Rumour: Business Magazines to Fire Clueless Reporters

All kinds of rumours are floating around about Apple ahead of their latest quarterly report, due today, after a precipitate drop in their share price. The picture here (from Google Finance) exaggerates the effect because the graph scale isn’t zero-based, but the drop from the peak of $702 on 19 September 2012 nonetheless is spectacular.

One claim is that Tim Cook is about to be dumped as CEO.

Another story doing the rounds is that Apple has run out of innovations in the absence of Jobs, since nothing new has appeared for the past 6 months. A possible concern – except that Apple had a huge launch season late 2012, and seldom refreshes a line in less than a year. This creates stability in the market, and avoids customers feeling they wasted their money buying a product that’s instantly obsolete. The iPad mini was launched in November 2012, and the latest iteration on the iMac a little later. True, these models are not major new blockbuster sector definers: the iPad mini extends the reach of an existing line, and the new iMacs are a refresh if with significant detail changes. And the iPhone 5, announced latish 2012 (September) is also an incremental change, rather than a major new sector definer.

So is the big worry instead that Apple is not “innovating” in the sense of defining whole new industries any more? But how often does a company need to introduce really big new changes? If we consider this sort of repackaging to be insignificant, what are Apple’s major new products and how often are they launched (starting from Jobs’s return to Apple in 1996)?

• iMac 1998
• iPod 2001
• Power Mac G5 (and successor Mac Pro) 2003
• iPhone 2007
• iPad 2010

That’s an average of one major new product line every 3 years or so. Which is pretty impressive. You could argue that Apple is due for another major breakthrough. Of the above, the Pro line is the only one that wasn’t much of a game changer, so you could adjust your expectations down to Apple “only” averages a game-changer design about once every 4 years. Either way, the absence of some major new design is not a reason to dump the stock.


To inject some reality: here are the latest mobile device operating system stats from Netmarketshare. Not only does iOS dominate but, after a period of slight decline, iOS share is on the up again (March 2013: 61.41% vs. 24.85% for Android, the next biggest competitor). That may be a short-term effect but is hardly indicative of a massive drop in popularity or loss of market share. These figures rely on Netmarketshare’s methodology and I have no measure of how accurate that is in absolute terms, though the trend their number indicates is unlikely to be biased relative to the broader market.

So is Apple in trouble and should Tim Cook go?

Not on any evidence I can find.

The source of much of this speculation appears to be a rumour mill in some cases fuelled by players in the market who are shorting the stock – or possibly planning on buying it when it sinks low enough. Those who actually work the numbers claim that far from an unstainable bubble, Apple’s rapid rise in value is justified based on traditional calculations like PE ratio and variants, and the stock is now extremely inexpensive.

So unless Apple has some truly horrible surprise in their quarterly report due out later today, I will be very, very surprised if Tim Cook is going anywhere soon, or Apple’s stock is going anywhere but up, once the current hysteria has subsided.

What baffles me about all this is that stock manipulation in the US is illegal. Shouldn’t the SEC be investigating the more obvious instances? For that matter, couldn’t a large group of stockholders identify the more significant rumour mongers and hit them with a class action suit? Possibly not, since the actual numbers will reset the stock price.

Back to the title of the article: I wish it were true. It’s not only in this field. Climate scientists have renamed the Wall Street Journal the Wall Street Urinal because their science reporting is so absurd.

What’s really wrong with Apple?

Despite the huge tumble Apple has taken on their share price, the reality is they are doing well on most measures that count, and exceptionally on some. Take for instance the way they have pushed Samsung to second place in the US cell phone market in the last quarter of 2012. Samsung has a vast range of phones including some very cheap entry level models, whereas Apple only has premium models. This is like Mercedes-Benz pushing Toyota or VW into second place.

Here’s a much bigger story of decline.

Dell is buying back its shares and going private, while pretty much scaling back on manufacturing.

Anyone following this story will no doubt have seen numerous reminders of Michael Dell’s advice to Steve Jobs: close Apple and give the money back to the shareholders (repeated in the article I point to above). Apple right now could buy Dell for cash and still have $100-billion left in the bank. For now it seems that Apple had the right business model all along, it was just poorly executed until the Jobs revival.

Next year, we could have a different theory of the universe.

My view: Apple does some things right, other things wrong. They could still have a major stumble if one of the competition gets a major thing Apple is missing right, whereas they are all trying to do better than Apple at the minor things and missing the big picture.

Next year, we could have a different theory of the universe.

Microsoft Surface: a precision-engineered kick stand, I ask you: what major problem does that solve? Microsoft has designed a laptop you can’t use on your lap and is selling it as a better kind of tablet.

Many of the arguments about what Apple is missing revolve around minutiae, like the absence of this or that port, or this or that hardware or software feature deemed so essential that the Apple product will surely fail if one of the competition remedies the defect. One of the competition remedies the defect, and sinks without trace. How often have we been told some Apple product would be a success if only it had a USB port, could use SD flash cards, or could receive FM radio? Products like Zune that supposedly met one or more of these needs litter the trash heap (or, better, the recycling bin).

