Microsoft CEO Claims iPhone Will Be Bust

Theaetetus writes "In an interview with USA Today, Microsoft CEO Steve Ballmer claimed there is no chance that the iPhone is going to get any significant market share. The article also deals with Microsoft's friction with the Justice Department, friction with Google, and the profitability of MSN. 'No chance. It's a $500 subsidized item. They may make a lot of money. But if you actually take a look at the 1.3 billion phones that get sold, I'd prefer to have our software in 60% or 70% or 80% of them, than I would to have 2% or 3%, which is what Apple might get. In the case of music, Apple got out early. They were the first to really recognize that you couldn't just think about the device and all the pieces separately. Bravo. Credit that to Steve (Jobs) and Apple. They did a nice job. But it's not like we're at the end of the line of innovation that's going to come in the way people listen to music, watch videos, etc. I'll bet our ads will be less edgy. But my 85-year-old uncle probably will never own an iPod, and I hope we'll get him to own a Zune.'"

Spoken Like a True Self-Deluded CEO

I want to address the market share statement by citing Apple's PC Market share [appleinsider.com]:

According to research firm Gartner, worldwide PC shipments totaled 57 million units in the first quarter of 2006, representing a 13.1 percent increase over the same period last year. But in that time, Apple's share of the worldwide market slipped from 2.2 percent to a mere 2.0 percent, the firm's data shows.

Now, that's a pretty low figure. Yet, curiously enough, I know plenty of people who own a mac. But they only own one Mac that does everything and they aren't allowed to use them at work. So, I would posit that it's simply because enterprise businesses aren't used to Macs so they don't use them. That's a large part of the market share. Yet Apple is still very much in the ball game of the personal computer because of the loyalists and their avid love for Macs.

Not to mention that special "something" that Apple has and Microsoft clearly does not have [slashdot.org]. I don't claim to know what it is--I don't own a Mac--I'm bicurious about OSX and I don't know why ... is it the bash kernel? I'm also curious about the iPhone. Outrageously expensive but it has that special something to it that will intrigue the masses and we will be informed about it despite the fact that maybe only 2% of us actually purchased the device.

'No chance. It's a $500 subsidized item. They may make a lot of money. But if you actually take a look at the 1.3 billion phones that get sold, I'd prefer to have our software in 60% or 70% or 80% of them, than I would to have 2% or 3%, which is what Apple might get. In the case of music, Apple got out early. They were the first to really recognize that you couldn't just think about the device and all the pieces separately. Bravo. Credit that to Steve (Jobs) and Apple. They did a nice job. But it's not like we're at the end of the line of innovation that's going to come in the way people listen to music, watch videos, etc. I'll bet our ads will be less edgy. But my 85-year-old uncle probably will never own an iPod, and I hope we'll get him to own a Zune.'

Translation:

It's obviously expensive, that's bad. They will make more money than us ... someway I don't understand. We have a mobile operating system and are fairly successful in pushing it into mobile devices. I'll leave out how much just our software raises the price of a mobile device ... because it's probably pretty significant $50-$100. We dropped the ball on music and we're currently dropping the ball on a billion phone sales by making them more expensive without providing the customer with the strange benefits I don't understand but Steve Jobs thinks is obvious. I'm sure Microsoft will come out ahead here. Oh, and I can't wait until my uncle squirts Tom Dooley by The Kingston Trio all over me. We're smart, we chose to target the old people who buy and return a single piece of fruit and are electronically hip and are retiring as opposed to the foolish spending youths of today--why do you think we colored it brown?!

The question left out of this interview was whether Ballmer has to lie to himself that he's working for the greatest company on earth every morning when he wakes up or if that lie persists full strength throughout the week.

If you underestimate your enemies--no matter how big or small--you're going to get burned.

Re:Spoken Like a True Self-Deluded CEO

I don't know why ... is it the bash kernel?

No it is not. BSD kernel, bash shell, but not the bash kernel.

;-)

Re:Spoken Like a True Self-Deluded CEO

Actually, if you really want to get technical, no it is not.
Darwin is the BSD-based OS, XNU is the kernel, not the BSD kernel. :)

Re:Spoken Like a True Self-Deluded CEO

Ballmer just defines ball game differently than you do. Lots of love, low sales is success for some. He would (obviously) prefer little love, high sales.

