Daniel Eran Dilger
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10 FAS: 7 – Apple’s Hardware and Dvorak’s Microsoft Branded PC

Apple vs Microsoft in Consumer Electronics
Daniel Eran Dilger
While the previous fake Apple scandal advanced the myth that Apple’s first generations of hardware releases are unusually problematic, the seventh fake scandal charges that all Apple hardware is bad, and only sells due to excessive advertising and a blind pool of devoted fans who don’t know any better. The best answer to these claims is look at Microsoft’s own hardware efforts and the comments made by Windows Enthusiasts.

Fake Apple Scandal 7: Apple’s Hardware Not Competitive.
Apple competes in a series of aggressive markets; its Macs sell against low margin PCs, its iPods sell against a variety of competitors that offer unique features or simpler models that sell for less. Apple’s ability to consistently increase its sales and outpace growth in the market for both PCs and music players–combined with the fact that more than half of its retail sales are going to new buyer–blows away the ‘fanboy’ argument.

Apple has also consistently received highly ratings from independent groups such as Consumer Reports in rankings of customer satisfaction and reliability. The company’s name also ranks among the world’s top brands. However, rather than continuing to gush about Apple’s current halo of hardware accomplishments, the best way to highlight how competitive Apple’s hardware is right now is to compare it to Microsoft.

Microsoft’s company name and Windows brand are both so poorly regarded that the company distances them from its Xbox and Zune products. While it’s certainly no secret that Microsoft makes both families of products, the company certainly doesn’t splash its legacy brands or logos on them. Given Microsoft’s billion dollar losses in consumer electronics, it can’t afford to provide any additional reasons no to buy the Xbox or Zune.

Microsoft’s Troubles in Consumer Hardware.
Microsoft has discovered that hardware isn’t an easy business. After derided its own PlaysForSure hardware partners as incompetent, it started offering its own device to compete with the iPod last winter, only to find that there’s a lot of work involved in delivering a good hardware product. Apple just makes it look easy.

Even so, the Zune isn’t an original hardware product. It’s a rebranded Toshiba Gigabeat player, dressed up with a round button to look more like the iPod, and running an incompatible version of PlaysForSure designed to not work with any of the existing PlaysForSure stores.

Microsoft took the Zune and its music store solo because the company not only blamed its music player problems on its hardware partners, but also blamed its PlaysForSure store partners, including Yahoo, for doing a bad job marketing Windows Media encoded music.

The only PlaysForSure partner Microsoft doesn’t blame is itself. It fails to recognize any mistake in its own strategies core to the collapse of PlaysForSure, ensuring that the company will continue to Stay the Course on failure in the music business.

The only upside is that Microsoft is dumping money into music in efforts to advertise the Zune. This has often been into tragic bands like CSS who are glad to take anyone’s money, but it also has funded some more legitimate ventures, including a Chemical Brothers concert slated for September 28th at San Francisco’s Concourse. Microsoft’s advertising budget is the only worthy feature of the Zune.

[Zune Article Search]

Dvorak Repeats Microsoft’s Partner Blaming.
Microsoft’s delusion that all of its consumer electronics problems are the fault of stupid partners managed to also fool John Dvorak, who recently developed the hypothesis that Microsoft should make its own PCs.

It’s not Microsoft’s fault that the Windows PC platform is in trouble Dvorak wrote, pinning the blame instead on PC makers themselves, just as Microsoft itself had blamed its hardware makers for the failure of PlaysForSure.

After conceding that “Vista has not set the world on fire,” Dvorak insisted that “many of the problems associated with Vista are hardware-related, with vendors doing things on the cheap.

”Microsoft, in the end, gets blamed for all the flaws while watching Dell, Hewlett-Packard, IBM and other ungrateful recipients of its goodwill to make fortunes off the Windows platform.“

[John Dvorak: How Wrong Can One Guy Be?]


Don’t Hate the Players, Hate the Monopoly Game.
Perhaps Dvorak hasn’t been paying attention over the last two decades of his career as an commentator supposedly paying close attention to the subjects he pontificates about. That’s unfortunate for his readers.

