn’t until Apple got involved that Microsoft started to fight for market share.

As long as Ballmer is at the top, his ego and Microsoft’s CADD will persist. Perhaps the shareholders should wake up, realize Microsoft is not cool and force change upon the company’s management before it’s too late.  When Windows, which has already lost its luster, and Office become less and less relevant, so will Microsoft itself and that’s really not cool.