I suspect that what Mac has is the notion that by buying the 2% solution, you are smarter than us dolts in the 98%. If you can convince your customers that they are a member of an elite, you can sell them anything.

Well, maybe not an iproduct [gizmodo.com], but close.

I speak as a former member of the cult who got seduced by the fact that the Windows market is thirty times the size of the Mac market.

Re:Spoken Like a True Self-Deluded CEO

Has anyone smacked Ballmer yet? He really needs to wake up. And lets face it ... we all just want to smack pompous people.

Re:Spoken Like a True Self-Deluded CEO

But if you calculate the amount of profit per employee Apple might be doing much better than MS.

Speculation of this kind is passe' in the Internet Age. Google "microsoft number of employees" and find some helpful Wikipedia articles:

Microsoft: [wikipedia.org] $12.6B/71712 employees = $177,035.91/employee

Apple: [wikipedia.org] $1.73B/17787 employees = $97,262.05/employee

Note the reporting periods are slightly different (MS is 2006, Apple is 2006Q1 TTM), but the numbers are essentially comparable.

So while is might be that Apple has higher productivity, and in fact I fully expected that would be the case, a naive reading of these numbers (ex MS perma-temps etc) suggests otherwise.

Re:Spoken Like a True Self-Deluded CEO

I would correct you in this, seeing as the wikipedia entry is old and new earnings for both Microsoft and Apple have just come out this quarter. Let's play devil's advocate, assuming Apple adds 5000 employees and Microsoft adds zero, MS would have ~71,000, Apple ~23,000

The numbers go as follows. For the same fiscal quarter, Apple had revenue of $5.26 billion.
MS has more revenue at 14.40 Billion.

These numbers are from the companies' own SEC filings and press releases, NOT wikipedia (probably not a good place to get financial information).
You can find them at:
http://www.apple.com/pr/library/2007/04/25results. html?sr=hotnews.rss [apple.com]
http://www.microsoft.com/msft/earnings/FY07/earn_r el_q3_07.mspx [microsoft.com]

Now let's redo that calculation with our worst case scenario (for Apple) numbers.

Apple 5.26 x 10^9 / 2.3 x 10^4 = $230K per employee (with 5000 added employees)
Microsoft 14.40 x 10^9 / 7.1 x 10^4 = $203K per employee

Those are your real numbers. Don't rely on wikipedia for everything- it's not a Bible.

Re:Spoken Like a True Self-Deluded CEO

"During this time I had given my old macbook to my stay-at-home wife and mother of my three year old. The three year old threw it while the plug was in an horribly bent the chassis. But it still worked. My wife is nursing the baby and it turns out that human breasts can spray that milk quite a distance. My macbook had breast milk spattered all over it and in every crevice. It still worked! The three year old stuffed something into the DVD drive to prevent us getting the disk out. After we finally got the disk extracted, everything continued to work. The laptop is over five years old and has literally been around the work with me. It still works fine."

Interesting, but, I think you glazed over this whole breast and breast milk thing WAY too quickly.

Can you describe this in greater detail....any pictures by chance?

I think we need to take this into MUCH greater account when stress testing laptops, and hardware in general!!

\ Sure as hell is more interesting than watching 2 gorillas throw samsonite luggage all over a cage, the breast milk-laptop test would be one of the most often watched tv commercials in the world!!

At least, it would be the most tivo'ed commercial.... :-)

Re:Spoken Like a True Self-Deluded CEO

I had owned that macbook for almost three years before I gave up on it

Can I go for a ride in your time machine too? (You do have one, right?)

Re:Spoken Like a True Self-Deluded CEO

Back when my wife was nursing, I woke up one night, being sprayed in the face. Wife was asleep on her back. Hydraulic pressure had made a fountain almost 4' high.

Re:Spoken Like a True Self-Deluded CEO

Well, it's true that some people think ITV's Pop Idol (aka American Idol) is better TV than the BBC's Planet Earth.

I bring that up because, personally, I really do think it has a lot to do being able to appreciate a classy product when you see one, a question of taste (for want of a better way of describing it).

