Apple lines up against Palm, Microsoft. And Apple

Posted by Rob Enderle, principal analyst, Enderle Group

Opinion This week was the big Apple iPod refresh and the interest was almost as focused on what Apple didn’t announce as it was on what they did.   I think the overarching news was that despite looking incredibly thin, Steve Jobs performed the long program flawlessly.  You can use a number of tricks to make someone who isn’t healthy look healthy but getting them on stage with energy generally means they are able to function and Steve Jobs clearly showcased he is on his game again.  

This week was the big Apple iPod refresh and the interest was almost as focused on what Apple didn’t announce as it was on what they did.   I think the overarching news was that despite looking incredibly thin, Steve Jobs performed the long program flawlessly.  You can use a number of tricks to make someone who isn’t healthy look healthy but getting them on stage with energy generally means they are able to function and Steve Jobs clearly showcased he is on his game again.   

But the market seemed disappointed that he did not announce the iPad or the iPod touch with a camera and in this instance I think the market is full of crap.   What they did announce was good enough and when you are dominant, good enough will hold share.  What they didn’t announce generally wasn’t Apple’s fault and the fact that Steve is back was more powerful strategically than any product shortcoming was tactically.  

On the other hand, the MP3 market is increasingly looking saturated with Apple’s problem less products like Microsoft’s Zune or Palm’s Pixie but more the fact that nearly everyone who wanted an iPod already has one that still is working just fine.    

Let’s talk about some of the erstwhile competition and close with the real competition, older Apple products that folks already have.

Palm Pixie vs. iPhone
The Palm Pixie  does address a shortcoming the iPhone has and that is, for a phone line, the Apple line is really shallow.   Most cell phone OEMs have a variety of phones that serve a variety of customers and Apple acknowledges this need in their iPod line, which is one of the most robust in the industry, but not their iPhone line.   

So coming in under the iPhone with a simpler and less expensive product would be a good strategy.  However the product needs to be compelling, much like the iPod Nano and iPod Shuffle are compelling, and the Pixie doesn’t float my boat.   It looks very plain and while it doesn’t look cheap, exactly, it doesn’t look like something I’d be proud to own either.
 
If you are going to try to adversely impact an Apple launch you need to have a product that is intriguing and interesting.   Dell kind of did that with their Adamo 9.99 Prototype,  which we’ll cover later when more details are available, but to my eye the Pixie fell far short and unless Palm brings their game up I’m beginning to wonder if they are long for this world.    To net this out, even though this wasn’t an iPhone event really this week, Apple still easily overshadowed the Palm Pixie

iPod vs. Zune HD
Microsoft was likely wise to hold their real launch until after the iPods came out.   I do think had this new Zune  come out two years ago that it could have given Apple a run for the money but Apple arguably has this market locked up as tight as Windows has the PC market locked up.   In fact, given the iPods and iPhone use unique connectors and there is no way to run Zune content on any of them, Apple arguably has their market locked up vastly tighter than Microsoft did Windows (iTunes, Quicktime, USB, 1394, and a variety other things work on both Windows and MacOS platforms).  There is a whole Apple competing unfairly thing I’m bypassing for now largely because I’m leaving that argument for others like Guy Kawasaki and Jason Calcanis.  

While the new Zune is arguably the best of the iPod alternatives much like the MacOS is the best Windows alternative it really only competes against the alternatives and much more effectively blocked by Apple than Apple is blocked by Microsoft.   

To close the gap Microsoft needs three things, a line equal to or better than Apple’s, a way to interface with a critical number of Apple dedicated products (particularly cars, as in I can’t use a Zune with my iPod enabled Audi), and a way to easily migrate playlists between the two platforms to lower the time spent switching.    With Snow Leopard Apple is doing a vastly better job making the transition between Windows and the MacOS easy than Microsoft is with regard to making the transition from the iPod to the Zune easy.   As a result while the Zune should do well against other personal media players, it probably won’t take much if any real share from Apple.  

Finally, adding a camera and FM to the iPod Nano and dropping the price of the iPod Touch (word out of Asia  was that there was a defective parts problem that delayed the iPod Touch Camera) all improve the competitiveness of that line to a point where existing customers are at little risk of migrating anyway.   If Microsoft wants to take share from Apple they need to up their game much like Apple upped their game against Microsoft.  

Apple vs. Apple
It was kind of ironic to watch Steve Jobs argue that single use devices like the Flip camera and Kindle couldn’t compete with Swiss Army Knife products like the iPod Touch, Nano, and iPhone.   This is because it is by keeping things simple that Apple has traditionally beaten Microsoft who originated the concept of a Swiss Army Knife product.  Granted Apple does a better job but it just seemed strange that given Apple’s historic strength with the iPod was in keeping it simple watching them argue that the typical Microsoft path was better was surreal.  

But, Apple doesn’t have a lot of choice given how satisfied Apple users are with what they already have.   Happy and contented customers are great but it is very difficult to get them to refresh their products and buy new stuff.   I kind of agree with the argument that Apple’s approach of adding one feature, getting it right, then adding another is simply a higher quality path than Microsoft’s of trying to do too much at once and not getting enough right to attract a market.   

It looks to me like Apple used a low quality camera for the Nano to ensure a solid up-sell to the better iPod Touch but when the iPod Touch camera couldn’t make the cut they were left with a broken line where the up-sell from the Camera/FM Nano to a non-camera non-FM iPod Touch was ugly.   With an up-sell product you want a clear improvement not more with some things and less with others and this will likely hurt Apple’s refresh opportunity until these features come to the iPod Touch.   

From everything I’ve heard this isn’t Apple’s fault but a supplier problem and given what Steve traditionally does to suppliers who fail to meet his expectations I don’t envy the supplier.   In the end I think the Apple strategy was good, a supplier didn’t perform and the end result was Apple was left with a crippled line.   That can happen to anyone, apparently even Apple.  Hopefully they will be able to fix it by year end.   

Wrapping Up:  Jobs is Back and No Real Competition
The real news this week was Steve Jobs clearly appears ready and capable of taking back the helm of Apple and the market needs someone like him to bring excitement into the segment a couple of times a year.     Apple still needs Steve to make sure things come off without a hitch and, unfortunately, he wasn’t around long enough to fix a few things (like the poor iPad timing).   But he is back now and things there should only get better.   
 
As far as competition goes, at least with respect to their iPod and iPhone products, the only real competition is coming from the good Apple products people already have and are happy with.   Apple’s problem is they need to make these folks just a little unhappy so they will buy Apple’s new products.   Sometimes when you build good stuff getting customer to dislike it enough to buy new stuff can be problematic.   Going forward, at least for the near term getting people to replace their perfectly good Apple stuff is probably going to be Apple’s biggest problem to deal with.  I can think of worse problems.