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Schemers
Volume Number:11
Issue Number:8
Column Tag:Inside Info

Schemers

By Chris Espinosa, Apple Computer

All summer the news has been full of big deals and grand schemes in the computer industry. The most notable ones are the failed Microsoft acquisition of Intuit, and the IBM purchase of Lotus Development.

(It’s funny that, five years ago, IBM’s purchase of Lotus would have run into major anti-trust problems, but Microsoft’s bid for Intuit might have gone unnoticed. But that just shows how much changed from 1990 to 1995).

The interesting thing about these deals is that they were seen as not just normal bids to broaden a product line or buy market share, but rather as the first play in intricate schemes. Microsoft’s acquisition of Intuit, if you recall, was not just a trade of a losing position in home finance software for a winning one. It was seen as the foundation for a massive Pynchonian scheme to control electronic banking and commerce, wired into the Microsoft Network, credit cards, video-on-demand, new forms of software distribution, and even the nature of money itself in the new century. Pretty heady stuff for a checkbook program.

And IBM’s Lotus move was not simply to buttress a traditionally thin applications offering from the world’s largest computer company: it was a strategic play to control corporate client/server application development and internal communications, and place IBM mainframes, servers, and communications back in their rightful role as the backbone of the world’s corporate information structure.

Doubtless some of the executives of the two firms were harboring dreams like these. And maybe these schemes swayed the finance types and board members who normally cast a cold eye on big-money transactions. But the reality of the industry is that for every big scheme that works, plenty fail.

The failures are quickly forgotten. Perhaps the biggest was IBM’s System Application Architecture (SAA), a grand scheme to unify the PC, mini, workstation, and mainframe lines under a single family of operating systems, user interfaces, and communications protocols. The downfall of SAA was its largeness. So many constituencies wanted the standards to address their needs that the standards were simply generalized to cover everything that existed, and all the benefits of convergence were lost. Apple, too, had a grand scheme in 1992 called “client/client/server,” where desktop Macs, PDAs like Newton, and Unix-based servers would all be united under a common set of protocols and APIs.

Microsoft is the current king of schemes, some fruitful (like the Microsoft Office) and some less so (like the ACE initiative, Microsoft At Work, Windows for Pen Computing, OS/2 as the replacement for DOS, Windows NT as the replacement for DOS, and Windows 95 as the replacement for DOS).

But there have been three big schemes these companies that have worked tremendously well. And what they have in common is that they were just simple ideas that were only seen as schemes after the fact.

IBM’s big win was making the IBM PC architecture dominate 80% of the computer market in about two years, displacing the CP/M and S-100 Bus architecture and blowing by the Apple II, Commodore PET, and other competitors. They did this by doing things common to their competitors but entirely out of character for IBM. They bought their OS from someone else; got others to write applications for them; and even published the circuit diagrams of the computer. The scheme was to dominate by having the most hardware and software add-ons. What really happened, of course, was that Compaq cloned their machine, as did hundreds of others. IBM ended up with less than ten per cent of the IBM market. But the market was many more times larger than it would have been if IBM had sold yet another closed box.

Apple’s successful scheme was to avoid IBM’s mistake. With the Macintosh, we encouraged lots of consistent third-party software by having a huge amount of built-in system software and heavily promoted design guidelines. But we kept the design proprietary to ensure a virtual 100% market share of the GUI segment, which we had for eight years. And even today, when people write that the Mac is easier to upgrade, maintain, learn, and use than a clone, they hastily follow that with “but it’s only available from Apple,” as if they do not see that the latter was the cause of the former.

Microsoft’s scheme, of course, was to come from nowhere in the applications business to near-total domination in three years by shifting the system software from DOS (which Lotus, Word Perfect, and Ashton-Tate dominated) to Windows (which looked a lot like the platform that Microsoft applications dominated - namely, the Macintosh).

These schemes were simple in concept, executed well, and made billions of dollars for the companies involved. They didn’t have to be an ounce more intricate, or have any sinister motives or actions. They weren’t even recognized as strategies at the time, and were even called bad business decisions by some, but the results speak for themselves.

And all the schemes cooked up by those companies afterwards have not come close to matching the success of the originals. Maybe there’s a lesson there for companies both big and small: keep your schemes simple, execute them doggedly, and don’t be any more clever than you have to.

 
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