The Real Threat of a Mac & Virtualization

The Back Story

Okay, there should be no doubt in anyone's mind that I enjoy commenting on Apple's business strategy, marketing practices and products. You would think that I am guilty of heresy considering I work for Microsoft. Well, I lived with that burden for a few years until I found an entire "underground" community of fellow Mac enthusiasts at Microsoft - they're aptly called "the Mac Users Group". That an enthusiast group for a rival's products can exist at Microsoft should tell you something about the openness of this company. But I digress...

There is no denying that people, not just geeks, are simply enamored with the new Mac Laptops. There are unofficial numbers indicating the Mac's market share at a strong 21% of the Consumer market, and that number is trending on the up. Within Microsoft too, I've witnessed a steady increase in the number of my Microsoft cohorts requesting help with setting up their new MacBook Pro, more people extolling the virtues of Mac OS X. Till last year, these folks (and employees of other corporations) had to contend with owning two machines - while their Mac catered to activities in their down-time, they had to revert to their Windows machine for work-related commitments. They say, "Perception is everything", and this clear distinction between a Mac and a PC led to the Mac being dubbed a Hobbyist platform. Not very flattering if you ask me.

Virtualization - What?

The perception of what a Mac could do changed with the release of Mac OS 10.4, codenamed Tiger. A small company in Renton, WA released a virtualization solution for the Mac called Parallels that allowed users to run Windows in "parallel" to Mac OS X. Via virtualization, you can run Windows-only applications and games on a Mac. That's right - you can run Windows-only applications and games on a Mac via virtualization!

Parallels wasn't the first virtualization solution for the Mac - the other virtualization solution for the Mac was Virtual PC, an abysmally slow product and was taken off the shelves a few years after Microsoft acquired Virtual PC. Windows on a Mac via Parallels didn't run at breakneck speed, but for the first time, owning a Mac didn't come with the associated burden of owning a Windows PC in order to get work done.

In Fall 2007, Apple released the next version of their operating system - Mac OS 10.5, codenamed Leopard. A heralded feature of Leopard was Spaces, a feature that Unix desktops have had for as long as I can remember. Spaces is a way to organize currently opened applications into multiple desktops, and is touted to boost productivity. In my case, I tend to switch between 2 sets of applications that I would organize into 2 Spaces (if I had a Mac at work):
- a Work space with all the work related applications - Outlook, gVIM, Visio and Powerpoint
- a Personal space containing Firefox, Photoshop, Live Writer, etc

As Mac OS X started gaining momentum, the Parallels product for the Mac gained in popularity. VMWare, a big player in the Virtualization space, recognized that Parallels was on to something, and created a rival product called Fusion. VMWare's entry into this market was good news for everyone - it legitimized both the Mac platform and Parallels, it created competition for the incumbent product which made both products better, and it gave Mac owners a choice of virtualization software. The reviews are in for both products, and it's only good news. Barring the minor performance issues people have noticed, they are extremely happy with their Mac purchase, with Mac OSX, and with running Windows via Parallels or Fusion.

What's good for Apple is bad for Microsoft

I've talked about Mac OS X, Spaces, and the freedom customers now have to both work and play on their Macs via Virtualization and Leopard. The marriage of these ideas is what occurred to me last afternoon as I walked out of the office. Here's the scenario that prompted this post:

Roy works at a company that has made extensive IT investments in Microsoft technologies like Exchange and SQL. At work, Roy needs to use products that only work on Windows like Visual Studio and Visio. As his work demands more travel, Roy is given the option of buying either a Mac or a Dell/Lenovo laptop.

Till last year, Roy would almost certainly pick either Dell or Lenovo. Today, Apple is the other horse in this race, and unlike the other two, evokes a visceral response in its owners like no other technology product. If Roy chooses a Mac, he can set his computer up using Spaces so that his Work space has all his Windows-only applications running in, you got it right, a Fusion/Parallels powered Virtual Machine, and his Personal space can be powered by applications that are running natively on the Mac. Switching between the 2 completely disparate environments, hitherto impossible, is now akin to switching between applications via Alt+Tab (it's a different key combination but you get my point). Totally seamless!

