Creative - The Lawyers, Yes - The Company? Not so Much ...

Creative, Inc. seems to be confused how to get out of the conundrum they are in - mainly as the leading Mp3 player for the WMA market ... which means their market share stands at about 5% of the overall portable mp3 marketplace.

They are considering suing Apple for royalties on 'navigation of music on a portable mp3 players.' That sentence is enough to cause a roar of laughter, slaps to the foreheads and brains to explode for a variety of reasons from the patents process 200 years out of date to just general disbelief. Of course, the legal merits are hard to say as the courts could and have ruled in both directions.

But of course, that's why companies have lawyers and will sue each other at the drop of a hat. Unlike some smaller companies who will settle for financial reasons, Apple is large enough to withstand any decision and rich enough to fight this for years.

But then as the "opening gambit" of their lawsuit/royalty process, they go and release a new line of MP3/WMA video players that gives new meaning to the word UNCANNY or as others might deem it - ripoff.

There are few clearer examples (short of a counterfeit factory cranking out Louis Vuitton's) of a violation of the "trade dress" protection laws (as legally defined - "Trade Dress is a distinctive, nonfunctional feature, which distinguishes a merchant's or manufacturer's goods or services from those of another.").

You have to ask yourself - why?

On the verge of suing a competitor for allegedly stealing their navigation system, they go and release a thicker but visually (from the front) a design that clearly copies the hardware and look of the competitors mp3 player?

What kind of strategy is that?

To settle? To "swap" Apple's alledged patent infringment for their trade dress "violation?"

I'm sure Apple is willing to let someone sell something that is visually and from 10 feet away 90% of an iPod ... that sure sounds like Steve Jobs and Apple to me ... bwahahahaha.

That sounds like something lawyers would dream up, this is brilliant, they'll be forced to settle ... of course, if they're wrong and bankrupt Creative, what do they care - they already have billed and been paid.

What does it really say about your business? The only way we can compete is by manipulation and legal manuvering? That the ipod simply cannot be out designed in any aspect so our ONLY recourse is to try and copy it in as many ways possible and then sit back and hope they settle with other legal manueverings that we're attempting?

Why would you name a company CREATIVE then?

Certainly the lawyers apparently running the company are creative but design, manufacturing and marketing - not so much?

Apple is Here Today Because of Its Market Share and is MS the new GM on a Slow Downward Spiral?

EDITED FROM ORIGINAL POST 9/9/2004

As the MS music store launches, people love to drag out the MS versus Apple fight of yore and even cite the Netscape-Internet Explorer scenario as evidence that Apple is doomed.

But this is why when you are in court, you have to tell the whole truth and nothing but the whole truth because while some of the clichés are partially true, the whole truth is much more complex.

And like the forensics rage these days, we should realize the truth is not always so obvious.

APPLE SHOULD HAVE LICENSED THEIR OS

On the surface, the scenario seems to play out simply enough ­ Apple¹s OS would have the market share that MS currently enjoys today. Is the world really that simple?

For those not around that time ­ early/mid 1980¹s, technology and especially anything involving computers seemed otherworldly. 99% of people in the US never saw a computer other than on TV, the movies or a photograph. They were always huge mainframes with spinning tapes drives ­ seemed ominous, scary and otherworldly. Think HAL from 2001 or WARGAMES. And IBM was seen as this giant-brained company who controlled a secret world of knowledge, data and information. If IBM and its employees were not thought of as gods, they were at least archbishops and high priests of some secret order much, much smarter than you & I.

So even if you worked for a competitor like Digital, HP or NEC ­ even if you knew your colleagues at IBM were flesh & blood, you still respected the marketing & perceived eminence of the name IBM.

So, if IBM suddenly started selling a thing called PERSONAL COMPUTERS, who were you to argue with their choice of OS?

So, even if Apple had decided to license, what¹s your first choice? The IBM choice or a choice from a company started by two scruffy guys named after a fruit?

If you¹re HP, NEC, Toshiba, NCR (AT&T), Digital, and others in the first wave ­ Aren¹t you going to choose what IBM chooses? If nothing else, to say ­ we¹re selling you an IBM endorsed OS!

