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Who's knifing what?

Microsoft just declared the Zune end of life. This makes it a good time to look back to some notable episodes in the evolution of digital media distribution. First, an episode from 1997:

During two days on the stand, Tevanian accused Microsoft of seeking to divide the multimedia market and then “sabotaging” QuickTime’s ability to work with Windows computers when Apple declined to go along with Microsoft’s plan. Justice also is accusing Microsoft of attempting to illegally allocate the Internet browser market.

In particularly colorful testimony on Nov. 5, Tevanian described an April, 1997, meeting between two Apple and two Microsoft officials. Tevanian, who was not at the meeting, said Microsoft officials suggested that Apple abandon its business of providing “playback” software that enables users to view multimedia content on the computers. Instead, they offered Apple the much smaller portion of the market for the tools that developers use to create the content. In Apple’s mind, though, the playback software was its baby.

According to Tevanian, Apple executive Peter Hoddie asked Microsoft officials, “‘Are you asking us to kill playback? Are you asking us to knife the baby?'” He said Microsoft official Christopher Phillips responded, “‘Yes, we want you to knife the baby.’ It was very clear.”

Business Week Online/Microsoft Watch on the cross-examination of Apple’s Senior Vice-President Avadis “Avie” Tevanian Jr. during the Microsoft antitrust trial.

Ten years later:

“We came into the [media player] market, a market in which they are very strong, and we took, I don’t know, but I think most estimates would say we took about 20-25% of the high end of the market,” “We weren’t down at some of the lower price points, but for devices $249 and over we took, you know, let’s say about 20% of the market. So, I feel like we’re in the game, we’re driving our innovation hard and, uh, okay, we’re not the incumbent, he’s the incumbent in this game, but at the end of the day, he’s going to have to keep up an agenda that we’re gonna drive as well.”

Steve Ballmer on Zune, iPhone (CNBC interview) .

Four years later the Zune is no more. Besides being interesting anecdotes, what patterns emerge from these episodes?

The evolution of the bases of competition for media distribution between 1997, 2007 and 2011 is striking.

  • In 1997 the struggle was between specific modules (formats, players and technical standards.)
  • In 2007 the basis of competition was devices integrated with music services (which encompassed formats, standards and players).
  • By 2011 the competitive standard that the iOS ecosystem is putting forward is at an even higher level of integration. Not only are the sub-modules integrated into a whole, but now apps bespoke to a platform are attracting a virtuous cycle of third party innovation.

Now consider how the two protagonists evolved (or didn’t) during this 14 year saga.

Apple has maintained its attention steadfastly on products while Microsoft has maintained unwavering focus on the distribution and control over value chains. During the 1990s one strategy worked and the other didn’t. During the following decade they changed places. The locus of the two strategies did not change. What seems to have changed is what the market values.

So we have to ask: Is the end of the Zune a matter of poor execution or is the cause for failure something more profound? Is Microsoft’s real problem that they have prioritized that which is no longer valued?

  • Bespoke

    I believe you may have misused the word “bespoke”.

    • asymco

      Bespoke means tailor made. That's what I'm suggesting. The apps are uniquely built for the platform.

    • Yowsres

      Bespoke (the poster) may have been picking up on something else. I agree it means tailor-made. In certain circles in the US I have seen an increasing use of it in the last 2-3 years as a faddish buzz word carried beyond the garment industry.

      No crime in that — it's quite common to take a word/concept beyond it's original borders into new uses.

      The problem is that in the US usages it's appearance is a bit of a fad (maybe not in the EU?). Because its a faddish word, the writer is trying to impress and paying less attention to precision. How it is applied is rather sloppy. I'm not suggesting that's the case here, BTW. More often than not I'm left scratching my head wondering "What the hell are they trying to say here?"

      "Fraught" is another such.

      • Hamranhansenhansen

        There are no rules in English, especially not US English, which includes both Massachusetts and Alabama, both New York and Texas.

        If the original poster in this thread can’t recognize an elegant turn of phrase that is not Horace’s fault.

      • yowsers

        I didn't imply such. Altho I wouldn't call the use of 'bespoke' as elegant. He used it well here (much better than I usually see), but generally it's a slightly to moderate garish word that draws attention to itself and away from the intended meaning.

        Regardless of what opinion one may have of Strunk & White's book on grammar, they did nail it that a word that draws attention to itself detracts from the deeper, overall meaning. A word that stands out like that is a key tell — "kill your little darlings" is well applied writing advice, IMHO.

      • asymco

        I had no idea 'bespoke' had so much baggage.

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

        heheh, it always happens with nerds =)
        Dig the comments on this ArsTechnica article, half of them were about that word – which only featured on the title of the piece btw. http://arstechnica.com/apple/news/2010/06/an-even

      • Joe_Winfield_IL

        I think you and the original commenter are the only ones who viewed "bespoke" in a negative light. There isn't a suitable alternative word that carries the same meaning. This is a well written blog, and not aimed at the masses. Horace has no obligation to compensate for his readers' shallow vocabularies. "Proprietary" is not synonymous with bespoke, and "custom" doesn't adequately convey the writer's point. The word doesn't draw attention to itself; you just paused because you didn't know its meaning. The bullet point contained the words "ecosystem," "integration," "sub-modules," "bespoke," "virtuous," and "innovation." I have a hard time singling out "bespoke" as a uniquely bold word choice, capable of detracting from Horace's point.

        Also, get over yourself. This is a finance and tech blog, not a Harvard creative writing seminar.

      • Kizedek

        Bespoke is a much better word than 'proprietary', which is basically the alternative. 'Proprietary' has a much more negative connotation, especially given the improper open-versus-closed emphasis lately.

        'Bespoke' is a great word and is properly used by Horace. To me it says a cabinet maker came in and worked on my kitchen instead of me going to IKEA and picking up something off the shelf — much as I like IKEA. It's not Horace's problem if certain English speakers bristle at good vocabularly properly used.

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

        Bespoke is commonly used in British English outside of the garment industry to mean pretty much anything custom made to fit.

        If I had a bicycle made for me to fit, it'd be bespoke.

        Please don't dumb down English just because some Americans don't understand the language Horace.

      • davel

        I have never seen this word used in this way. Subconsciously I just passed over it.

    • Gromit1704

      Here in England, 'bespoke' is often used in the way Horace has used it and every literate person would understate its meaning. It certainly would not stand out as awkward or incorrect. Perhaps the word is used differently in the US, but that is not the case in the rest of the world.

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

        Bespoke is not commonly used in the USA, most americans will have never used it in a sentence and may not even know what it means. I think the OP may be one of these people…

      • barryotoole

        and we (americans) want to make english the official language of the nation! american english seems to be an oxymoron!

    • Synth

      " You keep using that word. I do not think it means what you think it means."

      Sorry, I couldn't resist.

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

    But do particular values wax and wane in the market, or is it an irreversible arrow of change?

    I like Apple's products, but I can't say that this article proves that Apple's way is inherently destined for everlasting success — only that they appear to be favored at present.

    Is there a larger lesson about the evolution of technology consumption that somehow refutes the idea that control over a wide distribution of component vendors is not the golden thing Microsoft thought it was?

    Or Is this merely a temporary oasis of market dominance for Apple before commoditization inevitably hits this segment as well?

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

      Assuming that the values wax and wane, there could also be the possibility that one company could be far-sighted and flexible enough to take advantage of different phases of a market segment.

      Like, arguably, Apple has managed to do with iPods in the MP3 market – from early adoption to polish to expansion into lower priced territory. Or does the study of market evolution in consumer electronics focus too much upon the paradigm of cheaper priced electronics?

    • Space Gorilla

      Apple makes appliances now. iPods, iPhones, iMacs, iPads, Apple TV, etc, everything works so well it feels like I'm buying an appliance, like a fridge or an upscale coffeemaker, or an LCD TV. Apple is the only company making products at this level, products that are so easy to use and reliable enough that they feel like appliances. Apple has done a great job of taking out the complexity. Other companies don't seem to even understand that yet. Apple's position isn't temporary, humans need appliances that work well, and Apple is now the leader on price/value as well, so I don't see how commoditization is going to threaten them all that much.

      • OpenMind

        It is car vs. truck. More car will be sold than truck. Period. Geek and engineer are stuck in truck mode, talking about horsepower, RAM, benchmark. Designer and consumers are interested in car, talking about look, handling, smooth, etc.

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

        Back when the original 68K Mac launched it was described by Jobs as an appliance.

        "Apple has done a great job of taking out the complexity."

        Hmm, often at the expense of features that some of us that are ok with complexity miss. Sometimes, things just ARE complex.

      • FalKirk

        "'Apple has done a great job of taking out the complexity'…often at the expense of features that some of us that are ok with complexity miss. Sometimes, things just ARE complex."

        Apple's great gift to us is that they absorb the complexity so that we can ignore the tool and focus on the task. This is an endless source of frustration to people like you and me who want choices, who want options, who want the power that complexity provides. We are willing to pay the price for complexity – and there is a great price to pay – in order to gain the benefits of complexity.

        Most people are not willing to pay that price. They are not willing to study technology, or the manual or even the text that is right in front of them on their computer screen. They want to just "do it" and be done with it. They want intuitive, they want easy to use, they want an interface that feels so natural that it immediately fades away. We, the Technorratti laugh at their ignorance. But they are the ones who really "get it".

