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Weekly Column

MeMobile, You Kaput: Apple's plan to take over the world

Status: [CLOSED] comments (127)
By Robert X. Cringely
bob@cringely.com

As widely predicted, Steve Jobs this week introduced at Apple's Worldwide Developers Conference the iPhone 3G that was first reported in this column late last year. The $199 price was a welcome surprise but shouldn't have been given Apple's confident predictions that it would sell 10 million iPhones by the end of the year. That's four million more by Christmas in up to 70 countries, so the numbers make sense. Apple, which holds its sales estimates pretty close to the vest, had to do something like this in order to remain the darling of Wall Street. But you know what was the REAL big news in Jobs' keynote? Not his apparent poor health, which I have to admit concerns plenty of people, and for good reason. No, the big news was MobileMe, Apple's Microsoft Killer.

Huh?

Watch the recorded video of the speech (it is among this week's links) at around 1:10 when Phil Schiller takes the stage. He demonstrates a lot of stuff, mainly push e-mail and calendaring, but also a suite of web applications for remotely accessing user data and metadata held in MobileMe, the successor to Apple's .Mac service. He doesn't show a word processor, doesn't show a database or a spreadsheet, and doesn't show a presentation program. In short, he doesn't show the guts of any networked office-type application. He shows applications that are actually far more sophisticated than any of those.

Given the code Apple already has for its iWork applications, how much more effort would it take to webify those apps, too? Not much, I'd say. A year from now I guarantee you that MobileMe will offer a complete suite of web-based Office applications.

Now let's get back to that Microsoft-killing part. Microsoft's success is based on two products and only two products -- Windows and Office. Microsoft is obsessed with the idea that Google will undermine one or both of those monopolies through Google Apps. This is all Steve Ballmer thinks about and is what made him so eager to spend $40+ billion for Yahoo. But what if the real threat isn't Google at all, but Apple?

In every business there is some version of the 80-20 rule that says 80 percent of the business comes from 20 percent of the customers. Smart businesses do whatever they can to play to that powerful 20 percent. If you are a new CEO who needs to turn around a business 10 minutes after walking through the door, there are two things you can do: 1) cut costs, and 2) focus on your top 20 percent customers. That's it -- you are now a turnaround expert and I grant you an honorary MBA.

There's another kind of company, however, that applies the 80-20 rule in a different manner and Apple is one of those companies. They aim everything they do at that top 20 percent and ignore the rest. Sometimes you hit a home run and get 75 percent market share, like Apple did with the iPod and iTunes, but I can guarantee you the business plan was aimed at taking 20 percent, tops, and making a good living with that.

There are other companies that take a similar market approach to Apple, but few of them are in the computer business. BMW and Porsche are good examples.

What if Porsche were in the software business. What sort of word processor would Porsche build in 2008? It would be distributed, network-based, have central file storage and an elegant user interface. That's the key to what Steve Jobs does all day: he sits around and asks questions like, "If Porsche made a media player, what would it be like?" That's it -- you are now qualified to replace Steve Jobs at Apple on days when he's away making trouble for Disney.

There are two delightful aspects of applying the 80-20 rule in this manner. For one, the 20 percent market -- if that's all that you are aiming for -- tends not to be price-sensitive. That market is willing to pay something for elegance or convenience, but better still for elegance AND convenience. That's how Apple could charge $99 per year for .Mac and for the successor to .Mac, MobileMe. There is at least $60 in profit for Apple hiding inside that $99 price.

The second delightful aspect of Apple's application of the 80-20 rule is that Microsoft can't do the same thing. Microsoft can't compete. Bill Gates made the decision decades ago to go for market share -- for the 80 percent part of the 80-20 rule or -- better still -- for all 100 percent. And it looked for a while like he might get his way, until Apple was reborn.

If Microsoft gets only 20 percent of any market it enters, they consider that effort a failure and it would be, because Microsoft's business is scaled and its cost structure is optimized for really, really big numbers of mindless and fairly undemanding customers, most of whom wouldn't pay $99 per year.

That takes care of Microsoft, but here's the real beauty of this Apple strategy: it takes care of Google, too.

Though Google has a very different approach than Microsoft does to almost every product and market segment, in this one aspect they are identical. Google, too, aims for maximal market share, which means they can't expect customers to pay and their cost structure has to be maintained such that they make a profit without being paid.

Which leaves a lucrative niche all to Apple.

Now let's jump back to the automobile analogy and look at Porsche, which is presently buying Volkswagen. This is probably a stupid move on Porsche's part, but makes the point that smaller, highly profitable companies can develop the kind of financial power needed to take over vastly larger, if more poorly run kinda-sorta competitors like Volkswagen.

Nearly everyone who tries it is going to LOVE MobileMe, which Apple -- calling it "Microsoft Exchange for the rest of us" -- will madly market to small and medium-sized businesses, of which there are six million in the U.S. alone. Those outfits will buy iPhones, MobileMe accounts, and eventually Macs and MacBooks for their workers. IPhone enterprise customers will do the same. Organizations that find Google Apps too hard to use (have you actually tried to build a wiki using Google Sites? I have and it is HARD - far worse than using JotSpot, from which Sites supposedly evolved) or aren't big enough for Exchange will buy MobileMe instead and never look back.

And that's just in the U.S. What about those other 69 countries that will have iPhone service by the end of the year and the 62 that will allow Apple's App Store?

This will become a juggernaut driven not by the iPhone, not by the Mac, not by Apple's media distribution business, but equally by ALL THREE businesses.

There are ways it could be made even better. For example, the smartest thing Apple could do with its cash hoard right now would probably be to buy SalesForce.com and fold that into MobileMe, instantly taking the high ground among the road warrior set.

Steve Jobs is brilliant and patient. He has a plan and is executing on it to perfection. Bill Gates couldn't pick a better time to retire and let someone else take the fall.

Comments from the Tribe

Status: [CLOSED] read all comments (127)

I would like to define a small business as a $100Mor less outfit. From time to time I work with these guys. It seems that these small business don't need the scale of formal management, cause they have hundreds, maybe a very few thousand, employees. They are madly chasing their own 20% and something that just works (like SF.com) is plenty good. And they are ALL semi-road warriors, even if it is just the back roads of Cincinnati or Sacramento. If they have something that works wireless, at home, and at the office with out lost backups, technoweenies wanting "managability" when they need "no headaches" they will JUMP on it.

My accountant has a simple network storage device and uses Google to store all of my tax returns in both places (and on CD's). 10 people in the office doing $2m plus per year. These are the small businesses that control the world.

Daemeon | Jun 20, 2008 | 11:28PM

All I can it is brilliant and I can't wait to get my hands on

david Andrew | Jun 21, 2008 | 2:08PM

All I can it is brilliant and I can't wait to get my hands on

david Andrew | Jun 21, 2008 | 2:09PM