It’s Microsoft that’s been making consistently obscene profits all this time, while various PC hardware makers have risen and fallen on the razor’s edge of profit margins. The real problem with Vista–according to PC OEMs themselves, not self-delusional wags–is that Microsoft is trying to charge far too much for its software.

Microsoft rolled out a flurry of artificially limited versions of Vista so that OEMs would be forced to either pay more in licensing fees or bundle a neutered version that would force consumers to immediately upgrade themselves. That plan backfired, with OEMs expressing anger and consumers demanding the previous version of Windows.

PC vendors are hating Microsoft right now; it’s trying to charge more for Windows than many white box assemblers even make in total profits. Even Dell–which enjoys an advantage of lower volume Windows licensing fees over smaller PC makers–is seeking to expand its Linux offerings and reduce its dependance upon Microsoft. Nobody wants to pay Microsoft for software it can get elsewhere for less.

[Acer: Vista is an excuse for Microsoft price increases – CNET]
[What’s Behind Acer’s Vista Complaints? – BetaNews]

Why Microsoft Hates Consumer Choice.
How would existing PC makers react to Microsoft bullying in on their turf? Remember too that Microsoft doesn’t do well in markets where consumers have choices. The company’s fortunes are entirely dependent upon a Windows license automatically shipping with every new PC sold.

To enforce a market monopoly where consumers simply have no real choice, Microsoft has erected barriers that prevent big PC makers from selling any significant number of new PCs without an operating system license, or with an alternative OS to Windows installed. The fact that Microsoft was even able to leverage Windows against IBM to stop it from bundling OS/2 on its own PCs demonstrates the absurdity of the PC monopoly market.

A monopoly isn’t just a popular brand. Microsoft doesn’t have a monopoly in Xbox consoles, and Apple doesn’t have a monopoly in Macs or iPods; a monopoly is an open market that is run exclusively by one player without any effective competition. The PC market purports to be a free market, but it isn’t, it’s a monopoly.

Linux, the only significant alternative OS, is a free product; calling it commercial competition is a bit of a joke. Linux is gaining in popularity however, and aims to displace Windows initially in low end systems where the cost of the PC would be overwhelmed by a Vista license.

Wal-Mart has already begun selling cheap PCs running a complete Linux system, and other PC makers are similarly seeking ways to offer cheaper PCs. The easiest expensive component to leave out of a PC is Windows.

[Leopard vs Vista 2: The Indirect Choice]


The Unraveling of the Monopoly.
That’s obviously no good for Microsoft. As alternatives begin to appear, its guaranteed PC market share and revenue–tied to its monopoly position and collected like a tax on every PC sold–will unravel rapidly, leaving it without any bargaining chips.

Once Microsoft faces real competition, it will have to compete on a level playing field, not as an incumbent administration that can dictate unilateral contracts with OEMs, operate above the law, and spend billions invading one market after another.

Windows Enthusiast Paul Thurrott recently tried to advertise the idea that Vista had overtaken Mac OS X, as if there was some likelihood that Vista wasn’t going to roll out on every new PC whether people wanted it or not. That’s not choice. According to web statisticians, Vista still isn’t actually being used by as many people as Mac OS X, which is impressive considering that Macs only make up around 3% of the world’s desktop computers.

Microsoft may soon have to deeply discount Vista and watch its revenues nosedive, just as it was forced to sell the Chinese government a $3 – $7 bundle of Windows and Office to prevent the country from emerging as an enclave of Linux. Microsoft can’t afford to drop the price of Windows worldwide without giving up its massive revenues used to fund its monopoly building.

[How Microsoft beat Linux in China – TechRepublic.com]

Profits vs Market Share.
In the most recent quarter ending in June 2007, Microsoft reported revenues of $13.37 billion and $3.035 billion in net income. In the same period Apple earned revenues of $5.41 billion and a net quarterly profit of $818 million.

