The emperor's new clothes

Wow. What a week! A lot has happened this week, much relating to some of my previous posts (and much not), and I think it would be a good time to wrap up the topics I've touched on - to give them some closure - before moving on.

The screen grab, above, takes me back to the I love my Mac post, written nearly a month ago. My Mac has had 49 days of uptime (and is still going!), running as a Mac, a Windows XP box, and a Ubuntu 64-bit box, with all the apps shoehorned into what I now consider a small 2GB chunk of memory (I should really upgrade my RAM, but that would require a shutdown...). Needless to say, my PCs have experienced a few more reboots in the same period of time. I know, I know, a reboot is not that big a deal, and I administer a couple of Linux servers with even longer uptimes, but having so few reboots serves to strengthen that feeling of trust you can put into your OS. Windows just doesn't give me the same level of 'no problem, I can handle anything you can throw at me' confidence.

That cha-ching sound you hear... is Apple's killer app

Apple customers have downloaded one billion apps since the App Store opened nine months ago! Obviously, that sets some sort of record (or, more likely, records), and has woken some of Apple's competitors out of their mobile device slumber. No matter. Apple has the clear lead here, in terms of software that people want to use, a development environment that developers can put to good use, and hardware that's both consistent enough between devices and powerful enough to run some amazing apps. I was playing X-Plane on my iPhone the other day - and was blown away! Like manned rocket launches, Apple achieving the 2B app milestone won't be nearly as exciting and won't get as much press, but I still expect it to happen about six months from now.

The race to the bottom line

Microsoft and Apple both released their quarterly results this week, and looking closely at the numbers we can see both the positive and negative influence of netbook computers on Microsoft's bottom line. The good news is that Microsoft's revenue declined by only 6% in the quater. The bad news? The overall PC market, excluding netbooks, dropped by 15% in the same time period. The sudden, and explosive, emergence of netbooks gave Microsoft a welcome infusion of cash from the sale of its 2001-era XP operating system to netbook vendors.

What about Windows' netbook longer-term prospects? When Windows 7 is released (likely this fall according to the tea leaves), Microsoft will find itself between a rock and a hard place with the netbook version of their OS. Clearly, they can't sell the flagship Windows 7 OS at the fire-sale price of its XP grandparent, and they can't sell it at full price either, because then the OS becomes worth more than the rest of the netbook computer - which does not make for a good computing or marketing experience. Microsoft's solution will have to be to sell the artificially-crippled 'Starter' or 'Netbook' or 'Cheapy' version, and try to compete with the 'don't even think of taking any functionality out or we'll fork the code' Linux-powered 'Ultimate Edition'. Sadly, many people will buy the Windows netbook because it's the only thing they're familiar with. I feel sad for those who do end up with the cripple-ware edition, but not sad for Microsoft's predicament - they're squeezing themselves further into the low-price corner they painted themselves into.

Apple doesn't have the same problem, because Apple is primarily a hardware company. Making a reasonable amount of profit on the computer and the OS that you make, is much simpler than trying to make a profit on just the computer or just the OS. When your computer, with your OS is selling for $2199, not $379, you get to keep a much bigger chunk of that customer's money.

And, finally, those new clothes. Take a close look at both Microsoft's and Apple's balance sheets. Don't you find it a little bit surprising that Apple, a company that only 'owns' about 3% of the worldwide computer market share, generated more than half the revenue of the company that 'owns' 95% of the computer market? It's even more surprising when you consider that making hardware usually involves more investment and costs than making software - CDs should be a whole lot cheaper to produce than Macbooks and iPods. Couple Microsoft's lack of converting software sales to profits with its desire to keep pushing the devaluation of Windows computers.

Yikes! Nice outfit you got there!

What price China?

It's time to order new circuit boards (pcbs) for the projects I do in my Computer Engineering Technology class. No big deal. I normally email my requirements to the sales or engineering department at my pcb facility of choice in Toronto, and they get back to me with a price.

This time, no response came. The website was still there, offering the latest and greatest in pcb technology, but email and the phone numbers were dead. Another victim of the recession, I guess.

Plan B. A local company that specializes in really complex circuit boards has occasionally done work for me (mostly out of charity for the school kids, I think). I drove by their plant after school earlier this week hoping to drop off my design and noticed their sign was gone, replaced by the hastily-hung vinyl sign of a different company. Another one gone.

Plan C. Get an online quote from another local company, as well as another company with an agent in the province who's actually just a front-end for the manufacturing plant over in China. Both quotes come back in hours. Local $640.00, China $430.00 (including shipping).

Seeing the relative prices, I know what happened to the companies I used to go to - they're victims of the Asian tiger.