And of course, in a slight oversight, IBM did not get an exclusive license to sell DOS ? aka: MS DOS, aka: Seattle Computer Products DOS. I¹m sure there¹s a fun account of how IBM arrived at that decision but I think mostly, they were arrogant ­ they just presumed if you¹re going to buy a flavor of DOS, only an idiot would choose an non IBM DOS.

Of course, Steve Job & Wozniak were not that anxious to really ³sell out² anyway but even if they were talked into licensing then ­ Bill Gates (just as scruffy looking) could simply point out at business pitches, ³IBM choose us² (ignoring the factor MS DOS was really a modified Seattle Computer Products DOS).

Also keep in mind, MS was not competing against the hardware manufacturers ­ all they were doing was acting as a supplier ­ a key component but still just a supplier. Apple was not going to stop manufacturing hardware so even if Apple decided it was worth it (margin-wise/business decision-wise) to license, other PC hardware manufacturers would still have to compete against Apple itself. Would Apple have decided to give up part of the entire process just to license the OS?

That that in itself is risky? Most manufacturers would¹ve tried to play both hands ­ some PC hardware manufacturers surely would¹ve picked to sell Mac OS but exclusively? Highly unlikely. So, what¹s Apple¹s guarantee that if they gave up manufacturing machines and only sold OSes that next month, Tandy wouldn¹t have stopped selling Mac OS and would go strictly with MS DOS? And I don¹t think it takes a stretch of the imagination to see a scenario where Bill Gates & MS would suddenly drastically undercut Mac OS prices ­ after all, MS had virtually no infrastructure then ­ just programmers unlike Apple which had a manufacturing plants to pay for.

So while people are quick to mock Apple for losing market share, how many other companies have faced competitors like IBM, HP, NEC, Toshiba, NCR (AT&T), Digital, Microsoft, Intel, the 2nd wave of PC sellers like Zenith & Compaq and all the non corporate PC makers like Packard Bell, gateway & emachines ­ and still survived?

In fact, every PC maker that was once #1 in PC sales has either pulled drastically out of the market (IBM only sells to corporate customers essentially), gone (Packard Bell), or sold (too many to list). There is only three still standing. Apple. Dell & HP. HP obviously has dozens of revenue lines including the printer & server business to fall back on. Dell is #1 now but just like I¹m sure people thought Tandy & Compaq would be around forever, it¹s still too early to tell as they¹ll be like Packard Bell ­ when your business model relies on being the cheapest assembler of PC components, when they lose that, that house of cards falls quickly.

THE LICENSING SCENARIO #1

But let¹s say that Apple went all out ­ and they hired a ?grown up¹ to go out and pitch Mac OS as a choice and many companies offered a choice and things went reasonably well ­ let¹s say Mac OS had 35% market share ­ a good business and we¹ll ignore the revenue that Apple probably would have to give up as manufacturer also because it¹s hard to say if companies would¹ve been willing to license Mac OS if Apple was still selling hardware.

Who here thinks that Apple would NOT have been bought up?

Other than IBM who dismissed Mac OS as too GUI ­ there were about 10-20 multi billion dollar data processing/technology companies that could¹ve swallowed Apple in 10 minutes. But like all scenarios you envision for some past, you have to detail speculation some more since the two Steve¹s held most of the shares at one point but if Steve Jobs still leaves Apple in this new scenario and if someone like HP (who they tried to sell the original Apple idea to) came to them ­ who knows, right? Who wouldn¹t want to own 35% of the personal computer OS market? As Monty Burns might say, ³Ripe for the plucking!²

THE LICENSING SCENARIO #2

Or things don¹t go that well. Remember, GUI was dismissed until Windows 95 came out so the Apple scenario of the early/mid 1990¹s just gets pushed ahead by a few years. A few small clone makers jump onboard, eat all the low hanging & the best high hanging fruit while Apple still has to spend money on R&D and manufacturing and only getting the middle of the marketplace. (Like the scenario of the 1990¹s ­ it¹s pretty easy to guess that some people will undercut Apple while others will only buy the fastest chip and go for the highest end) ­ what does that leave Apple? So, while Apple might have a few more market share points ­ they have nothing to fall back upon revenue wise.

