The Age-Old Battle

One of the things I want to write about in this shiny new space is the design (or lack thereof) of various products. Personally, I try to use products that are designed with intelligence. In kicking things off, I wanted to start with a classic comparison of Microsoft and Apple.

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Microsoft has placed itself squarely in the commodity PC market. Of this there can be no question; they've done everything possible to balloon their market share by focusing strictly on volume. Inevitably this means operating in the low to mid markets every bit (if not substantially more) than in the high-end markets. Microsoft is of the opinion that the greatest number of installations will yield the greatest adoption—not necessarily by choice but perhaps by necessity—which in turn will yield the greatest profit.

This is not entirely unsound business sense, especially in the computer market. But it's often at odds with how the company tries to portray itself. Steve Ballmer often compares Microsoft's products to Apple's, deriding Apple's lack of choices or in some cases predicting Apple's inability to succeed in existing markets, like mobile telephony.

Ballmer's attitude seems to be that Microsoft products are genuinely superior, when their business model is visibly focused on profit as the single most important measure of success. Perhaps I should break the bad news: profit should not be the mark by which you measure success. If money is your ultimate goal, you will create products only as good as necessary to keep profiting.

Contrast this to Apple, whose ultimate goal is to make really awesome products. To them, money is only useful as it helps them make more great products, so the equation is exactly reversed. This is not to say Apple doesn't need or try to earn as much money as it can; but it is to say that Apple refuses to sacrifice the quality of its products for the sake of financial gain.

This dichotomy explains why Apple continues to operate from the high end of the market; targeting people who have money to spend and want to spend it on the highest quality products. Apple has that market secure. A recent study finds that as of June, 2009, Apple has a 91% revenue market share in PCs costing $1000+. This means that for every $10 spent on a computer costing at least $1000, nine of those dollars go into Apple's pocket.

From this stranglehold, Apple has slowly began creeping down towards the middle market areas, with all three pegs of its current business: the Mac, the iPhone, and the iPod. The best example of these is the iPod, which debuted in 2001 aimed squarely at the very high end of the market. As its popularity grew and prices came down, Apple moved in and took over the middle and even the low-end of the market, with the cheapest iPods coming in at just $59. The iPhone and the Mac are moving in the same direction. iPhones began selling for $500 and you can now get a fantastic iPhone 3G for just $99. Mac prices have come down in recent months as costs have continued to decline, and Apple seems poised to move down another rung with a new product (some have called this a tablet; we'll see) in the sub-$1000 range.

What's important to realize about this strategy is that starting from the high end is very different, and much more difficult than the reverse. At the high end of the market margins are greater while potential users are fewer. Higher quality begets higher prices, and high prices are unsustainable without high quality. Establishing a brand of estimable quality is necessary to operate in the high end of the market, which in turn necessitates high-quality products.

Moving to lower market segments is easy for a company with a reputation for quality, as long as they can continue to maintain quality in lower market segments with lower margins and prices. I'm sure that Ferrari would love to sell a $10,000 Carrera if it could do so without going bankrupt. But Ferrari, like Apple, refuses to make the compromises necessary to operate in the lower market segments. They'd rather create the cars that meet their particular and lofty standards because that's what people come to expect and for what they pay.

Establishing yourself in the low end of the market as Microsoft has creates a very different situation. By reinforcing the idea that your products are cheap and that anyone can afford them, you create the impression that the quality of your products is just that—cheap and commoditized. Your market share may swell and your profits may rise, but you are vulnerable when companies like Apple begin encroaching on your territory, as is inevitable as technology costs continue to decline.

Apple has begun to do this to Microsoft, and Microsoft has responded by running advertisements that bolster their position as bottom feeders in the market. Apple is advancing into Microsoft territory, with the knowledge that even if they do not succeed—if it turns out they cannot make a Mac that can compete with cheap PCs—they still have the high end of the market safe and secure.

But Microsoft is in a much more precarious situation. Their options are to continue defending their turf from Apple and other advancing adversaries, or to move into higher segments of the market and compete with Apple et. al. at those companies' strengths. To do that, Microsoft must re-brand (and re-organize) itself as a company focused on quality and impeccable user experience, which is completely at odds with the way the company is currently heading, and has been heading pretty much since its inception.

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The Apple v. Microsoft is the sexy comparison to be sure, but by no means the only one. I strive to design things that are a pleasure to use, because that's what drives me.