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The skill of strategy analysis: Uncovering company priorities

John Siracusa dusted off an interesting quote from a former Microsoft employee.

Spolsky: But synergy…there are also negative synergies. In the case of Microsoft they call it “strategy tax.” Where, like, the Internet Explorer team is not allowed to fix the DHTML editor because it might compete with Word. So they’re forced to make that continue to be bad.

Via: The Apple strategy tax

The notion is an interesting one and is a reframing of the metaphorical expression that those who live by the sword die by the sword: Building a business a certain way will, in the end cause it to perish by that way.

In the case of Microsoft, the focus on their platform lock-in strategy binds them into avoiding compelling opportunities and, even more tellingly, keeps them from improving existing products.

It’s tempting to suggest that this “strategy tax” also applies to a company like Apple when it seems to act irrationally or sub-optimally to some arbitrary definition of optimality.

However, what if Apple’s motives are not “strategic”? What if Apple actually does act in a way to optimize what they perceive to be important: the end user experience or as I like to call it “the product“.

What if “the product” is dogma and nothing is allowed to compromise it?

This question is not designed to glorify or defend any one approach, but rather to ask what is to be compromised. In Microsoft’s case dogmatic “strategy” means the installed base and channel cannot be compromised. In Apple’s dogmatic product approach, is the relationship with partners subject to compromise? Is the platform itself compromised?

I would argue that yes, the product-focused company has to “pay a tax” for its product priority. It uses an approach with a huge built-in opportunity cost. But I would also argue that every company has some tax to pay for its priorities.

Ultimately, every company needs to decide what is important and to pay the tax for not doing what is unimportant. Business management, like engineering, is about compromise and the choice of trade-offs. Outside observers, unaware of what the company’s priorities really are, will always find it puzzling why companies do what they do. But to insiders, the puzzle is why anybody would do anything else.

The most important skill for an analyst, and that which separates her from the casual observer, is to determine what the company’s priorities really are. Interestingly, many companies don’t clearly state their priorities and may not even be aware themselves of what they implicitly are.

I believe that there are deterministic ways of uncovering priorities and categorizing companies according to them. I believe that knowledge of priorities leads to a more precise understanding of strategy and competition. I hope that within this forum, I can share and provoke debate over these methods so that these skills can become more commonplace.

  • Richard

    The reason Apple doesn't allow Flash is a good example.

    There are very valid reasons for not having it – from the point of ownership (as in they'd be more reliant on Adobe to update Flash to support anything new they develop and essentially Adobe would control the way the eco-system evolves), the experience (Flash isn't designed for touch screen devices), the hardware (Flash drains battery life) and the cost (Apple would need to pay to licence Flash).

    However it's also because Flash would allow developers to completely bypass iTunes for the applications and games. So Apple does have a "strategy tax" – that is, they won't allow anything into iOS which will disrupt the app store.

    This also explains why they'll never have a "install applications from untrusted sources" option like Android has.

    • Hamranhansenhansen

      > However it's also because Flash would allow developers to completely bypass iTunes
      > for the applications and games. So Apple does have a "strategy tax" – that is, they won't
      > allow anything into iOS which will disrupt the app store.

      Doesn't hold water. Developers can already completely bypass iTunes for applications and games using the HTML5 Web applications API, which actually predates App Store by a year. The HTML5 apps install locally onto the device from any server in the world, show as icons on the home screen side-by-side with App Store apps, run without a Web connection, and are more sophisticated in functionality than a typical mobile apps. They are also completely open and cross platform and can be built with any tooling on any platform.

      What really blows your case out of the water is that iOS provides the best HTML5 app platform on the market, so there is not even a hint of sabotage of open, cross-platform, non- App Store apps. Further, Apple provides the open source WebKit engine to almost all of their competitors for free, and this has done more to create a cross platform universal application platform than anything else.

      So, no. FlashPlayer is not shut out of iOS for anticompetitive reasons. iOS has no FlashPlayer for the same reason it has no IE6, no Windows apps, and no steam engine.

      And the FlashPlayer development tool is not shut out of iOS. Adobe can update the Flash tool so it creates open HTML5 Web apps instead of closed Adobe Web apps. Adobe are a W3C member, they were there all along trying to sabotage HTML5, they knew it was coming.

      • Ravi

        I think "can update" should be "has updated" based on this link: http://blogs.adobe.com/jnack/2011/03/wallaby-flas

      • WaltFrench

        Let's keep that in the “conditional future” after all. The “Wallaby” project looks promising. But Adobe has so many neat ideas that take a long time from mention until being workable, and there are MANY important Flash features not yet converted by it.

      • davel

        Can you give some examples of an html5 app? I was not aware you could do the above.

        Thanks

      • famousringo

        The best example I've seen of something that you'd expect might be done in flash being done in HTML5 is the port of Space Quest for iPad:
        http://www.wired.com/gamelife/2010/11/space-quest

        Web apps are scarce, because (like flash apps) no solutions for discovery and payment are provided and they have less performance and access to hardware than native apps. The customers are all on the App Store, so all the developers would rather be there. If they can't be there due to Apple's policies, they usually find it more cost effective to bitch and moan about it than to try using HTML5.

      • WaltFrench

        Note the new iOS release is purported to approximately double javascript speed on mobile Safari, so performance will be a bit more sprightly.

        And to Hamranhansenhansen: Valve's "Steam" game engine is supported on iPhone this way. ;-) So there IS a “steam engine” on the iPhone, after all!

      • davel

        great.

        thanks

      • davel

        Flash was shut out for competitive reasons.

        Steve Jobs wrote a letter that referred to Adobe specifically and their actions in the past that severely hampered Apple.

      • kevin

        If I assume by "competitive", you mean that Adobe would gain competitive advantage over Apple, then I'd say you've injected your own bias into Jobs' letter.

        Jobs wrote that "letting a third party layer of software come between the platform and the developer ultimately results in sub-standard apps and hinders the enhancement and progress of the platform." See http://www.apple.com/hotnews/thoughts-on-flash/

        So the main reason given is substandard apps, which directly and negatively affect the user and the product, with reduced competitiveness being an indirect consequence. The other main reasons given are reliability, security, performance, battery life, and lack of touch, all of which directly and negatively affect the user and the product. Adobe may gain a competitive advantage but that's not necessarily a key or major criteria for Apple's decision to ban Flash.