I brought this up with my students and we discussed the options. The local company was closer, and might be a bit faster, but China is cheaper. The local company would have to conform to our labour and environmental laws. The Chinese company - who knows? And, it's cheaper. The environmental impact of having a parcel go UPS from China to here involves three airplane rides (Beijing to Alaska, Alaska to Kentucky, Kentucky to Hamilton), and two truck rides (one at that end, one at this end), but it's still cheaper. Besides, it's not like the airplane is only carrying my package - it was flying anyway. But the loss of local jobs, meaning fewer people here with the financial means to be able to buy the very things I'm teaching my Engineering Technology students how to make - that hurts.

My students and I decided we should buy local. Why? Although the price difference between the circuit boards is a significant, the circuit board is just one part of a larger product. The real cost of the difference between buying local and buying from China is about 3% of the final cost of the product. And that's just not enough of a savings for us to sacrifice local jobs and probably contribute to more than $200.00 worth of damage to the ozone layer or through greenhouse gas emissions.

I'm proud that my student were able to see that, and recognize that the cheapest price may not be the bargain that it seems to be. Let's hope that other companies also see the value maintaining local customer and supplier relationships, and not just in trimming their bottom line. Because, despite how far down can bring down your costs, your unemployed neighbours won't be able to afford your product, and that foretells a gloomy future for your business.

What price uncool?

On April 9, the Windows Blog reported on a Microsoft-commissioned whitepaper by Roger L. Kay of Endpoint Technologies Associates entitled What price cool? - peculiarly named AppleTax.pdf, so we know where it's going to go. In the whitepaper, Kay makes a number of arguments about how people choosing to buy Apple products are choosing style over substance, and shows how Apple users pay outlandishly more for the 'same' technology. Unfortunately, Kay makes a number of blatant factual errors, many of which are detailed on other tech sites such as cnet and Apple enthusiast sites such as Appleinsider. Rather than dwell on the factual problems, I'd like to point out how some of arguments that Kay makes are, in direct contrast to his assertions, arguments that can be made for Apple products.

Software

First off, let's remember that Microsoft is primarily a software company. Apple is primarily a hardware company. I'm not sure where Microsoft's new Apple-hardware-bashing attitude is coming from, but MS risks alienating some of the very users that it targets in trying to flog its software.

For example, Kay lists MobileMe as a costly alternative to the free Windows Live Mesh service. Yup, click on the link. Live Mesh supports Macs! Why? Microsoft has been trying to recreate itself as a software plus services company as of late, and to provide services, you have to serve all platforms, even Apple's.

In addition to Live Mesh, there are more software products that Microsoft makes in Apple flavours. Silverlight was unveiled and demonstrated at NAB 2007 on both Windows and Apple platforms. Seadragon is an amazing photo browser from Microsoft Live Labs. Seadragon mobile is only available for the iPhone - no Windows Mobile versions exist - while Seadragon AJAX works great in Safari and Firefox. And, of course, the software grand-daddy of them all is Microsoft Office Mac. Few PC users realize that Microsoft's first GUI-based office was for the Mac - the Windows version came later. Rumors are that there's even an iPhone version of Office in the works.

So, Mr. Kay, if Apple represents such a bad choice for a computing platform, why does Microsoft target some of its most important software technology at the Mac and iPhone in addition to Windows?

Choice

Choice is brought up often in Kay's analysis, including this gem:

"And a number of popular devices don't work with Macs, including Windows Mobile phones, Garmin GPS navigation units, Suunto run and dive watches, and even BlackBerries..."

Kay posits the choice argument as one in which Apple is the loser. As in, Windows gives you more choice. While the choice argument may be true for Microsoft, in that many more devices work with Windows than Mac OS, the opposite is true for every one of the companies listed in Kay's example.

As an Apple user I chose to buy a Tomtom GPS unit (instead of a Garmin) precisely because the Tomtom works with both Windows and Mac operating systems. I chose to buy an iPod (and not a MS Zune, for example) because iPods work with both Windows and Mac operating systems. I chose to buy an iPhone rather than a BlackBerry, because the iPhone works with both Windows and Mac operating systems. I had the choice not to chose a Windows-only device.

Computer-connected accessory makers that are truly forward-looking are able to give customers the choice of using their products with any operating system, be it Windows, Mac OSX, or Linux, because they understand that, above all else, it's the customer's data that is most important. Data is both OS-agnostic, as well as application agnostic. Common data standards provide choice. I don't need Windows to surf the web, load images from my digital camera, or open Word Documents, because HTML is a common web standard, JPEG is a photo standard, and .DOC is a de-facto document standard. The fact that these standards exist gives all users, PC, Mac or Linux, the choice of using IE, Firefox, Safari, Chrome, Opera or any of a handful of other web browsers to surf the web, Photoshop, iPhoto, or GIMP to edit images, and Word, Pages, Open Office or Google Docs to edit Word documents. Windows is not a requirement of choice.

