How Microsoft blindsided vulnerable Apple with Windows 7

Posted by Rob Enderle, principal analyst, Enderle Group

Column - I think the saying goes that those that don’t learn from history are destined to repeat it.

This is likely to point with Apple this month as they sit stunned that Windows 7 is doing so well and they are left looking foolish with products priced out of the segment. Their big news this week was a couple of PCs, a new keyboard and a multi-touch mouse. This last will likely go down in history as one of the lamest devices yet as they should know, given the iPhone, that touch is connected to the screen and not anything else. They likely would have done better putting fir on the damn thing and building it to fart the star spangled banner at least that would have been patriotic.

Apple is clearly one of the strongest marketing companies in any industry and Steve Jobs is a considered to be a master while Microsoft in recent years hasn’t really seemed to be in their league. This goes to the core, no pun intended, of how Microsoft blindsided Apple and left the firm looking like they had given the PC market back to Microsoft. The other part is that Apple is now fighting on two fronts against two powerful companies for the first time since the 80s. Let’s talk about this while we think of that poor challenged Apple mouse.

Windows 95 and Historic Mistakes

Apple, back in 1995, while Steve Jobs was on his forced vacation from the company I met with them and suggested they needed to bring up their game because Windows 95 had a lot of positive buzz and they were in danger of being trivialized. The Apple executives, most of whom were let go in the following years or fired by Steve Jobs, told me they had it well in hand and that, after all, Windows 95 was simply a bad copy of the 1988 version of the MacOS.

A few record selling days, and lines around the block, later they felt differently but were unprepared to take advantage of Microsoft’s mistake and so began what was a slide into bankruptcy saved only by Steve Jobs return. The mistake that Microsoft made was they hadn’t budgeted for sustaining marketing. This allowed Apple a huge opportunity to point out Windows 95 problems and showcase their product in a favorable light. But they weren’t prepared and missed the opportunity.
However Microsoft made this same mistake every year following and Steve Jobs finally started to pick up on this with Vista and the Mac vs. PC campaign is his historic response to Microsoft’s classic mistake. But the mistake was in two parts, a product that had problems at release and an inability to market the product’s advantages because the Microsoft team had no money left.

Windows 7: A New Hope

Windows 7 is coming out of the gate with only one known issue and that appears to be tied to problematic Flash update Adobe did in August that most may never actually see. Not only is this a short problem list the issue should track quickly back to Adobe and not damage the launch much. In edition Microsoft didn’t blow their entire budget before the product actually hit the stores and has a substantial sustaining marketing budget. This means, this time, both the product and the marketing program is in relatively good shape and instead of being tired and vulnerable, Microsoft is ready for war.

Steve Jobs and Apple clearly planned for the same traditional behavior and were completely unprepared for both the quality of Windows 7 and the fact Microsoft has a war chest this time. Their near pathetic recent release of a couple slightly improved PCs and a couple peripherals showcases this. They figured they could easily skate through the next few months because, traditionally, Microsoft would be vulnerable and not able to fight back.

Second Front

However this isn’t their only problem. Verizon, Google and Motorola have opened a second front with the Droid iCan’t campaign (this is actually rather funny) that targets the iPhones weaknesses. None of these companies has any love for Apple. Verizon thinks Apple has been trying to blackmail them into a contract they don’t want to sign, Google’s CEO was just fired from their board and Apple booted Google Voice from the iPhone, and Motorola was burned by the ROKR joint venture with Apple. Each of these companies thinks of Apple as a firm they would like to squash and while separately they represent little risk, collectively they are the strongest carrier (in terms of size and customer satisfaction), the most powerful web company, and the firm who had the hot phone (Razor) before the iPhone.

This combination of the Microsoft budget and the Droid attack splits Apple’s resources and focus and makes it vastly more difficult for the firm to respond timely or well. The end result is an unprecedented exposure.

Wrapping Up:

Two good lessons here, even when you are on top it is very foolish to under estimate a competitor with Microsoft’s resources because they can actually get it right, and picking too many fights at once can take out the most powerful of entities just as it took out a nearly unbeatable Germany in the second world war.

With Steve Jobs in Apple the firm can respond to threats like this one very quickly but only if they see it coming in time. I think they are likely to repeat the 1995 mistake and that means they probably won’t be either quick enough or effective enough to dodge this bullet. However, this is Apple after all and this fight is still young, it would also be very foolish to count them out early.

Regardless of the outcome, we are seeing history made this week and it’s an amazing time to be alive.

Rob Enderle is one of the last Inquiry Analysts. Inquiry Analysts are paid to stay up to date on current events and identify trends and either explain the trends or make suggestions, tactical and strategic, on how to best take advantage of them. Currently he provides his services to most of the major technology and media companies.

The opinions expressed in this commentary are solely those of the writer.