      • WaltFrench

        I recently went back to Lee Brimelow's (Adobe's) blog entry in which he memorably said, “Screw you, Apple,” shortly before the Jobs Manifesto about Flash. (“coming up on its anniversary; what's changed?”)

        First, the Adobe complaint was not about a Flash PLAYER on iPhone; I believe that Adobe was nowhere near technically able to implement Flash on the 3GS and earlier iPhones. (Subsequent misses, notably on the Xoom in which nVIDIA specifically designed hardware to speed Flash, reinforce the view that Adobe has not changed gears to mobile's rapid development cycle.) The complaint was about using Flash as a developer tool. Apple, perhaps with arm-twisting by the DoJ, relented last September. Games that are built in Adobe's AIR package are now for sale in the iTunes app store.

        One of these was recently called out in a blog re: the BlackBerry Playbook. A chess game was cited as having been “ported from iOS” to be a featured Playbook game and I did a quick check. Well, the game premiered online, where it requires Flash as it was written in Flash. Given that Playbook development tools only support HTML or Flash, the port must actually have been from the web version that ran in Flash, to many other versions (Win, Mac, Linux, iPhone, Android and perhaps soon Playbook) that also run in Flash.

        This particular game didn't have lots of user experiences to cite—no buzz has built around the iPhone version—so I have no idea how enjoyable or useful it is. Others would be welcome to blow some change on it and report back.

        Nonetheless, there would seem to be some slight potential for the game to draw fans on iPhone, but then move those fans to other platforms, just as PhotoShop and their page layout stuff were big reasons to buy Macs back when, and subsequent releases (earlier and better on Windows) put a lot of pressure on Apple's ability to sell machines. And specifically, the game is being called out for users' ability to “move from iPhone to PlayBook,” which is as competitive as you could ask.

        Adobe has some tools that compete directly w/ Mac applications, but Apple's relevant concern was that they would reduce the magical iPhone to the lowest-common-denominator level in many customers' eyes; why buy an iPhone when a cheapo Android does just the same stuff?

      • chano

        Surely this isn't right?
        Adobe failed to update Flash and other components as Apple added new functionality to its systems. Users who had Adobe-reliant apps could not take advantage of Apple's improvements. They did not ask who was responsible for this upgrade lockout – they just blamed Apple!!
        Adobe used this disruptive capability to undermine Apple while supporting Microsoft openly with updates…….
        They did it to Apple with CS updates and they did it with Flash.
        Ultimately, they spoiled their own game plan and Adobe's declining relevance is the outcome.
        When you play the MS game plan, it is awfully easy to become irrelevant. You spend so much time disrupting the other guy, you end up neglecting your own franchise assets.

      • davel

        letting a third party layer of software come between the platform and the developer ultimately results in sub-standard apps and hinders the enhancement and progress of the platform.

        ie. someone else controls my platform.

        apple in the past had problems getting developers to use new features or new api's that they introduced. Adobe in particular was very slow in doing things like 32 bit or embracing the new api's.

        if you use a foreign layer to do development, if the owner of that layer is lazy or inattentive to your platform you suffer. additionally apple originally did not even want translation software, but it seems they relented after govt scrutiny of their restrictions.

        "We cannot be at the mercy of a third party deciding if and when they will make our enhancements available to our developers. " as stated in the link you provide.

      • kevin

        I understand all that, but the someone else controlling my platform is leading to sub-standard apps and a poorer platform for the user. Clearly, based on what happened, Apple is willing to have substandard apps and nuisance payments if it is required by government authorities.

        My only point here was that we have no clear evidence if the other case: someone else controlling my platform but a better platform for the user would have been rejected by Apple.

      • Erick

        It's true that iOS affords an impressive level of functionality in web apps, but they are still not yet first-class citizens. If I recall correctly, Apple's implementation of HTML5 caching has file size limitations in the single-digit megabyte range (I encountered such problems when trying to implement my own). That's plenty of room for a typical web page, but an offline web app won't be able to have anywhere near the audio-visual richness of a decent native app.

    • ViewRoyal

      The two valid reasons that Apple gave for keeping Flash out of iOS is that it uses excessive processor cycles, slowing down iOS devices, and that it also reduces battery life. But Apple does NOT restrict the use of Flash in it's Mac OS X products, and we can only assume this is because the processors in MacBooks are fast enough to handle Flash without any noticeable problem.

      This dichotomy made sense when iOS devices, like the first iPhone and iPod Touch, initially had an ARM processor running at a lowly 412 MHz… definitely not enough power to handle Flash.

      But the new iPad 2 has a dual-core 1GHz processor, as well as a GPU that runs "9 time faster" than the previous iPad's GPU. So there is definitely no power limitation holding back using Flash on the iPad.

      In addition, Adobe has been optimizing Flash in the past few years so that it is much less of a resource-hog than it used to be.

      There is really NO rational justification for keeping Flash off the iPad 2.

      As with Apple's other computers, the user should have the option whether to install the Flash browser plug-in or not. And with other plug-ins like ClickToFlash, the user can choose when to run the Flash plug-in, and when to keep it under restraint.

      With the state of the art in current iOS devices, Apple has no grounds for keeping users from viewing Flash on their devices.

      • WaltFrench

        “There is really NO rational justification for keeping Flash off the iPad 2.”

        And there's even LESS of a justification for keeping it off the Xoom. And yet, some conspiracy of Flash-haters at Motorola, incompetents at nVIDIA, dead-enders at Google and dullards at Adobe have managed to keep one of the headline features for the device OFF the Xoom. The Flash black eye is the first point cited in many people's claims that the tablet, vital to Moto's reputation, is DOA. Gulp!

