The Daydream Blog

Microsoft has launched a new Windows ad campaign starring Jerry Seinfeld and Bill Gates, to much derision. It does not, as yet, directly answer the criticism of my last post, that Microsoft’s PR is undermining its flagship product, Windows Vista.

Daniel Jakult, on his Red Sweater Blog, breaks ranks and suggests that the ad campaign is in fact genius, as it is trying to tackle Microsoft’s uncaring image.

Seinfeld’s sense of humour is not something I have ever particularly enjoyed, though I did get a warm fuzzy feeling from these ads. More so from Gates’s performance than from Seinfeld’s.

Daniel points out that:

“Most critics of these ads point out, quite rightly, that the message doesn’t ask viewers to buy anything. If an ad doesn’t ask you to buy something, surely it’s a failure.”

Remind you of another ad campaign designed to change the image and brand of a poorly regarded company? It reminds me of nothing more than Apple’s Think Different campaign. At the time it was criticised for being grammatically incorrect, vague and completely unrelated to the benefits of Apple’s products. It was the complete anti-thesis of current iPhone ads.

Apple’s marketing since Think Different has been an evolution from establishing a new brand through to promoting specific features, via customer endorsements (Switch campaign) and product differentiation (Mac vs PC). At the time of Think Different, Apple’s image was terrible, even if its products were actually quite strong. At the time, Apple needed to change people’s perceptions and expectations of it as a company, before they would even be willing to consider its products.

Microsoft is in a very similar position. Kevin Hoffman’s first take on the ads at The .Net Addict’s Blog points out that Vista is actually a strong product. Microsoft’s other products are also beginning to show considerable signs of improvement. However, the company still receives a lot of criticism, some of it less justified than in the past.

Microsoft has understood that any sympathy towards it is the result of Bill Gates’s philanthropy. Any company whose chief executive gives that much money to charity can’t be all bad, can it?

Apple needed to re-establish its credibility. Microsoft needs to show that it cares about its customers and they seem to be thinking different to do just that. An excellent move on their part.

It is also an excellent demonstration of how Google, Apple, Sony, Mozilla and Oracle’s competition with Microsoft is hugely important for consumers. A Microsoft as a monopoly in all computing markets is terrible and worthy of scorn. A Microsoft that has to compete will be great for everyone.

Microsoft’s Windows marketing seems to have been extremely muddled of late. Windows Vista has been a publicity nightmare for the company, garnering poor reviews, demands for XP’s lifetime to be extended, users downgrading and major partners and customers holding off from upgrading. Some major clients have even decided to take the opportunity to switch to the Mac.

What has been most surprising throughout the first half of this year, was Microsoft’s unwillingness to come out in support of its most unloved product. Key Microsoft staff, including Bill Gates himself, spent considerable effort talking up Vista’s successor, Windows 7. This led to conjecture that Windows 7 would be released much earlier than expected. It may also have led to many enterprise customers delaying their Vista upgrade programmes.

Windows 7 talk went quiet midyear, with Microsoft promising to come out fighting for Vista. The first fruits of that campaign is the Mojave Experiment. Irrespective of the scientific and content value of the experiment, from a marketing perspective it is a disaster. Essentially a Pepsi challenge, Vista is put into a blind taste test against not its current competitors, but against the 7 year old product it was supposed to replace.

With Mojave barely having had time to make an impact, Microsoft is now talking about Midori, a complete replacement for Windows altogether.

What is really surprising about the situation is that Microsoft’s muddled marketing may actually be leading to a reduction in their Vista sales, as customers wait on Windows 7. Has Microsoft created an Osbourne effect entirely of its own making?

With its stock flat-lining, Microsoft’s mind share is taking a significant battering. Tellingly, start up software companies no longer plan to be taken over by Microsoft, nor worry about a competing Microsoft product. Instead Google, Apple, Amazon, eBay and others are the gorillas in their respective fields. The Yahoo! take over debacle clearly demonstrates how “Microsoft is dead” in terms of its influence.

I recently concluded that the role of CEO of Microsoft would be a much more exciting role than succeeding Steve Jobs at Apple. There is so much more potential to improve a company.

As an unashamed Mac zealot, it is actually disappointing to see Microsoft in this situation. However, the prospect of a resurgent Microsoft in the future, in a more competitive market place will only be good for consumers in the long run. Its current problems are a surprising, sad, but necessary step along the way to Microsoft’s rehabilitation.

Apple has clearly focused a lot of effort on targeting the iPhone at the enterprise market. A significant amount of emphasis in the iPhone 2.0 update is towards features demanded by existing and potential enterprise clients.

The iPhone will undoubtedly be a success in the enterprise market. Anyone who doubts that is kidding themselves or trying to downplay the iPhone for marketing their own products.

