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- THE BIG SPIN -
There are different types of spins. There is the spin around the
block. There is the spin programmers use to rotate sprites in a
video game. There are spins on the way stories are told. There are
dance spins and toys that spin. There is also the BIG SPIN as it
applies to the evolution of the computer industry.
On Wednesday, August 6, Mr. Bill Gates and Mr. Steve Jobs cooperatively
announced that Microsoft was contributing to Apple's bottom line with
a monetary figure of $150 million. Assuredly, there are undisclosed
stipulations Microsoft is placing on that contemporary bail out, but
Jobs says Microsoft wants to "own the industry". In theory, Microsoft
now has influential control over Apple-based proprietary PCs as well
as traditional IBM-compatible PCs. Microsoft will tell you that
consumers deserve a choice and that they are protecting their
investments in Apple-based applications by helping to revitalize
the platform.
It is as if the investment community does not care about the whys.
They simply see "Microsoft" and "Apple" in the same press release and
stock values bend up on the speculation. But, what are they speculating
on? All they really know is that Apple's dike is being plugged by
Microsoft. They know that Microsoft will benefit in some way by having
some non-active share in the company.
If we spin the world back to 1994, Wednesday, September 28 to be exact,
there was an announced $90 million bailout Sega promised to Atari. Terms
included Sega's acquisition of Atari shares, tentative agreements to
exchange software titles and a forgiving of a pending lawsuit Atari had
registered against Sega. Hmmm, what parallels exist there? Are there any?
For $150 million, has anyone bothered to find out?
Some answers are revealed with an understanding of motivations. There
are two types of motivations in making business decisions; both start
with "P". They are "Performance" and "Pride". Companies get in serious
trouble when these motivations are not spinning together in a
synchronized balance. These two categories can be demonstrated by looking
at advertising decisions. There are "institutional" ads. Those are
advertisements that promote brand awareness, but lack any sense of
urgency. For instance, there are no prices, no sales and no limitations
on the act to purchase. An ad that simply states "Drink Coca-Cola" is an
institutional ad. Institutional ads fall under the category of "Pride".
If you run nothing but institutional ads and never give consumers
motivation to buy now, the competition storms in with a strong price/value
message and steals the consumer.
A "Performance" orientated ad is one that creates some urgency. The ad is
strictly placed to generate a measurable profit after backing out the
cost of manufacturing, distribution and advertising. The ad features a
sale price or a value message or places some type of "get it now or lose"
theme such as limited edition collectable items. Running too many
performance-orientated ads teaches the consumer to only buy the product
when there is a deal. Companies need the "Performance" advertising to get
people to often think about purchasing their product. A basic example is
the decision to buy Coke or Pepsi in the grocery store. Many consumers
will buy either one first based on price- secondly what they prefer.
Personal preferences are statistically based on name recognition.
Therefore, the institutional ads help to make decisions when the prices
are virtually the same.
Rather than dwell more deeply in the philosophies of business principles,
let us look specifically at the motivations between Apple and Microsoft
while keeping the philosophies in mind. Apple is in serious trouble.
They have had consistent quarterly losses, write-offs and lay-offs.
They are desperately trying to make "Performance" orientated decisions
to compensate for the years and years of imbalance of a "pride"
orientated business philosophy... decisions that successfully built a
huge dedicated base of users, but failed to lure new generations of new
users. Instead, novice purchasers were swayed by the appeal of universal
compatibility offered by the IBM clone. Microsoft, on the other hand,
is so immensely successful that they very well may face litigation for
forming a monopoly. They do not have a dire need to generate quick
profits, but they do have a need to make sure the population is pleased
with them as a company and for the products they sell. Imagine the
problems if/when Apple fails and Microsoft seems to be standing over
them with the dagger in their hands. In the long run, it is healthier
for Microsoft's image to show they made every effort to help Apple be
successful.
Not to belittle the value of $150 million, but Microsoft will not feel
the loss. It can be compared to many of us buying a new microwave oven...
we certainly have to juggle some finances around, but it won't come
close to bankrupt most of us. On the flipside, $150 million is a big
bite of what Apple needs to survive and Microsoft (Gates) knows the
public views $150 million to be a great deal more than a couple annual
salaries. So why did Microsoft give Apple the money?
Last evening my wife and I had an occasion to stroll the Hillsdale
shopping mall. I always enjoy ducking into a B. Dalton when I can and
I did again. Predictably, the magazine rack was full of cover stories
of the Apple/Microsoft deal. If it was not a picture of Bill Gates,
there was a headline about him or Apple. I picked up three of them...