        I don't know the actual history here and don't actually suggest any of the above characterizations. I'll note that Adobe's Chief Technical Officer demo'd Flash on nVIDIA's TEGRA chip back in October 2009, but there were quality issues reported in a release of Flash for TEGRA2 in December 2010, leading to a *report* that Adobe forbid distribution of it. Also that nVIDIA announced TEGRA2 January 2010; Moto must have really liked the promised extra speed and specific Flash optimizations that the chip provided.

        So perhaps there is some misalignment of objectives when, under an intense media spotlight and Motorola's SEC filings highlighting their high dependence on a limited set of channels, that Flash is not on the Xoom. If anything, the Jobsian Reality Distortion Field made it MORE likely that Flash would succeed on the tablet; yet, it has abjectly missed.

        @ViewRoyal, I know that companies give execs quite a bit of leeway for major mistakes if they were not foreseeable. But let me ask, if YOU were at Apple, trying to make a huge splash about how great your products are, no asterisks required, would YOU give over to Adobe the right to absolutely tarnish your reputation? Given Apple's long experience with Adobe, and their Flash technology in particular, would YOU hold off a product for months or years while Adobe, with near-zero incentive to put its product on your stuff before competitors', took its sweet time in optimizing version 10.3.103 for the SGX543 GPUs rumored in the iPad2?

        How long would YOU last as a CEO if you waited for Adobe?

      • relentlessfocus

        This has always been Adobe's rationale. They can't get Flash to be efficient and they rely on CPU development (and other tricks like sandboxing) to make up for its bloat and instability. Apple no longer ships Macs with Flash although they don't block it there. When Flash runs on my Macs the iStat graph of processors use (far more powerful than an iPad 2) still go way up with Flash making my laptop run hot and hogging cpu cycles. Apple saw the future as HTML5 and took a stand against Flash for this and battery life reasons. Adobe keeps claiming that "any day now" they'll have the problem licked. Hold your breath.

    • kevin

      The reason Apple doesn't allow Flash is a really good example.

      Apple critics, and even commenters here, jump to the conclusion that Apple is protecting its competitive positioning, its control, or its profit margins, when it's entirely possible, that Apple is simply ensuring that the product is the best it could be for its users, at that point in time and given the available resources, state of technologies, and price point.

      I'm not saying that we drink the Kool-Aid and naively believe in the pure motives of Apple's executive team. There are certainly many other factors in terms of doing what is best for Apple and its own survival, but on the whole, given past history, Apple's product decisions can be primarily attributed to doing what is best for the user in its product.

    • asymco

      If you dig enough I'm sure you'll find cases where Apple prioritized platform above user experience (just as it's likely that Microsoft slipped once or twice and made a decent product.) But the point is that understanding motivation is about seeing the forest, not just the trees.

  • Xavier Itzmann

    Great article, Horace!

    I´ll tell you what the Apple Strategy Tax is: a willingness to kill legacy stuff, which often irks the user base and especially negates inroads in institutional settings.

    Apple is the company that eliminated ADC, rendering my expensive monitor almost obsolete; that is fast walking away from FireWire (writing is on the wall); that left millions of devices that relied on the legacy Fireware DC electric feed formerly inside all iPod cables dangling and necessitated for many consumers to get replacements, especially on cars; that discontinued in late 2009 OS development for PowerPC Macs sold in late 2007.

    And yet all of these decisions were for the larger good. Were Apple to insist on keeping them alive, XP-style, Apple would be yet another ossified company.

    • Laurent Frey

      It says long too to their capacity to adapt by constantly seising new opportunities, or simply waiting for a technology or a market to be ready.
      May be it's a tribute to Steve Jobs zen awareness.
      Notice how Apple rarely respond even when unfairly attacked.
      Very Zen.

  • Alex

    Siracusa also discusses this at length with Dan Benjamin in last week’s episode of the “Hypercritical” podcast. One effect of the strategy tax that he explains more clearly is this idea of internal competition. If iBooks is at odds with the platform, for example, which does Apple optimize for? And this represents a “tax” inasmuch as it compromises some experience for the user. Siracusa believes that such a collision may become inevitable because Apple has branched out into so many other markets.

    • Hamranhansenhansen

      In that case, Apple optimizes for the platform, because they make almost no money from content sales, they are barely above break even. They make an honest living selling the devices.

      • Ravi

        How would kicking Rhapsody, Pandora, Kindle, Nook, Kobo … off of iOS serve the platform? To me it looks like the only interest served is Apple's interest as a retailer (rather than a platform vendor).

      • PatrickG

        Ravi, if you look closely at the Apple retail model – you would understand that Apple is serving it's own interests by supporting retail – selling devices for their platform. That's the purpose of their retail experience – be it in the brick and mortar stores or the App Store. And you need to be clear – has Apple actually kicked Rhapsody, Pandora, Kindle, Nook and Kobo off the App Store? They haven't last time I checked. You need to cite real decisions with real impact, not theoretical decision posited from rumors. What Apple desires for the end user of its devices (at least as demonstrated by their actions) is a straight-forward and simple experience. This means that middlemen operations like Amazon and Sony who want to leverage their role are going to be scrutinized and if they are not providing an advantage to Apple's customers (not just convenience btw) then Apple will discard their participation until they can demonstrate that advantage.

      • Ravi

        Personally, I find the "it hasn't happened yet" dodge to be disingenuous hair-splitting. Let's review what we know so far:

        1. The Sony e-Reader app was rejected from the app store over in-app purchase (confirmed by both Apple and Sony) even though it implemented the same ebook purchase mechanism as Kindle et al.

        2. Apple has announced their new subscription / in-app purchase rules which (on their face)
        destroy the economic viability of non-Apple ebook stores on iOS. Most significantly, the rules *forbid* rival ebook vectors from providing pure reader apps (with no purchasing capability) by requiring that purchaseable content that the app accesses be purchaseable from the app via in-app purchase.

        3. Apple has specifically said that the new rules apply to the Kindle app and set a deadline of June 30th for existing apps (such as Kindle) to comply. Just because the decision hasn't been implemented yet (because the deadline for compliance is in the future) doesn't make it theoretical.

        4. Apple followed this up by rejecting the Readability app – an app that was at the very least "more gray" under the new rules than the Kindle app (being closer to SaaS than the Kindle app).