        The computer is not the end, the computer is a means to an end. I don't want to learn how to use a toaster, I want toast. I don't want to learn how to use a drill, I want a hole. I don't want to learn how to use my computer, I want to write or to research or to read or to watch movies or to crunch numbers or to play. Apple never loses sight that it's the END that matters, not the means for achieving that end.

        You ask the question: “Will this let people do more?” Apple asks the question: “Will this let more people do it?” To quote from two of Apple’s earliest advertising campaigns: There are “Those who use computers and those who use Apples.” Apple makes “The Computer for the rest of us.” And that’s a good thing. A very good thing.

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

        I agree although the problem of serving 'advanced users' is simply solved by a simple preference setting. That isn't Apple's way though these days.

        Even on the Mac, every release of new dumbed down software is followed by days of forum posts of advanced users looking for command line preference switches the Apple programmers have left in to switch off dumb Apple behaviour. iTunes is a classic example where there are settings to switch off Ping, the store arrows and restore previous behaviour. Safari's 'Debug' menu is a must for a web developer. Calendar and AddressBook get extra advanced features also.

        On the iPad/iPhone…. Good luck if you're an advanced user. Can't even ssh into the thing.

      • David

        "I agree although the problem of serving 'advanced users' is simply solved by a simple preference setting. "

        No. Here's why. There is still software underlying that preference setting. That code has to have requirements, be designed, be implemented, be tested, and be deployed. Unless there is a setting that can turn off those steps, the complexity is still there. Which, of course, means that there are things that can go wrong. Why put those features in for a very tiny, almost non-existent market? Why introduce potential security holes for the few dozen who wish to SSH into an iPad. I'm an advanced user and I don't wish to do that.

        What including every conceivable feature, hidden away by preferences buys is a few extra sales and a lot of hassles. Seems Apple is being more Agile in their thinking, perhaps even Einsteinian by making it as simple as possible and no simpler. And now, Apple doesn't have to worry about someone managing to exploit an SSH whole.

        Ask yourself: Why is Apple able to deliver their products year in and year old on schedule? Why are their iOS devices in operating system lockstep? Why do there products nearly problem free and feature complete?

        Why does MS' update to the updater *bricking* phones? Why does the Xoom ship without a working MicroUSB port, LTE support and Flash? Why do so many Android apps not work on the Xoom?

        Discipline. And running a tight feature ship. Not by support a kitchen-sink set of obscure features desired by very few.

    • asymco

      Markets change more rapidly than companies do. It's a sad fact of life. A company's priorities are as immutable as a person's DNA. One survival tactic is to change (or create) the market rather than change the company. This is what Apple does.

    • Hamranhansenhansen

      I think the Apple way is the typical way and the Microsoft way is the rare exception. Markets favor products, not kits. Microsoft offloads so much pain on the user they would bolt if given a choice.

      I don’t actually think it is Apple that is killing Microsoft. I think it is standardization, which prevents monopolization of a key component, which is Microsoft’s M.O. So, for example, HTML5 is standardized, vendor-neutral, hardware-independent Win32 with Internet-based installers. No need to run it on Windows or even on a PC, no need to run Office to create content for it.

      In the PC industry, standards were not respected. Whatever IBM did and later Microsoft did was the de facto standard because they were leveraging a monopoly. In Consumer Electronics, standards are important because lack of standards kills the media market, which always required the user to buy 1 LP or CD at a time and run it in any manufacturer’s gear. Even the very dominant iPod always ran all standardized audio formats: PCM, MP3, MP4.

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

        I had a pile of standards documents a few feet high back when I was writing software for IBM's OS/2 and Motif so I'd disagree with you on the IBM front. IBM used to love to produce cross platform standards, particularly in the UI arena where things like SAA was used to try and get an almost identical experience on everything from DOS to a Mainframe.

    • Kizedek

      It's not whether MS thought it was the Golden Thing: "the idea that control over a wide distribution of component vendors"…
      It's whether those being controlled by MS, its OEMs, thought it was a Golden Thing. Evidently, they'd rather take their chances against Apple on their own, on a level playing field, using the open standards that Apple and anyone in their right mind stand behind. Rather than playing in a closed society at the whim of its capricious, child-Emperor.

      HP buys Palm, LG goes Android, and so it goes: the empire falls into decline like a vast and sprawling Ottoman Empire that can't industrialize.

  • http://wegrowmoney.com Steve Coleman

    I see no value in buying a Microsoft product ever again. I want to buy from Apple because they get it right the first time. Apple values happy customers more than market share. I own Microsoft Office 2004 for the MAC. I will never upgrade it. I never really mastered it because Microsoft did invest in its customers with great training. Apple does. When I call Microsoft for help, somebody on the other line is in a hurry to charge me money. I just felt ripped off when I did business with them. On the other hand, I totally value my relationship with Apple.

    • O.C.

      LOL

    • JessiDarko

      And there are millions of others like you. MSFT's efforts have been on increasing the value of every customer. Thus support is seen as a profit center. In fact, windows is so crappy that at the rate support costs were rising in the 1990s, they would have been losing money on every copy sold… that was back when they provided good free support.

      Apple, on the other hand, provides quality products that need less support. They do this so that customers will buy more.

      Now that people are able to try apple products (without getting all the dishonest advice they got in the past) more and more people are making the switch like you have.

      People remember being screwed over. They remember products that are frustrating or don't work.

  • Anon

    I'd argue that the Zune was an attempt by Microsoft to create a "product focused" offering. It was crushed in the market, initially at least by the contracts in place between Apple and music lablels, where they weren't going to get the same terms Apple had.

    • asymco

      You make two claims: that the Zune was an attempt to become product focused. The other is that it failed because of licensing terms with music suppliers.

      Microsoft did attempt to be more integrated in its development (as they also tried with Kin). But the efforts seem half-hearted. Products were not iterated, the product was not widely distributed. Lessons were not learned or applied and there was a lack of top management attention. These are symptoms of a lack of priority.

      To suggest that Zune failed because of terms with music companies sounds difficult to defend. Those terms did not have much to do with people wanting the product. Their music store had a peculiar "points-based" pricing model but the catalog was large enough. I don't see how the margin on the music would affect sell-through of the device. What I also seem to remember is that the music labels were very willing to license their catalog with better terms to Apple's competitors because they wanted to gain more leverage. This was at least true of deals they made for DRM-free content with Amazon.

      • Anon

        There have been three iterations of the hardware (four if you split flash and hdd models) and four of the software.So I believe you have your facts wrong on iteration. I'm not sure how you make the assertion of lack of top management attention.
        The initial catalog was very sparse, which is why my comment was qualified. The timing of the Amazon DRM free content was significantly after iTunes had been in the market, and well after Zune was launched.
        The point on label and catalog support was that initially at least there was significantly less catalog support. If that's one of the key reasons to buy into a "product ecosystem" then it seems that would be a brake on the purchasing decision, other things being equal.
        I'd be interested to know if you'd used the software or hardware.

      • Anon

        I'd add that Microsoft hasn't declared it end-of-life, but rather a Bloomberg article has declared the hardware eol. You may want to edit your article to make the distinction.

      • asymco

        I am not a journalist. I use the tools of speculation and opinion. I will edit the article when Microsoft denies EOL status or when they release a new Zune.

      • Anon

        But you're an analyst, right? That's supposed to be better than a journalist. Perhaps this is the denial you're looking for: http://www.facebook.com/Zune?sk=info#!/Zune?sk=wa
        Perhaps translating into an Apple-centric analogy would help: Zune = Hardware, Client Software and Music Marketplace. Seems that they're clearly denying EOL in link before.

      • Joe_Winfield_IL

        Why is an analyst supposed to be better than a journalist? That's like saying that a banana is supposed to be better than a kiwi. Or a chimpanzee is supposed to be better than an orangutan. Or a chemist is better than a stenographer. They are two different professions entirely, and better is an odd distinction to make.

        It seems like they are denying EOL for the software, but that he knows nothing regarding hardware. He is denying the announcement, but the decision is clearly over his head. It's pretty common for the employees to not know anything; the same happens during acquisitions and mergers. Layoffs and department closures are worse. My wife got laid off last month. She knew 4 months ago that it was likely going to happen, but if you had asked her, she would have said "I'm going to keep doing my job until they tell me otherwise." They eventually did tell her otherwise, but only after a few frustrating months of dispelling rumors that proved accurate.

        There is literally nothing that DaveMac can say to kill the rumor. Someone way over his head at corporate PR needs to definitively say, "We are working on another Zune player. It's not yet ready, but stay tuned for more information." Anything short of that won't make the story go away.

      • CndnRschr

        It was distributed in the US only and then last year they added Canada. The number of iterations is tiny compared to the iPod range. There was never an attempt to match the iPod Touch in terms of versatility, gaming and apps. In other words, Microsoft did not have their heart in the Zune. It's marketing was almost non-existant (aside from leaks to prime the pump). It was in a division that was in turmoil.

        The failure of the Zune was as much about Microsoft's commitment as it was the product. The same story appears to be unfolding with Windows Phone 7 (aside from the remarkable "investment" in Nokia). The world no longer waits for Microsoft to get its act together. Everyone else is running to their own tune (literally).

      • Hamranhansenhansen

        > There have been three
        > iterations of the hardware
        > (four if you split flash
        > and hdd models) and
        > four of the software.