I'm quite serious and I'm really not trying to be snooty (and I know how this sounds and that it could be mistaken for flamebait) - simply not everyone can do that (they can look at something hideous and think it looks 'fine', they can eat terrible food and notice it's awful, can write terrible documentation and think it's "really clear" (or for that matter, write terrible code and have no idea how hideous and nasty it is).

I'm with Steve Job's on this one, Microsoft just make crass software. They don't even TRY to get it write until they are embarrsed into doing so, and even when they do the result is half assed (compare the IE7 to Firefox or Safari's - it's not only technically worse than either of those two, but the UI is worse).

I've used plenty of OSes, and prior to FreeBSD, for me and my uses, Windows was the best OS

I do kind of wonder about that TBH, Mac OS 6 & 7 where so far ahead of Windows 3.1 from everything from CAD, to software development to even word processing.

Despite the email address, I'm not a fanboy. There are plenty of technical reasons why I also like Gnome desktop (it's really nice, very flexible, and Nautilus has evolved into a better file manager than the Mac OS's current Finder). I think Windows is a terrible choice though (technically, and artistically) - and only worth using when the software you want to use is only avalible on windows, or if your writing software on it (but then, you are getting what you deserve :-).

I have a Windows system, but it's purely for games (Apple hardware *still* doesn't support SLI, nor Mac OS a wide range of cards - specifically it doesn't support many high end cards, which is totally put be off getting a mac desktop). Windows is actually pretty good at games though, largely due to optimised drivers from vendors, but DirectX itself is certainly to Microsoft's credit (even if it does mean many developers are less likely to use Open GL).

Re:Spoken Like a True Self-Deluded CEO

Believe it or not, Mac users, even the most fanatical among us, don't believe that no one likes Windows.

After all, some people like to be peed on, and, most of the time, using Windows isn't as bad as *that*, so it stands to reason. :-)

Re:Spoken Like a True Self-Deluded CEO

Believe it or not, Mac users, even the most fanatical among us, don't believe that no one likes Windows.

Yeah, but it's that guy in the tweed suit, and who wants to hang around with him?! [1]

[1] That was supposed to be a joke, but I no-so-secretly believe it.[2] :)
[2] And yes, I'm a big fat nerd with man boobs sitting in an home study full of posters from the Science museum, with not one but two Darth Vaders models, surrounded by a multi processor Sparc system, a server running debian, two Macs (one G4 PPC, one Intel Laptop) and a Windows XP gaming system but in the presence of other nerds I'm positively dynamic :)

choices

You have a valid point. There's another interesting way to look at this issue, however. People's choices affect other people at times and in ways they don't always anticipate or even care about if informed. The classic example is the protective helmet. If you ride your bicycle or motorcycle without a helmet, you are contributing to a social problem (head injuries) which cost me (the taxpayer) money. Eventually somebody (insurance companies and Medicare) get tired of paying for stupidity and persuade Congress (or State Legislatures) change a law to reduce the cost to the society as a whole from individual stupidity.

If you choose to run Windows that's fine on the level of the individual decision. In theory, I don't care what you run on your PC so long as you and I have access to web sites, can exchange email and photographs, etc. We can be friends and share data freely without even knowing what type of system the other person uses.

However, I care about the fact that email is very nearly useless now. I care about identity theft. I care about industry and government data which is protected in order to reduce the proliferation of nuclear weapons technology.

How many billions of dollars must be stolen or wasted and how many years must pass before we admit that there are systemic problems with security on Windows which seem to be deeply rooted not solely in hubris as often thought, but also in more subtle philosophy, technology, and methodology choices? These go back decades, and have enabled an enormous industry in identity theft and spamvertising to take root and thrive despite, ahem, entirely new versions of Windows which are, ahem, more secure than ever. Some of these problems can be fixed, and some of them have been substantially mitigated if not outright fixed, for decades, on UNIX. The sad realization that Microsoft apologists refuse to admit is that development methodology and management philosophy affect the security of products produced by the organizations practicing them.