If any competitor is to get serious traction, they need to focus on finding something major that Apple is missing or getting wrong – and finding a product or niche is not enough. You need also to find a fundamental flaw in their business model that stops them taking on your new idea.

All these other things excite geeks, not people who just want something that works and don’t care about technology.

Of course Apple did get things badly wrong in the past. In the late 1990s, they almost went broke.

The original Mac OS did not have a proper kernel, so it did not implement memory protection or true multitasking, meaning one program could take over the machine if it went awry, destroying data of other programs or requiring a hard reboot to get the machine back under control. In the late 1980s, I told someone from Apple that they already had a solution. At the time, Apple had a version of UNIX, called A/UX, that included a way of running Mac apps in a compatibility layer called Blue Box. I proposed that they give up on their own operating system project that eventually became the disastrous Copland project, and create a new Mac-like interface on top of UNIX, with Blue Box for old apps. No, they said. UNIX was way too heavyweight for ordinary users. At the time, A/UX only ran on the top of the line Mac II (with a wicked fast 16MHz Motorola 68020). I tried to explain that they didn’t need all of UNIX, just the kernel, and the application layer could be a version of the existing Mac application layer, but they insisted it wasn’t possible. Nearly 10 years later, Apple bought NeXT, and the resulting new Mac OS, called Mac OS X, was pretty much what I proposed. You may argue that the entry level Macs of the day didn’t have hardware to support a proper operating system with memory protection, but that’s very short-sighted. By 1991, System 7 was launched with virtual memory support, requiring a hardware memory manager (though still without protection, since that would have required a major rewrite of many applications that relied on accessing a single common memory).

Where Apple went wrong in this whole exercise was taking focus off their key strengths: usability and clean integration between multiple hardware and software components. Design of an operating system kernel is secondary to this focus. Once they reverted to their traditional strengths, they recovered fairly quickly (in the process also addressing another of my criticisms, a complex product range no one could understand).

Apple went badly wrong because they took their eye off the ball, and wasted huge amounts of money on something that no one but a geek or hard-core computer scientist would care about, a highly innovative operating system kernel.

So if anyone is to seriously dent Apple’s dominance of their key markets, what it will take is a clear understanding of the important things Apple does well and the important things they do badly. Identify the latter, and address them, and you’re in with a chance.

What options are there? Here’s a few hints. Apple’s serious weaknesses are not in areas like ports, memory expansion or kickstands. So what are they then?

I do think Apple has some serious weak points, and I’ve been right on these things in the past. So what do I think Apple’s real problem is (or will be if someone sees it and exploits it)?

Sorry, I’m tired of giving my ideas away for free. If you have a serious amount of money to invest, let me know.

Tablet Wars

No, not anything to do with the war on drugs.

One thing Apple does well is secret. The 23 October iPad mini launch was widely leaked, though the originally rumoured date earlier in October passed uneventfully. What did take everyone by surprise was a major overhaul of the full-sized iPad. There had been some rumours of an iMac update; I don’t recall seeing any rumours of a Mac mini update.

All of this of course was designed to upstage the Windows 8 and Microsoft Surface launch scheduled for 26 October.

It remains to be seen whether people really want something closer to a full computer in this form factor. Once you add a mouse or trackpad, you can’t hold it in your hand any more, and stylus-based devices have been around more than 10 years and never sold in big numbers. The kick stand is not a great design feature, because it implies the need for a firm surface, reducing again the scenarios when you can use it comfortably. Currently this space is owned by Apple and Android variants (Kindle Fire, Samsung) and Microsoft does not have the app base to take them on. If you are going to buy one of these as a notebook alternative, why not get a notebook?

I bought an iPad mainly because it gave me the option to take something much lighter to a conference, where I need to read email and give a presentation. When I have that option, it works pretty well for me. If I need a real computer, I bring that instead, so I don’t need to compromise on issues like keyboard quality and a poor alternative to a mouse or track pad.

It will be great if Microsoft can bring new competition to this space, but I have my doubts (and an early review is not too promising). An important thing to understand what business a company is really in. Although most people focus on Apple’s hardware and the question of what value it really represents, Apple’s real competitive edge is in a huge bank of credit card numbers. If they wanted to switch their business model tomorrow to slim margins on hardware and making most of their money from their app and iTunes stores, they could. Microsoft on the other hand has built a business out of high-margin software. How can they turn that around overnight?

Check this out: current total app count in Windows 8 RTM Store = 4,284 (mostly free); compare with iOS total available apps: 694,566 and current number of Android apps in the market: 548,200.

The real big killer number is Apple has (at last count I’ve found) 435-million credit card numbers. Only Amazon is in likely to be in this league: a much higher fraction of of Android customers only download free stuff.

As for the new Windows look of huge fat, flat icons, if it works as badly as the Ubuntu Unity interface (some say worse), meh.