        None of them were true iterations, they did not improve anything. They treaded water.

        And that was much slower than Apple, who made actual improvements in their iterations.

      • millenomi

        The iterations brought forth some new features (most notably XNA game development — but never distribution to end users). It seems most of those features have found payoffs in Windows Phone 7, but were never backported to the Zune player.

      • Anon

        Simply incorrect. I suspect that you haven't seen or used one.

    • Hamranhansenhansen

      No, Apple’s contracts with music labels have nothing to do with it. Most of the music on iPods comes from CD, even today. Both iTunes and iPod predate iTunes Music Store. iTunes+iPod is the product, and iTunes Music Store is just an accessory. And ultimately, Microsoft could have demanded good terms from music companies (like Apple did) if Microsoft had sold any devices. Without an installed base, they continued to be nobodies in music.

  • http://ximagin.co/thecw The CW

    "The only problem with Microsoft is they just have no taste, they have absolutely no taste, and what that means is – I don't mean that in a small way I mean that in a big way. In the sense that they don't think of original ideas and they don't bring much culture into their product and you say why is that important – well you know proportionally spaced fonts come from type setting and beautiful books, that's where one gets the idea – if it weren't for the Mac they would never have that in their products and so I guess I am saddened, not by Microsoft's success – I have no problem with their success, they've earned their success for the most part. I have a problem with the fact that they just make really third rate products." – Steve Jobs

    1st rate products win out over third rate products over the long arc of time.

    • FalKirk

      "1st rate products win out over third rate products over the long arc of time."

      I don't agree. I WISH that were true. I think Microsoft just spent 15 to 20 years (which is forever in tech) proving that that is wrong. I think the lesson is just the opposite – that many factors go into "winning" in business and that the quality of the product is just one of those factors and far, far from being the most important factor.

      • http://ximagin.co/thecw The CW

        "The arc of the moral universe is long, but it bends towards justice" – Martin Luther King

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

        Unfortunately, that isn't true either. Economics is the hand that shapes social change. The cotton gin single handedly prolonged slavery another 10 years. The English Empire was undercut by the Industrial Revolution which has been undercut by the Knowledge Economy. The world's thirst for oil keeps repressive regimes in power.

        As time passes, the value of an asset, a skill or a technology rises and falls. Each wave forces society to adapt with it. Power is restructured, sometimes for good and sometimes for worse.

  • George Bailey

    I guess this means Microsoft has moved into its post-squirting era…

  • Jaxian

    I always see chatter how Zune's feel of the OS is much better than iOS on iPod Touch. Similarly, Palm Pre's WebOS gets thumbs up from very thoughtful people as a better designed OS vis-à-vis Apple's.

    Having tested both devices I tend to disagree with both assertions. But if you were to grant them that point, it goes to show that, fundamentally, software is no longer the overriding killer feature. It's just a component in the race to market relevancy, alongside hardware, cost and platform vitality.

    The conclusion I draw from this is that if Honeycomb bested iOS in every way, it would still fail to challenge the iPad in any meaningful way. The oft-cited reason why Xoom and other non-iPad devices are failing is because the software is half-baked.

    Apple competitors are entering into a different arena in 2011. It's no longer the case that the best OS or client software will automatically win. You have to show up with every component on par with Apple or you'll lose.

    • Hamranhansenhansen

      The new Palm devices and XOOM never got beyond prototypes, they were mock-ups by Apple standards. Whether they have an interesting feature here or there does not excuse the Palm software running achingly slower on similarly specced hardware than iOS, or the Honeycomb software crashing, and does not make up for them both lacking native apps.

      So I think you are right, the complete package matters, but Palm and XOOM software is also not better than iOS. Even if the interface is preferred by a particular user, the core software is just painfully immature compared to the OS X core.

      Also notice Palm users talk about notifications and Honeycomb users talk about widgets and iOS users talk about apps. Until someone other than Apple has native apps, nobody will compete. People buy iOS because it has native apps that do things that Web apps (or Java applets) cannot.

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

        Huh? All of the major mobile platforms have native apps. Both Palm and Android run on top of Linux. How is that any less mature than OSX?

    • Mark

      writing off xoom in particular and android tablets in general because of some market research by analysts from forrester etc ? those people are not analysts, they are astrologers, they just parrot what they hear about in the media and extrapolate it to the future, assuming future expands linearly. I would wait for some time, before designating android tablets as total failures.

      • Joe_Winfield_IL

        Agreed. I think the news of Honeycomb's death has been greatly exaggerated. I agree with Horace's assertions about the differences between selling phones and selling tablets, and I agree that everything points in Apple's favor. But only one tablet has so far been released on Honeycomb. Dozens more will hit this year, in several different form factors. It is very premature to call the war won. The iPod comparisons are imperfect, as iPod didn't ever face any organized competition. Millions of users are already familiar with Android, so OEMs don't need to create and market their own software. Just as importantly, Motorola, HP, Samsung and HTC are not the same as 2001's Archos, Creative Labs, Personal Jukebox and Diamond Rio; they are well funded tech giants who view tablets as both a threat and an opportunity. Finally, Android isn't going anywhere. It is a runaway success on phones, so Google will continue to tweak its interface as long as there is any chance of tablet success.

        If Android does eventually fail on tablets, it will likely have more to do with oversupply than anything else. The glut of OEMs are all striving to differentiate themselves from iPad, but it is hard to imagine a single winner emerging to grab mindshare and shelf space. They risk becoming white noise as consumers struggle to decide which non-iPad is best. Accessories and covers are also tailored to individual hardware designs, and again more means less for each SKU.

      • simon

        "Just as importantly, Motorola, HP, Samsung and HTC are not the same as 2001's Archos, Creative Labs, Personal Jukebox and Diamond Rio; they are well funded tech giants who view tablets as both a threat and an opportunity."

        You must forgot about them now but Sony, Dell and Samsung, three of the largest tech companies in the world, went hard for the MP3 market and got utterly destroyed by Apple. A

  • Gromit1704

    I have never seen a Zune in the flesh because I live in Europe. I remember its launch when it came in nicotine brown, and non of the DRMed purchases from Microsoft would not play on it. Frankly, for a copycat rip off of an iPiod, it was a completely botched product from the beginning, and I an surprised its demise has taken so long.
    If Microsoft were not confident enough in the product to sell it further afield than North America, then its days were already numbered.

    Saying that, the iPod Touch could do with a viable/credible competitor, but alas, Apple's bulk purchasing power of components means nobody can deliver a better product for the same or less than the price of a Touch.

    I can seen the many iPad copyists going the same way, but probably a lot more quickly.

    • FalKirk

      "the iPod Touch could do with a viable/credible competitor"

      I know WHY people say that, because it's economics 101, but I don't think it's actually true. Apple is great at iterating their products regardless of whether they have competition or not. When Microsoft had no competition, product innovation basically came to a screeching halt. But Apple has had virtually no competition in the iPod space for years and they continue to rapidly innovate.

      Most companies need competition to spur them forward. That is not Apple's problem. I would argue that Apple's intense focus can also lead to myopia which can lead them to disregard the advice of friend and foe alike, sometimes to their detriment. Apple doesn't need competition to spur them, but they may need competition to act as a sort of guide rail to keep them from occasionally veering off the road and into no man's land.

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

        Not so much "no man's land" as "Apple land" where everything is Apple flavoured and doesn't mix with anything else.

        Go back a few years and iTunes worked with players other than Apple's and Apple actively added support for iSync for other manufacturers phones.You could dial from Address Book on the Mac via Bluetooth and if you got a call on your Nokia/Sony/Samsung…, a HUD display on your Mac came up and it muted iTunes. These days, none of that now that it's all about the iPhone which has totally shit bluetooth support so all the other phone manufacturers have to suffer too.

      • David

        And you blame Apple for iTunes not working with other players? Doubletwist can do this. How about blaming the vendors for not writing the proper software? You can get everything you need out of iTunes as an XML file. From there, you've got all the files you need to sync.

        Now, if you expectation is that Apple has to write connectors for everyone else's devices, then I suppose you are doomed to frustration, but that is hardly Apple's fault.

        I'm not sure what you mean about bluetooth.

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

        Apple has done a good job innovating on their own because they have had a clear vision of what the future of computing should look like. Smaller, efficient, easy to use. They leveraged their experience in making iPods into making other super compact devices in the iPhone and iPad.

        What I worry about is what Apple will do once they have reached their vision. Their current vision can probably take them another 5 – 10 years. At some point in time, there will be another paradigm shift. We'll see if they can continue to innovate then.

        Microsoft's old vision was a "computer on every desk". It was never to innovate. That's why they stagnated. They were always marketshare focused and remain so to this day.

  • Tom b

    I've been a Mac user since '89 and I'm watching this all with great satisfaction. Although MSFT never had any really good products, they nearly won by default in the years right after Win 95 because Apple, Inc. was a disorganized mess of a company. After Jobs came back and they actually SHIPPED OS X, I bought my stock. I knew they had done what needed to be done. MSFT never DID modernize their OS; Win 7 seems be be about the best they can manage, and they have no clue how to manage consumer products (some success with XBox, but that only self-cannibalizes their PC gaming business). We see with Apple's "i-Stuff", they integrate, simplify, and keep MOVING THE GOAL POSTS. Go Team! My IRA is half AAPL, and loving it.