If software vendors were held liable for the expensive calamities that result from their security defects, would the technology industry collapse? Or would it adjust, and then march steadily on, with a greater emphasis placed on security? I suspect it would not collapse, but I don't have the lobbying dollars t back up my position, and neither does anybody else who shares it (thus far). The recent law suits brought against TJX by banks over stolen credit card data may portend a coming shift in alliances. If the banks turn against the software industry next, we will see a shakeup in political alliances and an eventual fight in Congress over this issue. Until then, the issue will remain the abstract musing of the occasional columnist or security analyst.

Discussions of botnets in forums like Slashdot often include the idea that individual home users should be held accountable for the security of their home PC. Well, should they really? They didn't sign up for that. Are they held accountable for the global security implications of their refrigerator? No, they are not because there aren't any except for a few highly abstract issues related to the resources it took to build it and the energy it takes to run it. With a home PC the global security implications are complex, but not highly abstract, rather they are quite direct. Your home PC can be used to steal your identity which could be sold to raise funds for terrorism, for example, which is pretty direct. It can be used to attack other hosts or assist with Distributed Denial of Service attacks on hosts or entire networks, which is unambiguously direct: PC -> Shitstorm.

Quite frankly, the statistics are stark and unforgiving. Windows: roughly 100,000 "known viruses" vs. roughly zero for the Macintosh (margin of error +/- 5 (five)). Twenty percent of home Windows PCs infected vs. roughly zero percent of home Macintosh or Linux systems infected (margin of error +/- 1/100 of 1%). If a relationship bet

marketing genius

yeah, go for the 85 year old demographic, lots of money in music downloads to be had there.

The Zune: It's not your grandmother's music pla...

...oh, wait.

I wonder, will they come preloaded with Lawrence Welk?

Re:marketing genius

This must be why Microsoft has marketing brochures for the Zune that describe its benefits over wax cylinders.

Target market

But my 85-year-old uncle probably will never own an iPod, and I hope we'll get him to own a Zune.

What Ballmer is saying is that the Zune's target market is old people.

Re:Target market

What Ballmer is saying is that the Zune's target market is old people.

So it'll be huge in South Korea?

Re:Target market

What Ballmer is saying is that the Zune's target market is old people.

No, old people related to Microsoft executives.

Re:Target market

No, what Ballmer said is that he's hoping he can get his own uncle to buy a Zune before he dies.

Think about that for a second.

Re:Target market

If I were an Apple marketing Exec, every uncle of Ballmer's would have a free 80gb iPod in their mail today :P

Subsidized by what?

There's no chance that the iPhone is going to get any significant market share. No chance. It's a $500 subsidized item.

Excuse me, Mr. Balmer? Subsidized by who or what?

Maybe Balmer knows something I don't (always possible), but methinks that he needs to go back to CEO school* for lessons on how to pay attention to your competition. In specific, the reason why the iPhone is going to cost $500 is because it's not being subsidized by cell phone contracts. Jobs is trying to change the rules in that respect. Like Nintendo, Apple wants to make a profit off of every hardware unit sold. Any money that comes in through the surplus channels of additional content or features will simply be creme.

My 85-year-old uncle probably will never own an iPod, and I hope we'll get him to own a Zune.

I can see how that went: "Here uncle, take this Zune player. It's FREE! That way I can tell everyone that my 85 year old uncle has a Zune, but doesn't want an iPod."

Uncle: "Have you lost your marbles, sonny-boy!?! What in tarnashun' does your old uncle here need with this Dune player?"

Balmer: "Zune..."

Uncle: "Don't interrupt me when I'm talking boy! You think you're so sh'mart with yer fancy electronics company!"

Balmer: "Technically soft-"

Uncle: "I said DON'T INTERRUPT ME!"

Blamer: "Um. Sorry."

Uncle: "That's better. Now get rid of this piece of junk. Did I ever tell you about the time I was flying over Iwo Jima and ended up in a blazing dogfight? I think it was 1942..."

Balmer: *sigh*

Two months later...

Blamer: "My 85-year-old uncle probably will never own an iPod, and I hope we'll get him to own a Zune."

Reporter: "Oooooo..."

* I hear that he didn't finish his Dark Lord training with Jeff Skilling... :P

Re:Subsidized by what?

Oh, that's not a subsidy. That's just Cingular/AT&T wanting to give it to you in the pooper. In other words, business as usual.

