The value of a business book is in its ability to provide you guidance to the future. If you’ve read “In Search of Stupidity: Over 20 Years of High-Tech Marketing Disasters,” any edition, you understand I am highly skeptical of most business tomes that claim to have unlocked the formula for sure business success. But the best proof is in the telling, and in 2005, I wrote this analysis of what was happening at Apple for the second edition of Stupidity. I leave it your judgement as to my ability to analyze the present so as to predict the future. 

In the third edition, Apple now substitutes for Microsoft in the complementary section.

Excerpted from the “On Avoiding Stupidity” chapter 

For instance, let’s take the success of Microsoft Windows, to date high-tech’s most dizzying product triumph. Overcoming its humble roots as a clumsy imitation of the far more sophisticated Macintosh operating system, Windows’s success from 1990 onward drove Microsoft by 2005 to more than $40 billion in revenue and 60,000 employees, with 2005 profits exceeding $3 billion. Windows was first announced in 1983 when the GUI wars were first taking shape in the wake of Xerox’s pioneering work in the field and the first version was released in 1985. Over the years Windows bested GEM, VisiOn, GeoWorks, the Mac OS, and, most notably, OS/2 in the war for supremacy. What clearer example could exist of a company having a strategic vision for a product and then pursuing that vision to ultimate success?

But for Windows to achieve its current monopoly position, the following events had to occur:

  • Xerox, the original inventor of what we now call the graphic user interface, had to never develop a clue about how to commercialize most of the ground-breaking developments that came out of its PARC labs.
  •     *    Digital Research had to blow off IBM when it came calling for an operating system for the original IBM PC.
  • IBM, which during the early years of its relationship with Microsoft could have crushed the company like a bug, had to behave as if prefrontally lobotomized from 1985 to 1995 as the gruesome OS/2 saga ground on.
  • Apple had to decide to not license the Macintosh operating system, a decision that led to the company going from approximately 30 percent market share in the early 1980s to 4 percent market share by 2006.

Other events that contributed to the eventual success of Windows also encompassed the following:

  • The failure of industry pioneer VisiCorp to release a successful version of VisiOn, an early graphical OS for the PC that scared Bill Gates into almost shampooing his hair.
  • Apple suing Digital Research over the release of its DOS shell, GEM, shortly after the product’s release. GEM was a direct Windows competitor and far more sophisticated than early releases of Windows in its look and feel (it looked and felt like a Mac). Before the Apple suit crippled the product, GEM was on the verge of achieving widespread adoption in the PC market.
  • An unexpected run-up in the cost of memory chips (and temporary violation of Moore’s law), which helped cripple the release of OS/2 1.0.

Now, how does one fashion a credible strategic plan that assumes your competition will agree to collectively shoot itself in the forebrain while unpredictable market forces break in such a way as to help ensure your eventual success?

The answer is that you can’t. Microsoft’s success with Windows, which, depending on how you count these things, ranges from $60 to $100 billion (and still counting!) is as much a result of good luck and stupidity on the part of its competition as much as any vision on the part of Microsoft. No strategic plan that anyone would take seriously could include the actual events as they unfolded over the decades. And whatever strategic plans Microsoft had for Windows in 1983 were obsolete by the product’s release in 1985. And whatever plans Microsoft had in 1985 were obsolete by 1987, the year of OS/2’s release. And certainly by 1990 everyone’s plans for Windows were obsolete as a technically inferior but useful DOS shell swept to market supremacy over far more sophisticated and feature-rich rivals that couldn’t do much.

But in the meantime, as I’ve already pointed out, while Microsoft’s competition was engaged in various sorts of self-immolation, the company was continually executing business basics effectively. From the early 1980s through the 1990s the company entered the word processing, spreadsheet, and business presentation markets with good products that sold well and received generally favorable reviews. During this same period, Microsoft was creating a PR campaign that effectively developed a pleasing persona around Bill Gates that supported Microsoft’s marketing and sales efforts. The company also continuously improved and refined their development products, releasing new IDEs, languages, and tools that were well received by developers. In 1993 the company fortuitously stumbled onto the Office concept and rode its success to even larger profits. It also figured out how to make profits during the Internet bubble by selling products such as FrontPage. In the aggregate, all these events have contributed to Microsoft’s success, and little strategic planning was involved. Microsoft simply gravitated to good opportunities, executed well (or at least better than its competitors), and reaped the rewards.

You’re not convinced? OK, let’s look at another seminal company in the industry, one undergoing a seemingly miraculous rebirth in high tech. Let’s look at Apple, a company I had quite a bit of fun with in the first edition of Stupidity.