    • Graphex01

      Why isn't your IRA 100%?

      • tom b

        I should have. :)

  • r.d

    I think Microsoft has shifted focus to iPod Touch/NGP (Games).
    So they will have to use Windows Phone 7 to do that
    and call it XBox Live Mobile 7 with Kinect.

  • xtophr

    Apple and Microsoft are both technology companies, but are they really competing for the same dollars? Anecdotally, I would say that Apple competes for consumer discretionary income, while Microsoft competes (extremely well) for corporate IT spend, and to a much lesser extent, consumer dollars.

    As evidence, look at Apple's retail presence. Primarily located in the "upscale" shopping centers, they compete for the same attention and spend as Abercrombie & Fitch, Banana Republic, and the silver section of Tiffany's.

    To say that Apple is "product focused" is an oversimplification. Yes, they make great products that the technically adept can compare to alternatives on a spec level, but the allure goes much deeper. People "locate" themselves, and their place in the social strata with Apple goods. An Apple product confers upon its owner what Pierre Bourdieu calls "distinction": People choose things not just because they are good products, but because choosing an alternative would signal the wrong thing to the rest of the world. Apple understands this deeply. You can see it in every aspect of their design and marketing.

    • vinner57

      Hmm… I think you are missing the point. The 'product' is the user experience and everything is in service to it. The location and design of the stores simply reflects, consistently and absolutely, that user experience. People identify with Apple of course; I know I do, but peer pressure or social positioning are not the primary motivators. The simply make the best products and their focus on the details is to be admired and emulated.

      • unhinged

        Positioning is not the primary motivator ONLY WHEN the products are obviously different. As soon as the products are effectively interchangeable (having 90% of the feature set, for example) then how one is perceived by others for making a particular choice becomes the main factor in a decision.

        Look at Windows vs MacOS. As soon as Windows became "good enough" most purchasers aligned with what their influencers chose (ie, folks at home used what support personnel at work recommended). The technical merits of either platform became much less relevant.

        I would further argue that the process of the market changing is a "tipping point" scenario where collective "wisdom" is gathered over a long period of time and then when a sufficiently different alternative is proposed, the market moves. Again looking at Windows vs MacOS, Windows still has the reputation of being buggy and insecure because of the collective experience with WinXP. Despite the strides they have made with Windows 7 (and, to a lesser extent, Vista) Microsoft is still derided for faults that they have worked very hard to fix – and Apple is still viewed as "far more expensive" by a significant portion of the market.

        What it boils down to is that the information about the products on offer takes a long time to percolate through the market, and people are largely unwilling to act contrary to the prevalent opinion of what is best.

      • Hamranhansenhansen

        I think you are right Windows and Mac OS became interchangeable in the 90's, but in the 2000's, due to Mac OS X and the Intel Mac, the Mac took 90% of the high-end $999 and up PC market. That is part of why Vista failed: it was a high-end Windows that shipped into a PC market almost entirely composed of low-end $500 PC's that couldn't run it well. Microsoft was left giving away Windows on netbooks. So Windows and Mac OS are very different products today. It is actually iPad that is more interchangeable with Windows because it is at the same price point and is used for the same kinds of low-end computing tasks such as Web, Facebook, YouTube, iTunes, Netflix.

        A lot of people are using Macs just for Unix. For example, 100% of Genentech and 80% of Google. A lot of people are using Macs for audio or music production, where it has dedicated subsystems and much better application platforms. A lot of people are using them because they lack viruses.

      • unhinged

        No argument from me – but note that it has taken a long-term campaign from Apple to convince people that the things they want to do are easier to achieve on a Mac/iPad/iPhone. And once the tipping point was reached, sales blossomed.

      • Lee

        To somewhat rephrase something unhinged is saying above and to twist it to my own nefarious purposes, in the 1990's and 2000's Windows was the "default choice." If you didn't want to think about what OS to use, you chose Windows (I'm sure there were outlying exceptions, but in general). That meant that virtually 100% of all Mac users put time and thought into their choice. Virtually all of them were educated consumers.

        (The converse isn't true. That someone put thought into it didn't mean that they ended up choosing a Mac…just that everyone that eventually chose a Mac had put some thought into it.)

        So though it was a much much smaller portion of the computer-using population, it was decidedly more made up of (percentage-wise) tech-savvy people.

        (Again, apples to apples so to speak. Not every Mac chooser was as tech-savvy as the most savvy Windows chooser. But the bottom of the "tech-savvy-ness" scale for Mac was much more tech-educated than the bottom of the same Windows scale)

        That led to this reputation that "all Mac users are (blank)" — loyal, jerks, cultists, whatever. We (I'm one) all cared, because we had put so much energy into making the choice. We were a homogeneous group in that sense. Many many many MANY Windows users — millions and millions of them — didn't care in the same way, because they just made a default choice without thinking about it. That was a great survival element for the platform back in the day, and a great driver of Apple's current rebound in the computer market.

        Now the positions are reversed. We can debate market tactics and comparative value all we want, but in the background of our discussion Apple has become a default choice in this space; certainly in the MP3 player space and currently in the tablet space, and an argument could be made that it is or is about to be true in the smartphone space. Anecdotally I know several people that got an iPhone because they just knew they wanted an "iPhone-like device" and so that meant (without thinking about possible alternatives) an iPhone.

        So the positions are now reversed: Apple is the default choice, and (for the most part, it seems), Android or Windows Phone (or Zune, to come full circle back to the current post) is the choice whose population is made up of virtually 100% of "thinkers".

        (There is another similarity: while Apple was the counterculture choice in the 1990's and 2000's in computers, so now anything non-iDevice is held to be a counterculture choice now. I'm not sure that's true, though: lots and lots and lots of Android devices out there. Perhaps some envy from some portion of the masses wanting some counterculture identity?)

        But those reversed positions haven't seem (so far) to have yielded the reverse results. The Macintosh? Thriving now after surviving. The Zune? Not so much.

    • kevin

      The user experience of a product includes the aesthetics of the product. Beauty matters in that it makes a product more pleasurable to use, so Apple tries to make beautiful devices.

      Think of Apple Stores also as a product. It's design reflects the same values that go into an Apple device. Which are the same values represented by the Apple brand. A pleasure to use.

      People who buy cheaply made stuff generally don't believe beauty matters in terms of use. They would not pay extra for it. So there's no reason for Apple to locate their stores with other stores that sell cheaply-made, aesthetics-ignorant stuff.

      Finally, look at the location of the few Microsoft stores. Mostly within sight of the Apple Store. iPad 2 lines formed in front of them. For whatever reason, Microsoft thinks it's competing for the same dollar.

    • Hamranhansenhansen

      You are making an old mistake. You're comparing the marketing only, when the fact is, the products are just way, way better than the competition.

      I used to work at a Web development agency where the CTO hated Apple, and you had to defend your choice of a Mac on a purely technical level or he would give you a PC. Everyone ended up with Macs anyway. The designers had them for ColorSync and AppleScript; the engineers had them for Unix, Apache and PHP; the video people had them for Final Cut Pro; the IT people had them for Unix because they were managing Unix Web servers; and the sales people and executives had them because then they never had to call IT who could therefore spend all their time managing the network and servers. The CTO himself had the only PC in the place and he ran Ubuntu on there. But even he had an iPod touch of his own because it was just better than anything else.

      If you read Walt Mossberg's iPad 2 review, he went way, way out of his way to make out like iPad 2 has some competition, even talking frequently about competition that is "coming soon," but even so, he admitted that iPad 2 did not crash during a week of testing, unlike every Android tablet he had seen. That is not a brand with a product attached, it is a product with a brand attached.

      One criticism of Apple over the years is that their brand marketing drove away as many users as it attracted. Especially in the PC industry, you are supposed to compete with a spec sheet and lower price only. And they have been competing with the Wintel monopoly. So ultimately it does come down to a better product. People buy Apple again and again because they get spoiled for other gear. I expect my PC to have color management and not crash.

  • Fred H Schlegel

    Did the Zune fail because they were blocked from critical innovation due to the old Windows phone? Seems that Microsofts' (and all other wannabe's) best chance to dislodge Apple was during the transition into the cell phone market. Microsoft saw the endgame for Zune as a player and nothing more, Apple somehow saw a bigger picture. Possibly the business unit structure that divided the homebrew hardware for the Zune vs the licensing deals fro phones was a deterrent.

    • kevin

      When MS launched the Zune, I thought they had figured out what Apple was up to, in terms of preparing a software/hardware/ecosystem/manufacturing/distribution experience and product base for its next product, which even at that early point in time, was already being rumored as a music phone. (The music phone turned out to also include the web and eventually apps.) But, over time, with no advance in WinMo and criticism of the iPhone, it became clear that MS and Ballmer, in particular, really didn't get that at all. Which leaves us all wondering why did they bother with the Zune at all…

  • BenHill123

    ipod touch and zune are going to be subsumed by the smartphone, good/smart decision by microsoft to kill zune. Music player is now just a feature of a smartphone or a postPC device. And Apple should kill the other nonappstore enabled ipod classic, shuffle and mini and nano which don't have a browser too. Those devices are just fluff devices and are no longer part of the postPC era.