        Given all of this, I it would be unreasonable not to conclude that unless Apple changes their policy (possible, but not something we've seen any suggestion of so far), the Kindle app and the rest won't be downloadable in the App Store after June 30th (and possibly more than that – but that is speculation since this would be a new kind of app store rejection).

        As for the advantage that vendors like Amazon and Sony provide? I thought it was obvious. Apple has a small share of the ebook market and a *tiny* share of the installed based of ebooks. The vast, vast majority of ebooks are provided in formats Apple doesn't support. Lots of the people who bought those ebooks also own iOS devices. Allowing them to read the ebooks they already own (on the devices they've rented from Apple) is an unambiguous benefit for users and, hence, for the platform (since the platform depends on its users).

      • chano

        But, unlike Sony and Amazon's prefs, ePub is an open format and is likely to thrive.

      • ______

        I guess we'll find out what happens in a few months.
        I will bet you $20 that Pandora will stay, I intend to honor that bet if you're willing to do the same.

        As for the rest, Apple is optimizing the supply chain for me. I'll take it. You may not. Either way, there is a choice. As for whether it is detrimental to Apple's platform, I guess we'll see. I'm buying calls. Will you sell them to me? Because in the end, all this prognostication about this leading to the platform's downfall has to have an impact on the business. If it doesn't then you're blowing smoke and customers are happy while Apple grows. If it does, you shouldn't have any problem betting against Apple.

      • Ravi

        To be precise, I haven't thought carefully enough about Pandora specifically, so I'd have to take some time before I was confident there weren't any creative moves I hadn't thought of. Rhapsody says they have given up (and are exploring legal action), which is suggestive, but not definitive, of course. Also, given that any antitrust issues Apple faces are likely to be most serious with respect to music, that's a wild card that I find hard to evaluate.

        That being said, since I care more about e-books, I've thought a lot more about the scenarios for the major e-reading apps (Kindle, Nook and Kobo). For those apps, I am confident that complying with Apple's new policies (required in-app purchase option to access premium content, no references to non-app purchase options, 30% cut for Apple, same prices in and out of app) is not economically viable and that they will not release a version of the app that complies with all 4 elements.

        I can't, of course, predict what Apple will do in response to that refusal. I expect the non-compliant apps to be removed from the app store, but it is possible Apple could be bluffing, will merely refuse all app updates or otherwise change their mind.

        If you want to take a bet on that basis I'd be open to something like the following: Amazon will not revise the iOS Kindle apps to comply with all 4 elements above. Absent some policy change from Apple (where policy change includes declining to enforce the policy as previously explained), the Kindle e-reading app will be judged non-compliant by Apple and will be removed from the App Store soon after Apple's compliance deadline (currently understood to be June 30th, though if Apple changes the deadline and not the terms of the compiance we'd have to revise that).

        What do you think?

      • asymco

        That's the point. It does not serve the platform. Apple is not placing the platform first. But then you might ask why do they want to be a retailer? You might ask again why do they want to be in a business which they and everyone else declared to be economically uninteresting and in which they seek to break-even at best. These actions simply do not make sense. Like any anomalous data, that should cause your curiosity to go way up.

      • Ravi

        It does raise my curiousity. Particularly because their current approach is making big, otherwise unnecessary enemies (e.g. Amazon). The only explanation I have so far is that Apple wants to make sure it relies on no other companies to provide the core end-to-end experiences on their devices and that they have decided that e-books are core (so they are worried about what Amazon might do to them in the future since the Kindle app is so popular).

        It just seems strange to treat Amazon (and others) as enemies today because you're worried that they will turn into a dangerous enemies tomorrow. The only explanation I have for that the the need for that end-to-end control is as much a part of Apple's DNA as the need to center everything around Windows and Office is part of Microsoft's. That certainly matches the stereotypes, but is unsatisfying. I just don't have a better theory. I wish someone did.

    • Melvin

      I love Hypercritical; Siracusa is a smart guy.

  • desreveR

    Spot on, Horace! Most companies probably aren't aware of their priorities, yet they manifest themselves in the organization's actions.

    In many cases, clarifying and explicitly expressing an organization's key priorities can be used to motivate the workforce, to get everyone to pull in the same direction and understand what makes our company unique. Unfortunately, many large companies exist for the sole purpose of making money, which is hardly an exciting or motivating priority.

  • WaltFrench

    So I suppose this project is YOUR product. Your primary objective is to pan this particular nugget from the rubble. You probably read a lot and use this blog to think out loud and solicit others' insights, both likely-sounding ways to achieve this insight.

    Seems like a worthy quest. Go well and report back.

    Regards Microsoft, I've posted a couple of times about how I don't understand why they don't dump (spin out or sell off) their phone efforts, which seems to distract — badly — from how they can compete most successfully in other areas. I'd love to understand their priorities. I presume it's to profit by being the primary infrastructure for others' efforts; as an unavoidable part of the process they hope to dominate firms' efforts. Cellphone support mechanisms used to be sufficiently complex that many firms had to lock in on MS or RIM, but the iPhone revolution has knocked out this rationale and the old infrastructure just looks inappropriate.

    Regards Apple, the priority seems not so much the product as the image of a leader/standard-bearer for personal empowerment. Apple products and services are much smaller bites, much more targeted and limited. Users' short-term and personal goals are addressed with gizmos that facilitate those goals; sometimes the gizmos offer more value as talismans than as tools: the iPhone is a wonderful platform for trying out little ideas @ 99¢ each, then moving on to the next variant.

    Google's culture and priorities are much more mysterious to me; others who can list priorities, please do. But another firm to test Horace's paradigm might be nVIDIA. I take it as representative of a plethora of Silicon Valley; it's currently in what they say is its third incarnation, dedicated to mobile thru major relations to Adobe, ARM and various phone manufacturers. I say it's a test because over its life it has accumulated great expertise in silicon and graphics, but has had to jump from one channel/market to another as the elephants like Intel change their directions.