Again, someone probably would¹ve stepped in and purchased Apple ­ maybe even Steve Jobs at Next with Canon/EDS backing.

THE LICENSING SCENARIO #3

Also keep in mind that IT departments were clamoring for standards at this point so regardless ­ maybe history does repeat itself. What¹s IT going to choose? DOS or Mac OS in 1988? Even if the Mac OS had 35% of the market share? Part of MS¹ victory at IT was it was willing to give IT what they wanted in admin tools ­ Apple did not ­ if the two Steve¹s were still in charge, I can¹t see that scenario changing. IT again chooses DOS. Or the worse scenario ­ Mac OS becomes more like DOS.

THE LICENSING SCENARIO #4

Or a combination of it but as the multi conglomerates get larger, instead of a relatively unified PC world choosing a standard MS DOS/Windows, wouldn¹t the likely scenario have been that we would¹ve had some weird hybrid of let¹s license Mac OS & DOS, cram them together and call it HP World OS? And Toshiba would do the same and call it Toshiba Harmony OS? (At this point, Rob Glaser would¹ve sat bolt upright in his Spiderman PJ¹s and felt like his world changed but he¹s not sure how and then drift back to sleep dreaming of a world of barb wire and donuts but I digress).

So, we¹d end up with a lotto-like number of different versions of Mac & DOS OSes?

Then everybody would have to start buying each other out to get standardized? So we either end up exactly where we are now or instead of PC Magazine, we¹d be reading ³CanonTandy MacDOS magazine?²

Unlike some other people who are so sure the past will repeat itself or whose minds are so simplistic and believes that every action will cause the same reaction forever and ever ? Personally, I have no idea what would¹ve come true because each change in the past would¹ve lead to a new branch of the timeline as you can see from some of these possibilities. None are so far fetched they could not have come true but the startling fact is that ?

APPLE IS HERE BECAUSE IT¹S MARKET SHARE WAS SO LOW

That¹s right.

It is only because Apple was so far under the radar that no one absorbed it ­ and we even have proof when Sun tried to buy Apple in the early 1990¹s. They were not even willing to pay the actual MARKET PRICE. They wanted a discount on the price it was trading at and when no one was really willing to tender at a price BELOW what it was trading at on NASDAQ, Sun gave up.

It is only because no one wanted a manufacturing arm of a PC company AND they figured it was a futile battle with MS because they saw the only battle as of market share in the PC marketplace. Just one quick stat ­ while MS has 20 times the market share of Mac in PC Oses, MS does not have 20 times the revenue of Apple ­ more like 5 times the revenue.

PART I

This is of course, not a complete day-by-day market share fight between Mac OS & DOS/Windows (there are many other factors such as if Motorola had been more competitive with its chip speed after 1986, some things would¹ve been different) but as you can see, it¹s more complex than envisioned and even if you turn the scenario inside out, that does not mean we would¹ve have ended up right were we are now or living in an entirely different world but I can tell you that just swapping Mac & DOS market shares would¹ve been a lot more complex that some simpletons envision.

But it is safe to say because Apple¹s market share was perceived to be so low and ?not worth the troble¹ that it survived to fight the fairer fight in the age of the internet ?

THE NETSCAPE SCENARIO

Again, the simple diagram is to follow the market share trajectory of Netscape versus IE but once again, it¹s much complex.

The background is that MS controlled the desktop LITERALLY and figuratively. Once they saw the internet thing taking off, they took over ­ where Netscape was once bundled with some machines ­ it was no longer being bundled. At that point in the internet & the PC business, if you controlled distribution, you controlled the ballgame. MS used ever legal and some illegal means (as the courts have decided) in ?bundling¹ ­ in some cases going as far as having to bundle IE or that vendor couldn¹t sell Windows.

So, they had the computer manufacturers locked up ­ whether or not they wanted to bundle IE on the desktop ­ they had to ­ as long as they still wanted to sell Windows.

