The more interesting aspect of Apple is that the iPhone is a much bigger success than anyone (including Apple) ever expected it to be. Apple has single-handedly recreated the mobile phone market and recreated it in its own image. The App Store is a huge success that must be dispiriting for RIM and Nokia (the two also-rans in this market.) It was bad enough for them that Apple redefined what a mobile phone should be, now they’ve redefined what the business model should be. The mobile market is going to be important this year because preliminary signs indicate that it may not stop growing – at least in terms of corporate investment.

In a way it’s logical. There’s a technology revolution going on that reminds me a little of the application avalanche that occurred as the PC market developed. The old mobile phone is dying and now everyone and his country cousin wants to be in on the new device, which is at once (and by varyng degrees):

• A mobile phone
• A PDA
• A geographical reference resource with GPS
• A games machine
• A web access device
• A music/video player
• An ebook reader
• A camera

From here on in, it’s Apple’s to lose and there’s no indication that it will lose it. Most likely it will establish a monopoly that’s every bit as solid as it’s iPod monopoly has proved to be. The iPod is, of course, starting to fade, but the iPhone is much more powerful.

The recession will not stop Apple’s momentum, even if it succeeeds in holding down its share price.

Microsoft

Microsoft is looking very much like a sunset company these days. It was no secret in Redmond or anywhere else that it needed to go beyond the gushing revenues streams of Windows and MS Office and reinvent itself. It’s a rare event in industrial history that any vendor gets to be in such a powerful position as Microsoft achieved in the 1990s and it’s more than surprising that it has failed so clearly to carve out more territory.

Taking it piece by piece:

1. Server market: In the server market Microsoft has done really well. As far as business growth and technology direction is concerned, it has performed powerfully after a faltering start. This area of its business remains healthy, is populated by good products and is much to be admired.
2. The XBox: Had it not been for a surprising innovation from Nintendo, the XBox would now be the dominant games console and qualify as yet another stellar Seattle success. You cannot even accuse Microsoft of having failed to innovate. Microsoft has done well. It’s just that Nintendo did far better.
3. The Web: Microsoft has compeltely failed to dent Google’s dominance. Despite Ray Ozzie’s new initiative and his unbridled optimism, this is unlikely to change any time soon.
4. The Mobile World: Game, set and match to Apple.

That’s a mixed pciture and none of it would matter much were it not for the threatened state of the jewels in the Microsoft crown; Windows (as a PC OS) and MS Office (as PC Apps). Both of these are now under threat.

Windows Vista quite simply failed to compete with Apple’s OS X. Thsi broke the Windows monopoly. So far it’s not as much of a disaster as it could be. Microsoft cannot compete effectively with Apple, because Apple does the whole business stack from the iron to the apps, including the channel to market. Apple can innovate at points in that stack where Microsoft has no position – and it does (think hardware design, think Apple Stores, think iTunes, etc.) The truth is that Microsoft cannot actually compete effectively with Apple at all.

This is not as much of a disaster as it might be, because Apple doesn’t want to own the PC market. But Microsoft’s partners (Dell, HP, Acer et al) are hurting. There is a possibility that one or two of them will hitch their wagon to PC linux in one of its varieties and head off in a non-Microsoft direction. Microsoft has played a very effective game of whack-a-mole (or whack-a-penguin perhaps) with Linux so far, smacking it down wherever it crops up. The more successful Apple is, the less likely that a whack-a-mole strategy will work against Linux.

The brightest jewel in the Microsoft crown is MS Office. There’s little doubt that MS Office in its various forms (Star Office from Sun, Open Office and Lotus Symphony) is drawing some users away from Microsoft and so are Zoho and Google Apps, but so far it doesn’t really qualify as a haemorrhage. If and when it does, there will be wailing and gnashing of teeth in Redmond.

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