BusinessWeek, Newsweek and Time. Each of them is chuck full of stories
that provide Gates and Jobs a forum to express their views. Just for
fun, have any of you ever checked what it would cost to buy the cover
of BusinessWeek, Newsweek, Time, every computer journal, newspaper as
well as formidable exposure on television and radio? Assuredly, $150
million would not make a down payment except, perhaps, with the agency
placing the exposure. The sum of $150 million was a bargain for the
measure of "Pride"-orientated exposure the two companies are now enjoying.
Microsoft certainly did not deliver $150 million to Apple believing that
Jobs already has a plan to turn things around. As of this writing, no
one at Apple really knows who will be in charge. Jobs is making decisions
now, but he makes it clear that he does not want to be the CEO. Jobs
wants to remain faithful to his Pixar endeavors. He knows that the Apple
problems are too big and he does not want to go down with the ship. On
the other hand, Pixar is doing well and is a better career bet. Jobs
does more than hint that facility and headcount downsizing is imminent.
This should have been clear long ago anyway. Every business must bring
expenditures to be below income.
This provides us to another opportunity to spin back the hands of time.
Let us return to Monday, July 2, 1984 and the takeover of Atari by the
Jack Tramiel regime. At that time, Atari was losing hundreds of millions
a year and Warner Communications was literally bleeding money and in
desperate need to stop the crisis. Jack walked in and, almost overnight,
offices and buildings were vacated. People left so fast that over
$100,000 in unsigned travelers checks were left in an unlocked safe in
the finance office according to one takeover executive.
The casualties of personnel and real estate proved to be a key part to
Atari's saving grace. Within a few years, Jack made Atari profitable,
transformed it into a publicly traded company and repaid Warner for all
outstanding debts. In the mid to late eighties, PCs and Apples still
cost a lot of money and Tramiel's Atari found success selling a new
generation of 16/32-bit machines for a fraction of IBM-compatible
investments... especially in Europe. But as IBM compatible prices
dropped so did Atari's ability to be competitive and make money. All
along the mass market really wanted 100% compatibility with office
computers. When they became almost as affordable as Atari computers,
they won the "Performance" war against any "Pride" that Atari's
proprietary systems built with their users over the years.
So now, we spin ahead again to present day. We see Apple hanging on to
proprietary technologies just like Atari did. The are defending their
niche markets in graphics and education just like Atari did in the
music industry with integrated MIDI ports and with affordable desktop
publishing solutions using Calamus or Pagestream. We know $90 million
did not save Atari when Sega gave it to them and we know there is
historical proof that companies that attempt to sell proprietary closed
environments such as (Atari, Commodore, Texas Instruments, Coleco Adam,
Next, etc.) to the mass markets ultimately fail. The consumer wants his
home applications to work at the office. The retailer does not want to
carry multiple versions of like software. Software developers do no
like having to provide like development and support functions for
multiple platforms. Just spin the dial in history and these examples
appear again and again.
Another recurring spin is that technology companies fail to look at
historic evidence to make decisions for the future. They too often feel
what they have is so cool that everyone will want one, regardless of
price compatibility, trend or overall business sense. It is enough to
amaze anyone that Apple encounters a $150 million windfall without
having to expose a firm and conservative plan to turn things around...
not just philosophical, but itemized actions. Actions that will expand
the amount of Mac software exposure in retail stores. Actions that
will inspire die-hard Apple users to give up the machines and buy new
ones. Actions that attract new customers. Actions that attract new
software developers. Actions that satisfy creditors. Yet again, $150
million cannot do all these things, so we will have to see how Jobs
applies his newfound capital assets.
By looking at the industry spin over the years, Apple's charter should
be quite clear with or without the infusion of $150 million. They need
to build affordable personal computers that are 100% cross compatible
with the rest of the world. They need to cater to their established
base with optional PC-compatible emulation cards that permit the use
of Mac software. They need to divert their technologies to a strong
software development plan based on a MS-Windows framework.
Alternatively, they need to put 100% energies into a relatively small,
yet focused high-end solution that will be out of reach to the mass
market (a.k.a. Silicon Graphics).
Steve Job's pride may prevail and insist on downsizing Apple to a model
that he remembers in days when consumers were willing to consider
incompatible platforms. He may downplay the corporate image of
boardrooms and office formalities. Just like Jack Tramiel at Atari,
he may not see that the world has spun around and has different buying
trends than they did ten or more years ago.... that the money and power
of IBM couldn't make OS/2 fly and that we are now a world that ultimately
must have a Start icon in the corner of their computer screen.
It is amusing to watch the industry spin so fast that it never slows down
to take a look at where it has been already.
(c)1997 - permission granted to distribute/reprint for non-profit.
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