How Apple Really Lost Its Lead In The '80s ?

businessinsider ;;Jay Yarow | Dec. 9, 2012, 8:26 AM

When Android surged past Apple in smartphone market share, a lot of people squawked that computer history was repeating itself.

The story of the 80s, according to these people, was that Apple pioneered the personal computing industry with the Apple computer. It then stumbled because of its closed approach while Microsoft flourished, spraying its software everywhere through low-cost personal computers.

Apple went from being the wealthy market leader to an also-ran in the blink of an eye.

It's going to happen again, too, warn these people, if Apple doesn't learn anything.

You see, the iPhone was the innovative market leader, but a cheaper alternative from Google, Android, is being sprayed all over the place. If Apple's not careful, it will one again be a broke also-ran in the blink of an eye.

It's an entertaining story, but it turns out it's not exactly accurate. The loose outline of the story is the same, but the particular details are different.

Goldman Sachs released a massive report on the warring tech giants this week. In the report it details how Apple lost in the eighties and how it's distinct from this era. It's a good story to read because it's important to see how Apple is in a completely different position this time around.

First off all, Apple was never really a market leader in the 80s. Here's a great chart looking at the computing market share.

Goldman Sachs

Apple's early success was thanks to the Apple II, which was released in 1977. Apple failed to deliver a successful follow up for seven years, says Goldman. It came out with the Apple III, which had "engineering flaws," and had to be recalled. The next computer was the Apple Lisa, which cost $9,995, making it way too expensive for the broader consumer market.

Apple didn't deliver a strong follow-up until it released the Macintosh in 1985. By then it was too late.

While Apple struggled to deliver a follow up computer, IBM desperate to break into the personal computer market, outsourced production of an operating system to Microsoft. Consumers and enterprises were familiar with the IBM brand and bought IBM computers, shunning Apple's balky offerings.

IBM, however, didn't lock in exclusivity. Microsoft started selling its OS to any PC maker, that would buy it. Thus, Microsoft's share of the computing market took off. As Microsoft grabbed market share, developers started working on applications for its OS instead of Apple's Macintosh system.

Microsoft's operating system, which was on more computers that cost less money and had better applications became the dominant computing platform for the next twenty years.

Things have changed for Apple.

Each year Apple has released a phone that is better than the phone it sold the year before. There was no seven year opportunity for a rival to release a phone that was better than the iPhone.

There is no IBM this time either. Apple, through the iPod and the Mac, was a trusted brand. The closest thing to a trusted computer brand when the iPhone launched was Microsoft and its partners, HP and Dell. Neither HP, nor Dell, had something to compete with the iPhone. Motorola was a trusted handset maker, but its Microsoft phones were nothing compared to the iPhone. 

When Google got into the smartphone game it was starting from scratch with Android. Remember, in 2007, Google was still a new company to most people. It wasn't a blue chip brand like IBM. And its first handset partner was HTC, which no one had heard of in 2008.

Then there's the developer angle. In the eighties, developers only worked on Microsoft because it was not worth it to do otherwise. Here's another fun chart from Goldman:

Screenshot

Why would a developer increase development cost by 75% to only get access to 8% more market?

Today, Apple isn't having a problem attracting developers. But, even if it did, the cost of developing for iOS and Android is much less, says Goldman, making it worth it for a developer.

Finally, there's another reason Microsoft triumphed over Apple last time. Computing devices were largely bought by corporations. And they liked IBM and its PC clones. Those corporate buyers stayed on the Microsoft platform for years because they were comfortable with it, and there were applications for it.

This is changing.

In 2000, Goldman says Microsoft powered 97% of internet connected computing devices. The majority of those PCs, 60%, were for commercial use. The remaining 40% was consumer purchases. 

Today, only 30% of internet connected computing devices are personal computers. And 85% of those purchases are now made by consumers, not corporations. Those consumers are bringing their devices to work, thus weakening Microsoft's grip on the enterprise.

Goldman Sachs

Apple is one of the most beloved consumer brands. With 85% of computing purchases coming from consumers, it is in a better position to avoid what doomed it in the eighties.

Then, there's the iPad. Apple had no such companion product in the past. Sales of the iPad reinforce sales of the iPhone, which reinforce sales of the iPad. Once people get into Apple's ecosystem, which is loaded with apps, they tend to stick around.

Without question, Apple could still get decimated. Microsoft, Amazon, and Google are all selling competing tablets. Microsoft and Google have smartphone operating systems trying to beat the iPhone. Google's Android has taken huge amounts of market share.

But, if Apple gets decimated and relegated to a niche player on the cusp of going bankrupt, it's going to be for reasons that are very different than why it lost in the eighties.

Memo to RBI: Only shock therapy will work from now on

by R Jagannathan: firstpost : Dec 10, 2012

When Reserve Bank Governor D Subbarao takes a view on interest rates next week in his mid-quarter monetary policy review, he should know that no matter what he does, growth will not revive and inflation will not come down.