That means Apple is bringing in more than a third of Microsoft’s revenues and making more than a quarter of Microsoft’s profits, despite the huge disparity in market share. Apple’s share of the worldwide market is now pegged by IDC and Gartner at around 3%.

Apple vs Microsoft in revenue and profits
If Apple can make a third of Microsoft’s revenues with just 3% of the market, it’s not hard to understand that it has the potential to match Microsoft’s revenues with a very small increase in market share. Apple would surpass Microsoft in profits and revenue long before taking 10% of the global market, making the continual comparisons of market share trotted out by Windows Enthusiasts like Thurrott laughable.

Conversely, Microsoft could actually expand its worldwide market share in China and lose profitability compared to Apple. Market share means very little if it’s not acquired by consumer choice.

The real problem for Microsoft isn’t Apple’s Mac or Linux; it’s a combination of both at the same time, which squeezes the company out of the profitable high end while also eating up its low end volume. The solution? Dvorak seems to think Microsoft can build its way out by converting the PC monopoly market into a proprietary Microsoft PC product that simply outsells everything else.

[Paul Thurrott’s Merciless Attack on Artie MacStrawman]


[Quarterly Earnings Results, April – June 2007 – Microsoft]
[Quarterly Earnings Results, April – June 2007 – Apple]
[Mac vs. PC Sales/Market Share Figures – SystemShootouts]

This Dvorak is Bananas: B A N A N A S.
How does Dvorak explain the rationality of Microsoft building its own PCs? ”The company has been original and aggressive with its Xbox, pen-based computing initiatives and peripheral manufacturing… It does computer mice and keyboards already. Combine that with the Xbox and the India computer, and it has all the skill sets needed.“

I do realize Dvorak is a tool and that everything he writes is absurdity designed to bait a response, but please don’t tell me not to ever reply, because that’s what I do. I select the most absurd thing being said, and using it as a framework for building an argument to dismantle a very poorly thought out idea that has occurred to others beyond just Dvorak. Don’t deprive me of my simple pleasures.

First off, Microsoft’s ”pen-based computing initiatives“ have all been a smoking crater of failure. Bill Gates has led a crusade of Tablet PCs since the early 90s, and recently made comments at All Things D that he plans to Stay the Course on his failed war. People with a capacity for sensing reality look at their failures, admit them, make a correction, and resume progress. Gates has not; he repeatedly makes the same mistake.

Gates’ career is a celebration of eccentric failures subsidized by the wild fortune of being in the right place at the right time to install a monopoly in PCs that held back a decade of technical progress. Dvorak bears a significant accountability for misleading people over the last twenty years and dooming us to live with an insecure, problematic, and poorly architected operating system that has actively prevented market competition from solving the problem Microsoft created.

[The Spectacular Failure of WinCE and Windows Mobile]
[1990-1995: Microsoft’s Yellow Road to Cairo]
[Five Architectural Flaws in Windows Solved In Mac OS X]


Bill Gates’ Eccentric Failures.
The pinnacle of Microsoft’s ”pen-based computing initiatives,“ the $1000 Samsung Q1 Ultra Mobile PC, was compared last year to a decade year old Newton Message Pad and lost.

Nobody buys UMPCs. Nobody wants them. The Q1 isn’t even very good. It’s bad. All of Microsoft’s ”pen-based computing initiatives“ have been pathetic failures on a grand scale, not something to celebrate, applaud, or hold up as proof that Microsoft can deliver, sell, or market hardware.

What else has Microsoft got? Keyboards and mice. The company can turn a profit selling keyboards and mice, which lack any technical sophistication and are built by assemblers overseas. What does Microsoft contribute here beyond its name? Microsoft sells these because they are extremely high markup items, and it can leverage its PC software monopoly to push its own higher priced hardware on certain OEMS. So far, it looks like Dvorak is telling a punch line in search of a joke.

And what else? The Zune and Xbox 360, which together have lost billions of dollars over the last couple years. This last quarter, the Xbox lost an extra $1.2 billion because it is so poorly designed that one unit in three has failed. Microsoft admits that all Xbox 360s are doomed to fail prematurely at some point because they are simply designed badly. Even worse is the news that 360 unit sales have fallen dramatically over last year.

