Finally, after sending signals of this move ever since Steve Jobs re-took Apple’s helm, the company last week announced that it will move to the x86 platform. While I had clearly anticipated this move for some time I also expected their execution, once announced, to be much more rapid than it will be. Apple’s traditional mode of operation is to wait until the absolute last minute and then announce any major release to avoid the Osborne effect, (named after a failed computer company that was known to announce new products a year in advance of their release).
Apple has demonstrated over time an unusual competence in the technology market, one of avoiding demand degradation due to pre-announced products. This is a problem that has historically plagued Microsoft and is generally responsible for the slow takeup of Microsoft’s operating systems.
Microsoft, in contrast to Apple, often starts talking about its next operating system years before it is available causing the market to defer purchasing exiting products. While Apple clearly had a problem with their last major move, a virtual swap-out of their existing operating system to one based on Unix, recently they have been vastly more successful at getting their installed base to move crisply between versions.
My expectation was that an announcement would come after the fourth quarter (because Apple’s sales are heavily weighted in the fourth quarter) with hardware availability withinsix months of the announcement. Apple would have clearly taken a hit in the first half of the year, but they do anyway (and will under the announced plan), and, given most critical broad market Apple applications are now developed by Apple, core application support could be insured at hardware launch.
In addition, Apple had been working to make the porting from the old platform to the new platform incredibly easy, and that should have insured a good selection of newly ported applications for the new hardware by the following fourth quarter.
With some cosmetic changes to the OS to anticipate the Microsoft Longhorn release at the same time, they would have been in a vastly better position to take on Microsoft in the fourth quarter of 2006 than they were in their disastrous response to Microsoft in the fourth quarter of 1995. But while they will still be better able to roll against Microsoft in 2006/2007, getting there intact is now the big challenge.
By announcing mid-year 2005, buyers are now faced with a product line that will appear obsolete through the rest of 2005 and into 2006 when the first Intel-based offerings are expected. Developers will pull funding from PowerPC-based new applications because of an expected decline on future revenues associated with that platform even though most buyers, on Apple, will remain on that hardware for at least two years. This is because they will believe that buyers will freeze most software purchases pending the new hardware. However, putting those resources on the x86 platform will be difficult as well, given there won’t be any real opportunity to sell Apple-based products on it until late 2006 and, even then, they will expect the real opportunity, if it does emerge, won’t come until 2007.
Many of these developers are currently developing on Microsoft and Linux in addition to the MacOS. Linux remains stable during this time and the developers have been anticipating Longhorn for nearly four years now. Strangely enough, the timing may give Linux the best opportunity to move on the Apple-installed base, but to do so Linux would need a vastly better, and more consistent, user interface and experience than it has now. This is unlikely during the critical 2006 period when Apple is most exposed.
Because Linux isn’t really ready as a desktop OS yet and Microsoft’s Longhorn is also in pre-release, I’m not expecting a big, intentional, developer migration away from Apple. However, Apple hardware and software revenues should decline during most of 2006, suggesting some of the Apple-focused development companies will downsize the related groups to contain costs until the new hardware is available, and that may have a similar effect.
For Apple, which is already experiencing a sharp, partially seasonal, decline in iPod sales, it will be the hardware sales decline that will likely be the most painful. Hardware still makes up a significant portion of Apple’s revenue and it will be increasingly difficult to get people to buy PowerPC hardware as they become aware of the near-term obsolescence of that platform.
IBM Microelectronics, which had started aggressively drumming up support in the media to reverse the Intel decision before the announcement, will be working behind the scenes to make this transition look as expensive and foolish as possible in the hope that Steve Jobs will reverse his position.
As a carrot to offset the huge stick, IBM can also offer financial incentives, part ownership in the expected spin out of the microelectronics division, and offer to invest formally in Apple. This move is clearly a major embarrassment to IBM and it more then offsets their successes with the game system market. Without Apple the division appears far less attractive to investors, which puts a huge crimp in any valuation related to a spinoff of the division.
In addition, in what seems like “news of the weird,” Microsoft uses Power Macs as the development platform for their Xbox. This may mean they will have to change platforms again and move away from IBM in 2011 when the system that follows the new Xbox 360 is released.
Working Through Pain
As a result IBM Microelectronics, not Microsoft or Linux, may be Apple’s biggest problem during the transition given their desperate need to force Apple to reverse course. Even more strange will be Microsoft’s support for Apple. Microsoft’s Apple-focused Office group, which by most measures is a near independent subsidiary of Microsoft, has traditionally been closer to Apple then their sister division is to the Windows team. Office will be critical to Apple’s long-term goal to move into business and this team is likely, as it has been in the past, to be extremely aggressive on the new x86 platform.
Were Apple to reverse it would be an embarrassment of biblical proportions to Intel and put massive pressure on the company to offset IBM’s strategy. With both AMD and VIA also motivated to steal some of this business, holding onto Apple may become more difficult, and expensive, for Intel than getting them was.
All told, this should make the next 12 to 18 months an extremely painful period for Apple, but it will leave them with multiple chip vendors (Intel, AMD, VIA) and a much better ability to move into business then they currently have. It also sets the stage for their eventual exit from the hardware business altogether.
The real question is, does Apple stay in the PC hardware business or move more aggressively against Linux and Microsoft as a software pure play?
In reading the latest unauthorized biography of Steve Jobs (iCon: Steve Jobs, the Greatest Second Act in the History of Business), a must-read if you follow Apple at all, you’ll see that taking on Microsoft is Jobs’ long-term goal, and this suggests Apple will exit or spin off their hardware unit at some future date.
Given Steve is feeling his own mortality of late, my expectation is that if this were to happen it would probably happen relatively soon after the transition is complete, say 2008/9. This would allow Apple to sell through HP (an existing partner) and possibly Dell and others (much like Microsoft does today). Steve has never liked clones, so this move would require Apple to separate from hardware as opposed to recreating a strategy he has long thought foolish.
If this were to happen, Apple could emerge as a true alternative to Linux and Windows, possibly to replace Sun as one of the three contenders for desktop and server platforms.
Rob Enderle, a TechNewsWorld columnist, is the Principal Analyst for the Enderle Group, a consultancy that focuses on personal technology products and trends.