The increasing market share of the Mac has 2 distinct repercussions on the Windows business:

1. OS Upgrades
The customer satisfaction numbers for Vista aren't pretty; under pressure from customers, Dell has restarted selling machines preloaded with Windows XP. All the line of business applications that run on Vista also run on Windows XP, so a lot of businesses don't see the need to upgrade to Vista. Adding insult to injury is the fact that Windows XP is cheaper to purchase than Vista is. As a corporate employee that owns a Mac, this tells me that I can continue using Windows XP installed in a Virtual Machine to get my work done.

2. OEM Sales and Windows Volume Licensing
Microsoft makes most of its money selling Windows to OEMs. The new PC you bought with Windows preinstalled sent some more money into Microsoft's coffers. Microsoft gets no money when a Mac is bought, so its bottom-line is affected every time a customer (consumer or corporate) decides to buy a Mac instead of a PC.

It could just be that Microsoft's losses on account of Mac's gains are but a drop in the ocean. Please feel free to drop me a line or post a comment if you have more insight into this.

Apple releases iPhone SDK

For all of you that watch announcements in the embedded space, today's announcement by Apple about the upcoming 2.0 iPhone software release had to get your attention. The tech news sites are abuzz with the news, with multiple blog sites providing the minutiae of the announcement. engadget's live coverage gave me all the details I needed, but doing a roundup of the sites covering the announcements make me wonder - are people missing out on a crucial detail? Let me recap the announcement for you...

"At an event at its headquarters in Cupertino, Calif., Apple unveiled iPhone features meant for businesses and released a set of instructions for developers to create iPhone software programs. The moves are seen helping the consumer electronics giant meet its goal of selling 10 million iPhones by 2009."

I remember the day Facebook wrote Myspace's obituary - it was the day Mark Zuckerberg announced the Facebook API. It was a call to all web users - anyone who had basic coding skills and an idea - to embrace Facebook as A vehicle to give their idea fruition and have their application be used by the entire Facebook community. It took me a while to embrace the concept of something I develop to be usable within a few weeks, but I am now sold on the idea. But there are some hurdles to deploying an iPhone app...

Web hosting is the first (and biggest) hurdle that a new app developer has to cross. Most hosting services charge between $10 and $50 a month for their services, but picking the right one is tricky. Then there is the question of installing a credit card payment gateway, processing payments, and the associated headaches. Then there is the question of monetizing your idea, and paying your developers (and testers if any).

Well, Apple's doing a little more than just releasing an SDK today. It's building a platform for developers to build, and sell their applications online.

"Apple also released a set of instructions to create iPhone software programs and introduced a way to sell the downloadable software through its iTunes online store, with Apple taking a cut of the profits.

Developers will receive 70% of the sale price, which they get to set. Apple will screen the programs for privacy and other objectionable concerns.

Apple sees software sales as "making the iPhone more valuable so people will buy more of them." Mr. Jobs said he doesn't expect to make "much money" from the software sales; rather, he hopes iPhone software sales will support operation of the iPhone developer program.

Analysts estimate that an iPhone software market offering add-ons like games or calendars could become a $1 billion a year business, adding a penny a share of potential profit to Apple."

So Apple helps you overcome the biggest hurdles in your path - it does the application hosting, adds your application to its global application directory, pays you 70% of the software sales, shields you from dealing with credit card transactions, and if you've got a great idea, hooks you up with a Venture Capital firm?

"To help jump-start the market, venture firm Kleiner Perkins Caufield & Byers said it would launch a $100 million fund, called iFund, to invest in companies developing applications and services for the iPhone and iPod Touch.

John Doerr, partner at Kleiner Perkins, said it already funded one iPhone software maker and is in negotiations to fund another."

The demos in today's keynote indicate that Apple is really putting its best foot forward by releasing a great set of developer tools to the community. XCode is free, the SDK can be downloaded for free, and for $99 you get all of the debuggers, performance optimizers, support, et al to build the killer iPhone application. If I have a mobile application idea, why would I want to build it on any other platform now, especially Windows Mobile?

Apple updates iPhone and iPod Touch

I found this paragraph from the NYTimes Tech blog rather interesting:

http://bits.blogs.nytimes.com/2008/02/05/apples-price-increases-on-the-way-to-price-cuts/

“Second, Apple appears confident of demand that it is not using this moment to lower prices on the existing models. But then again, Apple is very good at capturing the money from the price-insensitive fans who need to have the very latest. After the uproar over the $200 cut in iPhone prices last year, I would think it will want to be delicate in its pricing moves.”