Back to Apple’s announcements: I’ll hold off judgment on whether the iPad mini is too expensive for the market (vs. more expensive than I’d like it to be). The overhaul of the bigger iPad is unexpected, and an indication that Apple is not willing to let Microsoft steal any territory back from them. The Surface RT (ARM processor, not able to run most Windows software) is the target. The Surface Pro will have to take its chances selling against Ultrabooks that are a little heavier and work better as a full computer. The ultra-thin iMac is an engineering marvel; my 2009 27" iMac has just had to go in for repairs because of a recall on its 1TB drive; had Apple designed it to be easy to repair as well as to look good, they could have couriered the drive to me rather than requiring that I send the whole machine in to repair.

Looking great is important, but if you end up with a Lamborghini that needs a specialist technician with special tools to service, even if it only costs as much to buy as a BMW, you have a practicality problem. So I am genuinely disappointed that no one is seriously competitive with Apple in the things it does best: providing a seamless end-to-end experience centred on the user.

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This article lists Microsoft's lessons from the Zune fiasco. Did they learn? I have my doubts. Microsoft's development model, cemented by the success of Windows 95 at a time when Apple was floundering, is to get at least two iterations wrong: design refinement on the back of customers. With Apple on top form, I'm not placing any bets on the once good old strategy.

Will Microsoft Surface Sink?

In the wake of complaints that Microsoft didn’t give their hardware partners sufficient notice of their Surface announcement, it seems Ballmer thinks he can get close to Apple’s success by copying the jerk side of the Jobs persona. Nice try, but there was more to Jobs than that. There’s also the perfectionism, the sense of style and the ability to get the best out of people.

Absent all that, why announce a product with so little detail? The biggest effect this is likely to have is chilling prospects of aggressive hardware development for Windows 8. Anyone partway through a design will be strongly tempted to go Android instead, with the threat of such a big player invading their space. An example of this effect: Intel’s IA64 (Itanium). IA64 never delivered in a big way, yet it essentially killed off development of future generation MIPS processors for the high performance market, and killed both the HP PA-RISC processor and the Alpha (by then also owned by HP, but for practical purposes killed by Compaq, who bought DEC and drank the Itanium Kool-Aid).

I don’t understand why the media have been so conned into reporting this as the product that will knock down the iPad. That story has been done so often it’s become ridiculous. The only thing Microsoft adds to the game is some hardware innovation that no one really wants. We have at this stage no data on some rather fundamental details like when it will ship, performance, battery life and what communications it supports besides WiFi. To add an edge to the bizarreness of the whole thing, the case is made with a technology called “VapourMg”. You can just imagine the jokes that will provoke around Microsoft announcing vapourware.

The big thing missing here is how Microsoft will tackle Apple’s massive lead in free and low-cost apps targeting this market. And also Apple’s massive lead in a customer base in hundreds of millions who’ve entrusted their credit card details to a 1-click order process. The x86 version will run standard Windows software and dropping the price on those will be a huge risk when Microsoft and partners are dependent on a much higher pricing model on desktops, and the cheaper model with an ARM processor will require recompiles at very least, and it will look very odd if Microsoft has two very similar looking options with radically different pricing policies on apps. The most likely scenario is that the two will have completely different software models, adding confusion to the market. It’s not just a matter of choosing based on speed and screen resolution; if trading up to the faster model means replacing all your software, the two devices might as well be different brands.

What they still don’t get about the Jobs story is the big breakthroughs happen when you don’t listen to your customers. Arrogant though that sounds, customers used to an old paradigm aren’t the best people to ask about game-changing ideas. I bet this thing was designed based on focus groups who said, “If only we could get a tablet that worked just like a desktop machine.” Guess what? The same people in those focus groups won’t buy one, any more than people in 1900, asked what an automobile should be like, and who said it should have a horse manure scoop, would buy one for that feature.

Tablets with keyboards have been done, and failed. Doing the keyboard better in some way (thinner, sort of possible to ignore because it’s a semi-rigid dust cover you can presumably fold out of the way) doesn’t fix that. I don’t see the value of a keyboard without tactile feedback (if they’ve achieved that with something a few mm thick, that would be a real first, and no one has mentioned that). It means you have to keep looking to type, negating the value of separating it from the touch screen.

Microsoft is trying to find a reason to use Windows in this new form factor, and it doesn’t add up. If Microsoft wants to get into hardware, they would do better making an Android tablet and adding value, as others like Samsung and Amazon have done. There really are only two operating system kernels in wide use (if you don’t count embedded systems where the market is highly fragmented): variants on UNIX (including Linux and Apple’s OS X and iOS), and variants on Windows. Maintaining your own kernel without some significant value you can add is nuts. The cost is huge for no perceptible benefit. Apple discovered that only after nearly going broke (I told them to use a UNIX kernel with a Mac outer layer in the late 1980s: there are times when they should listen).

Another missing detail: how well will it work away from a rigid surface (aka desktop)? If Microsoft have invented a notebook computer you can’t use on your lap top, that would be an interesting first.

In the meantime of course the rest of the field won’t stand still. Apple, Samsung and the rest of the Android crew have time to think up other ways to add value.

I’ve been wrong before but not as often as the journalists who’ve reported yet another iPad killer. Time will tell.