We don’t have specific failure rate numbers on the Zune because there haven’t been any significant sales.

We do know however that it is based upon Toshiba’s Gigabeat, and that all Microsoft really contributed was an iPod-like design and a big marketing campaign, neither of which have managed to fool many users into buying one.

[Next Gen Sales – Q1 2007 – Zune, Xbox, PS3, Wii, Apple TV]


When Dvorak Talks, People Giggle.
Dvorak not only seems to miss the current reality, but also clearly doesn’t understand market basics. Why should he? His career has been based on writing sensationalist claptrap, and has never offered any interesting perspective on what might unfold. Fake Steve Jobs described Dvorak as a ”contrarian indicator,“ pointing out that Dvorak has been consistently wrong for his entire career.

Dvorak’s contrarian indicator status was further cemented in his worrying about Linux. ”There are enough people who think that Linux eventually will become popular on the desktop, and that Microsoft must take this move now before Linux gets any real traction. The company otherwise risks being hung out to dry if the mood of the buying public changes, or if someone can release products that actually make Linux work with Microsoft drivers, so that all the legacy peripherals work right.“

What ”Microsoft drivers“ does Linux need? An IntelliPoint mouse driver? A driver to operate those special buttons on the Microsoft keyboards that launch Internet Explorer? I hear IE is not popular among Linux users anyway.

The real ”Microsoft driver“ Linux lacks is Dvorak himself. It’s no surprise why blowhard Windows Enthusiasts worry about Linux; they’ll be out of a job. An industry of Linux PCs wouldn’t need a gaggle of professional admirers to comment on the beauty of the naked empire’s clothing.

”My PC hypothesis, if true,“ Dvorak continued, ”could partially explain the recent departure of Xbox chief Peter Moore.“ When top people leave it means things are really catching on fire.

Look out, Dell and HP, here comes your new nemesis: the company that makes you pay more for Windows every year. The company that did really well killing the iPod, and has lost upwards of six billion in an effort to establish Direct3D and Windows in console video games.

Dvorak’s unintentional humor is the funniest part. ”Investors should note that there may be some gas left in the Microsoft tank. It could be fun to watch.“ What will happen to the fumes in Microsoft’s tank as things heat up?

[The Secret Diary of Steve Jobs: This about-face by Dvorak]

Microsoft Hardware is a Massive, Long Term Failure of Epic Proportions.
I’ve documented Microsoft’s last six years of failed hardware ideas and reference platforms, from WinCE PDAs and game consoles, to embarrassing attempts to copy the iPod, to its invented concepts like Mira, the $800 household data terminal, and its Soviet looking SPOT watches.

It is absolutely shocking that Microsoft can plow so many billions of dollars into the ground without anything to show in return apart from an additional new liability for hardware failure repairs.

[Innovation: Apple at Macworld vs Microsoft at CES]


More shocking is that the Microsoft monopoly money machine, which funds the company’s out of control spending, is facing a reality check.

An industry that has shoveled money at Microsoft with the blind hope that the company would reliably deliver the future is waking up to the reality that Microsoft has never done anything but copy.

There are more efficient ways to obtain a copy of software. Ask any one of the Linux distros, which are happy to set up OEMs with free software if they can only offer some support. Microsoft thought it would replace Apple’s slick consumer desktop with Vista; instead, it will be replaced itself by a cheaper version of a basic desktop OS.

Apple’s doing well offering hardware with unique software integration. Microsoft has no capacity to design, build, or maintain hardware. It can only lose billions of dollars in its hardware attempts. Its software pricing is out of touch with reality in a world where free software can do most anything Windows can. Microsoft is out of tricks.

Apple vs Microsoft in consumer electronics
Microsoft’s multibillion dollar, long term failure in its hardware efforts says as much about Apple’s ability to execute as Apple’s own success.

10 Fake Apple Scandals: 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10

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