If history is anything to go by, the number of price-insensitive customers (not necessarily fans) of Apple products has been growing quarter-on-quarter. I wonder what will happen when this “crowd’s” numbers start to decline, which will be an inflection point in Apple’s product pricing strategy. As things stand currently, Apple continues to make hefty profits on its hardware, there seems to be no dearth of buyers wanting Apple hardware, which pushes their quarterly earnings higher, which means they invest more in building new hardware. Lather, Rinse, Repeat…

Me and my iPhone

For better or for worse, my friends call me an Apple Whore. I'm a very atypical Microsoft employee - I use Firefox as my browser, my main computer at home is my Mac Book Pro, I have owned multiple iPods, and I recently swapped out my Smart Phone for an iPhone. When the iPhone first came out, I really coveted one, but I was skeptical about its keyboard. Not getting any tactile feedback while typing is an alien concept to me.

Aware that the 1.0 release of any product is riddled with bugs, I bided my time and pushed off the purchase for a few months. In the interim, I read every review I could get my eyes on, and everything I read pointed to AT&T being a fecez. I had been a happy T-Mobile customer since 2004, the biggest positives of being with TMob were the great service, decent phone reception, the best voice plans, and the phone selection.

It's been two weeks since I took the plunge into the iPhone realm, and using another phone now is a drag. The keyboard took a few hours to get used to - I'm a fast learner ;-) - and now my fingers fly on it, using the camera is a breeze, sending pictures via email or to flickr is damn useful, and the browser is beautiful. Here are my nits though:

1. Though Mail is good, it doesn't hold a candle to mail on the Smart Phone.
2. I can't save a Mail attachment to my phone - that's plain silly.
3. Give me a frickin' back button already. This is akin to no Second Mouse Button on my MBP. WTF?!
4. The screen gets dirty too easily (fine, I sweat, a lot)
5. AT&T is the network with the most dropped calls. Their tagline is the lie to top all lies!
6. Can't change the volume while listening to music by flicking my finger up or down on the screen.

With all of these being said, I'd still recommend that if you are an AT&T customer, the $400 price tag is worth the experience. If you do take the plunge, you'll be hard pressed to enjoy another phone again.

Is Apple the new Microsoft?

The tide is turning in the technology industry. Microsoft, the most feared and revered company of the 1990s, no longer inspires the awe it once did. Competitor offerings have trounced Microsoft in select vertical markets. Google is the king of the web services space, and Apple has established itself the top dog in the world of digital media. Hitherto the darling of the press, and considered by many to be a true innovator of consumer products, Apple is suddenly in the hot seat. The dominance of iTunes, the iPod, and the mixed message sent by the pricing of the iPhone have left a bitter taste in the mouth of consumers, analysts and the press alike.

Regardless of how you dice it, the American populace has a thing for the underdog. I sense a brewing, and swelling discontentment with the status quo that could lead to a groundswell of support for Apple's competition. The biggest beneficiary of the move away from Apple would be the Zune; if positioned correctly, the Zune can ride the changing tide, expose a few chinks in Apple's armor, and challenge Apple's hegemony.

Apple not only "bundles" iTunes with multiple products, it forces you to use it. At least with Internet Explorer, you could always just download a competitor and ignore IE.

Not fair, you might say. Any hardware device that syncs data with a PC as part of its core functionality has software to facilitate that syncing. True enough. But operating systems have browsers as part of core functionality, too. Doesn't Mac OS X come with Safari? Doesn't the iPhone?

And "bundling" works. Steve Jobs bragged this week that Apple has distributed 600 million copies of iTunes to date. The overwhelming majority of those copies were iTunes for Windows. And iTunes for Windows' popularity isn't driven by software product quality. ITunes is the slowest, clunkiest, most nonintuitive application on my system. But I need it because I love my iPod.

Apple's reputation of being innovator par excellence is slowly getting tainted too. As PC World's Mike Elgan eloquently states:

Apple the copycat

Ten years ago, Microsoft haters complained that Windows followed the Mac OS to market as a graphical user interface, copying the Mac's features such as folders, trash cans, resizable windows and other elements. That complaint was repeated with each new version of Windows -- Apple was the innovator in the operating system space, and got there first with a host of key features. Microsoft just came along later, duplicated features that Apple pioneered, and reaped the benefit because of its monopoly power.