Rather, users have real choice when standards exist. From AAC to HTML to Java to JPEG to MPEG to OpenGL to PDF and Posix, Apple supports more choice in open formats than Microsoft, which has historically tried to tie users to its proprietary technologies (Direct-X, WMF, WMA, and WMV, to name but a few).  Choice is for the user, not the OS. Funny how Mr. Kay chose not to talk about that.

Besides, Microsoft has chosen to excercise its choice in the markets it has more control over. If, as Mr. Kay argues, more choice is better, then why did Microsoft dump its Plays for Sure hardware and software partners when it released the Zune and Zune Marketplace? Why too, does Microsoft not license Xbox hardware to third parties so it can concentrate on the software, as it does with Windows? Microsoft, like Apple, has come to realize that in some cases it's better to choose how to position your brand and devices than to let third parties choose how to dilute it.

Popularity contest

Kay also points out that Microsoft has 98% of the personal computer market by which he means, of course, that Windows makes up 98% of the installed OS base, since Microsoft doesn't actually make computers. Regardless of the accuracy of the 98% number itself, that also means that Microsoft has very little room to grow, and very much to lose.

In contrast, Apple has seen a significant growth in sales year over year, including the recent recession-influenced Chistmas quarter. Could it be that the race to the bottom is hurting Microsoft's bottom line? And, all those people who buy netbooks for $359 with Microsoft's nearly 8-year-old bargain-bin XP operating system probably won't dig deeper into their pockets to pick up a copy of MS Office for another $399. It just doesn't make sense.

Let's not forget the Linux charge. Linux is currently the fastest growing platform, and finds its way into the widest variety of devices, from TVs to set-top boxes, and media players to mobile phones - devices that are either too space-constrained or cost-constrained to host Windows.

Finally, there's Apple's iPhone, battling RIM to become the most popular pocket computer of all time. When your data is in an open format, in the cloud, the iPhone currently represents one of the best choices in giving you mobile access to that data.

Fairies and unicorns and the cool kids

Roger Kay makes a statement in his paper about why people want Macs, "What teen doesn't want to be with the cool kids?", and another about Mac devices having "fancy plastics and fairy dust", while recently David Webster, General Manager for Brand Marketing at Microsoft said "not everyone wants a machine that's been washed with unicorn tears".

I think it's obvious. I don't know how Roger Kay missed it. All the cool kids do want fairy dust, and all those Apple products washed with unicorn tears. Windows-based PCs just don't offer that, at any price, and that's uncool.

Microsoft, meet the new Dell.

Last week, Microsoft aired an ad entitled "Laptop Hunters" featuring 'Lauren' who is looking to buy a 17" laptop. She first looks at the 'Mac Store' but can't find a computer meeting her requirements for less than $1,000, and quickly concludes she's not 'cool enough to get a Mac'. Eventually, Lauren chooses an HP valued at $699 from Best Buy.

It's an interesting advertising strategy for Microsoft, in that instead of trying to sell consumers on the benefits of Windows, Microsoft is instead advertising the competitive price of computers sold by one of its licensees. I guess HP is happy to be reaping some value out of the Windows stickers it has to slap onto its computers!

I just find the advertisement odd, in that Microsoft doesn't make PCs, yet is clearly advertising a computer competing against Apple. Windows vs. Apple.

Of course, the HP that Lauren buys is $2,000 less than a 17" MacBook Pro. But, you can bet that the HP is not the equivalent of the MBP in design, features, or specifications. It is, however, cheaper. And, that will be enough for many people to choose it.

A week earlier (apparently foreshadowing the Laptop Hunters ad), Microsoft CEO Steve Ballmer made a comment at a conference about how the only difference between PCs and Macs was essentially the logo (since they are both Intel PCs), and $500 (the infamous 'Apple tax').

Another reason I find the Microsoft ad odd, is that advertising Windows PCs on price is, I think, a dangerous thing for Microsoft to do. In case you haven't heard of it, there's this free operating system called Linux. When you add the cost of Linux to the price of a PC, that makes the computer cheaper than the same PC with the cost of a Windows license tacked on! Of course, many people won't consider a Linux powered computer, because they like the familiarity of Windows. But, this does put Microsoft between a rock and a hard place - between 'too cool' on one side, and free on the other.

Funny, too, that at around the same time as both Ballmer's comments and the Laptop Hunters ad hit, Dell started promoting its new Adamo brand. Adamo is Dell's style statement, a computer that exudes quality and design, and as a result costs about $2,000 more than the computer Lauren bought! Really, Dell makes a PC that costs more than a Mac! During a recession, even! And, most worrying, this product is from the company that became wildly successful by undercutting its competitors on price! Maybe, Dell is now trying harder to escape from the Race to the Bottom.

Actually, I secretly think this was Dell's subtle way of getting a jab in at Microsoft, by poking a small, stylish, and perfectly manicured fingernail into Microsoft's 'cost' balloon, for not having Lauren choose a Dell!