    • Hamranhansenhansen

      Can you give me an example of a PC that is a better tool than a Mac, or a phone that is a better tool than an iPhone, or a tablet that is a better tool than an iPad? Because other PC's don't even have a Unix subsystem, a pro audio subsystem, a pro video subsystem, a color management subsystem, and many other essential professional features. And no other mobiles even have native C apps. I can control a whole music studio from an iPad over wireless MIDI, while no other mobile even has MIDI, let alone wireless. So I think you are making the classic mistake of assuming the pretty blonde can't handle a blow torch. While other manufacturers are making spec sheets they forgot to make useful tools, most especially not for work that is unrelated to CS/IT. A Motorola XOOM looks like a power drill, but its baby Java apps and unstable operating system are not professional quality. So yeah, Apple is product focused. They earned what they've got the hard way.

      Also, NVIDIA is not located in Silicon Valley. I think they're in Taiwan.

      • Cory

        From http://www.nvidia.com/page/companyinfo.html

        Based in Santa Clara, Calif., NVIDIA was founded in 1993, by Jen-Hsun Huang, who had previously served at LSI Logic and AMD, and Chris Malachowsky and Curtis Priem, who came from Sun Microsystems. The company went public in 1999 and is listed on NASDAQ, where its shares trade under the symbol NVDA. It has some 5,700 employees in more than 20 countries.

    • Dave

      Having followed apple for sometime I don't find your characterisation of them particularly accurate. They have clearly worked hard on establishing an image of innovation and quality for consumer computer devices, but I'd suggest this is based explicitly on their products. You state that Apple products and services are small, short-term, gizmos and talismans! Well they are not corporate focussed, that much is true, but otherwise your comments are absurd. MacOS X is an excellent OS built on Unix with considerable though and design on providing a powerful user-experience. I'm a computer scientist, there is no better commercial operating system. Their hardware is beautifully designed and often trend setting, and few competitors if any seem to reach Apple standards. The iPod redefined mp3 players, and created a viable commercial digital music service (filling a void otherwise dominated by illegal downloads); their iPhone redefined the phone, making every existing phone provided go back to the drawing board; and the iPad created a brand new category of computing (I hardly thing the old tablets counted). I certainly don't understand the rationale for all of Apple's decisions, and there are certainly numerous flaws in their product offerings. Nevertheless, I find your characterisation of Apple's products and services as obscure and extreme, are you an Apple hater?

      • WaltFrench

        @Dave, I'm happy to hear concerns about how clear I am; my day job requires communication about (very different) technical matter and I'm happy to be reminded how to be better.

        As for being an “Apple hater,” I'll just note that this site delights me because Horace seems to have kept such puerile attacks off it and I'm further committed to simply trying to understand the important ideas he presents by trying to organize the huge volume of data that we all have.

        I'll stand by my characterization of Apple as producers of focused experiences wrapped in neat packages, rather than being System Architects for the Borg, or the Great Tollbooth to the Web, some competitors' approaches.

    • PatrickG

      Walt, the product is everything for Apple – and except for a few strategic slip-ups early on always has been. Apple produces some very powerful and easy to use devices, not your "smaller bites" and gizmos. Case in point – my use of the iPhone has obviated the need for a laptop for most of my mobile needs. It is categorically NOT talismanic in nature (albeit there are those who want an Apple device simply to have an Apple device for its cachet), and if you were to survey a sizeable number Apple product users you would find little of the talisman meme being expressed.

      As far as Redmond is concerned my friends on the inside tell me that the corporate culture is cannibalizing itself and is so toxic that they marvel that anything gets done. Most of them are farming their resumés out to other companies to create a safe landing spot for exit. Unless that reality changes, like a once fine athlete that has become a couch potato, Microsoft will find itself increasingly unable to respond to market (or paradigm) shifts effectively. I think they have already demonstrated that reality.

      Google is no mystery, look at their business plan, or even better go back and look at the documents from their IPO. Those items spell out more clearly than any other what Google is all about. Each project that Google brings public as a free service feeds directly back to their business objectives in some way or another. Once you observe their actions through the correct filter you can see plainly what they are up to.

      • WaltFrench

        @PatrickG, different takes about the same thing; it's natural for us humans. You might enjoy John Gruber's review of the iPad2 today, which recalled his comments on the original. He's clearly a very experienced (and needless to say, highly appreciative) Apple-watcher:

        “This is how the designers and engineers at Apple roll: They roll.

        “They take something small, simple, and painstakingly well considered. They ruthlessly cut features to derive the absolute minimum core product they can start with. They polish those features to a shiny intensity. At an anticipated media event, Apple reveals this core product as its Next Big Thing, and explains — no, wait, it simply shows — how painstakingly thoughtful and well designed this core product is. The company releases the product for sale.

        “Then everyone goes back to Cupertino and rolls. As in, they start with a few tightly packed snowballs and then roll them in more snow to pick up mass until they’ve got a snowman. That’s how Apple builds its platforms. It’s a slow and steady process of continuous iterative improvement — so slow, in fact, that the process is easy to overlook if you’re observing it in real time. Only in hindsight is it obvious just how remarkable Apple’s platform development process is.

        “Put another way: Every once in a while, Apple releases something brand-new. The original iPod. The 2007 iPhone. Last year’s iPad. These original releases tend to be minimal technically, but radical conceptually. Then, generally on an annual schedule, Apple improves them iteratively and steadily over time.”

  • http://ximagin.co/thecw The CW

    If everything dies (and) if everything lives by something (then) everything is subject to the saying "Live by the X, die by the X." It's the equivalent of the Mythbusters saying "Well THAT's your problem right there!" after every explosion. Post mortems are always true… and useless.

    What I read from your post is that it's of primary importance to have clear foundation level principles (not something goofy like "don't be evil.") and that you stay true to them. This may have to be centered in a single strong leader.

  • FalKirk

    If I may take the liberty of re-stating your premise in my own words, the goal of an analyst is discover a companies’ unarticulated priorities and use those underlying priorities to interpret, understand and, perhaps, predict the companies’ actions.

  • Luis Masanti

    As for Apple, Steve said in an AllThingsD interview like 5 years ago…
    "We are as proud of what we do as about what we decided not to do." (My words) He was speaking of a PDA.
    And also, as a commenter posted, it is not afraid of cutting things out! Think Xservers.

