Daniel Eran Dilger
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How Microsoft has become the Beleaguered Apple ’96

Ballmer vs Amelio
Daniel Eran Dilger
Windows Enthusiasts have been working hard to advance the idea that Apple has become the new Microsoft, supposedly by monopolizing the market for music sales and MP3 players and in creating new bodies of technology in its own image to discover territories outside of Microsoft’s reach. However, they’re missing something far more interesting: Microsoft is reverting to become the beleaguered old Apple of the mid 90s. Here’s how.

The Golden Age of Apple.
Throughout the early 90s, Apple appeared to be doing very well. Some even describe the period as the company’s Golden Age. Apple had joined forces with IBM to announce a new microprocessor architecture in Power PC, a new multimedia joint project called Kalieda Labs, and an advanced new operating system and development frameworks architecture known as Taligent.

Apple was selling 11% of the world’s computers and was releasing new technology well in advance of other competitors. QuickTime wowed audiences, and the Mac’s multimedia capabilities and intuitive user interface were so far ahead of DOS or Windows PCs that it was simply embarrassing to compare them.

Apple’s Newton MessagePad promised to create an entirely new market for handheld computers, and the company was leading the development of CD-ROM based interactive titles and game authoring.

The Secrets of Pink, Taligent and Copland

The Secrets of Pink, Taligent and Copland
How Microsoft Pushed QuickTime’s Final Cut
Newton Lessons for Apple’s New Platform

Cracks in the Facade.
However, behind the old Apple’s seemingly beautiful corporate fresco was a series of foundational failures. Back in 1985, Apple had handed its software partner, Microsoft, a wide open license to use its Macintosh user interface. By the early 90s, Microsoft had turned that agreement into a weapon to use against Apple in undercutting its hardware business.

Apple’s founder, Steve Jobs, had left in 1986 and took with him some of the company’s best minds and talent to NeXT to work on projects the increasingly conservative Apple was not interested in pursuing. Even Apple’s early 90s partnerships with IBM began faltering under the weight of heavy corporate cultural differences.

By 1995, Apple’s problems had become grossly obvious to the public in general. Apple’s Macs were struggling to sell in Sears and other retail stores next to cheaper PCs that were supposed to soon be able to run the fabled Windows 95, which promised to copy every last detail of the Mac user experience. Apple’s own operating system efforts were announced to be a mixture of vaporware and failure.

Meanwhile, third party developers were busy making plans to migrate to Windows. Chief among them was Microsoft, which had either canceled or halted development of its various Mac Office software titles by 1994. That served to direct all attention toward its own Windows 95, which was finally released at the end of 1995.

It didn’t matter that Windows 95 couldn’t do basic things that serious Mac users took for granted; it only mattered that sales and media attention were being diverted away from Apple and onto Windows PCs. As consumer PCs rapidly expanded and Apple’s Mac sales remained static, the company increasingly lost the resources necessary to address the problems in its business as it tumbled down a slippery slope toward failure.

Office Wars 3 – How Microsoft Got Its Office Monopoly
Steve Jobs and 20 Years of Apple Servers
Why Apple Failed

Why Microsoft is Today Looking Similarly Beleaguered.
Over the past decade, Microsoft has been similarly coasting on past performance. It rakes in huge revenues from its position as the unchallenged PC operating system software vendor, exacting per unit Windows OEM fees from every PC hardware maker apart from Apple. It also sells Office application licenses at retail and in bulk licensing agreements with businesses, and has a third major business in selling server-related software and Client Access Licenses for Windows Server, Exchange Server, and related products.

However, Microsoft’s efforts to build its business into new markets have repeatedly failed. Like the early-90s Apple, Microsoft is just doing what it has done in the past. Attempts to build new businesses in handheld computers, tablet PCs, automotive computing, media center devices, portable media player reference design licensing, DRM licensing for music sales, SPOT watches, handheld and living room game consoles, smartphones, and in other areas have all only lost spectacular amounts of money. Efforts to muscle into Internet search and ad sales have also been disappointing, particularly in comparison to Google.