MS obviously has a lot of pull in the corporate marketplace ­ some were easy to convince such as partners of MS ­ others might¹ve needed some financial incentive such as discounting upgrade contracts et al. Netscape could not offer you a discount on selling you server software or trading marketing dollars for switching the corporation entirely to Explorer. It was essentially free so what difference did it really make ­ it could save them a few bucks and it might make things cozy with MS.

And in the era of dialup & AOL ­ what % of people could really download another browser? Most people didn¹t even know how to download jpg's they could see on web pages ­ let alone navigate to Netscape, download another browser and load it. On the Mac side, sure ­ and advanced users knew how but even today, people do not know how to switch their browser startup page, you think they¹d switch browsers?

And of course, if you own the OS, it¹s easy to make sure your software loads and runs faster ­ in fact for a while there, you could not even access MS¹ sites without IE and in many cases, you still cannot venture deep in MS¹ sites without running IE. And certainly, Netscape had some speed problems that couldn¹t be overcome in the era of dialup ­ you combine all those factors and that¹s why Netscape loses.

SO, HOW ARE THINGS DIFFERENT NOW?

Many things:

1) MS has about 20 governments, and a couple thousand government agencies, states and counties ready to sue them at any maneuver that is even slightly egregious, illegal or unethical. MS cannot afford to antagonize anyone anymore. Governments and corporations will switch to Linux or Open Source if they can.

2) While corporations still need MS, the desktop technology is pretty normalized. Unlike the leaps from DOS to Window 3.1 to Windows 95 ­ There are plenty of companies and users who are fine running Win98 or 2000 ­ you might be missing some interconnectivity and some other behind-the-scenes things, is the cost of upheaval & the cost worth switching to XP ­ for many corporations, the answer is no ­ at least on a company-wide scale. They are not at the mercy of MS.

3) For consumers, the top uses are: internet, email, photos, IM, music, and maybe viewing some video ­ it¹s all the same whether you use a Mac or any PC from 1998. Unlike the first few years of the PC revolution, if you need to do work at home, companies will give you a laptop so you are pretty free to buy any computer to use at home.

4) The internet is a great equalizer. You can buy an url on the desktop or even buy a bookmark when the consumer launches IE for the first time but unlike a real brick and mortar store, going to Walmart.com is just as easy as going to Joes-by-the-creek.com. If anything, jazzing up your front page with video and flash is much more annoying and more likely to drive people away than if you just have a clean page that says WELCOME TO JOE¹S BY THE CREEK.com ­ unlike the real world where you can buy up Main Street, under price the Main Street mom & pop store or have a much bigger selection ­ on the internet, that doesn¹t matter. I don¹t have to drive anywhere and it doesn¹t cost me any extra in gas whether I look at 5 websites or 200.

WHAT IS WRONG WITH MS?

In a nutshell, MS looks at their business with the greatest margins ­ MS Office, Windows & Server Division and is trying to replicate that model across everything else.

By selling upgrade contracts, they even out their revenue ­ if you look closely, their margins are close to 80%. That means for every dollar of revenue, they get to keep $.80! That¹s almost unheard of. In fact, I¹ll bet the U.S. Mint can¹t make that printing money! So, how do they replace and extend that out?

They try to figure out every business out there that can give them a monthly return. That¹s why they bought into the cable business. That¹s why they¹re working on a cell phone OS and why they started Xbox.

That¹s why they went to so much effort to build that MS Watch OS. Because they saw that they could charge consumers $5 a month to get weather, sports and news. Never mind that no one asked for it or that the watch looks like something Kellogg¹s rejected as too cheap to put in their cereal boxes ­ MS just Power Pointed out that $5. It¹s not much but if they can get 50 million Americans to buy into it ?

That¹s why they¹re wiling to spend $4 billion dollars so far on Xbox. Because every cartridge you buy earns them revenue and if you¹re online, you have to pay them every month.

That¹s why they¹re desperately trying to build a cell phone OS business ­ so they can make something with every cell phone sold (600 million in cell phone sales) and on every download, upload through MSN IM.

