TL;DR
- Apple’s insane profitability has the other big guys jealous and freaked out.
- None are stupid enough to try to compete with Apple on Apple’s terms.
- The way to beat Apple is to redefine the game by making apps irrelevant and by making mobile just a piece of the equation.
- The “Experience = Stuff / Time” model is a great way break the conversation down to really understand what is going to happen.
In 1999 I had an epiphany that the future of consumer products would be connected. I then spent the next 12 years of my Microsoft career trying to drive that vision.
No matter what product I was working on, moving the connected experiences ball forward was always a priority. Over time, I created a mental model for how this new, connected world, would be different than before. I’d joke that John Gage of Sun actually had it right when he said “The network is the computer”. But that pithy quote is not rich enough to fully describe the vision.
This is how I came up with “Experiences are Stuff over Time”:
An end-to-end user experience is a cohesive combination of devices, people, brands, channels, services, and content that improves over time.
(You really should read that post)
Over time I became increasingly frustrated that the industry at large (and Microsoft) was moving too slowly. For example, the bet on TCP/IP as the basis for all networking was supposed to ensure there was a common lingua franca for all devices. But every company’s desire to own vertical integration meant standards like UPnP became fragmented and neutered. The underlying complexity of TCP/IP didn’t help. It’s crazy that in 2012 (EDIT: Even in 2021!) it is still so difficult to get a home network working reliably all the time.
Ironically enough it is Apple’s phenomenal success in both defining “Apps” and “Mobile” through their deep vertical integration that is driving a sea change.
Why? Because Apple’s shockingly insane profitability will cause the big competitors (Google, Microsoft, Facebook, Amazon) to compete, and they will not try to compete on Apple’s terms. They are smarter than that, and they’ve all read Art of War.
In the Art of War, Sun Tzu teaches combatants to avoid direct confrontation and instead to create opportunities from the relative weaknesses of the enemy. Apple is so strong right now that any competitor would be criminally stupid to attempt to try to compete directly. Competing directly with Apple would mean building a vertically integrated ecosystem where the components of the end-to-end user experience is provided almost exclusively by one company. From channels (e.g. retail), to people (only those with Apple products), to devices (all the way to the silicon), and even content (apps exclusive to Apple devices), Apple’s strength comes from this vertical integration.
But this leads to where Apple is potentially weak: End-to-end experiences where the components are heterogeneous within (e.g. multiple device manufacturers) and across (e.g. one company provides a service and another provides content).
The only way to think about consumer products is from the consumer’s perspective and the Experiences = Stuff / Time mental model provides a great framework for doing that. Consumers want and love cohesive end-to-end experiences across all of their devices, involving many people, via multiple channels, powered by a range of services, and full of content. Go read my post on it again.
Apple has nailed cohesiveness by removing complexity from the equation through vertical integration in devices, people, brands, channels, and services to differing degrees:
- Devices – Particularly for iOS, Apple has complete vertical integration. Lesser so for Mac (still relies on Intel).
- People – Deep vertical integration. Most Apple Experiences are exclusive to people in the Apple ecosystem.
- Brands – Couldn’t be more deeply integrated.
- Channels – Deep integration, but some leverage of other channels. Primary: iTunes, apple.com, and the Apple stores. Secondary: iPads at Walmart and iPhones at ATT stores.
- Services – Most Apple successes are in areas where they are the most deeply integrated with their own services. iTunes. Siri. iMessage.
- Content – The one place Apple has chosen to support broad heterogeneity; mostly because content is the most diverse component of any experience.
This deep vertical integration has worked well for Apple. But it also provides limits (not everyone wants or has only Apple devices).
Both Google & Microsoft demonstrated recently that they are not willing to try to compete directly with Apple. If Google really wanted to go directly after Apple’s model they would not have delivered the Nexus 7 as a zero-margin, cut-rate tablet co-branded with Asus. They would have, as I previously suggested they would, created a new consumer brand all their own.
If Microsoft really wanted to go directly after Apple, the Surface would not be “just a design point”, but would be the only WinRT device on the market.
What both companies are clearly doing instead is building a range of services that are available across a wide range of devices. This is the new battleground between Microsoft and Google (and to some extent Amazon & Facebook) is on delivering end-user value across any device, integrated with multiple services, combining powerful brands, and pulling from the best content sources all sold through multiple channels.
(That’s just another way of saying “Experience = Stuff over Time”, by the way).
This new battleground is not about apps. It is not about mobile. It is not about tablets. It is about Experiences.
And I love watching it unfold.
Let me know your thoughts with a comment below.
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Everytime I search for a reasonable DLNA compatible TV and struggle I buy Apple stock. Years of missed opportunity will allow Apple to make more of an impact. SmartGlass from Microsoft has caused me to buy more Microsoft stock because they’ve found a really good alternative that is cross channel and platform.
You so desperately want to be heard.