Unless he decides to go in for shock therapy, which he has been loath to do so far. If anything, he has been willing to wound, but afraid to strike.

And by shock therapy we mean he should either cut rates significantly, or do the opposite – say, by, one or two percentage points immediately. This would be shock therapy, not a 25 basis points cut or status quo on repo rates. That would be neither here nor there.

The problem is that Subbarao has not been running a

 tight enough policy

. AFP

For a frog sitting in water, if the heat is raised a little bit at a time, it is likely to get comfortable with the slowly rising heat till it reaches the level where it cannot survive.

 It would have been far better to give the frog a sudden jolt of scalding heat so that it would have jumped out when it could have saved itself.

India’s wounded economy is suffering from a debilitating inertia that is neither too hot to jump off, nor hot enough to kill. 

But the end result is surely going to be a dying growth cycle— as the 5.3 percent GDP growth in the second quarter of 2012-13 testifies.

Subbarao’s critics, who want interest rates brought down to reverse the slowdown, point out—not unfairly—that his tight money policy is not really working since there is no appreciable decrease in underlying inflation.

The Governor’s backers—who include most global research agencies and right-wing economists—say the problem is that Subbarao has not been running a tight enough policy, and inflationary expectations are still nowhere near topping out. So he should not be sending a cheap money signal.

India’s top moneyman has been equivocating between whether he should target growth or inflation over the last few quarters, but on balance he has managed to do little about either because monetary policy is ineffective when fiscal policy is pulling in the other direction.

So what’s going wrong?

 Why hasn’t the good doctor’s medicine—holding the line on interest rates—cured inflation? 

And what does this tell us about what he should do next?

The most important element in cure is diagnosis. If your diagnosis is right, the cure will be obvious. If it’s wrong, no cure is possible.

So the focus has to be on diagnosing right. A Seshan, writing in Business Standard today, offers an interesting insight on the diagnosis and says the problem is “inertial inflation” — a situation where inflation has stabilised at an uncomfortable level and refuses to be tamed. Others have called the phenomenon by a different name—structural inflation—but it’s probably the same thing

And why has this happened in India? 

Seshan sees inflation as sticky because several expectations are built into the economy. He writes: “Inter alia, the factors that contribute to it (inertial inflation) are the annual increase in support prices for agricultural produce that provide the benchmarks for the markets, the periodical wage revisions in the organised sector and RBI’s assumption of an ‘acceptable’ inflation rate of four to five percent —which people know by experience will be exceeded. The central bank can deal with only the last factor in relation to expectations.”

Jahangir Aziz of JP Morgan Chase, writing The Indian Express, explains the other side of the inertia by pointing out that despite high rates, “India has not even enjoyed the ‘benefit’ of lower inflation from falling growth. Instead, inflation has remained stubbornly high. The authorities and many in the market have raised this as a puzzle. But there isn’t one. India’s growth has fallen from 9 percent to 5 percent not because of slowing consumption but because corporate investment has declined sharply.”

Between Seshan and Aziz we have the real issue: the system is too geared for higher inflation, and the confidence to invest—which holds the key to supply side nirvana—is missing. Thus, we have a situation where lack of investment and growth is making fighting inflation even harder.

The way out of this “inertial inflation”, or “inertial slowdown” is that we need a systemic shock, and Seshan’s own suggestion is that the government should release its massive food stocks to the poor and lower the general level of inflation. Though this would not bring down the fiscal deficit (another important reason for “inertial inflation”), small-scale tinkering with the deficit is not achieving anything anyway. A plus point with this proposal is that politicians would be thrilled to give away grains at throwaway prices in an election year.

Aziz’s shock therapy would include important second generation reforms like the introduction of a goods and services tax (GST). In addition, “I would place a permanent fiscal responsibility act that commits the government to hard budget constraints, a framework to price natural resources transparently, a land acquisition framework that balances the interests of sellers and buyers and a transparent set of election finance rules very high on that agenda.”

A government married to two political rivals in Uttar Pradesh—Mayawati and Mulayam Singh—may not find the gumption to act boldly, but that still leaves RBI Governor Subbarao free to act.

What can Subbarao do in his 18 December monetary policy?

 What shock can he deliver?

Two possible shocks are possible. Since everyone is expecting a 25 basis points cut in repo rates, it is impossible to shock anyone with this. Since no one would be surprised if he held rates, this too would not come as a shock.

A true shock would have to be something higher on the Richter scale: if Subbarao thinks growth needs a kickstart, he should cut rates sharply—by one or two percent at one go. If he thinks inflation is the problem, he should raise rates by the same amount. The latter may worsen growth, but it could prod the government—our frog —to jump out and try out some second generation reforms.

The India Growth story is dying.

 It will survive only if there is a shock to the system. 

Over to you, Dr Subbarao.