But who's innovating now? The LG KE850 was winning awards for its full-screen, touch-screen, on-screen keyboard before Jobs even announced the iPhone.

The best thing about the iPhone and iPod Touch -- the warm-and-fuzzy multitouch UI with gestures -- wasn't new, either. Various labs have been demonstrating similar UIs for more than a decade, and even Microsoft demonstrated a fully realized 3G UI in May, well before Apple shipped the iPhone. Microsoft will ship its tabletop UI, called Microsoft Surface, in November, and Apple will likely enter this space with a 3G UI months or years after Microsoft does.

And Wi-Fi in a media player? Ha! Microsoft's funky Zune had that almost a year before Apple did and SanDisk's Sansa Connect with Wi-Fi was released last June. Apple even stole the name for its iPod Touch product, according to HTC, which sells a touch-screen smart phone called the HTC Touch.

Apple is in the eye of a press storm, and as an investor, this could bode well for the short term. You don't have to be psychic to see a plethora of class action lawsuits against the company in the future. Only a study of past events would make you think that an anti-trust lawsuit against Apple is looming over the horizon.

A consumer walks into a local retail outlet to buy a Christmas present for dad. The Apple iPod "section" of the store dwarfs the section where all the also-ran players are displayed. IPod is clearly the trusted standard. The consumer buys a shiny new "Fatty" iPod nano with video.

Dad opens the present and is excited. He follows the directions, installs iTunes and immediately splurges on a few dozen songs at the iTunes store. He loves it, and is an instant convert to portable digital music.

The only downside is that he works out every day at the gym, where cardio machines face TVs that broadcast sound over FM radio. Six months later, when his iPod is stolen, he goes to buy another player -- this time, he hopes, with an FM radio in it. Several competitors offer this feature, but not iPods. He's about to choose a new player with an FM radio when it hits him: None of his files -- now totaling 300 songs and 50 movies -- will play on the new player. He bought and paid for all this content, but it only works with iPods and iTunes.

Apple has an iPod customer for life. Microsoft never had this kind of monopoly power.

Let's see how this plays out...

Apple's iPods for Holiday 2007

The Million Dollar Question

Can Apple roll out incremental features to its iPod line and get the market excited once again?

The Immediate Aftermath of the Announcement

Apple shares remained stagnant during the event and then closed down almost nine points. This on a day when the company refreshed its entire iPod lineup with new "models."

Did Apple just suffer along with many other tech stocks in yesterday's downtick, or was it something more? Apple CEO Steve Jobs has a wonderful way of making the world think each 'new' Apple product is somehow a first or one-of-a-kind, but most aren't any longer when it comes to the iPod line (save the iPhone, which is easily a revolutionary product).

Basically, Jobs trotted out the same products -- from the iPod Classic to the iPod Nano to the iPod Touch -- with incremental feature upgrades and more marketing glitz than a glazed donut. The market seemed unimpressed, all things considered. But, there's more.

Pasted from <http://www.bloggingstocks.com/2007/09/06/apple-inc-s-aapl-new-iproducts-underwhelm-market/>

What say the analysts? The Stock Price?



Apple Inc. (NASDAQ: AAPL) will have to recover from yesterday's announcement of a $200 price cut on the iPhone. Analysts may have now to adjust models and maybe even price targets, although some, like Gene Munster of Piper Jaffray, think it's the right strategy. In the mean while, Apple will also have to deal with the wrath of the first adopters, the ones who ran to get the iPhone on the 29th of June, stood in line for hours and paid $200 more. If you ask me, Apple stands to alienate quite a few of its fan base, the ones who did buy the iPhone for $599.

In a phone interview Thursday, Pacific Crest analyst Andy Hargreaves said Apple's stock declined Wednesday due in part to people adjusting their expectations for the company's revenue and gross margins for the year. Hargreaves doesn't think the iPhone price drop will have a huge impact on Apple financially, because he assumes unit volume will make up for the price change.

Hargreaves added that the sudden price cut -- which is unprecedented for Apple, as it tends to add features to products while keeping prices stable -- might make customers think twice about becoming early adopters of its products.