At the same time, Microsoft’s three core businesses are increasingly under attack. The market for desktop PCs is rapidly cooling, with very little overall growth. Apple is eating into the most valuable PC segments as Microsoft has run out of new market expansion to ride. Gartner’s most recent quarterly PC market numbers showed just 3% overall growth in the US and 12.3% growth in PC units worldwide, year over year. Apple outpaced the industry in US growth by more than a factor of ten, expanding its unit sales in the US by 32.5% over the same quarter last year.

Microsoft’s Outrageous Office Profits

Microsoft’s Outrageous Office Profits
AppleInsider | Apple snags 6.6% share of US PC market in first quarter

The Windows PC Blame Game.
Analysts blamed weak PC sales in 2006 on the delay of Vista. They blamed weak Vista adoption in 2007 upon its early bugs and other rollout issues in comparison to the mature Mac OS X Tiger. Now, a full year after the release of Vista, PC sales are still stuck in neutral while Apple has shifted into high gear with its new Leopard release and zipped past every other domestic PC maker in unit growth.

Microsoft and its Windows Enthusiasts are now working to deflect attention away from the problems of Vista and instead focus upon projects like Windows 7 that are still three years away. Others reference Singularity, a research project that has nothing to do with Windows and will not solve the problems users who currently need Windows face.

The blame for tepid growth in the PC market and the failure of Tablet PC, UMPC, Windows Mobile and other stillborn efforts to push the Windows brand simply lies with Microsoft’s ongoing infatuation with market control and profits rather than an interest in developing good products. The company needs to focus on earning success rather than just conquering it through clever exploitation of its users and partners.

Apple has a long way to go to put its Mac OS X software on more PCs than Microsoft’s Windows, but Apple also makes far more money on each PC sale than Microsoft does. That’s part of the reason why with just over 5% of the PC market, Apple brings in half the revenue of Microsoft. Apple has also successfully adapted its operating system to power the iPhone and iPod Touch, something Microsoft has been unable to match with either the poorly performing WinCE/Windows Mobile or the overweight Windows XP/Vista.

Apple’s current success is based upon its focus on pleasing customers instead of seeking to destroy all competition so it can push out poorly designed products and raise their prices in the vacuum of a monopoly as Microsoft did with Vista. Apple’s brush with death in the mid 90s resulted from some the same management decisions that Microsoft is following today: a focus on impractical product ideas, poor and sloppy project management, and a failure to focus on clear and narrow objectives.

CES: Fear and Loathing in Las Vegas

CES: Fear and Loathing in Las Vegas
The Spectacular Failure of WinCE and Windows Mobile
Innovation: Apple at Macworld vs Microsoft at CES
CES: Fear and Loathing in Las Vegas
Scratching the Surface of Microsoft’s New Table PC

Microsoft’s Brain Drain.
Like the old Apple, Microsoft is also losing its brains. As Apple lost its luster and grew increasingly conservative in its ability to ship exciting new products, its best engineers, managers, and designers left to start their own projects. Jobs left for NeXT; Bill Atkinson and Andy Hertzfeld started General Magic (its IP was later acquired by Microsoft); QuickTime’s Bruce Leak left for Web TV (acquired by Microsoft); Claris’ Donna Dubinsky left for Palm; and Newton’s Steve Sakoman left with Jean-Louis Gassée to start Be Inc., just to name a few.

Apple not only lost its existing talent, but also found it increasingly difficult to recruit well qualified new people. Apple tried to hire a young Jean-Marie Hullot, only to watch him instead join NeXT and go on to develop the pioneering Interface Builder tools that Apple desperately needed to bolster its Mac development efforts.

Similarly, Microsoft has found it increasingly difficult to hire new talent because the company no longer offers any exciting future potential. In the 90s, Microsoft’s rapid growth could offer new hires a secure but uncharted future. Now it can only offer them a boring career path at a company struggling with monopoly maintenance and reviling or failing at everything interesting in tech, from open source development to mobile devices.