    As for companies in general, I think there is still an "egp" component in "deep decision making." I'm speaking of those companies that still have its founders in or near (Bill Gates' shadow).
    For Microsoft, that was "the" leader for a long time, being dusted by the company from who they always mocked sure hurt its "ego."
    As for it "motivation," they seems to think that they can do better than anyone… although they themselves had probed wrong too many times.

  • vinner57

    Ooh, good thread. Anybody who's watched Apple over the years will have a pretty clear grasp of their laser-like focus on the user experience. What's been remarkable is how dogged they have been in the pursuit of it, even with the distractions of 'success'.

    The more interesting subject for analysis, as others have said, is surely Google. A bunch of incredibly smart people doing whatever the hell they want until somebody high up says – 'ooh that's cool. Make it into a product' Elsewhere in the company a cadre of evil geniuses work out how to extract ever-increasing amounts of money from mom and pop advertisers without them noticing. In yet another bunker a group of ninjas have decided they are going to destroy Apple through the medium of Android – because its their duty and destiny. Not strictly fair I know but it seems that Google is more like an anti-company – where a lack of leadership is seen as a positive and 'stuff just happens'. Analysis anyone?

    • Ian Ollmann

      Google strikes me like a company run as a academic research group.
      It works as long as there is money to pay for it.

      • unhinged

        MS too, these days.

      • vinner57

        Ha. Yes. Good analogy.

  • Mark Hernandez

    As I've mentioned before…

    Before anyone, say, criticizes "Apple's bonehead move" they need to make sure they do their due diligence and also try to answer a critically important question…

    "What does Apple know that I don't know?"

    Not only does Apple have their core values to consider, but the've obviously analyzed and discussed things from every angle, and more importantly, drawn from incredible amounts of inside information they have from their powerful industry partners and connections.

    When you consider that, it makes you feel you probably don't know jack.

    But I love that Horace is the kind of guy who, like physicists and astrophysicists, knows there must be a way to figure things out with what little fragments of information we do have.

    The next time you use your cell phone, consider how much of a testament it is to how we've figured how to use things we cannot see but still determined their presence and then utilized them to great effect.

    Lots of fun.

  • Petteri

    We're not too far off from Michael Porter's classic competition theory here, with naturally a more fine-tuned approach. There is always a variety of ways to compete in a given market, but they are (to an extent) mutually exclusive, and each come with their pros and cons.

    It's very clear that Apple is having a very strong product-oriented strategy: they would only launch a product when it's perfected and ready to be launched, not to fill a quartely sales quota or stock market expectation (N97, I'm looking at you). An interesting side note though is IPhone 4, which had a very clear known issue with the reception but was launched nonethess – an atypical move for Apple in my opinion in which they had to do a bit of firefighting and brand damage management.

    To compare, Nokia for the last few years was running with a cost leadership strategy (from Porter's framework – following others rather than innovating, leveraging their supply chain strengths, etc.) which, when the market preferences changed (or did they – maybe the preferences were always there but never before completely fulfilled before IPhone), hit a wall.

    Similarily, one could argue that Microsoft – especially in their Windows OS and software business – is running a cost leadership strategy, maybe not via the actual cost of the products but by creating barriers to entry for other OSs, and thus creating a cost effective solution to their customers compared to them switching to another OS. (again a side note: internet and cloud is eating away at this switching cost).

    The strategy tax is a very valid concept: once your company chooses a certain competivite strategy and runs with it for a period of time, it get ingrained in what can be called "company DNA" – and it's pretty difficult for ANY part of the company (let's say Windows Mobile) to act against its company DNA even though that part's competitive situation would be very different and would need a different strategy to succeed.

    This is why big, successful companies that keep winning in their core markets – like Microsoft – seem to fail time and time again with their spin-offs: they just can't act differently when they should. And that's the corporate DNA: everything from manager incentives, KPIs, to internal war/success stories are built on the success formula of the core business, and they just can't break free from that, even if they know they should.

  • Hamranhansenhansen

    Pixar.

  • Dick Henry

    I don't have any thoughts on it, but I want all posters to know how much I appreciate this great discussion.

    • Rob Scott

      I second that, great post and great comments! Amazing job everyone.

  • George

    Reverse halo: I just purchased a Samsung TV for the bedroom. While the picture quality is good, the software stinks. No sense of courtesy to the consumer as far as button pushes required to change sources, horribly designed remote, impossible to see or feel buttons on the front panel and a penchant to turn itself back on in the middle of the night.

    That experience tells me not to even look at a Samsung phone(reverse halo), regardless of the OS on it. And it makes me want Apple to make a TV.

    • ______

      That's an interesting term. Describes the problem without sounding overly negative.

      Reverse Halo. I like it.

  • davel

    I do not think the case with Apple is quite as clear cut as you make it out to be.

    I agree that Apple is a product company and cares very deeply about what it produces and why. However, like Microsoft they have a platform. Their platform is iTunes. As you know iTunes is central to almost everything they do. It is the glue that keeps their portfolio together. As a result there is a tax associated with iTunes that is not specifically related to the product itself. For example, the syncing of content is through iTunes and the local disk storage. Surely a web based method could be produced to store and manage content of a device, but that would break the scoping of content management that is iTunes.

    If you are product centric – ex a music player – it might be different if it did not take into account iTunes.

    So yes. They are a product driven company but each product fits into the iTunes world and has to play in that world. Apple recently is moving to pull its pc world into that domain.

    • Sam

      I have to disagree with this point. itunes exists because Apple believes it is the best solution for their customers. If they genuinely believed customers would have a better experience (and therefore buy more of their products) if they shifted away from itunes, I don't think they would hesitate.

      Pay close attention over the next six months and you are likely to see this happen. Right now, itunes serves as the hub for sharing content across all of Apple's devices, but this is an increasingly clunky and frustrating model. I expect Apple to make the shift to a cloud-based solution very soon.

      I find that the best way to predict what Apple will do next is to think about the most frustrating aspects of owning their products and then think about the best and most efficient way to alleviate those frustrations. Time and time again, Apple does what it perceives as the best thing for the experience of its customers.