    • http://twitter.com/qka @qka

      As Horace Dediu has described here before, Apple's iDevices form a continuum from the lowliest shuffle thru the top of the line iPads and iPhones. Yes, iOS is only on the upper end devices. But there is more to Apple's marketing than iOS. Abandoning the low end devices would leave Apple exposed to competition there that would then be in position to eat its way up the price scale. Also, many users want their iPod along for the workout and don't want to expose their expensive device to the risks. By offering a lower priced device, Apple lets that user connect multiple devices to one music database, making things simple. Finally, low end devices are particularly popular as gifts, as the year end holiday sales figures have shown for a number of years now.

    • http://www.noisetech-software.com/Home.html Steven Noyes

      I see a future life for the iPod Touch. Add an integrated mic and speaker like the iPhone. Drop all the 3G stuff.

      BAM. You have a cheap cell phone for your kid using VoIP. It is controlled pricing and cheap and no contract. And best of all, somewhat limited.

    • Gromit1704

      There will be an element of cannablisation of the iPod market by smartphones/iOS devices, but it would be foolish of Apple to kill off half its product range in a sector they have very little competition in.

      People buy the Shuffle because it is cheap and small. Virtually every jogger I see have a shuffle pinned to their shirt. They do not take their iPhones jogging because they are bulkier and heavier (and are x20 more expensive). The classic appeals to people with large music collections, and I still use mine as a external hard disk (which you cannot do withi OS devices). The Nano gets people ready for the iPod Touch.

      In short, the non iOS devices are still relevant, sell by the truck load and are still highly profitable, which could never have been said about the Zune.

    • asymco

      The iPod touch is thriving. It's a growing part of the iOS ecosystem. Phones are products that require a different channel than the iPod touch/iPad and that shapes how they are purchased and valued.

      • Synth

        Absolutely, I believe you have already pointed out that at least 40 million iPod touches have been sold. That is a big deal. The iPod touch allows Apple to swallow entire markets whole because it is wholly unopposed. There are many markets and uses where the user simply doesn't need a telco. Just look at the way Apple is using iPod touches for their POS systems. It would be just stupid to be forced to have a telco subscription for that.
        The under 20 crowd is mad about iPod touches and all the people who can't or won't pay ridiculous telco data/texting rates love the iPod touch. We live with our dopey phone for phone calls and use the iPod touch for everything else.

    • Hamranhansenhansen

      iPod touch *is* a smartphone. It's a carrier-free Wi-Fi VoIP smartphone. If you are carrying a Mi-Fi anyway, an iPod touch is a better smartphone than most. If Apple puts 3G in there with a $30/month data plan, that is the perfect low-end iPhone.

      The iPod nano and shuffle are used by gym rats and joggers, and iPod classic is essentially the ultimate home or car CD player. And people who buy iPod nano end up with iPhones and Macs, it is a great way for people to get over Apple-phobia.

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

        But it's rubbish as a VoIP smartphone, not having SIP built in. You have to rely on 3rd party apps to add VoIP abilities which aren't integrated to the rest of the OS. Horrible bodge at best.

      • unhinged

        Being a horrible bodge hasn't hurt Windows, though. :)

    • nns

      I'm sure Apple gets a lot of people upgrading from classic iPods to iPod touches, iPhones , and iPads. Being in some kind of portable gadget market at $99 is still a big deal. That's impulse buy territory.

  • FalKirk

    First, Microsoft was late to the MP3 game.

    Second, Microsoft tried to win the MP3 market via their tried and true strategy of licensing. They would create PlaysForSure software and delegate the hardware creation to their partners.

    Third, when Microsoft realized that they weren't making a dent in Apple's MP3 market share, they abandoned their partners and attempted to copy Apple's integrated model by making both the software and the hardware for the Zune.

    Note a couple of things here. First, Microsoft had no problem simply dumping their PlaysForSure partners. Second, Microsoft seems to think that all they have to do is copy some one else's idea, show up, and victory will be theirs. Third, notice the astonishing parallels between the Zune and Windows Phone 7. In mobile phones, Microsoft was actually ahead of the game, but once Apple changed the rules of the game with the iPhone, an almost identical pattern emerged. Microsoft tried to beat Apple with licensing, abandoned that plan (and their partners), created a new operating system and, with Windows Phone 7, tried to create a hybrid where they made the software and tightly controlled the hardware, showed up and thought that that would be all it would take to win over the market.

    I don't think people realize how truly screwed Microsoft is. Nobody seems to notice because the revenues keep pouring in. But they're like Spain at the start of the industrial revolution. Spain was rich beyond measure with gold from the Americas, but they had no industry of their own and they were rotting from within. Once the industrial revolution kicked in, Spain was nowhere to be found.

    Similarly, the post-PC revolution is in full swing and Microsoft is stranded in the PC world with little chance of participating meaningfully in the mobile phone or tablet markets. People think that Microsoft's PC dominance will sustain them ad infinitum, but the Mac's market share is the canary in the tunnel. Mac share has been rising for 19 straight quarters, but if it starts to make a sudden upward leap, that will be the sign that Microsoft is becoming as irrelevant in the PC world as they already are in the mobile world.

    • BenHill123

      nice explanation, but essentially Apple is in the 'honeymoon' phase, Apple's renaissance or move towards becoming the dominant platform started in 2007 with the launch of IPhone, so they are still in phase 1(less than 4 years), and everything Apple does will appear to be better than microsoft at this point of time, since Apple has apparently learnt a lot of lessons from microsoft's weaknesses in strategies. Microsoft dominated for more than 15 years and microsoft appeared as invulnerable as Apple is appearing today in 1995. Microsoft rapidly captured one market after another in late 90s and believe it or not, one of the reasons Microsoft NT won over novell netware was because windows NT had a GUI and was perceived to be more user friendly than novell netware.
      Lets see what happens in 2020. Interesting to watch, lots of competition between android, windows phone 7 and iOS, lots of competing platforms, I expect by 2013, companies to give away iphone 3gs or samsung galaxy S phone type phones for free(really free, not beholden to a contract), I expect kindle to be made free/very cheap this year with the customer guaranteeing to purchase say 200 dollars worth of books/magazines for that year. Everything is up for grabs yet, Apple has a great lead, but not insurmountable in my eyes. Business models are still evolving. Nothing's settled yet. This era is not going to be an inverse of mac v/s pc(one totally dominant with the other relegated to the margins), it is going to be an era of multiple platforms, multiple business models, multiple strategies.

      • Gromit1704

        I do not agree that Apple are in the 'honeymoon' phase and that it started in 2007 with the iPhone. I would say Apple's renaissance started with the iPod in 2001. It was the first Apple product to sell in large numbers to Microsoft users and was definitely the foundations for the later iPhone. Other factors, that pre-date the iPhone, that ignited the renaissance were OSX and the iTunes Store.
        Certainly, as Apple added to its range of iGadgets, the momentum of consumer interest in Apple has increased exponentially, but that definitely started with the original iPod.

        So after 10 years, I would say the consumers' marriage to Apple is looking stronger than ever.

      • chano

        It started with Jobs 'Digital Hub' presentation of which the iPod was a first component. That the iPod grew from a mere PMP to become the computer in your pocket, swallowing up all kinds of media the while, is a happy unintended consequence of hub-thinking.

      • Hamranhansenhansen

        No, 2007 was not the start. Apple go back to 1977, they are the oldest and most influential PC maker. Even "the new Apple" (Apple/NeXT) goes back to 1996. They spent the first 5 years getting ready for the 21st century by building OS X and iTunes and Apple Store, and nobody else has done that kind of work yet. So everything is not up for grabs. A software project like OS X takes 5 years to get off the ground and 5 more to get running right (see OS X 1996-2006) and Apple had the benefit of both classic Mac OS and NeXTSTEP as key components. True competition for Apple's current products is not going to appear overnight, never mind a competitive ecosystem, because nobody has a platform like OS X to build on except Apple. Android does not have native C apps yet, only got hardware accelerated graphics a few weeks ago, and is slow and crashy, riddled with malware, and even its Web app platform, which is based on a lot of Apple code, is not up to par with Apple.

        OS X is Apple's main product. Nobody has done more than barely start to compete with it. A number of vendors have tiny little pieces, but even if you somehow put everyone else together there are huge pieces missing.

      • OpenMind

        Agree absolutely. The foundation of Apple success is those 10 years working on OS X since 1997. Back in dot com bubble, while everyone else threw out flashy but shaky products, Apple is working on its foundation. While others fought on what language is better, java this, php that, Apple has only one language C and is busy building those nice solid libraries: Quartz, Core Image, Core Animation, OpenGL, Coca. On top of these solid libraries, with a little touch comes Coca Touch. Wow-la, comes iPhone, iPad with little additional effort. No one spends those 10 years like Apple to build up foundation. They deserves to die.

      • chano

        No, you are playing the historian here. The Apple of the 1970s was doomed to fail because of Jobs' disruptive behaviour. He was cast out and learned many hard lessons.
        The Apple of today was conceived in 1997 +/- and born in 2001 as described above.
        Everything that we are witnessing today in the unfolding of a simple, cohesive and profoundly elegant plan for success through business congruence.

