PRODUCT LEADERSHIP

A friend shared a very interesting article comparing the Mac and the PC, how the PC advantage got built, and yet how resurgence of the Mac has dismantled that advantage. I don’t remember coming across this type of an analysis before. The article does not go into what factors contributed to these shifts. So I thought it would be a good exercise to take a shot at it. This will be a great “hindsight is 20/20” exercise, but possibly, it may offer some insights into understanding customer preferences, market shifts, etc.

The article presents three graphs of the multiple of PC’s sold vs Macs. We will analyze these three graphs individually and try to look at the underlying market dynamics.

PCs Sold vs Macs from 1995 to 2004

This first graph shows shipment volumes in the 20 year period between 1984 and 2004. We can just focus on the period after 1995, when PC shipments really took off. One can easily surmise that this was due to the arrival of Windows 95. Windows 95 was the most user-friendly Windows yet until then, and it erased the ease of use advantage of the Mac. The software developer ecosystem really took off as Microsoft made significant investments in Visual Basic, Visual C++, and Visual Studio SDKs. It let developers take advantage of the GUI paradigm and this significantly expanded the range of applications that were available on Windows as compared to the Mac. By any standard, this was a pretty comprehensive result and a tour-de-force performance for the Windows side. The open platform and ecosystem of hardware and software partners turned out to be too much of a juggernaut for the lone wolf Mac-quade to compete against.

This phase of the Mac vs PC battle is generally referred to as the “platform war”, with Windows being the decisive winner. In fact, at a D conference when Walt Mossberg asked Steve Jobs about this, Jobs offered a very different perspective. He said that Apple really did not see this as a platform war, and may be that is why it lost. Apple thought of itself as building the best computers that anyone could build. Whatever the perspective, Apple surely could not have ignored the reality that Windows was the high volume system, and simply building the best computer and going at it all alone was not going to make it a competing high volume system.

PCs Sold vs Macs from 2004 to 2010

The graph below adds the period after 2004 and up until 2010. A stunning reversal of fortunes for the Mac as the multiple of PCs sold vs Macs drops from above 50% to near 20%. One could say that the Mac had a much smaller install base to grow from, which is relatively less challenging as compared to the PC volumes growing off a very large install base. Fundamentally nothing had changed in respect of the “platform” or “ecosystem” strategies. The PC manufacturers and software developers ecosystem was as robust as it was prior to 2004, and the Mac continued to have its own small developer community. So what do we attribute this shift to?

Perhaps, we should look at consumer preferences and environmental factors to see what role they played in reversing this trend.

Portability

The personal computer form factor underwent a shift towards portability and laptops started becoming popular. In a Computerworld article in 2007, IDC had predicted that laptops would count for 50% of all PC shipments by the end of 2008. Undeniably the preference for laptops was strong and the shift towards laptops meant a few different things for how computers were purchased.

Desktop PCs could be bought by mail order or online by just comparing specs. You didn’t really have to see one in person to buy it. In fact, Dell began selling computers from its web site starting in 1996. (source: Wikipedia). But when laptops started becoming popular, that changed the buying behavior. Suddenly one needed to “feel” the laptop before buying it. How heavy was it? Could it be carried easily or would it have to be lugged around? What kind of case could you buy for the laptop? The concept of the “experience” of owning a computer started gaining toehold. This meant that computer buying became a retail shopping experience. While the desktop was shoved under a table, the laptop form factor became something to be seen with, and one had to look good carrying it.

This was a fundamental change in consumer buying behavior.

Marketing & Distribution

After Steve Jobs came back to Apple, he put the company’s focus squarely on highlighting the presentation of Mac computers. After trying the “store within a store” concept with CompUSA, Apple decided it had to have complete control over how its products were presented. At a time when companies like Gateway were shutting down their retail outlets in favor of gaining operational benefits of e-commerce, Apple was already further down the path of retail. It opened its first store in 2001, and was roundly criticized in the media for its retail strategy, with people wondering how Apple was going to earn enough from the stores to pay for cost of construction, space, etc. Apple’s retail strategy was by no means a sure thing, it was more of a realization on part of Jobs that Apple had to do something different and dramatic.

The Apple Store, however, did help to put Apple and the Macbook “experience” front and center for more people outside the Mac fold and it helped to draw favorable comparisons against Windows laptops.

Still that could not have caused such a huge swing and a downtrend in PC volume multiples as we see in the graph above. Lets take a look at one more thing.

iEverything

Something else had created ripples by 2004. Apple released the first iPod towards the end of 2001. In 2003, it launched the iTunes Music Store. Consumers were finding new things to do with their computers, that did not involve spreadsheets, documents and presentations. This was clearly a major shift in why people were looking to buy computers. And the Mac benefitted from the iPod halo effect. In 2005, Morgan Stanley released findings saying that 19% of PC iPod owners had purchased a Mac in the prior year. Of the iPod owners polled, 43% said that they were considering buying a Mac, and 16% said that the Mac would be their first choice. The iPod created a strong pull for the Mac.

In 2003, Apple introduced the iLife suite, billing it “Just like Microsoft Office, for the rest of your life”, pulling together the most common digital needs of a computer owner – managing photos, home videos, movies, and music.

And then, of course, in 2007 Apple released the first iPhone. As Apple continued its rollouts of new software, hardware and content in the cloud, Windows on the other hand seemed to be stagnant and its missteps with Vista did not help either.

Windows vs iDevices

The graph below just goes to show that if you consider the “post-PC” devices like the iPhone and the iPad into the mix, in a span of six short years from 2004 to 2010, Apple completely wiped out the Windows advantage and leverage that was built over 20 years from 1984 to 2004. Apple’s revenues from iPhone alone are more than all of Microsoft’s revenues, and Apple surpassed Microsoft in market capitalization. Steve Jobs called it a surreal feeling.

Looking to the Future

Well, lets not stop here, but try to see where things are headed. Microsoft is following in Apple’s footsteps with its own flagship Windows stores. It is also taking pages out of the Apple playbook in wanting to own the end to end experience and is offering integrated hardware and software, starting with the Zune and XBox which have been outside of the computer market, but also recently, with the launch of the Microsoft Surface tablet. Will Microsoft succeed? Who knows? Will it be able to rebuild the kind of Windows advantage it had for twenty years? Who knows?

The key questions are – What is the role of the platform going forward? Can there be a single computing platform that morphs to whatever device it goes on or will there be multiple platforms? Will software drive hardware, or will it be the other way around? What will be the role of the partner ecosystem, the third party software developers, or as they are now called, the app developers, and the myriad hardware and device manufacturers? How will distribution change? These are very important questions. There are a number of additional factors in the mix. It’s no longer just about a software platform with a choice of hardware designs vs an integrated software and hardware platform. Now there are cloud services to contend with.

At the end of the day, one cannot create a strategy around how many and which pieces of the puzzle does a company have. Unless those pieces add up to the expectations of consumers in how they want to use their computers, or their post-PC devices, their phones, tablets, gaming consoles, TVs, and how they want to create and consume content, any strategy is just as valuable as the paper it is printed on. As they say, no strategy survives contact with the customer.

The video below is a fascinating look at the history of the so-called Windows v/s Mac “platform war” and how Bill Gates and Steve Jobs envision the future of computing. It is their first joint appearance on stage at the D5 conference. It is an awesome interview.