Now, before we go further, I’m going to give you a test. Let’s imagine, for a few minutes, that you have gone down to the mall to visit your local Apple store in order to peruse its wares and decide whether you’re going to buy a sleek, dazzling new Apple Intel-based Powerbook or save a few hundred bucks and buy a boring but decent Dell laptop. As you fight your way into the place past hordes of crazed shoppers battling to scarf up the latest iPod, a dazzling light suddenly appears from nowhere in middle of the store’s ceiling. The light grows brighter and more intense, and everyone in the place, except you, falls into a deep sleep and slumps gently  to the store’s floor, still clutching their iPod boxes. As you watch in amazement, the light  contracts into  a glowing orb that descends to the floor and coalesces into a beautiful girl. (I feel these Disney trappings most appropriate in light of Steve Job’s ascension to the Disney board of directors as a result of the Pixar buyout.) This dazzling apparition is dressed in a gown of diaphanous gold filigree and wafts a wand so white it almost hurts to look at it. As you gape in amazement, the wand glows and shimmers while emitting magical sparks that seem to distort reality itself! You reach out in delight to touch this marvelous  instrument, but the vision in front of you quickly yanks it away with a warning that the thing scratches like heck. Tucking the wand safely away in a silicon rubber holster, the magical lady explains that she is your Apple Fairy Godmother and that she has come to ask you to develop an enchanted strategic business plan.

You are, she explains as you listen with rapt attention, to help Good King Steve Jobs come up with a wondrous way  to help Apple return to the Glory Days of the late 1970s and early 1980s, when Apple was the predominant player in the nascent microcomputer industry. It shouldn’t be too difficult, she says, for someone as brave and handsome as you. And, after all, she says with a lustrous smile on her face, Apple has exquisitely designed and colored computers on which reside the industry’s slickest and most intuitive GUI, OS X, version Panther, or Tiger,  or KittyKat, or something. This is aAll running on top of a rock-solid, open source foundation called Darwin, a derivative of the widely praised FreeBSD. OS X Server, OS X’s bigger, brawnier brother, is a snap to set up and maintain. And the incredible success of the iPod has put Apple’s name on every consumer’s tongue and in just about every music lover’s pocket.

Now, what’s your plan? How do you plan to succor Good King Jobs? We’ll stop the book for a bit and give you some time to think through what you’re going to do.

OK, time is up.

What you do, of course, is smile regretfully and explain to the hallucination in front of you that you intend to quickly recover from the slight concussion you suffered when a shopping-hardened yuppie sprinting up the aisle in pursuit of the last white 6 gig Nano accidentally hit you upside your head with a purse loaded with a PDA, cell phone, and her current 4th-generation 60 gig iPod. Shaking your head vigorously, the fairy disappears with a *POOF* and the shoppers resume their mad scrambles. Then, after browsing quickly through the software displayed on the shelves and spending some time on the store’s web kiosk, you bail out of the place. You see, you’re a finance guy with an accounting degree working on your CPA, and one day you plan to be a CFO somewhere. You’re looking for a specialized package that can roll up budgets across different company divisions and business units and create a unified financial model of the entire company, something you really can’t do with plain old Microsoft Excel. No one offers such a program for the Mac, so it will have to be the Dell.

Now, why didn’t you let the magic linger a little longer? Why not take a stab at planning to put Apple back on the throne from which it once reigned microcomputing 25 years ago? After all, everyone is bored with Windows and hates its copy protection. Linux, the only possible other competitor, has all the computing charm of a diesel truck and requires a degree in computer science to install. And everything the Apple Fairy Godmother said is true, and she left out some hard revenue facts besides. In 2003, Apple’s annual revenue hovered around $6 billion. In 2005, Apple sold more than 32 million iPods, and more one billion songs were downloaded from its iTunes service by the winter of 2006. Yearly revenues from 2005 were almost $14 billion with more than a billion of that being profit.

 Becauses such a plan is as impossible to write as was a 1983 strategic plan for Windows that possessed any credibility. In 2003, when writing the first edition of In Search of Stupidity, I noted that Apple had about 3 percent to 4 percent market share of new computers sold worldwide (an observation that carries over to the Apple OS, which still runs only—officially—on Apple boxes). Actually, I was generous; by the time the book went to print, Apple’s share had slipped to less than 3 percent in some analyses. And today, after the iPod’s stunning success, Apple’s worldwide market share of PCs/operating systems worldwide is now about…3 percent to 4 percent.