    • kevin

      iTunes is important as a platform, glue, and infrastructure that makes its products better. But iTunes is not a profit center, thus, it need not run counter to and it can be adapted to whatever is needed for Apple's products. It is much different from Windows and Office.

    • unhinged

      Perhaps you would like to read this part of Horace's article again:

      'What if Apple actually does act in a way to optimize what they perceive to be important: the end user experience or as I like to call it “the product“.'

  • daniel

    Interesting comment thread–all replies are on the example, not the point/question the example was meant to illustrate. Horace what does it mean to have a "deterministic tool"? I would think a probability based analytical framework would be more relevant to addressing uncertainty and future scenarios which should be at the basis of strategic analysis. I would also argue that logic and systems thinking are more powerful than tools. Clear thinking and hard consideration are far more rare than deep pivot tables and venn diagrams or porter-style powerpoints.

    • asymco

      I'll think through some ideas about how to categorize company priorities in a reliable repeatable way. The methods would be similar to the way we can categorize personalities (think Myers-Briggs type indicator) Once you have the priorities there is still a lot of hard thinking required to do about what that means.

  • Rob Scott

    John and Dan will revisit the topic on the 'follow-ups' this week. I hope they make the entire show a follow-up as I believe that John is overlooking a lot of things.

    I am currently in a very privileged position: I am a huge Apple fan but also have a privilege of seeing first-hand how Apple does business (which in many ways talks to their priorities).

    Apple does business very differently to how most of us were taught in business/management schools and/or how most of us have been running businesses for decades. It is simple amazing. I have suddenly become a student all over again.

    I think if we first make the assumption that everything we think we know about running super successful businesses is wrong, we will be a lot closer to understanding Apples priorities and what makes them tick.

    • kevin

      Please do share with us what you are learning (of course, without breaking any NDAs).

  • Guest

    which is another Steve Jobs company (or was until Disney bought it)…

  • rktheac

    Apple barring flash is, among other reasons, indeed based on competitive reasons. But why are they fine with HTML5?

    With flash only Adobe is in control. With HTML5, no one is.

    With Adobe in control, devs would use Adobe’s tools to develop apps–and presumably use it to write for other platforms. IOW, they’d write to the lowest common denominator. Apple does not want a single entity (other than themselves) controlling its products. With HTML5, they have webkit and they can, along with everyone else, influence the direction.

    • kevin

      Why are they fine with HTML5?

      Because it isn't a battery drain. It doesn't have reliability, security, or performance problems like Flash does. Mobile Safari using HTML5 is already adapted for touch.

      • unhinged

        It doesn't have THE SAME reliability, security, or performance problems that Flash does. Apple just updated a bunch of security issues in WebKit.

        I think it boils down to the confidence Apple has in their ability to fix problems. With HTML5, they know they can. With Flash, they know that Adobe doesn't have such a good record.

  • rktheac

    Too slow. What WaltFrench said. I think he said it better.

  • HTG

    I am troubled by the focus on strategic decisions being described as a 'tax' when the decision have a negative effect on one group vs another. A tax, by definition, is a deadweight loss; its something you are never going to get back.

    To describe a strategic decision as having a 'tax' component is to divide the world up into clearly defined groups of winners and losers, and of course life isn't like that. Some strategic decision may be stupid, ill planned or careless; other may just be dumb luck.

    My view is that most companies try their best in making strategic choices, but the future is an impenetrable fog so even with the best skills in the world sometimes poor decision will be made.

    The way to think about this situation is not to confuse skill with luck. Some people have 'great strategic insight' but in reality all they were was lucky. I guess you could argue that you make your own luck, but that can only go so far.

    In the example Horace quotes from Siracusa the 'tax' seemed to be levied on users of the product – namely IE… and a relatively small group of users at that. At a company level the decision makes complete sense. The 'value transfer' would have ended up being paid for by the shareholders – and that isn't a great way to run a company.

    The question should not be posed in the form of 'how do we avoid paying this tax', but instead in the form of 'how do we create value?' Read Jim Collins.

    • unhinged

      The "tax" in the context of this discussion is the unavoidable costs that arise from following a particular set of priorities. It's not about identifying winners and losers, it's about the momentum that is added to the goals of an entity and the inertia that will therefore be encountered when trying to modify those goals.

      In such a context, the formation of the question should _definitely_ be posed as "how do we avoid paying this tax" and the answer regarded by many as the most successful is that an entity should be as nimble and flexible as possible. From this comes the value, which can be shown by Jack Welch at GE, Lou Gerstner at IBM and Steve Jobs at Apple (I think I got those matched up right).

      I would further point out that Steve Jobs has always had this sort of focus; the Apple II was a very profitable business that was killed off in its prime to make way for the Macintosh.

  • Ted_T

    To those of who think that Apple is worried about competition from Adobe via Flash:

    Apple could have bought Adobe a long time ago if they considered Flash to be some sort of serious threat. But the only thing Flash is a threat to is Apple's competitors. It damaged the Xoom in a big way by not being ready at launch. And it damages the reputation of devices it does run on through shorter battery life and more instability.

    I can give one example of Apple not producing a product that would increase their market share and help them with the business market that I believe has fallen victim to the strategy tax: the "headless iMac". Same innards as an iMac without the monitor — i.e. faster CPUs and larger disk drives than the Mac Mini or MacBooks without the workstation cost/size of the MacPro. To make it business friendly it would need one additional feature — ability to drive up to 4 monitors.

    While a headless iMac is less important now than it was a few years ago (as the world moves to portables) it continues to be a missed opportunity on Apple's part.

    • capablanca

      The absence of the headless iMac was a blunder that would have been obvious if not for the huge success of iPhone in 2007 and now iOS. This illustrates maybe a different sort of "tax": one that results from Steve's insistence on controlling design of the whole product. The thought of a beautiful Mac hooked up to an ugly CRT rightfully revolted him. But he might have left the choice up to the customer.

  • rktheac

    I don’t think Apple is afraid of Adobe, it seems they don’t want anyone having any semblance of control over their products other than themselves.