    • David

      I'll add to this. In almost every market in which MS has to compete, where they cannot leverage the Windows advantage, they appear to fail to do so. There are
      no secret APIs that make their software run faster or integrate better
      no embrace-extend-extinguish strategy that can be employed by licensing someone else work. This doesn't work on open APIs and neither Apple nor Google licenses their crown jewels.
      no hapless smaller company that can be bought out or out spent. Both Apple and Google have deep pockets.
      no sacrificial pawns to cast upon the altar (see Falkirk's PlaysforSure example)
      No real entrenched advantage. No shady bundling deals, no "kill it or we don't give you windows"

      This is bare fisted mano-a-mano combat with equals and Apple and Google are beating them up.

      • davel

        Yes. Microsoft has been living off the monopoly created by IBM.

        In the mobile space they have no advantage. The warts that Microsoft always has are exposed and people can compare the products for what they are and choose and not have their choice dictated.

  • poke

    I think this change tracks a profound change. Microsoft's strategy worked under conditions where you had a lot of manufacturers who owned their own factories and produced their own hardware. You had an abundance of manufacturing clout, what was missing was the software and services. One company offering an integrated product could not compete under those conditions. Microsoft offered those manufacturers an easy way to get a platform, and Microsoft's strategy revolved entirely around controlling who had access to that platform. To quote Steve Jobs: "A force of self-interest throughout the industry made Windows ubiquitous. Compaq and all these different vendors made Windows ubiquitous. They didn't know how to spell software, but they wanted to put something on their machines. That made Windows ubiquitous."

    Those conditions have changed completely. Nobody owns their own factories now. Everybody outsources. And everybody is competing for the same manufacturing slots in factories in China. A single, large company now has an advantage over many smaller companies. That single, large company can monopolise manufacturing and components. It can shut out competitors. Producing your own devices, rather than having lots of different companies producing a share of slightly different devices for your platform, actually makes more sense in a world where the manufacturing is largely outsourced. Without bringing more manufacturing clout to the table those other companies are really offering you nothing more than fragmentation and noise.

    Android has seen success on the "Microsoft model" because it was embraced by incumbents (Samsung, Motorola and HTC) in response a disruptive new competitor. There's a lot of friction in the phone market and Apple is a newcomer. They don't have the distribution channels the incumbents do and that's why Android has been able to gain market share in such a dramatic way. The iPod didn't face that kind of friction and Apple managed to take a big chunk of the market and lock its competitors out. I think the iPad will track the iPod more closely than the iPhone for the same reason. The Zune was a move in the right direction for Microsoft but was too little, too late. Embracing devices is probably too radical a change for Microsoft. They've had some success with devices in the console space but it's a small market.

    You could look at it as the device becoming part of the software or the platform. Apple doesn't actually produce the physical device anymore. They create the design. In that sense, you could say it's just more software. There's really no reason to separate the device from the platform anymore. It's one and the same thing. And that strongly favours Apple as a company because that's how they've been doing things all along.

    • Hamranhansenhansen

      Gospel.

  • Simon

    IMHO the failure of the Zune wasn't really the fault of Microsoft. Everyone else who went head-to-head against Apple in the MP3 market failed and eventually they had to either run away or scale down the production as the MP3 player market itself is going through an eventual contraction. Rio, iRiver, Cowon, Creative, Sandisk, even Samsung and Sony all basically raised the white flag and either became irrelevant bit players producing cheap players or niche products in small quantities.

    The absolutely amazing thing about Apple is that they fairly early realized the MP3 market would end up getting sabotaged by the smartphones and they took advantage of their new iPhone platform, parlaying it into the iPod Touch. I don't know if it was their plan all along, but the iPod Touch flourished as a something of a wolf in sheep's clothing: it had the iPod name but in reality it was a cheaper iPhone without cell antenna and contract, and its ability to be a small WiFi tablet device and use the vast amount of games and apps on the platform made it a massive hit, especially with teenagers.

    If Microsoft is to be faulted here, it's their strategy with the Zune with regards to positioning it as the iPod Touch competitor. They just didn't have the vision that Apple had in the MP3 market. To use the hockey analogy often thrown around online, Apple had realized where the MP3 puck was going to end up, and positioned themselves accordingly whereas Microsoft followed the puck. The Zune was a fine media player but Microsoft just couldn't see what was ahead for the touchscreen MP3 market: the ability to fully utilize the internet and the importance of app store.

    Samsung is the latest company to have a go at it, and they are essentially copying Apple's strategy by making a smartphone without the phone bit. With their massive production capacity and solid hardware they might succeed to some extent, but like other competitors, Samsung couldn't beat Apple's pricing and other than the larger display it's still hard to see why a general consumer would buy their products over the iPods. Then again, there are people who absolutely hate using iTunes so maybe Samsung will have a chance to be a viable alternative. On the other hand, have I mentioned that Samsung players cost more than equivalent iPod Touches?

    • CndnRschr

      I agree except for not placing the blame on Microsoft. The other player makers were small and have shallow pockets. Microsoft waded in and had the resources to mount a strong counter point (the Zune HD is quite a nice device), but didn't follow through. Microsoft Central lost interest in what Robbie Bach was telling them and lost patience when marketshare and sales failed to transpire. The original iPhone was not a huge success and the business plan it was based upon was radically changed (subsidies). Apple iterated quickly because it knew it had a winner if it held on and built the ecosystem to support it. The pre-purchasing of flash memory and "retina" displays demonstrates confidence and panache. Google has confidence. Microsoft has memories. It's like the self-doubting golf pro who can't seem to get his swing back.

    • chano

      Why do we over analyse this.
      With the Zune, Microsoft offered too little, too late.

      • FalKirk

        We overanalyze this because it is a very big deal. In 2005 when Microsoft announced the Zune, the vast majority of pundits thought that it was the beginning of the end for the iPod. Inevitably Microsoft with their deep pockets and was bound to overwhelm the upstart Apple. The fact that Microsoft failed and failed miserably says a lot about the foresight of pundits. More importantly it says a lot about Microsoft, a lot about Apple, a lot about business practices in general and the tech market in specific. We'd be fools to let this moment pass without delving deeply into the wealth of lessons that the Zune's failure has placed before us.

      • asymco

        We analyze this also because there is a pattern of behavior over a very long period of time that explains how companies are motivated. It always amazes me that some people suggest that Microsoft and Apple have the same motivations and same tactics and strategies. Only by contrasting and observing patterns over a long time span can you see just how different companies can be from each other.

      • unhinged

        Or you could just boil it down to a guy in a suit and a guy in jeans and a turtleneck.

  • timnash

    To displace the iPod, Zune needed to be significantly better. It failed because it offered most people nothing more than the equivalent iPod
    – it wasn't significantly cheaper
    – it didn't offer a much better selection of music or other media
    – it didn't offer a much better media manager than iTunes
    – it didn't offer a range equivalent to the Classic, Touch, Nano and Shuffle.
    So iPod was the much safer choice especially since Microsoft has made a habit of taking 3 attempts to get it right.

  • Charel

    Apple’s strength is their unwavering attention to their eco system. As soon as they loose their focus on that they will become vulnerable.
    They have not completed this. The huge server farm is an indication of further development of the iTunes basis of their success to date. They are very aware of the present weakness of iTunes on other platforms. Unfortunately they are dependent on content providers to improve matters to their liking. But with their increasing market share they will eventually get their way as they have done up to now.
    Record companies have caved as have the likes of You Tube. Rests the providers of TV programs. books and the news papers.
    Apple has had a plan from long ago. The iPad preceded the iPhone and probably the iPod touch in their development laboratories. They have not finished implementing all they have in store for us.
    To Apple it never was a matter of style and price alone. It always was the total experience for the customer, the consumer.

    • Mark

      will be interesting to watch how long apple rides on the coattails of 'consumerism'. Consumerism has to stop somewhere. People get bored, life moves on to the next 'shiny' thing

      • FalKirk

        I don't pretend to know what effect consumerism will have on future markets, but I do know this. If you think that people buy Apple products because they are "shiny" you're understanding of the subject matter and your level of analysis is woefully shallow and inadequate.

      • CndnRschr

        Quite a few perpetually successful consumer companies come to mind: Phillips, BMW, Mercedes Benz, Kellogs, Kraft, Hoover…. Success is about management and continual reinvention. Resting on your laurels or not understanding your audience leads to ambivalence, arrogance and then, irrelevance.

  • O.C.

    Discussing technology on this blog is like discussing religion with Al Qaeda in a cave.

    Its like I wandered into a Apple clan meeting and Horace is preaching his Apple sermons to the choir. The adoration and devotion for a brand is a bit disturbing.

    Apple, you're the greatest. To infinity and beyond. Can I get an AMEN for that?

    • asymco

      I hope not. The point is not to eulogize Apple but to ask why aren't there a thousand Apples? Apple is only a lens through which we can see the failure of strategy and vision of others.

      • Anon

        I'd be curious as to which successes you see Microsoft having.

    • simon

      "Discussing technology on this blog"

      This blog is not about technology. It's about tech business, especially asymmetric disruptive forces.

      Android and Apple fanboys would just argue how each one has more marketshare. Horace looks at the financial path of each maker and carrier as well as the overall profitability. You could argue how Android is more "open" and how Apple hardware is inferior in million ways but what really matters on this blog is the cold financial result and proven history, not a blind faith in a platform.

      Now do you actually have anything to say against Apple's financial performance or are you just here to throw meaningless rhetoric like a mad monkey throwing feces?