The question is whether success with the iPhone will lead to increased enterprise Mac sales. There has been a long debate as to whether the iPod Halo effect exists. Will there be an Enterprise iPhone Halo effect.

The key factor is that enterprise IT departments will have to purchase Macs and learn Mac development tools to develop custom, internal, iPhone apps. Whilst many enterprises have a small number of Macs in their design, web and media departments, having Macs in their IT departments is much more likely to lead to a wider uptake of Macs.

Although administration and development functions are normally quite separate in enterprise IT departments, administrators are going to make considerably more effort to better integrate Macs into their environment for IT users, than for design or media users. Once IT administrators are confident that they can integrate Macs into their infrastructure, the door is opened for wider scale adoption. With significant misgivings over Vista, readily available Mac VM software and continuing Windows security concerns, removing the biggest barrier to entry - a Mac cynical IT department, will lead to a significant increase in the number of Macs in enterprise.

There is another key user group that will help to drive adoption - gadget hungry executives. As key executives increasingly purchase Macs for their own use, they will demand full access to their corporate infrastructure. Again IT departments will prioritise keeping this user group happy, further weakening barriers to entry.

Combined with the “one” feature of Snow Leopard being better Exchange integration, Apple stands well placed to take advantage of a “perfect storm” of iPhone developers, executive decision makers and a weakened Microsoft to finally make that breach into the enterprise computing market. The question is whether they will listen to enterprise demands for the Mac, in the same way as they have listened to their iPhone demands.

It also opens an opportunity for Mac software developers to develop enterprise class business software, a market segment where the Mac currently suffers. Products like Differencia will hopefully be well placed to help Apple win new business.

The official press release for Differencia 1.1 can be found here:

DayTime Software announces Differencia 1.1 for Mac OS X

I woke up this morning and thought I need to post on Apple’s Year of Hubris, only to find that Wil Shipley had beaten me to it.

Apple has hat its “Year of the laptop” and “Year of HD” and this year seems to be the “Year of Hubris”. A number of decisions this year have led to major backlashes from their normally ultra loyal customer base.

Most of the controversy has centred on the iPhone. Before WWDC there was strong demand for an “iPhone SDK”; a set of tools to allow developers to create iPhone applications. Steve Jobs tried to fob developers off with web based tools. Many felt Apple would have been better stating they were not offering a proper SDK, rather than patronise intelligent developers, by telling them Web 2.0 tools were just as good.

Then there was the dramatic iPhone price cut. Whilst I appreciate the humour that suggests that this “was a repeal of the nerd tax“, it highlights that whereas most handsets are subsidised when on a contract, the iPhone was actually sold for two months at a $200 premium.

Ring-tones for the iPhone are another sore point, with users having to pay an additional $0.99 to use a snippet of a song they already own and no way to create ring-tones from songs not bought from the iTunes Store. John Gruber covers this issue far better than I can. Though I would point out that long before the iPhone, ring tone buyers have shown a bizarre willingness to pay through the nose for poor quality song snippets. The best that Apple can say is that they are pricing below the current market rate.

Of course in the UK, at the current exchange rate, the iPhone should be priced at around £200 before tax or £235 incl. VAT. The extra £34 for additional business costs seems a little excessive.

Some criticism from the press feels contrived to avoid appearing to pander to Apple. Unfortunately in the UK, we all to often like to bring success stories down to earth. For example, the criticism of the iPhone’s lack of 3G seems perverse. 3G has hardly lit up the UK market since its release in 2003 and it appears to be a flawed technology. Jobs’ complaints about 3G battery consumption are completely valid. Power consumption should have been resolved long ago, given how long 3G has been available. I, for one, am happy that Apple is not championing a technology that benefits networks looking to sell content, more than is solves problems for consumers.

As with each succession of the iPod, the press are always keen to point out missing features without justifying the customer benefit for those features.

Away from the iPhone, Apple’s decision to charge more for DRM free tracks from EMI has surprised many, given Steve Jobs’ open letter of criticism of DRM. Apple’s recent public stance on DRM has also been somewhat confused.

iMovie ‘08 has also generated criticism for being a step backwards in many ways. Apple, fully aware of this, quietly ensured that iMovie ‘06 was still available for free to iLife ‘08 purchasers. Whilst there is a need for an app like iMovie ‘08 in this modern Max Headroom / YouTube era, there is still a need for iMovie ‘06 type app as well. Many feel that Apple should have found some way to have both applications coexist within iLife and update the original iMovie, rather than replace it.

And finally there was considerable disappointment at the “Top Secret” features in Leopard and the redesign of key UI elements in the new OS. There will undoubtedly be further backlash if Leopard is delayed again beyond its October time frame. The lack of new seeds for developers and testers, suggests a delay is more than possible. I personally predict that Leopard will be delayed until MacWorld in January.