    Surely Apple can buy Adobe, and at time, it may have been a good strategic move. But not now.

    I’m sure others have stated this here (or elsewhere), Adobe needs Apple more than Apple needs Adobe.

  • Gromit1704

    Siracusa is smart but I do not think he his right about the Apple Strategy Tax and that Apple is falling into Microsoft's mistake. Apple make great software, because they want to demonstrate how great their iDevices are. The soon to be introduced Garageband is not designed to wipe out all the music apps in the app store, it is to raise the bar and show the possibilities of what is possible. The same for iBooks, they don't want to see off the Kindle app or Stanza or all the others, they just want to give software developers something to beat. They are saying this is the best we can do, but we will be very pleased if you can do something more cool. Apple don't want 400,000 crappy apps in the store, so they write great ones themselves hoping to encourage others to better theirs. Netflix is a good example of a great app that competes directly with Apple and because it is great, it features largely in Apple's advertising. I don't believe in the Apple Strategy Tax, I believe Apple is motivated by keeping the quality high, rather than keeping the competition out.

    • Ravi

      If Apple doesn't want to see off apps like the Kindle why did they change the rules to make the 30% in-app purchase fee (an e-booksellers entire margin, BTW) virtually unavoidable? Or do you think developers can reasonably expect their users to consistently, spontaneously decide to make outside-of-app purchases without any financial incentive to do so and without any mention in your app that there is even an alternative to in-app purchase?

      • Gromit1704

        eBooks are not bought via the iOS apps they are bought on the web and delivered to the app. Amazon do not do in app purchases so do not pay 30% to Apple. They could not do so. As you have pointed out, Amazon are doing exactly the same as Apple and taking the same cut for purchases. Kindle is a reader, not a shop. The Kindle app will not disappear after the June 30th deadline to comply. Nor will spotify or the other music players that threaten iTunes.

      • GeorgeS

        There's another problem with considering in-app purchases via the Kindle app. In-app purchase systems can have, at most, 3500 items. Amazon has a LOT more Kindle books than that.

  • Kizedek

    Lego. I'm a Mac user since '84, but a Lego user since '74 (or '73 when I was three).

  • Kristian

    Two things. Apple has build the channel. They get 30% from every single transaction. Apple owns the best honey jar ever. They have so and so many billions and they pay cash upfront.

    They don't need to do everything and they like the idea that somebody comes with a great idea. They get their share of that. Motivation is totally different than what the MS has ever had.

    Apple also gets the best of the best because of that honey jar.

  • Ravi

    Microsoft *loved it* when other people came up with (and proved out) great ideas. Then they had the easy choice of buying or breaking the innovator – capturing the benefits of innovation without having to do the work themselves. The made just one critical miscalculation: innovators started to focus on other platforms (like the Web) weakening Microsoft's platform inch-by-inch.

    Apple is clearly using their ability to change-the-rules on iOS to capture an increasing share of the value iOS developers produce as time goes on (either by increasing fees, absorbing application classes like ebooks and by limiting competitive threats like streaming music). When developers like Marco Arment say Apple has gone too far , I conclude that they are making the same mistake Microsoft did.

  • relentlessfocus

    I enjoy listening to Siracusa, he's a smart guy. But when I read his Ars Strategy Tax article and listened to his detailed explanation on Hypercritical I thought he was pointing out what is commonly called Opportunity Costs, ie, any decision has a "cost related to the next-best choice available to someone who has picked among several mutually exclusive choices" (wikipedia).

    The problem with Siracusa's argument is that he supports his argument with what happened to Microsoft and here is the crux of the problem with his argument. To paraphrase something that Felix Royhatan once said, "you can't eliminate problems, you can only manage them". The difference between Apple and Microsoft is how they manage their business problems. IMO Apple are far more successful in managing the "strategy tax" (ie oppurtunity cost) problem as well as most other problems than Microsoft.

  • Brenden

    Actually, by definition, one typically enjoys the benefits of a tax paid, and it is hoped that those benefits will be worth more to you than the tax paid. In the case of taxes paid to a government, you pay taxes so you will be able to live in a civilized country with good schools, roads and other infrastructure, defense, protection from fire and crime, etc. You sacrifice some money to benefit in lots of other ways. In this example, you make a sacrifice in product quality in one area to support a strategy that is seen as benefiting the company as a whole. I think it's actually not a bad analogy at all.

  • http://twitter.com/peter_burke_ceo @peter_burke_ceo

    so $14 proprietary connectors are product decisions apple makes that are good for the consumer?

    • GeorgeS

      Which connectors do you mean? The iPod/iPad/iPhone 30-pin connector is used on a multitude of cables and devices from many manufacturers. I can buy a retractable iPhone cable for less than $5, including shipping.

      Do you perchance mean the MagSafe connector? That's the only really "proprietary" connector that Apple uses, as far as I know.

  • Ravi

    Amazon and Google.

    Amazon is the only company I can think of that (repeatedly) pulled off the following: "you buy this from us, why don't you buy that from us". And they've succeeded well enough that I've even bought TVs from them, even though there was a time when it seemed like online shopping for TVs was doomed (because people wanted to see a TV before buying it and because the logistics would be prohibitive).

    Google also successfully flows users from one product or service into another. They started with Search which got people into things like GMail, Maps (via local search) and News. That was followed by things like Calendar and Docs, which led to Google Apps (for businesses) and so on. With the exception of Search (and GMail's initial storage capacity and search capabilities), Google's services usually aren't substantially superior to their alternatives. Instead, it is your positive associations with other Google services (and sometimes integration with other Google services) that leads you from one service to another. This is less noticeable because Google takes so many swings and has so many misses, but it is there. And, for that matter, some people say that one contributor to Google's misses (like Wave and Buzz) is that some services get so much initial usage (because of Google's halo) that they have no time to iteratively evolve in response to external feedback. Maybe Google should go back to handing out invites…

  • chandra2

    "…I hope that within this forum, I can share and provoke debate over these methods so that these skills can become more commonplace…"

    Looking forward to that, Horace!! It should be very interesting and should provide for some predictive measures too!! Thanks very much.