Letters

From the April 1998 issue

(Page 6 of 6)

I have just a quibble or two about your article "Creative Insecurity." Overall, I think you make a good point. Really Minor Quibble #1: "And Apple has never been particularly good at manufacturing." Actually, Apple is really good at manufacturing: it's forecasting and distribution where it screws up. That doesn't change your point, but it does skew the perception slightly. You imply that Apple does not make well-manufactured machines, which is not the case. Compare any Macintosh to any PC clone in terms of quality.

Quibble #2: "After the company tepidly began licensing a couple of years ago, Mac clone makers did what Apple had feared: They cut into its revenue. But they also expanded the market." Had this actually been true, then we'd still have clones. But look at the figures: Before cloning, Macintosh products had a 9 percent market share. After cloning (the very next year), Macintosh products had an 11 percent market share. A market expansion of only 2 percentage points. Now couple this with the downside: Of that 11 percent, Apple got only 5 percent. This isn't growing a market, this is cannibalizing the existing one. Apple had to get rid of clones to save its own neck.

To me, the hardest thing to understand is why people are not only willing to settle for, but actually glorify, an inferior product. The old maxim "build a better mousetrap" is looking real long in the tooth.

Owen Hartnett

Virginia Postrel replies: My thanks to the hundred or so readers of REASON and Reason Online who sent letters in response to "Creative Insecurity." Obviously, the Microsoft antitrust case and the market competition between operating systems have aroused very strong, and often very well informed, opinion among computer users and software developers. I thank Messrs. Fallon, Struble, Kawasaki, Byars, and Baird for their kind and thoughtful comments. To those convinced that Microsoft is destined to control 100 percent of the operating system market forever, I particularly commend Chris Struble's mention of Linux, a version of Unix developed to a remarkable level of sophistication by the volunteer, shared labor of programmers worldwide. Linux demonstrates that no operating system can ever gain a true monopoly.

John Francini disputes claims that Microsoft controls only 4 percent of industry revenue. As any antitrust lawyer or economist will tell you, defining an industry is not an easy task, and it is often the issue under dispute in antitrust cases. But the figure Eamonn Sullivan used did not include hardware; it was specifically limited to software, a very large industry with many specialized products. Obviously, Microsoft has a very large share of certain segments of that industry. But there are other substantial segments--desktop publishing, CAD/CAM, and accounting packages, to name just three--that are easy to lose sight of. And software is not, of course, limited to personal computers.

Mr. Francini dislikes the dominance of PC clones over much more expensive,
if very innovative, machines based on non-Intel chips. He attributes that dominance to advertising, which he mistakenly equates with marketing. He is wrong about the advertising--both Microsoft's and Intel's TV ad campaigns are relatively recent, coming long after their market dominance, and it was Apple which used touchstone TV commercials--but right about marketing. These companies did in fact understand the markets better than their competitors. And they understood what many technologists can never grasp: Price matters. A lot. Financial constraints are just as real as technical constraints. Sun may make really cool workstations based on impressive chips, but if an Intel- based PC can do most of the same things for thousands of dollars less, Sun's market share will rightly shrink.

Tony Kalar and Davide Guarisco take issue with my claim that Macs were too expensive for businesses to justify outside of graphic applications. I plead guilty to a bit of overstatement: Unlike many Mac fanatics, I do give managers credit for knowing their particular circumstances and making appropriate purchasing decisions. Macs, while far more expensive to buy than competing clones, are indeed easier to learn to use. And they are easier to link to each other and to other equipment--an advantage that Apple, with its contempt for the business market, failed to exploit when it had the chance.

That said, I do not think that the Mac's failure to attract business customers was because of, in Dr. Guarisco's words, "myopic corporate greed, information systems people who want to keep their (unproductive) jobs, and lobbying." Hundreds of thousands of decision makers in completely separate firms would not all make the same mistake. For routine applications, using the same software over and over again, the upfront cost difference swamped the training and maintenance cost advantages of Macs. And while Macs may "last longer," the relevant criterion is not physical endurance but technical obsolescence. A price difference that lets you buy three PC clones for the cost of a Mac means you can stay technically current. On this point, Dr. Guarisco misreads what I said about my own Mac use. I use a Mac at home, and REASON's production department uses Macs; for the editors' routine word processing and Internet use, Macs are impossible to justify. (And simple though it was to install, my Mac CD-ROM has never worked.)

Burton Cohen attributes nefarious motives and a monopoly outcome to Microsoft's pricing of DOS by machine sold rather than machine using it. This argument, which other letter writers made as well, strikes me as a red herring. That contract, which no one was obligated to adopt, is a simple matter of monitoring costs. It is easy to track the number of machines shipped, far more difficult to monitor just what software has been installed on them. The royalties to Microsoft were not so high, as a proportion of the machine's cost, that computer makers could not have adopted a better system, assuming it was compatible with their chips.

Owen Hartnett, among other readers, disputes my charge that Apple is not good at manufacturing. This charge must be understood in the context of the worldwide revolution in manufacturing practices over the past two decades. Standards of excellence in manufacturing are extraordinarily high today and entail a lot more than simply building solid machines. Manufacturing excellence means driving costs continually down, with the aim of becoming the low-cost producer; it means developing tight and reliable relations with suppliers; it means learning to make rapid adjustments in model mix; it means careful and lean inventory management; it means accurate forecasting. Apple is not particularly good at any of these things. That in the late 1980s I saw two Macs--not the recent PowerBooks--spontaneously burst into flames also leads me to question its manufacturing excellence.

As for Mr. Hartnett's analysis of the effects of Mac clones, I disagree not with his facts but with their interpretation. Apple's market share was falling when the clones were introduced. Clones expanded the overall market for Mac OS, from which Apple also makes money--without the expense of manufacturing and distribution. Mr. Hartnett sees only the loss in sales to Apple. He does not consider its profits from licenses on machines it did not have to produce or sell. More important, he does not consider the long-run effects. Canceling the clones makes it much more likely that the Mac OS will continue to lose share and significantly reduces the prospects for innovation in Mac-based machines.

It is fun to play Monday morning quarterback on business strategy, and I have my own opinions. (Apple should get out of manufacturing.) But for public policy, the main points are these: Microsoft did not get where it is by waving a magic monopoly wand or even running snazzy TV ads. Its actions were important, but so were decisions by its competitors. Contrary to the resentful thinking of Microsoft haters, it is highly unlikely that millions of computer customers were dupes or victims, trapped into making bad decisions against their own interest, when they bought the products that built Microsoft. It is even more unlikely that Janet Reno would do better.

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