Many of these issues come down to poor PR or Marketing, or simply bad timing. They suggest some hubris on Apple’s approach to its existing customer base. As Wil Shipley says:

That sure reminds me of the old, crappy Apple. The one that almost went bankrupt because of its hubris.

Apple will undoubtedly learn from the backlash, but more worrying than the Marketing missteps are the ring-tones pricing and restrictions, along with Apple’s drive to increase gross margins despite strong sales volumes. It appears that Apple is trying to maximise returns from loyal customers. Fortunately, Apple continues to produce great products to increase its customer base, unlike its previous period of hubris.

Since the mid-90’s, the prospect of Internet based business has led many to predict the “Death of the Middle Man”. They believe that via the Internet, businesses will be able to reach their end-users directly and will be able to forego distributors, retailers and other “middle men”. By selling directly to consumers, the theory goes, businesses will receive the full price of their products, rather than the just wholesale prices they offer their “middle men” distributors.

The reality of Internet business, as it has developed, is that the Middle Men are doing just fine, thank you very much, albeit in slightly difference guises.

Music

One of the most prominent examples is the Music industry, where it was felt that the Internet would allow artists to reach their audience without signing to one of the much derided music labels. Prince has recently distributed his latest album for “free” with a Sunday newspaper in the UK. Pierre Igot, in his Betalogue, claims that this is shows that the middle men in music are, indeed, slowly but surely dying off. The reality is that the newspaper acted as distributor, in place of conventional record stores. They made money from increased distribution and advertising. Meanwhile, Prince will have received a guaranteed amount from the paper, rather than being subject to the fickle music market. Whilst this is not an Internet example, it demonstrates that even well known artists still need distributors in order to make a living out of their art.

The rise of MySpace as the place to find new bands has been quite spectacular, and many radio DJ’s now regularly scour social networking sites looking for the next big thing. The reality of this “direct” contact is that MySpace is the new middle man in this relationship. There is no way that these bands could reach their fans “directly”. MySpace is, essentially, the promoter for these acts and could become as unpalatable as the big music labels.

Of course the big name in this industry is the iTunes Store, the ultimate music retailer, distributor and middle man. The big labels tried to go it alone but found that customers don’t have any brand loyalty to big labels and want to be able to get their music “under one roof” - a common theme for Internet middle men.

Goods & Services

The success of Internet middle men does not just apply to goods that can be digitally distributed. “The fall of the middle man” discusses the Internet’s effect on newspaper classifieds, charity shops and even the banking sector. Yet the article itself covers the rise of eBay, online classified and online social lending websites. All of these sites are middle men, in the very traditional sense with traditional business models. Despite many companies being able to access markets more easily via the Internet, they still require middle men to grant them that access.

Along with more direct access, however, comes the responsibility to deliver physical products, provide first line customer support and maintain customer relationships. Along with additional warehousing costs, inventory risk and in particular marketing costs, this slight increase in direct access comes at a significant price. As these costs and responsibilities have been passed back to producer, the Middle Man’s fees are often reduced compared to conventional distributors. However the Middle Men are still a necessity to get access to the market in the first place.

Aggregators

The Internet has also created a completely new class of Middle Men - the Aggregator sites such as Confused or MoneySupermarket, along with Froogle, Dealtime and Kelkoo. These are great for the consumers who can easily compare prices for similar products. Certain companies have tried to make a virtue out of avoiding Aggregators. One insurance company, Direct Line, has recently run a TV ad campaign, suggesting that the aggregators don’t give consumers full access to value added services or loyalty discounts. Rather aggregators only cover the lowest common denominator products, the ads complain. The reality is that Internet consumers are very price sensitive and whilst price is the last resort for marketing, it is the reality of Internet marketing. Unfortunately for Direct Line and the RBS stable of insurance companies, foregoing the Middle Men has led to them losing out to their rivals.

Independent Developers

One industry that has successfully used the Internet to access their market directly is the Mac Independent Software market. Mac developers can deliver their products digitally, directly from their websites. However even they are not immune from the Middle Men. All Mac developers need to use Software Directory sites, like Version Tracker, Mac Update and Downloads.com as part of their product promotion. Many also outsource purchasing and/or software registration to Kagi, PayPal or RegSoft. Some have even gone as far as to sign traditional distribution deals.

There’s no Replacement for Search

One failing of the Web, that was highlighted early on, is how difficult it is to find good quality content. There is no universal directory for the Internet. There is no way to browse content by topic. Knowing a company’s name and product provides no guarantees as to what their web-site address actually is. Yahoo!, Google and other search engines are, quite frankly, poor solutions. Without links from Middle Men sites or an AdWords campaign, there is little hope of improving your company’s page rank within the search sites. The hard reality for small businesses, unsigned bands and individuals is that without partnering with the Internet’s new age of Middle Men, it is close to impossible to be reach your market directly via the Internet.

Middle Men are the Heineken of the Internet Age - they deliver the customers your web site cannot reach.