Or a MS auto OS. Or why Bill Gates built that house with all the plasmas (when plasmas cost serious money) ­ so he could show off that you could change art & photos all the time ­ oh yea, and he buys a stock photo house, Corbis so he can keep charging for the same photo over & over again.

Or digital media DRM ­ they could care less about the actual reason or software but if they can make a couple quarters on every DVD-HD sold or a couple dimes on every CD sold or a couple pennies on every movie we download ­ that¹s what they want.

They don¹t want to sell us anything once ­ they want to put you down as payee EVERY MONTH ­ the ultimate health club you can never quit.

And the problem is that MS could care less about what we really want ­ the problem is they start with just trying to figure out how to nickel and dime us literally several times a day every day until we die. And the problems are products like a MS OS watch.

THE EMPEROR HAS NO CLOTHES

First, I don¹t hate Bill Gates. While they did bend some rules and even break a couple, he delivered what people wanted then but now ­ MS & Bill Gates have seriously lost their way.

He delivered a BASIC when people needed one. While he did not invent the spreadsheet or the word processor, WORD & EXCEL were quantum leaps and what people wanted. He bought DOS to IBM because they needed a quick & dirty OS. He gave IT Admins what they wanted. And he is another in the line to show people that almost anything is possible. That you can build a $60 billion business from not much ­ while he was not exactly poor, his first business plans were from scratch.

What has MS done lately? Never mind the spy ware-virus ridden Explorer and OS ­ it¹s going to take them another 2 years to come up with an OS ­ an OS stripped of everything new so it¹s essentially an XP upgrade? What else are they working on?

And as for their marketing prowess? Now that they cannot lock out everybody else illegally? When consumers are actually free to choose ­ besides Windows, what do people choose freely from MS?

MSN could not dent AOL ­ even though MS has thrown $2 billion at MSN ­ not only could they not even buy customers with a $400 rebate, they missed the boat entirely on Google.

Expedia? Sold. MSN Auctions? There¹s a raging success. Xbox ­ another $2 billion for about 15% worldwide market share. They ³won² the handheld OS business as it¹s falling fast. They¹re still losing in IM to AIM. Home Networking hardware division ­ folded after a year ­ some marketing prowess, huh? Xbox sports games? Same ­ folded after a year of trying to compete with EA. WebTV? The Bob Windows OS?

A similar fate awaits MS Music? The question is why? I mean, we know they can¹t resist the lure of being the patent holders on future DRM for all entertainment but honestly, why? Because it¹s digital ­ they have to get involved? Consumers have decided Mp3¹s are the digital format of choice for audio. For convenience, some of us are wiling to buy a DRM format (that we can easily burn to CD) but we don¹t have to drive anywhere or buy an entire CD to get one song ­ for that, we have AAC M4p. We also have open M4p, ogg, flac, shn, ape, not to mention CD audio ­ so honestly, do we really need a 10th choice in music?

MS has also been plugging away on phone OS, and auto Oses, cable box OSes for 5-6 years with miniscule market share. Some of it is because no one wants to work with them fearing their viral claws but then the bigger question is ­ is MS done?

Sure, they have $60 billion in cash and they¹re going to generate $6 billion in cash flow this year but were the 1990¹s to MS what the 1950¹s were to GM? In the 1950¹s GM was the AMERICA company that represented all that was powerful & mighty about America ­ does that seem vaguely familiar about MS in the 1990¹s?

GM has gone from over 50% market share in the auto business to 25% and dropping a bit every year ­ and propped by revenue and profits from GMAC, the financing arm ­ is that MS? Sure, they have a constant flow of revenue every year from Office, windows and servers but will they continue to waste and fritter away billions on projects that CONSUMERS don¹t want? Is MSN the Vega? Is Xbox the Cimarron? We know WindowsBOB is the Pontiac Aztek. Sometimes we¹re too quick to ask ­ what have you done for us lately ­ but honestly, after Windows 95, what have you done for us lately that¹s actually innovative and that consumers actually want? And even though GM is losing market share overall, they have at least delivered dozens of cool cars in the last 50 years ? but MS, a watch OS, really? WTF?