Wade Armstrong

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Macworld 2008 and Apple's Strategy

Posted Thursday January 17, 2008 in Business

There’s nothing like a Steve Jobs keynote address for a Mac fan like me. For a lot of years in the ’90s, the Macworld keynote was just a list of products; but, since Apple’s turn-of-the-century rebirth, it’s been a window on the company’s emerging strategy. In Macworld after Macworld, Apple has revealed products that represented long bets — the iPod, the iTunes Music Store, Apple TV, iWork — and, if you look at Macworld with the same strategic eye as Jobs, there’s indications of the future there.

Channel Fever

If Jobs has learned anything from Apple’s dominance of digital music, it’s the power of controlling the sales channel. The iPod drives iTunes Music Store purchases drives Jobs’s vision of how the industry should work. Jobs clearly wants to do the same thing for movies. Thus, the Apple TV and the newest generation of Apple TV, and thus iTunes movie rentals. This play has nothing to do with a Microsoftian concept of dominance of the living room; Apple won’t own the space in the entertainment center next to the TV, they’ll own the way into the TV.

The strategy behind this is compelling. Apple has played a key role in basically destroying the existing music industry with iTunes; for a well-capitalized, technically-skilled emerging player in an industry, like Apple in music, disruption is a good thing, almost regardless of where that disruption leads. If Apple can disrupt TV’s ad-based model and movies’ DVD-based model, then, as the owner of the emerging channel to the consumer, Apple will be in a position to build a new industry in which it can dominate.

This is why it’s ok for the Apple TV to be feature-light and developing, and for iTunes to offer movies that may expire too soon: the journey of a thousand miles always has to begin with that one step.

What Long Game?

That’s why the MacBook Air appears so odd. The mini notebook is a new segment for Apple, but it’s a very competitive one, and the MacBook Air looks ordinary. Why would Apple launch such an obvious dud?

One problem Apple has in notebook technology is that it doesn’t really have a defined cutting-edge product. The MacBook needs to be affordable; the MacBook Pro needs to be powerful and capable. Neither can push the envelope if that means compromising on their basic value proposition. All the MacBook Air needs to be is style-forwards.

Strategically, Apple has a number of technical needs. More environmentally-friendly components would be a great PR boost. A good way to get the MacBook’s price down is to simplify its design by putting the whole system on a single board. Dropping overall voltage will lead to less heat and longer battery life across the whole laptop range. Making Intel design a new package for its chip just for Apple sets the relationship on the footing Apple would prefer. Multitouch may eventually be a super-efficient, well-loved interface tool that effectively differentiates the Mac OS from Windows and Linux. But all of these changes are expensive and technically challenging at first — then cheaper as volume ramps up. How to avoid implementing such changes all at once across a high-volume line of products that are critical to your bottom line? Launch a new product that will ship in smaller volumes!

Also, make no mistake: eliminating the DVD drive is part of the channel play. Jobs killed the floppy with the first iMac, and he’s betting he can do the same with the DVD. And it’s a smart strategy, because, if Blu-Ray and HD-DVD go nowhere, how else do you get your HD content? Oh, iTunes. Right.

Whence the iPhone?

So the iPhone has been out for a bit now, with no update. Well, guess what, it doesn’t need one! But there’s a channel play here too: by making the maps’ autolocation dependent on WiFi, Apple creates more demand for WiFi, which means more WiFi deployment, which means more places in which users can buy movies and TV on their iPhone.

Oh, and they save money by not having to build in a GPS receiver too. That’s nifty.

Time Capsule

Time Capsule hearkens back to the days in which Apple was in the computer business and nothing but. Back in those times, Apple had to continually roll out new features for its computers just to demonstrate its value as a company. It’s become clear that the main selling point of Macs is that they Just Work. Time Machine and Time Capsule are great examples of that: you plug in, you get a backup, and your data is kept much more reliably than with those other operating systems. That’s a good definition of just works. But it’s funny and nostalgic to see this small, progressive improvement in computer user experience in the basket with the big strategic plays.

So What’s Next?

Reasonably enough, scuttlebutt has it that the next big event — Apples World Wide Developer Conference — will be iPhone-centric. It would make sense to announce that the phone is open to new software then, but that’s all part of another long-term strategy we didn’t see from Apple here at Macworld.

The channel strategy will continue to grow as Apple pushes the studios to allow more features. Longer rentals will come in the next year or so; Apple will also push for some simultaneous releases on iTunes, which will work great for many of the direct-to-DVD releases, such as the myriad American Pie sequels.

Apple will integrate full 3G networking via AT&T’s upgraded network in the next version of the MacBook Air, just because Apple needs to start somewhere. And DVD drives will go away on all new Macs by this time next year: Apple will offer some sort of software purchasing and installation system, perhaps via Software Update. That’ll show the Blu-Ray and HD-DVD people!

But AppleTV will never work with TV, because that’s a different distribution channel. This means Apple won’t buy Tivo; you heard it here first. Amazon, however…