• The Apple/Intel Report: The Great Microsoft Equation

    July 9th, 2005

    I’ve come to realize that most people just don’t care that Apple is going to start switching processors next year. It doesn’t make a difference whether the chip is made by IBM, Intel, or John’s Chip Factory and Nowhere, California. And apologies if the latter company truly exists. Don’t believe me? Well, ask some people who are not in the power user category and/or deeply immersed in Mac lore and see how many know or even care.

    But the real issue raised by some commentators is whether the switch to Intel is the first salvo in what is going to become a renewed war with Microsoft for dominance in the PC market. Some feel Microsoft is more vulnerable than it has ever been. It has paid hundreds and hundreds of millions of dollars in fines and court settlements over various antitrust issues in recent years. Windows is still considered vulnerable to malware, and the next version of Windows, code-named Longhorn, despite promises that it’ll really come out before the end of next year, remains vapor. That open source browser, Firefox, is making bigger and bigger inroads into Internet Explorer’s share. What’s more, the incredible success of the iPod has apparently begun to attract more and more people to the Mac.

    So isn’t this a perfect time for Apple to go for the jugular and take a shot at the brass ring? Imagine Apple being in the driver’s seat in both the digital music and PC markets?

    Now let’s forget about the hopes and dreams and gulp a big dose of reality. Do you recall when Microsoft made a $150 million investment in Apple and Steve Jobs admitted the operating system wars were over? That’s when Microsoft also committed to continued development of a Mac version of Office, mission critical software for Apple to retain many of its business customers.

    Sure, things change, and maybe Steve Jobs sees his golden opportunity, and the switch to Intel isn’t happening just because Apple’s existing chip suppliers aren’t delivering the goods. Yes, it’s a big factor, but, according to theory, Apple may use the occasion to unleash the strings on Mac OS X and let the major PC box makers bundle it with their computers. Michael Dell, who has already shown his interest, would be delighted. Imagine, if you will, ordering a cheap Dell and being able to pick Mac OS X from the list of options. Instead of having a single digit market share, the Mac OS would soar and Microsoft would be down for the count, or at least on the ropes.

    Before you let your imagination carry you away, however, don’t bet the ranch on it!

    If Apple went after Microsoft with a vengeance, do you think a Mac version of Office would still be produced? I suppose you could argue that Microsoft would actually benefit if it sold fewer operating systems and more copies of Office. After all, the lion’s share of new copies of Windows are preloaded onto new PCs, and Microsoft gets a far smaller sum from these sales than it does from shrinkwrapped retail boxes of Office. And isn’t a sale a sale?

    As a practical matter, Microsoft is still the rough and tumble competitor, and it isn’t going to take Mac OS cloning on Intel lying down. It’s likely the Mac Business Unit would vanish overnight and its staff would move on to other departments in the company, or find themselves seeking jobs elsewhere. It is true there are Office alternatives. From Apple’s iWork to those open source application suites, it is possible to gain decent compatibility with Office without buying a Microsoft product. But lots and lots of business owners won’t see it that way. If they can’t buy the genuine article, buying a Mac or a PC box with Mac OS X won’t be on their radar screens.

    Then consider Apple’s situation. For better or worse, its computers are considered more expensive than PC counterparts. It’s actually not true, if you compare feature for feature, but lots of people, with some technology journalists included, still feel that way. Many of you buy a Mac because of its operating system, not because it comes in a pretty box. Do you really pay attention to the box after it’s set up? Do you recall what happened the last time Apple allowed cloning? It nearly killed the company.

    Hardware is still a major part of Apple’s income. It would have to sell huge numbers of copies of Mac OS X to compensate. Worse, the price for each copy would have to be lowered substantially if it became an OEM supplier to Dell, HP and so on, which makes the situation far more difficult. The high level of compatibility you experience now with your Mac would go out the window once Apple had to contend with a far wider range of hardware to test for compatibility. You wouldn’t see a new version of the Mac OS every 18 months or so. Apple would find itself in Microsoft’s spot, having to spend extra time building its system software to make sure it will “just work” on all those PC boxes.

    Yes, maybe Apple will make further inroads into the PC market. But going four square against Microsoft with even a controlled cloning program isn’t the solution. That doesn’t mean that having Intel Inside a Mac won’t work to Apple’s advantage. It could use the same co-branding scheme in its ads that Dell and others use, to expand its advertising campaigns. The use of more industry standard parts may even make it possible to reduce the price of new Macs, and if Apple were willing to sacrifice some of its profits for long term gains, it could make a greater effort to compete on price.

    Then again, it has been shown over and over again that people will pay more for what they perceive to be the superior product. The iPod is an example, but a Mac isn’t a cultural phenomenon, nor will it become one in the foreseeable future, so pricing will have to be far more aggressive.

    Whatever happens, it’ll be fascinating to say how it all plays out.

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