It’s been a rough year for everyone, even multi-billion-dollar companies that make computers. Well, maybe not so rough for Apple, which seems to be doing okay, based on its latest financial earnings report.
By contrast, Microsoft delivered bad financial news in July. In fact, its poor showing for the third fiscal quarter—revenue down 6 percent year-over-year and lower than expectations, earnings per share a jolting 30 percent off over the same period—was notable enough that it made the news at the top of the hour on NPR, which isn’t usually seen as a capitalist media tool.
Of course, one of the reasons Microsoft cited was, “Well, the economy sucks all over.” True enough, and part of the hit the company took was due to lousy sales of new PCs to businesses, which ate away at Microsoft’s money stream of OEM Windows license fees. (I could mention the poor reception for Vista, but at this point, that’s last year’s news.)
There was a slight rise in sales of netbooks, for which Windows licenses cost less—more on this later. But there were losses generally across the board, from Microsoft’s search (“Let’s kill Google!”) to the division that runs Windows Mobile (“Let’s kill Nokia!”) and the Xbox (“Let’s kill Sony and Nintendo!”).
Over the same period, Apple had its best non-holiday quarter ever. The company saw a rise in all stats year over year, from revenue to earnings-per-share to gross margins. Sales of Macs remained steady, inching up 4 percent. iPod sales dropped a slight 7 percent (I know the iPhone has replaced my iPod needs). iPhones, well – up 626 percent.
That is not a typo. Nor is the number—cited by research firm NPD—for Apple’s share of the market for PCs costing more than $1,000: 91 percent. That number should be taken with a number of caveats: NPD could only look at physical stores and not virtual ones such as Dell’s; the average selling price for a Windows-based desktop was under $500; Apple’s overall PC market share remains less than 10 percent; Apple simply doesn’t make much that sells for under $999, other than the Mac mini. Still, you have to remember that the pro-level computing marketplace is a thriving one with high margins, giving Apple a healthy base for its primary revenue source: hardware.
It’s easy to say that one main reason for the disparity in results between these two rivals is the fact that Apple remains focused and is sticking to its core competencies; Microsoft has yet to see a market it doesn’t want.
Maybe what we’re also seeing is an expansion, or redefinition, of just what a “personal computer” is or should be. It’s not like a mass extinction of PC dinosaurs opening up a new evolutionary niche, but we could be seeing some die-off in the process. And the iPhone could be the forerunner of the new species.
Let’s go back to the netbook again. It’s still an ill-defined instrument, seemingly for the moment a low-power, low-powered laptop, often running a Linux distribution or a form of Windows XP. It’s not a do-everything laptop – you probably couldn’t edit a digital movie very well on one – but for most of what most people do, it’s fine. You can browse the Web, write e-mails, do some word processing.
It’s become a popular new product segment only through accident. Noticing your five-year-old laptop can still suffice for much of what you do isn’t the same as product design. Netbooks still face the problems of how to be lightweight and compact while providing sufficient input options (no one likes undersized keyboards), displays, battery life, and so on. Ultimately, just the “same but less” formula isn’t a good enough solution.
For the answer, don’t look to Microsoft. It still hasn’t figured this out on phones. Witness how Windows Mobile always tried to jam the Windows desktop interface into a phone’s tiny screen. Just goes to show that Microsoft is stuck selling Windows, not solutions. Microsoft execs think of Windows as a hammer, and everywhere around them are nails.
Apple, instead, has played it smartly by not jumping into new markets willy-nilly. I’ve heard verified stories about Apple fiddling with tablet computer prototypes in labs for many years; while Microsoft did make a good product—the OneNote—Tablet PCs never really answered the question (outside of some niche applications) of why anyone would want a Tablet PC. Apparently, Apple couldn’t answer that question either, and so never released the product. (Of course, the rumors never stop.)
(I’m not saying Apple hasn’t released some half-baked products before, just that its less likely to do so on a regular basis.)
John Gruber at DaringFireball.net made the excellent point that the resurging Apple tablet rumors (and there are many) sound an awful lot like what was going around just before the release of the iPhone. People couldn’t figure out how Apple would solve the existing problems of integrating basic computing features with the whole phone thing, and predicted disaster. But Apple didn’t come out with the iPhone until it first came up with solutions.
The iPhone could be a good base for a new category of computing—it is damn near a netbook in many ways. Sure, how to adapt it for long-form text input, how to deal with local storage of files, how to multitask and retain battery life—all are tough problems. But Apple has a more viable vector into defining the market for hardware for 90 percent of our daily needs, by making real computing devices—not toasters with Internet access.
This will probably slow down premium PC sales, as some people give in to the reality that they won’t really, after all, be doing 3-D modeling or creating that next Great American Movie and so don’t need the high-end hardware. But there will still be a floor for this market that’s important to Apple. And it could, as with the iPod, own a new market category—one that could move Apple farther away from the Mac.
Meanwhile, Microsoft keeps hammering away on the same old nails.
[Dan Turnerhas been writing about science and technology for over a decade at publications such as Salon, eWeek, MacWeek and The New York Times.]