Vol 4, No 7
Week of April 20th, 2008

SoftGram Spotlight:
SaaS, the Mac OS, and Fighting the Last War, Part II of II

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In This Issue's Softletter

• Valuing Options While Running the Compliance Guantlet, Part II of II
  

• Winning Business Models: SaaS as Game Changer

• Benchmarks: Q4 2007 Venture Capital Investments

• Keeping Negotiations Secret, Part I of II

• Logo Design Resources

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Ironically, while Microsoft has had to suffer the scorn of Open Source acolytes for over a decade, Apple, by contrast, makes the Redmond giant appear as charitable and open as a monk who's taken an oath to serve mankind while living a life of simple charity. As I pointed out in both editions of "In Search of Stupidity: Over 20 Years of High-Tech Marketing Disasters ," during the 80s and into the early 90s, it was Apple, not Microsoft, who was regarded as high-tech's marketing bully with it willingness to sue any company it regarded as impinging on Apple's GUI franchise. Apple has never changed in this regard, but during Steve Job's long exile, as the company slipped from high-tech's pinnacle to near irrelevancy, the public and the press ceased to notice (very much) or care about Apple's love of the proprietary.

But the desire to maintain absolute control over its own destiny is implanted in Apple's DNA, as its recent moves in the market make clear. Apple, with its coy refusal to support Flash on the iPhone, its new platform, has signaled to the industry it will do everything it can to avoid being tied to technologies it can't control. Since it's very hard to control your web destiny without having a significant browser technology in the market, Apple is pushing Safari as hard as it can and damn the opt-in niceties. With the release of the iPhone SDK, Apple demonstrated it wishes to control not only its future technical destiny, but its channel one as well; products developed with the SDK must (in theory; it will be interesting to see how long it takes developers to try to bypass this) be sold via Apple's distribution network while handing over 30% in margin.

Just as interesting is Apple's announcement that it's purchasing P. A. Semi, a fabricator of high-end, low power chips based on the PowerPC architecture, one that Apple knows very, very well. The purchase signals that Apple seeks to build its new iPhone platform not only on a highly closed software foundation, but a tightly leashed hardware one as well. Apple could use Intel's Atom line, but while circumstances and the market forced Apple to give up PowerPC in favor of Intel, Apple's genes cry out for safe piece of silicon it owns to crawl into and gestate for the future. Apple is interested in gestating new version of the iPhone and particularly the iPod iTouch, for which Apple has great plans.

Apple's Grand Vision sees a happy future world where the MacOS is transformed into a Windows for the next millennium, the engineer directing a "NuStack" that is tightly knit, incorporates a strong (and sleek) hardware component and is proprietary. Apple is not a stupid company and it"s willing to make the appropriate noises to keep the Open Source acolytes focused on Microsoft. After all, it does have Open Darwin, which is the Unix underpinnings of the MacOS without the elements that make the MacOS useful; mainly, the GUI and all its supporting elements. Apple doesn't control any important protocols or underlying web-based technologies, so it can offer to open up anything it does own to the free software types and keep them happy for the time being.

In Apple's NuParadise, Apple will be the primary means of accessing and managing personal data, including music, E-mail (as smart phones begin to drain away day to day communications activities from the desktop and laptops), applications (again, as they migrate to what are now called smart phones) and E-books. Yes, E-books. Apple is keeping a very close eye indeed on this market as it struggles to be born. Despite the fact that Kindle is ugly, equipped with a ludicrously low amount of memory, and is more expensive than the successful E-book of the future needs to be, the fact it's done as well as it has signals all kinds of people and companies that a new market is almost ready to be born. Apple, with its iPhone and iPod experience, is in a position to build a sleek, probably a bit too expensive, but possibly irresistible new chassis (integrating the information it's gaining from sales of the iTouch) that will provide the right hardware foundation for E-books to take off. We're only three, maybe two, generations of flash memory away from this epochal event.

(Oh, what about the enterprise? Apple will get back to you on that. Apple doesn't have a business enterprise strategy. Right now, there's a new world of consumer electronics and personal data out there to conquer and in the enterprise there's that big grease monkey Steve Ballmer with dull old Word, and fly-bitten Excel and terribly un-cool Access and all the rest of it to deal with. Wrestling with that mess right now is not on the agenda.)

