Apple makes software for people, Microsoft identifies a market

by Jeremiah Foster

Disclaimer - I own Apple stock. (Not as much as my wife does, but still.)

When I showed my wife the brand new application, iTunes, she raved. I had been trying to get her to use linux at home so I could have a Microsoft-free household. It had not been going well, and this wasn't her fault, she has a Masters Degree and had been using computers for years, it really was that Desktop linux was not quite ready. In any case, she understood the implications of iTunes in light of the public debate about illegal file sharing and ease-of-use. She had a little savings and threw it immediately at Apple stock at about $17.50 a share.

Apple has done well since then. It split a while back at a bit more than $80 or so a share and it has climbed above the $55 mark recently. It has outperformed Microsoft as well as the software industry in general. Even if you compare Apple to Sony, with whom it directly competes, it has done a lot better. Apple has done significantly better, orders of magnitude better. Why?

Since Steve Jobs arrived back at the company, it has renewed its focus - the customer. Apple makes hardware and software for people, "the rest of us," whereas Microsoft and others make software for markets. This may seem a facile distinction, but I think it bears scrutiny. Let’s look at two of the new pieces of hardware from both Microsoft and Apple; the iPod and the Xbox. Both are squarely aimed at consumers, not businesses, both have sizable market share, however the iPod's market share is significantly more than the Xbox's, and both are well-made products. Yet Microsoft continues to lose money on the Xbox division while Apple has posted some of its best quarters ever.

Microsoft identifies a market, like gaming for example, where there are significant sums to be made. They compete aggressively, market aggressively, but fail to really understand the consumer. To the gamer, the game is the thing. Yeah you need a kick-ass machine, but the content is what really matters, content is king in the gaming market and this has made Microsoft play catch-up since it cannot leverage its monopoly. There are more games for other machines and until Microsoft can dominate with a greater number of games, and the must-have games, its competitors dying the Netscape Death.

Apple has in the iPod a product that works, and plenty of music and TV content to go with it, in a way that anyone can enjoy. This is something that Sony only sort-of understands. Sony sees the gamer and the need for games, they see the fact that controlling content allows them to sell hardware, but after the Walkman, they cannot seem to find their magic design touch. Although the Sony-Ericsson Mobile phone Walkman might just be it, it is no iPod killer, becuase there is no simple interface to content like iTunes. Sony also has problems when it comes to software, they do not get open source and do not have access to the army of coders Apple has access to.

Apple has growth opportunities, something that is harder to say about the Microsoft behemoth with 264 billion dollars in stock market value, maybe that is why Microsoft appears to be ready to play smash mouth football again. A recent AP article reports Microsoft is recanting on a demand that hardware suppliers not allow other software on their iPod-like music players has raised some eyebrows, especially just before Microsoft are about to appear in front of U.S. District Judge Colleen Kollar-Kotelly, again.

Apple has revived itself from near death by focusing on the consumer and building really great products. When they switch over to their new Intel chips, I imagine that is when the Microsoft Operating System hegemony will noticeably erode.


Open a can of womp-ass!


2 Comments

macrat
2005-10-24 15:16:17
iTunes + iPod
Interesting that you note that iTunes is part of the iPod experience.


It amazes me that some companies out there want to interface to the iPod directly bypassing iTunes. They don't understand that the iPod experience includes iTunes and some 3rd party interface is a non-starter.

miahfost
2005-10-25 13:38:56
iTunes + iPod
I think you are exactly right. What makes the iPod so powerful is not just its own ease of use, but the ease of use and plethora of content. Apple had lots of music available from day one, a good looking interface from day one, and that is why they have something like 80% of the market.