    • David

      It's 2011. What would be truly disruptive is new analogy for Apple. Apple has *long* since crossed into the mainstream, yet people like our friend O.C. here speaks like it is 1994 and the only Apple technology to be found is in the back of a software boutique or mail order catalog.

      100 iOS devices, hundreds of millions of iPods, tens of millions of PCs, would you care to share with us when Apple and talk of Apple technology will move from religious to just tech talk?

      • David

        100 million iOS devices, not 100

      • aaplou

        I believe Steve Jobs announced the 100 Millionth iPhone during the iPad 2 event, so if we add the iPod touches (50M?), 15 million iPads (2010), the "hobby" AppleTVs, we're way above 100M! iOS is more than just the iPhone. And I estimate 100M more iOS devices in 2011

    • Gromit1704

      Admittedly, this site is biased towards Apple.

      If you want to drool over Zune or Kin, you'd better go elsewhere.

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

        You might say the reality of tech culture itself – markets, press, public opinion – is biased towards Apple.

        The question is, should we deny that there seems to be something special about Apple*, or should we admit that there certainly seems to be*, and analyze it?

        *as opposed to other tech companies (sans Microsoft, which is still also in a separate league of its own by extreme contrast to Apple and every other company.)

    • Joe_Winfield_IL

      I've noticed that over the past several months, this site's success has drawn a broader audience. The comments have progressed more towards fanboyism and less toward analytical thought, as most readers (and most AAPL shareholders) own and enjoy Apple products. But if you don't enjoy the comments, I suggest you do one of the following:

      1) stick to the articles and avoid reader comments.
      2) move on and choose another free site that analyzes the business of consumer tech.
      3) read every single comment thoroughly.

      If you're willing to take the time, you'll see that there are some diamonds in the rough in nearly all of Asymco's posts. If you stick with it, you will identify a handful of commenters who know their stuff and are able to host side discussions relevant to the topic of the day. The tone on Asymco is generally also much more respectful than I've seen elsewhere. But most importantly, Horace analyzes data that nobody else is looking at. His Apple bias is based on his dispassionate observations, not on a gut feeling. As a shareholder who has done very well on AAPL, I trust that this site will give me better and more timely information than I can find through my broker or any rumor blog. I'll know when it's time to sell because this reader/writer community will have plenty of tells when Apple makes a serious wrong turn.

      • davel

        I agree.

        The problem is that many with a different point of view do not actually take the time necessary to understand the thesis offered so they can break it down or attack the assumptions and show why they are false.

        I do not always agree with Horace, but I find most of his posts to be thought provoking and he makes original analysis and does not scan others' missives and copy and paste.

  • Jon T

    I believe the big issues are 'value' and 'refinement' (putting aside innovation for a moment).

    Microsoft products provide poor value because they go pear shaped too often, they need extra security attention, and are often slower and less efficient. The company focuses on market share and control, not on providing value. Apple is the reverse. "Knowing the price of everything. And the value of nothing".

    Then there is one more thing: refinement. Apple seems to endlessly churn out new products that are incredibly refined. Conversely Microsoft focuses on getting the job done, to the extent that refined is not a word in their vocabulary.

    A more sophisticated world is more demanding of both these attributes.

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

    The problem with Microsoft is that they never found a new vision after they finally put "a PC on every desk".

    People forget the excitement around Windows 95. People camped out overnight for it's release. When was the last time you heard that about a MS product other than XBox.

    Listen to Balmer's incoherent interviews. He has no idea what is going to be important in the post-PC world.

    • Mark

      thats because he is confused, he has to copy Apple as they usually do, but now Google wants to eat its lunch by sort of copying the same distribution strategy that windows OS adopted and threatening their cash cow of office with google apps which is radically cheaper and simpler, he doesn't know whom to copy and on the sidelines facebook is lurking, threatening to become an internet within internet with all the people spending all their lives within facebook in the process becoming an online walmart where you get everything. Unlike Apple or Google or Facebook each of which have distinct vision, microsoft has none and is struggling to find the middle path. Maybe Ballmer needs to read the 'the way of the zen'

  • davel

    Horace.

    Where do you get your material? This is a reference to waay back.

    To answer your question, I think the market has come to Apple. Their products are considered expensive, but they are affordable. People can scrape together $200. Back in the 80/90's it was $5000 ( not in constant dollars ).

    Their products are affordable now and consumers are not forced to be geeks with the true geeks telling them what to do.

  • Citizen of the world

    some serious microsoft bashing going on over here in comments, I was referred to this blog by my colleague who called this a very good blog, but the comments have put me off, it is as good as any android based blog comments who tend to see the world in black and white. Apple greatest and bestest, microsoft baddest and meanest. Apple deserves every bit of the success, but microsoft was lucky is the common refrain, Apple cares for consumers, microsoft has disdain for consumers is the cry. One would think Apple is the tech equivalent of missionaries of charity headed once by the real life saint Mother Teresa. Just peel away the layers once and what you see is just another big corporation employing child and slave labor in China to get the IPhone manufactured cheaply.
    Comments have put me off. There is no moral/ethical compass anymore, Apple is certainly not different from other companies in this regard or any worse. it is all about shareholders and greed.

    • simon

      "Apple is certainly not different from other companies in this regard or any worse. it is all about shareholders and greed."

      I don't know what you're trying to say but Apple is legally responsible to be all about shareholders and greed under the constraints of law. Nobody has asserted Apple is ethically more justifiable here, just that Microsoft isn't as good as Apple in being successful in the new emerging sectors. Microsoft is bashed because their old mindset wasn't able to adopt to the new changing market and Apple is praised because they have been able to adopt and succeed at a much larger scale. If you cannot understand the subject in hand, please read the post again.

    • r.d

      Foxconn builds XBox.
      You better move to caves of afghanistan if you want ethics.
      This blog is not making up history of Microsoft.
      All the evil of Microsoft is already on the record.
      Microsoft can't even pay the taxes of its home state
      and has to lobby for a special bill just to not get criminally
      prosecuted.

      Go Troll somewhere else.

    • asymco

      It's perhaps fitting that you accuse this blog of harboring opinionated comments while provoking with outrageous accusations.

  • Anon

    Did you read to his _next_ comment? I'm guessing not.

    • CndnRschr

      I read the whole thread. Even some committed Zune owners are less than satisfied with his comments. The guy still has his job and his wording is clearly couched (that's probably why he still has his job). He is also correct in stating the obvious that your Zune hasn't stopped working due to a lack of new hardware but there is not even a rumour of new devices (unlike the ZuneHD).

      Microsoft is now positioning Zune as an ecosystem or service and in that respect it may be "living on" in some form but their neglect of the frontispiece of Zune hardware is what most people equate with commitment to Zune (speaking to your initial point, which is taken). But few people give a damn about an ecosystem without a device, even if it is a loss-leader.

      • Anon

        It's been positioning Zune as a service since it's launch, and it's client software has existed on the web for 12 months. I just think that you haven't been taking notice. Which is OK. It just changes your emphasis. Frontispiece? I'd say tangible component, but then again every phone running WP7 is a Zune client too, delivering the Zune phone many Zune enthusiests wanted,

      • CndnRschr

        And there is the rub. Ask most people about Zune and, if they've heard of it, they'll describe the iPod-like device. You could argue that the iPhone is the natural progression of the iPod (in the iTunes ecosystem) but Apple sells a bunch of iPod Touches and puts significant effort into keeping the hardware up to date with the iPhone (albeit crapper cameras but greater storage). I'd posit that if Microsoft thinks that a significant part of the appeal of Windows Phone 7 is as a Zune client, they may have well have stuck with a single licensee. If Microsoft no longer sees value in a standalone device (without a monthly contract), then the value proposition of Zune has been weakened substantially. I understand their challenge and their desire to create an iTunes-like media outlet, but the lack of a defined device upon which to build the service seems short-sighted. I'll admit, my understanding of the rationale behind Zune has been clouded by the false-starts and inability to deliver on the promising first round.

      • asymco

        From Financial Times: http://www.ft.com/cms/s/2/0d63ea3a-4f34-11e0-9038

        Microsoft refused to comment on the fate of the Zune device, but sought to shift the focus to its software strategy, which involves linking Zune to other platforms, notably smartphones and games consoles.

        “We are thrilled by the consumer excitement for Zune across many new platforms, including Windows Phone 7 and Xbox 360. Our long-term strategy focuses on the strength of the entire Zune ecosystem across Microsoft platforms,” the company said.

  • Anon

    But they'd be pilloried if they didn't attempt growth into new markets right? As Apple did into MP3 players and online services with Mobile Me [speaking of money pits]

    • Joe_Winfield_IL

      Sure they would. I'm not trying to say that MS shouldn't have gone into these venues. I was merely trying to point out that losing money on a project is not a deterrent for Microsoft if it has enough strategic value. The DRM disadvantage amounts to pennies compared to the losses on their other projects.

      Online Services are the future of computing, and Microsoft can use its Windows revenue to buy a position. This is strategic and necessary. MS is competing with Google, Salesforce, Amazon, HP, IBM and a horde of smaller pure-play competitors.

      Ten years ago, MS was trying to move into the living room. Xbox was a means to an end when Media Center PCs were a nonstarter. With Kinect, MS thinks they finally have an in that can pay dividends. Their vision apparently includes a "Minority Report" style touchless interface, and can expand well beyond gaming if executed well.