"When people are waiting outside the store two days ahead of time it becomes a story and they get, essentially, free marketing out of that. If all those people decide they don't want to wait outside the store because they got burned last time, Apple loses that marketing," he said.

Also Thursday, Global Equities Research analyst Trip Chowdhry downgraded his rating for the stock to "Equal Weight" from "Overweight," saying in a client note that the company "is probably unlikely" to meet its goal of selling 10 million iPhones in 2008. Chowdhry also reduced his price target to $130 from $150.

Chowdhry said consumers have reported that the iPhone is missing some key smart phone capabilities like voice calling, and users have noted issues with AT&T's service that include dropped calls and very slow Internet access speed.

He added that some PC-using iPhone owners reported receiving rude customer service at Apple's in-store Genius Bars, after which they returned their iPhones. In a phone interview Thursday, Chowdhry said the price cut means Apple is struggling to get iPhone adopters. And those who already have them aren't happy about the sudden price decline, he said.

"People who bought the iPhone early, stood in the lines -- they are not smiling. They're feeling ripped off," he said.

Pasted from <http://www.businessweek.com/ap/financialnews/D8RG32480.htm>

RBC Capital Markets analyst Mike Abramsky, in a client note, kept an "Outperform" rating on shares with a $175 target price.

"While the lower price itself was not unexpected, the speed of the cut - coming 68 days into launch - was a surprise; given our recent checks (this week) suggested sustained sales momentum," the analyst wrote.

But Abramsky thinks the cut will pay off in time, because it widens availability of the product, strengthens Apple (nasdaq: AAPL - news - people )'s competitive position and might drive users to upgrade as the holiday season gears up.

Morgan Stanley (nyse: MS - news - people ) analyst Kathryn Huberty likewise said the price cuts could generate strong holiday demand. She has an "Overweight" rating and $150 target price on shares.

JPMorgan Securities Inc. analyst Bill Shope was a bit more concerned about the price cut, saying it could be a sign of slower-than-expected initial demand.

"Yesterday's event gives Apple an impressive product line up for the holiday season, but it also supports our view that margin and iPhone expectations were too lofty," the analyst wrote.

He kept a "Neutral" rating on shares.

Pasted from <http://www.forbes.com/feeds/ap/2007/09/06/ap4087967.html>

Coupled with the ridiculously capable new iPod Touch -- which has every major feature of the iPhone except for its phone capabilities -- will any other manufacturer stand a chance?

Analyst Tim Bajarin, president of Creative Strategies, thinks not.

"I don't see how anyone can respond to a product lineup like this," he said. "Who out there has the ability to compete with this? Microsoft and the Zune simply can't compete. And Sony's new video Walkmans (announced earlier this week), they pale in comparison."

Pasted from <http://www.wired.com/gadgets/portablemusic/news/2007/09/ipod_follow>

With the analyst opinions all over the map, I can't really trust any of them. So it's down to what ...

The Zeitgeist says

But it’s frustrating that the highest capacity iPod Touch holds a mere sixteen gigs, making it an unlikely choice for hardcore iPod fans. The so-called iPod classic now tops out at 160 gigs, but with no Wi-Fi. Why? To get above sixteen gigs or so, you need to switch from flash memory to battery-draining hard drives — and presumably, the combined battery burden of Wi-Fi and hard drive was just too much.

It’s cool to be able to buy music almost anywhere, but in the end, today’s iPod and iPhone selection still represents a compromise, limited by current technology. Ideally, you’d have a eighty-gig-plus iPod or iPhone that would allow you to surf the web and buy tunes at high speed wherever you are — but free Wi-Fi everywhere is just a fantasy, and the iPhone isn’t even capable of running on fast 3G phone networks. Another dream: Imagine paying ten dollars a month for an iTunes subscription — all the music you want, streamed wirelessly, anytime. Give Apple (and maybe a competitor or two) a couple more years, and we might just get there. In the meantime, as singer KT Tunstall told us yesterday at the Apple event, the iPod Touch is “a nice piece of kit.”

