Saturday, July 21, 2012

Microsoft/Google/Apple, Which One Of These Doesn't Belong Part 2

English: iPod classic front view

OK, so where was I going with all that stuff in part one? The answer to the question posited in the title of this and my previous entry is obviously Apple. Unlike Microsoft and Google Apple provides end to end experiences that terminate in consumer electronics devices but those devices are only the top of a pyramid of value creation that they own or exert significant influence over. That ownership and control means they extract a lot more profit than their competitors.


Apples approach isn't without risk as companies that have taken this route sometimes find themselves fragmented as keeping everybody in step is very challenging. This is where Job's crystal clear vision and iron will served Apple well but operational excellence isn't Apple's only secret.

Why did the original iPod do so well? MP3 players were nothing new. They had been around for several years and while they had done OK they had never taken off the way they did when Apple entered the market. Apple's success was the result of understanding what the biggest pain point was for consumers and addressing it. What was that pain point? Acquiring media. Apples answer was the iTunes store. Yes, pirated copies of music were widely available at the time but the quality was variable and you needed to be somewhat tech savvy to acquire and manage that music. It didn't hurt Apples cause that the RIAA was busy locating and prosecuting people who partook of this illicit activity.

While Apple was solving a customer pain they were also a brand new business model where they made
money on the hardware AND "software" in the form of media sales. Sure, some people didn't partake of the iTunes store but most did and the revenue generated by those later media sales looks very nice on Apple's bottom line.
The primary reason I was interested in Google and Microsoft announcing their own tablets is that it appeaed to be a move by these companies towards emulating what Apple has been doing so successfully over the past decade or so.


The problem with Ballmer's recent claim that Microsoft is going to compete with Apple in all markets is that they can only do that credibly by taking one of two approaches given their current lack of success.

   o They can create a new business model that creates superior cash flow OR
   o They can emulate what Apple is already doing

Neither scenario is likely to work for a number of reasons but choice number two is much more likely to bring success since there is already a very successful example to follow. Given Microsoft's first ever quarterly loss it seems obvious they are not heading in a good direction. Radical change is probably their best bet and they seemed to be moving in that direction with the announcement of the Surface tablet. Recent back peddling by Ballmer does not bode well though.


Google is doing great compared to Microsoft and has a much better prognosis. There is reason to worry however for several reasons. Arguably the biggest one is the fact that the Apple/Google divorce has continued to progress with Google Maps soon to be removed as the default map app on iOS devices and no sign of a decline in the ongoing patent litigation between the two companies.

So if Microsoft continues to fade and Apple continues its ascension platform wise Google could be in trouble a few years down the road. This likely explains Google's introduction of ChromeOS and Android. Ad revenues are driven by search and if Google search isn't available the ad revenues are going to dry up quickly. Microsoft has been trying to dethrone the Google search juggernaut for years now with little success but Apple has a significant advantage since they control the entire value chain in the case of Apple products.

The introduction of the Nexus 7 is likely just another step towards Google following suit. As I said in the Microsoft section there are two ways to compete with Apple. You could argue that Google has in fact created a new business model with their search business but that business model is increasingly dependent on the good will of Apple. Carving out some space for themselves has to look awfully tempting and the Nexus 7 is likely an experiment in ascertaining how feasible that is. Google's earlier introduction of a phone was a disaster but they appear to have learned from that mistake and chose a better product for their distribution model this time.


Apple is a very scary company right now if you are anywhere near a stack of money that they want to claim as their own. The landscape of history is littered with highly successful tech companies that went from giants to liquidation or acquisition bait over very short periods of time. Microsoft is starting to look like Nokia circa 2008 right now and while Google is likely better off they may only be a couple of years behind Microsoft if they don't figure out how to deal with Apple soon. Imitation may not be a bad choice for either company and its certainly worth a try.

Hopefully some of the stuff in this and my previous entry make sense. Things have been insanely busy the past several weeks and I don't see that changing for awhile so I'm kind of shoving this stuff out there a bit half baked. It isn't helping that Google's blogger software is mangling the expletive out of my formatting either. I've had to save and edit this thing twenty times as I write this trying to get the formatting to come out the way I want it.

English: iPod classic front view (Photo credit: Wikipedia)
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