Microsoft itself is exacerbating the problem by trying to only hire cheap labor. The company has actively petitioned Congress for years to relax HB-1 vista immigration and has misrepresented facts in testimony about hiring foreign workers in order to drive down the wages it pays to its employees. The result has been that well qualified applicants have been hired up by key competitors, including Google. Meanwhile, the recovery of Apple since the late 90s has resulted in an end to the one way flow of talent from Apple to Microsoft, just as the demand for qualified people in the tech has rapidly ballooned.

Windows XP Media Center Edition vs Apple TV: WebTV, General Magic, QuickTime
AppleInsider | An Introductory Mac OS X Leopard Review: NeXT Developer Tools
Open Source, Open Competition.
While being battered by Apple on the premium end of the PC market, Microsoft is also facing competition from Linux on the low end. The Asus EEE PC and OLPC system, both running Linux, have sent the company scrambling to reconfigure low end versions of Windows XP stripped to fit on entry level hardware.

Microsoft is also getting battered in the embedded OS market, prompting it to announce plans to rename its WinCE and WinXP embedded products as “Windows Embedded Compact” and “Windows Embedded Standard” by June 2008. The name change won’t actually solve the problem that those products are competing against free and open source alternatives that have no problem running on hardware with reduced resources.

The server front is also getting pummeled by Linux, particularly as industry heavyweights pull away from Windows to embrace open software. Microsoft is now on the defensive, advertising that Windows Server works as a platform for running open source server software. That may be true, but it doesn’t address the problem that Windows Server is very expensive compared to the free alternatives those open source users are already familiar with.

If Microsoft were the size of Apple, it could market Windows Server as a premium product niche alternative to Linux. However, Microsoft is struggling to perpetuate its monopoly over all PC operating system sales. Every lost sale destroys its ability to maintain the critical mass required to keep automatic licensing revenues flowing toward the company. Without any proven capacity to enter new markets successfully, Microsoft is left sitting on top of a melting platform, just as Apple found itself in the mid 90s.

Apple's Open Source Assault

Apple’s Open Source Assault
Office Wars 4 – Microsoft’s Assault on Lotus and IBM
Why Does Microsoft Really Want Yahoo?
Microsoft’s Unwinnable War on Linux and Open Source

Office Rivals.
In desktop software, Microsoft is also finding itself up against new competition. Office alternatives are improving, and investment in them in increasing. IBM announced new support for a distribution of Sun’s OpenOffice under the name Lotus Symphony, to be integrated into Notes. As increasing numbers of users defect to free alternatives, the need for expensive Office licensing will dry up.

Apple has also developed its own iWork suite to shed the need for many Mac users to buy Office. Microsoft is rapidly shifting from being the only game in town to being the game nobody wants to play any more.

The next article will consider why Microsoft’s current and future operating system projects share too much in common with Apple’s failures of the mid-90s, and what this means for the future of the PC desktop, the Windows platform, and new emerging mobile markets.

Windows Vista, 7, and Singularity: The New Copland, Gershwin, Taligent
IBM Launches Pilot Program for Migrating to Macs
IBM’s Strategic Interest in Macs Goes Beyond Pilot Program

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  • addicted44

    The general idea of this article is correct, in that MS has hit a stalemate, but the fact is that MS is not close to failing the way Apple was. The simple reason for that is they leveraged their monopoly to create a lock-in that will be very hard to get rid of. Apple never had that. They will flatline, but I doubt they will collapse (unless they make drastic moves in an effort to grow). The continued need for supporting stuff like VBA and Acces within the enterprise is too great. In fact, the place I worked at (and many other consulting firms) paid for expensive Oracle or DB2 licenses, but they always had to have 1 IT guy on staff simply to create an Access front-end for the consultants, who had no idea how to deal with SQL and wanted to use what they knew, i.e. Access and Excel. Fortunately, the personal market seems to be veering towards alternatives (especially on macs, with iwork).