Hopefully you align your own influence (which you tout all too often), to vet these hypothesis. I would hate to see your ideas lose while you remain on the sidelines.
Nice post. Yeah, competing directly against Apple is now a fool’s game, though I’m less convinced than you are about MS having finally learned that lesson. If anything, their recent moves suggest that they’re still toying with vertical integration, which will fail. The challenge for both MS and Google is that both are competing for the same horizontal partners, with Google ahead on everything mobile and web, while MS is still strong in enterprise and legacy. That’s bad news for them and good news for Apple, because it keeps both from being more effective.
I agree the only hope now for MS and Google is to redefine the game. But I think they also have to take on the Apple aura and profit margins, otherwise neither can compete successfully over the long term. The general public still thinks of Apple as David, similar to MS way back when. But that will eventually turn now that they’re Goliath, as it did for MS. MS or Google need to hasten that along. And with 40% margins and an almost stupidly fanatical fan base, there’s plenty of room for either Google or MS to start banging away at Apple’s image and putting them on the defensive re price. The only person I’ve seen doing the former effectively is Samsung with their “Dude, you’re a barista” commercials, but they gave up on it too soon. You need to hammer on that every day for a year before it’s going to change opinion, much like Apple did with the “Get a Mac” ads. And nobody so far has done a good job going after the price argument. MS tried with “I’m a PC”, but most saw an inferior device selling for less. Consumers need to see comparable products at massively different prices for it to work.
putting them [Apple] on the defensive re price? I don’t think that will be possible for the big guys. (Maybe for Chinese device companies like ZTE and Huawei) It’s nearly two years in and nobody has been able to match the iPad on price, let alone beat it. A workaround seems to be to not offer a 16GB model at all and just offer a 32GB model at $599. Except, that leaves $399 and $499 iPad models below you. And 7 months from now what’s to keep Apple from dropping the iPad 2 to $299? I really don’t see how Google or Microsoft will convince consumers that is too expensive and be able to offer something better for less money. (With respect to the $199 Nexus 7 from Google, that’s not at all in the same class of computing as a Surface RT or an iPad. Nonetheless there are many indications Apple will be announcing a lower priced iPad this Fall so we can revisit the discussion when we know its capabilities and price.)
“an almost stupidly fanatical fan base”. So why does everyone who’s not appreciative of Apple’s wonderful experience have to cast insults. Seems to me the typical Apple loyalist is above-average in income, which on average correlates with above-average in intelligence. So maybe they’re so loyal because they’re the ones who can best judge the true superiority of the Apple experience.
When you said that MS will “NEVER” be a hardware company (i think that was you), what did you think of the “devices and services” comment from Ballmer. Does that not contradict what you had previously predicted?
You are referring to this post: http://ceklog.kindel.com/2012/07/25/a-mouse-and-keyboard-dont-make-a-hardware-company/ (A Mouse and Keyboard Don’t Make a Hardware Company)
A hardware company is one where a large percentage of the company’s revenues (and profits) come from the design, manufacture, distribution, inventory management, sales, and support of hardware.
Microsoft has (pretty much always) made SOME hardware (my first Microsoft product was a Z-80 softcard for the Apple ][ in 1983).
But the % of revenue (and profit) Microsoft has made, and will always make (IMO), from hardware will be a teensy-little bit compared to that they make from software and services (unlike Apple or Samsung).
Read what SteveB is saying carefully. He is saying (my interpretation) “Microsoft is shifting from a company that licenses software to hardware companies who build Windows computers, who in turn sell those computers to customers to a company that builds software for all kinds of devices to create experiences. Microsoft will now monetizes those experiences in ways other than just OS licensing.”
It is a huge shift. But it is not as simplistic as “Microsoft is becoming a hardware company”. I’m trying to help people understand the broader strategy because focusing on ‘hardware, hardware, hardware’ is myopic and will lead people to make incorrect decisions.
A big ‘If” with regard to the advantages of multiple manufacturer models over Apple’s whole widget model is how the source company, i.e., Apple, Microsoft or Google, can effectively manage and limit fragmentation, thereby increasing to some extent UX. That speaks directly to the value add of “experiences”, wouldn’t you think? Neither Microsoft nor google has yet demonstrated an ability to do so and have moved towards Apple’s model. The above would support that Apple’s model is not as much of a weakness as you might think.
My second point is, as noted by Horace Dediu at Asymco, apps are sucking all the air out of the experiences room. Note his most recent post on the topic. The growth trajectory of app usage has been stellar and shows no signs of soon coming back to Earth. Having a stable and flexible iOS SDK is a central Apple software/experiences advantage, allowing tens of thousands of non-Apple vendors (app developers/producers) to participate and therefore broaden Apple users’ (people) experiences relative to their closest competitors. Microsoft and Google both have been plagued by security risks, unstable software, etc., all reducing the experience that you (rightly, I think) value so highly. Again, another advantage, rather than weakness, of Apple’s experiences model. Apple simply does experiences better.