It isn’t as if Apple hasn’t tried to change this. Since Steve Jobs returned to Apple, the company has launched several “switch to the Mac” campaigns, all of which have had little impact on the market. (Apple doesn’t even pretend to try hard in the server market, despite its product’s excellent performance). Apple has been able to hold onto its installed base, but little more. People seem quite content to connect their Apple iPods to their Wintel machines. Teenagers, always harbingers of new trends and fads, seem happy to rely primarily on Windows-based peer-to-peer networks to “liberate” music via the Internet and break the RIAA’s heart. And many I speak to seem quite put out by iTunes’s digital rights management (DRM) schemes. Apple’s growth is coming from consumer electronics, not computers, and no one on this planet has ever figured out how to take a company from 4 percent market share to industry dominance in the face of an entrenched competitor determined to defend its turf. Apple came close to industry dominance in the early 1970s and 1980s, but this was before IBM woke up. And despite Microsoft’s creeping development of the senescence that inevitably afflicts all megasized corporations, unless a big meteor hits Redmond and Bellevue, Apple cannot hope Steve Ballmer and Bill Gates are going to stand idly by while Apple lops off significant amounts of market share and money from Microsoft.

Does this mean Apple will eventually leave the PC business? Maybe. One possible scenario is that the company focuses on building more consumer devices, using the Apple OS as an embedded operating system to run ever more sleek and scratch-prone proprietary gadgets. Perhaps Apple eventually merges with Sony or another major consumer electronics giant and merges their technology with the new company. Apple has already provided their Intel-based computers with an easy way to run Windows, and the company gracefully exits the market with a solution that doesn’t leave its customers with the option of running only soon-to-be obsolete software. Given the pace of hardware advancement and evolution, the entire affair would take only two to three years.

Or maybe the market is changing under Microsoft, and Apple is in position to take advantage of the chaos that will ensue. The iPod’s success is ushering in a new era of content where music, film, and, eventually, literature is casting off its ties to the physical. Say a permanent good-bye to liner notes and beautiful album covers (two institutions already wounded by the move to CDs). Today’s new music consumer expects to take their music with them, be it on an airplane, in a room, or even from their hotel room. iPods are just way stations, disposable transmitters that facilitate the job of providing personalized content 24/7/365 to consumers. And if you want cover art with that music, well, that’s what websites and screen savers are for. And isn’t it nice those pretty images are also available anytime from anywhere?

In this milieu, what’s needed is a beautifully designed and easy-to-use system that seamlessly manages the task of providing, creating, and managing content for both professionals and the masses, a plan that calls for a hardware platform with plenty of oomph. It’s called convergence, and high tech has been waiting years for it to occur. For Microsoft, the problem is Windows doesn’t seem suited to the task; the system is feature laden but hard to use, loaded with extrusions and encrustations that make the heads of people already defeated by the remote control ache. But anyone who has used an iPod knows Apple can build lean, elegant, easy-to-learn interfaces people like. And its computers are certainly powerful enough to handle content management and transmission. So perhaps it’s Apple that dominates this new world, leaving Windows to its fate as a backroom grease monkey that does the grimy, dirty work of chugging through spreadsheets and grinding out yet more business memos. The consumer market is now where it’s at, after all, with COMDEX replaced by CES as high-tech’s major show. And now that Steve Jobs is on the board of Disney, where obviously he plans to sit quietly in the background and provide some helpful advice to the new CEO, we can hope the video iPod and its successors will at least provide us with a steady diet of nice cartoons and the latest Pixar/Disney movies.

There are many other possible scenarios. Perhaps Microsoft buys into several key markets and stitches together a convergence solution that, although not as elegant as Apple’s, has enough functionality, price advantage, and nonproprietary advantages to succeed in extending Windows into the living room. After all, who wants to bet against Microsoft and all those billions? And Microsoft has already executed such a strategy, with considerable success.

Of course, if you write enough business plans, I suppose one of them will be the right one. But this smacks of hiring a room full of chimps to sit in front of a group of terminals and hack randomly at a business plan software package in the hopes they’ll crank out the next Netscape IPO. The last time this worked was during the Internet bubble, and I think you’ll have to wait a few more years before you can get away with this.

Another paradox that awaits strategic plans and planners is that, paradoxically, as a company grows larger, its ability to plan strategically withers away. IBM and Microsoft are both excellent exemplars of this principal. In the early 1980s IBM ruled the mainframe world, it was equal with rivals DEC and Data General in midsized systems, and the story of the PC’s success doesn’t need repeating. IBM was also the largest software company in the world, with its business products in use in practically every industry on the globe. The company even introduced several desktop software titles, such as an editor, that were initially well received. IBM was in a position to buy any company it needed to help ensure its continued supremacy and indeed was at one time or another rumored or actively interested in buying Intel (in which it held a significant minority stake), MicroPro, Microsoft, Novell, Apple, and many others. Yet today IBM is out of the PC business. Microsoft dominates software. The mainframe market is still profitable, but static. Minicomputers are gone. IBM’s most successful business is now in consulting, telling other businesses how to use technology that in many cases IBM no longer produces.