    The lower quality workers is more a result of Google’s increasing prominence and desirability than anything MS has done. Contrary to what you claim, MS is actually one of the good guys as far as H1B visas are concerned, since their H1s earn about the same as their American counterparts. Most of MS’s H1 hires are graduates from great American Universities with as good (if not better) GPA’s and recommendations as Americans. There are companies that abuse the H1 system to lower wages, but MS is not one of them.

  • Rip Ragged

    Respectfully disagree. The lock in fades a little more with each consumer purchase of a Mac, and with each installation of a Linux server.

    Microsoft doesn’t dare make any radical changes to anything. Their entire business model is based on backwards software compatibility. Microsoft is locked-in to their lock-in. The rest of the world is beginning to discover it is not.

    “The collapse has already begun. It cannot be stopped.” – Hari Seldon

  • addicted44

    @Rip Ragged:

    I agree that the lock-in is reducing. What I am claiming is that the lock-in gives MS far more time than Apple ever had.

    But you are correct, that the lock-in is not just a lock-in for customers but also a lock-in for MS, in that, they dare not drop backwards compatibility! Thats a very good observation I had not thought of.

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  • Rip Ragged

    I agree they have more time than Apple did, but I suspect the fall will be swift. Not because of the lock-in alone, but for a combination of factors. The way they’re spending money to fight the fall will hasten it. As their money evaporates so will their buffer.

    Add to that the innovation going on around them while they are paralyzed. Their technology becomes more burdensome than useful every day.

    If they retrench and rebuild they may last a while longer. If they continue to try to stretch, as Apple seemingly is forcing them to do, the fall will be sudden and ugly.

  • harrywolf

    Microsoft wont collapse – there is a complete economic system that surrounds them, and that system wont let them fail.

    There are millions of people who need the daily mess of Windows to pay their mortgages and feed their kids.

    If computing is to evolve into a world where maintenance is cheap and common sense prevails,
    ( a Mac and Linux world, lets say) then we are talking about a revolution in human behaviour.

    Microsoft is a typical company in our flawed world. They do lots of things wrong, are grossly inefficient, suffer envy and jealousy and greed for power.
    In other words, normal.

    Apple has a visionary in charge, makes a beautiful product, is interested in style, is very efficient, by comparison.
    In other words, abnormal.

    I dont believe that Microsoft and Apple are even faintly comparable, and are not even in the same business.

    Apple are a very special business, one that could be making electric cars in 10 years, such is their design and vision of a different world.

    Microsoft is just a normal, dull, fearful business; hopelessly stuck in behaviour that ought to hasten its downfall, but doesnt.

    Apple is what we might be, were we to look beyond our pointless fears, suspicions and insane delusions; Microsoft is what we have become, a daily reality of grinding tedium and fear.

    The ‘battle’ between M$ and Apple is a microcosm of our world, where the good and sane battle the other 95%, the masses who live on fear and distrust, who vote for war and believe in a variety of Death Cults (mainstream religion), and are addicted to magical thinking and delusion.

  • http://ephilei.blogspot.com Ephilei

    I work in the Salvation Army. We use Lotus Notes and love being cheap. Even with the cost free integration of an office suite into Notes, we’re keeping Office as de facto because it’s so common and (with a special deal from MS) quite cheap.

  • http://www.cyclelogicpress.com Partners in Grime

    Amazing that Apple pulls in half the revenue of Microsoft. I expect that to increase rapidly with the iPhone platform SDK results coming on-stream soon.

  • http://www.cyclelogicpress.com Partners in Grime

    Pages is a wonderful app with its professionally designed templates. I am constantly amazed at what can be accomplished with Pages.

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  • http://www.cyclelogicpress.com Neil Anderson

    Harrywolf said, “Microsoft wont collapse – there is a complete economic system that surrounds them, and that system wont let them fail.”

    Is that what GM thought?