Pasted from <http://www.rollingstone.com/rockdaily/index.php/2007/09/06/next-day-analysis-what-you-need-to-know-about-those-new-ipods/>

On the Steep Price Cut

Such steep cuts, coming just two months after the iPhone's much-hyped launch, may risk angering the Apple faithful who lined up to buy an iPhone on the day it came out. As Apple customer Rachel Kane, who bought her iPhone in August, said,

"It's not the losing $200 that bothers me. What bothers me is the idea that the company grossly overpriced their product and took advantage of the faithful few hundred thousand who initially purchased the iPhone."

Now what they originally called this end-all-be-all of phones is being price-slashed for the holidays as a stocking stuffer," Kane continued.

Customers aren't the only ones rattled by the price drop. Despite the iPhone grabbing a 1.8 percent share of the smart phone market in June alone, the stock market seems to think that the 33 percent price cut is a sign of weakness: AAPL share prices dropped 7.4 percent for the day.

Pasted from <http://www.wired.com/gadgets/portablemusic/news/2007/09/ipod_follow>

Is Anything Missing?

“I know the iPod Touch is cool looking but [without] a 60 gig drive it is worthless to me,” says one comment.

“One thing that is conspicuously missing from the iPod touch (as well as the iPhone) is any sort of games. One would think that the touch-screen platform would be perfect for something like bejeweled or solitaire. Seems odd to me, and is one of the few features missing from the iPhone that most other cell phones have,” adds another.

A third drawback: “No Mail! WTF! That's all I can say,” says one disgruntled commentator on tuaw.com. “There's Safari [Apple's web browser] but no Mail!? I don't get it.”

On Times Online, too, most commenters were sceptical. "Instead of introducing new iPods,

Apple should support the thousands (millions?) of broken iPods out there," one reader says.

"My iPod Mini died in August, just 5 months after the warranty expired. So did many other iPod Minis of the same vintage. But Apple refuses to recognize this as an 'event'. Their Tech Support suggested that I purchase a new one."

Pasted from <http://technology.timesonline.co.uk/tol/news/tech_and_web/personal_tech/article2399644.ece>

Could this be a mistake?

Four Mistakes Apple Made With The IPhone Price Drop

But, what about the rest of us who waited it out and will now profit from the price cut? Personally, I don't see this as a mistake, rather an admission by Apple that the cell phone market is more volatile and capricious than the computer market. Cell phones are bought on a whim, and though $400 is a HUGE whim, it requires less thought (and preparation) than $600.

Will this affect Apple's bottom-line?

$100 returned on 1 million phones - that's a $100 million dent in their profits. But, the price cut will catapult iPhone sales into the stratosphere (comparatively speaking). If Apple manages to sell twice the number of iPhones in the rest of this quarter than was originally forecast, this blip will be just that, and nothing more.

To Conclude

The jury is still out on the new products. I personally think "fatty" is sucky, but I reserve true judgment till I actually hold the new Nano in my palm. I still want an iPhone though, and can't wait till it is untethered from AT&T.

The iPod and the Vacuum Tube Sing a Warm Duet

The article talking about new vacuum tube amplifiers for the iPod isn't the reason why I am blogging about it. It is the nugget of truth that is contained in its final paragraphs that needs to be underscored...

The Cocoon, the Fatman and other vacuum-tube amplifiers for iPods are relative newcomers to the United States consumer market. For instance, Lyric HiFi in Manhattan, a center for high-end audio equipment, does not handle any vacuum tube-based docking stations. But Leonard Bellezza, co-owner, said the accessories might soon be popular.

“Everybody has an iPod,” he said. “So anything you can attach to an iPod sells.”

3G iPod Hold Switch Stuck - Fixed!!

Last evening, much to my dismay, the Hold Switch on my iPod seemed to have gotten stuck. After trying every software solution I could find posted on the Internet, I almost gave up hope on my iPod and even considered buying a new mp3 player. I wanted to do my due diligence though and not retire a fixable device so I resorted to my final Out - disassembling the iPod.

After scouring the Internet (googling disassemble ipod), I finally found a site that contains step by step instructions on how to perform this disassembly. I found the link I provided to be the most useful among the ones on the iNet. Trust me, don't clean out your pod, don't reset to the factory settings and lose all your music, settings and equalizer presets. Instead, just crack the iPod open and fix the Hold Switch problem. You'll fix the problem without cleaning out the closet, so to speak...