      Zune software will help Microsoft differentiate WP7 from Android, and MS will thusly justify the expense. But this seems like a very small win for MS compared to the potential in Online Services and living room computing. I think MS realized early on in the Zune experiment that the days of standalone players were numbered. This is why they never backed their HW with major marketing dollars. Zune was an odd project from the start, as MS torpedoed their OEM partners without much strategic upside. In retrospect, they would have been smarter to license Zune from the beginning, instead of the clunky PlaysForSure alliance and proprietary hardware.

      I'm not sure that Mobile Me has been a huge money pit. By any measure, it hasn't been a success – but it is an expensive subscription service. The revenue from subscribers has to yield massive gross profit per user, even if the total only offsets a portion of the costs. To my knowledge, Apple hasn't thrown hundreds of millions of dollars at the service. It is Apple's biggest flop of the last ten years, but it likely doesn't even begin to approach the negative revenue of Microsoft's pet projects.

  • Childermass

    I can't tell if you are teasing us or not. Your question is framed in a way that suggests Microsoft is a company with a coherent strategy when it clearly isn't. If you asked all your highly technical and well-informed responders to say what MS do for a living you are going to get an extraordinary array of answers.

    Two cases in point. 1 MS is said to be the biggest software seller, but it doesn't sell 'software' it sells Office. 2 It is proud that recently it launched the fastest selling electronic device ever, which is a video games accessory. It is a fragmented, internally conflicted business. Of course it doesn't have a coherent strategy. Product success in these circumstances is happenstance.

    Likewise you are denying your own analyses by using 'distribution' in this unitary manner. Apple's disruption is not just in product but it is also dismantling traditional channels of distribution in many industries. (This question of many forms of distribution and how they are usurped is fascinating. Apple has stores everywhere – real and virtual.)

    So MS released a me-too comedy rip-off into a market whose distribution had already been usurped by Apple.

    It isn't either product or distribution and value. Apple has all three, MS none.

    • asymco

      It's true that Microsoft appears to have lost coherence in terms of strategy but what I am proposing is that there is a core guiding priority at work which is used to form strategy. I classify priorities around "product", "market" and "profit model". I believe Microsoft prioritizes market (aka distribution) first. In that regard its failures are when it tries to do something it does not traditionally prioritize (products or profit models) or when the market or value chain evolves to devalue that which it does prioritize (distribution). I'll expand on this at a later time.

      • Childermass

        I have a lot of sympathy with 'core guiding priority' – it is what I want my company to have – but I have to question in all seriousness whether MS has it now OR EVER HAD IT. It is good to assume that companies, especially large, successful and well regarded companies, have it. It makes us more comfortable. But my experience suggests it exists more in the imagination of the observer than in reality. Most big businesses are in decline.

        A test. Does MS seem like a company that over the years has responded to a true CGP or like a shambles? Most big companies are a shambles. They lurch precariously towards disaster over a long period of time following their 'success' period while the world does careful quarter by quarter analysis. Their doom was written the day the inspiration died. It just takes a while. Does a company with real CGP let a man like Ballmer run it?

        Please do not out-logic yourself. You may be smarter than they are.

      • Citizen of the world

        Certain MBA-school graduates would probably sneer at the belief, that if you solve important problems in ways that benefit large numbers of people, this will lead to good business outcomes, so don’t sweat the profit/loss in advance.

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

        I don't think any student of disruptive technology, (which is what this blog is mainly about) would argue with that. Disruptive tech usually brings technology and access to a greater number of people. The trick isn't in being the first, but to be the first get the formula right. Usually, it will take you a while to figure out the right business model.

        I encourage you to google Clayton Christenson for more info.

      • Joe_Winfield_IL

        I love Google's "don't sweat the profit/loss" attitude. It is truly unique, and makes the company a terrifying competitor for any business that has no choice but to sweat the profit. Google has so much cash flow that they can continue to enable 20% projects both to keep their employees happy and to stumble upon revolutionary innovations.

        But it is also a bit disingenuous. Google doesn't sweat the money because it knows it can monetize any successful product once it achieves scale. Facebook is exactly the same way, with its mantra of connecting everyone in the world. In both cases, technology is bringing people together and making life easier/better/enriched. But Google is still very much a public company with quarterly and annual profit objectives. Android is open source, but it is all about getting as many eyeballs as possible onto Google search, maps, and services. If Google didn't think they could make billions from Android, it wouldn't be anything near what it is today. The lack of a concrete 5 year profit plan doesn't mean that Google isn't sweating the profit; it just means that they don't want to publish goals which can be parsed by analysts as binary pass/fail outcomes. It also means they can miss internal metrics but still be a winner in eyes of the broader market.

      • Citizen of the world
      • http://twitter.com/gerwitz @gerwitz

        I have to disagree on this front, having worked closely with several MS product teams. I find the company to be quite product-oriented (granted, with a large organization devoted to sales channel concerns), but the culture justisn't oriented to products the same way Apple's is.

        (More thoughts at http://hans.gerwitz.com/2011/03/16/why-is-apple-r… )

  • Psymac

    Apple creates markets for products (it makes) while others create products for markets. Disruptive and integrative vs reactionary and fragmented.

    The iPad is a great example, where so many pundits didn’t get it when first introduced, but certainly Jobs knew it during his enthusiastic first iPad demo.

    • http://pajamasmedia.com/vodkapundit Stephen Green

      I hate to quibble, but… I must!

      The iPad 1 demo was — and I say this as someone who has watched Steve Jobs for almost 30 years — odd.

      He sat on a sofa, he talked about magic, he bragged about how his amazingly great new product could run iPhone apps. Even if it ran them awkwardly and with un-Apple-like ugliness. Jobs seemed to know he had something — but what? No one, including Jobs, seemed quite sure.

      Now we all know what the iPad is, even if some of us are loathe to admit it. It's portable computing, redefined. First, the Apple ][. Then the Mac. Now the iPad. One company has reinvented computing three times. This is unprecedented.

      So unprecedented, I would argue, that not even Jobs was quite sure, in January 2010, exactly what Apple had done. I bought my 3G model as soon as it came out and I use it constantly, but I'm not exactly sure what Apple hath wrought.

      The ramifications of iPad are going to play out for quite a while, I think — and it's no sure thing that Apple will have the last word on what it means.

  • dms

    I think he meant to say "On top of everything else that the iPod Touch does."

    It goes without saying that no one's gonna buy a Touch to be used purely as a cheap PAYG phone.

  • http://www.marcoot.com Dave

    I work at a small company (30 people) and we have three Windows IT guys. One of the IT guys just bought an iPad for his 3 yr old daughter because she was having so much fun with a spelling app. This is amazing to me. Currently , we have no Macs and the IT policy is not to buy or support them, but about one third of us have iPhones. Apple has invented the perfect trojan horse against Wintel with it is ipod, iphone, and ipads. And it all started with Quicktime.

  • unhinged

    Coming back to the question posed by the article, I'd like to argue that while the strategies (product focus vs ubiquity) may not have changed for the two protagonists (and I don't think this is true), the perceived capacity to improve execution of those strategies has diminished for Microsoft.

    Apple, by focusing on the product, always has the capacity to improve its execution because of the advances in the numerous technologies and processes that come together to create a product. Since Steve Jobs returned, Apple have consistently created a new product positioned for a void in the market, iteratively developed that product to add more features for the same price (or segmented to capture different price points with differing feature sets) and used the product to enhance their existing offerings. It is a long-term plan well-executed, with incremental goals that have allowed the company to learn from its experiences.

    Microsoft achieved its main goal relatively quickly: it owned the market with a 90% share from about 1990 onwards (forgive me if I have the timing wrong). Their strategy of being the only game in town had succeeded so well that they were left with very little room for improvement and the law of diminishing returns came into effect.

    Where Apple always knew they could do better, Microsoft only knew they could do worse – at least until Bill Gates left the helm. In my opinion, Steve Ballmer did not have the paranoia required to watch the market closely enough to maintain Microsoft's skill in execution of their chosen strategy and was instead prepared to let the company follow the course outlined by its previous leader; worse, he does not see how they can improve in their reach for the most market share in the PC market and that has blinded him to the opportunities to gain share in the mobile space. And in mobile, it has turned out to be fairly expensive to buy market share – er, I mean Nokia.

    Does the market still favour one strategy over the other? I think the ubiquity strategy appeals to the largest numerical segment of the market – people are more likely to purchase the same thing that everyone they know has (or covets). I think Apple have adjusted their strategy to allow for this; while the product is the most important thing, they recognise the benefits of being the most popular and have processes in place to maximise the outcome for popular products.

    I think Microsoft's real problem is that they have no real long-term plan to add value to the markets they compete in, they just want to own the market.

  • Yetanothersteve

    I believe in a simpler explanation: Zune was late. Apple killed it with iOS products. Disrupted the MP market even though they owned it. The answer to zune v iPod became “who cares?”

    The bigger question for MS is: how did they fail so epically in mobile where they were once a leader? And to this Q I think Horace is right: MS’ DNA was flawed.

  • Bazz

    good call!

  • James

    News Flash! The Zune has not been cancelled or killed by Microsoft. Microsoft seems to be wondering why people think that the Zune has been cancelled.

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

      Heh.

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