It all sounds grand and it all sounds wonderful, but there is a problem with this strategy. And that problem is SaaS. SaaS is pushing a trend I've discussed in the past as "cutting away the metal" and freeing personal computing environments from the underlying hardware with which they are, for now, inextricably entangled. The trend is being supported by other factors, including virtualizations, which allows both companies and individuals to sort of do this, though not easily and not without some severe limitations, and the failure of the Vista launch. Vista, above and beyond the marketing problems that accompanied its rollout, demonstrates that the OS model of the 80s and 90s is reaching its practical limits. While the market appreciates the rich environment Windows creates, the cost has been to create an incredibly fragile and complex underpinning that exists on everyone's desktop. When Windows goes bad, it's now often impossible for even the most sophisticated and expert user to repair it. There are simply too many local and remote variables to manage and track. To upgrade your system is to literally risk years of work and data with no clear assurance that you'll succeed.

Rather than wait for Windows 7 and the promise of a simplified desktop, the market is turning to the SaaS solution. SaaS, by its nature, in most cases provides 24/7/365 to key applications. The acceptance of SaaS is driving the development of web-based applications and infrastructure that provide a user experience that's coming closer and closer to the best of the desktop. SaaS provides one answer to the issue of losing environments: diversification. While any one particular SaaS company can fail, not all of them will. Most of your environment will remain intact while you look to replace that lost element.

Of course, SaaS offers its own challenges. Despite the talk and promises of easy data integration, transporting data across disparate applications and platforms is, and remains, a nightmare (and sometimes impossible). SaaS can cost more that the desktop. Security and safety remain concerns. But the market trend is clear and becoming clearer. Yes, there are business market niches and segments that are a poor fit to SaaS. But Apple is not a player in any of those (with perhaps the exception of high-end graphics development, where fast desktop boxes running specialized graphics software is still de rigeur).

The question facing Apple is where does it fit its technology into SaaS and the underlying trend of breaking away from any particular hardware grip? It's nice that the MacOS has cool looking icons on the desktop and is smoother and more integrated than Windows, but if many of your applications live primarily on the web, that devalues your OS advantage. It's great that you can build cool, sleek, highly scratch-prone devices that many people have to have, but over time, hardware is a tough business. The iPod is great but so was the Sony Walkman and no one buys Walkmans today. And while Apple makes a nice buck on the music it sells for a buck, it doesn't actually own any of that music and unless it moves into the music business (and direct competition with all its other suppliers), it can't rely long term on that revenue; the music firms are already struggling with all their might to escape Steve Job's embrace.

Now, there is one brightly shining jewel in Apple's newly refurbished high-tech crown that anyone can envy and that's the iPhone OS. I'm a cheap Windows guy myself and bought a cheap but functional Samsung Blackjack with Windows Mobile 5.0. My daughter, however, had to have an iPhone and her indulgent father bought here one. But after watching her use it and giving the gizmo a spin myself, I'm envious. The iPhone OS is almost as far ahead of WM 5/6 as the original MacOS was ahead of Windows 1, 2, and even 3. And it doesn't take a genius to see how this software would be the perfect fit to a new generation of devices that merges music, phone functions, personal information management, and E-book into one slim, beautiful looking, scratch-prone convergence device.

Apple has been here before. Back in the 80s, no less a personage than Bill Gates himself urged Apple to license the Mac OS. Had Apple taken Gates' advice, Apple would now be Microsoft and Microsoft might not even exist. But Apple likes being proprietary and integrated and made the decision that led to Microsoft becoming the most important company in high-tech and Apple an also for over a decade. For years, while Windows slowly and steadily clawed the desktop OS market away from Apple and IBM, the MacOS lived in a constricted box whose walls were defined by Apple's yearly growth. By the time Apple made its first stab at allowing a clone market to develop around the Mac, the OS was contained in a market share corral where growth could only come from eating the critter next to you in the enclosure. The free range was all fenced in with Windows.

So, over a quarter century after the MacOS first rode into the market on top of a little-remembered steed named Lisa, Apple faces another interesting decision. And an opportunity to fight a previous war again.

It will be interesting to see what Apple decides to do.