Re:Subsidized by what?

Oh, that's not a subsidy. That's just Cingular/AT&T wanting to give it to you in the pooper. In other words, business as usual.

Ahh, that's what is meant by a "subsidy". Ever notice that phones are cheaper when you get a contract? That's because the carrier will cover part of the cost of the phone to get you on a contract (usually 50-100/year, here in Canada at least).

The iPhone?

"No squirting. Less weight than a Zune. Lame."

Shocking news Apple CEOo claims Zune will bust!

In a shocking news story Apple CEO Steve Jobs told the media that the Zune will be a totaly bust.
http://www.engadget.com/2006/10/16/steve-jobs-worr ied-about-the-zune-in-a-word-no/ [engadget.com]

Bad Ballmer Bellicosity

If you are #1 in your field with a monopoly, you should not be talking about (read advertising) your small competitors.

Methinks the Ballmer doth protest too much

This is a product that hasn't launched yet, hasn't been seen in the wild, and only demo'd under controlled circumstances. Yet we've had his illustrious personage repeatedly [valleywag.com] tell us [youtube.com] that this phone is going to be a bust.

If it's such a dead-certain bust, why is he constantly mentioning it in the media ? Surely shome mishtake ? The fact is that he's terrified Apple are going to repeat their success with the iPod, and it shows.

Simon.

Re:Methinks the Ballmer doth protest too much

If it's such a dead-certain bust, why is he constantly mentioning it in the media ? Surely shome mishtake ? The fact is that he's terrified Apple are going to repeat their success with the iPod, and it shows.

He was specifically asked about the iPhone - I tend to talk about things too when I'm asked about them. Read the rest of the interview - he speaks fairly candidly (if obviously from a biased position) with respect to Office competitors from Google and Open Office.

In any case, I tend to agree with his analysis, which is that the iPhone wont get a significant marketshare. Most people will not shell out $500 for a phone. He does say that Apple may find the iPhone very profitable (i.e. it will be a high-margin item, for sure, like most Apple products), just that they wont get a huge marketshare.

Re:Methinks the Ballmer doth protest too much

Every road warrior I've talked with recently is planning on getting an iPhone.

Do they care that it's $500? No. And why should they? They're going to expense it anyway.

Time will tell exactly how big the market for the iPhone is, but if I had to guess,
I'd say the Apple will do very well.

Re:Methinks the Ballmer doth protest too much

The thing is, you're both right, and so was Ballmer. In fact, the only thing wrong here is the headline of the /. article. Ballmer is right that Apple won't see the utter dominance in phones that they've gotten with the iPod. But he and you are also correct in that Apple will sell these things as fast as they can make them for a good while, and they'll make bucketloads of cash off of it.

I guess it's the fault of Microsoft (and maybe IBM before that), that so many people have a hard time calling a company/product successful unless they utterly dominate all of their competitors and basically own the market. In reality, most industries have many competitors, many of which make consistent profit and should certainly be considered successful.

Anyone looking for Apple to own the cellphone market a few years down the line is going to be very disappointed. No matter how big a splash they make, it's an absolutely huge industry, and the iPhone can only grow so fast. Apple will likely be a significant player, and much like in the computer industry, they'll probably hold some influence well beyond what their market share would indicate. And that'll be good for Apple, hopefully good for the mobile phone industry, and good for people who want iPhones.

Re:Why the media blitz recently

He has a lot in common with Young Frankenstein's monster.

But does he have an enormous schwanstucker?

Not that I care personally, mind you.

Name rec after one year

Want to bet which brand is more recognizable to consumers after one year - iPhone or Windows Mobile 5/6/7? The figures will be even more skewed on the desirability factor. Let's see - do I want something cool, or do I want something that reminds me of the operating system that I _have to use_ at work/home? I mean, the name is just stupid marketing - Windows (a brand that's as old as dirt, with more than a few dings), 5/6/7 (reinforces the whole "oldness").

Balmer shouldn't be afraid of the first iPhone. He should be afraid of the first "iPhone NanoMini". He'll be singing a new tune after that.

Ballmer is in damage control mode

Ballmer is in total damage control mode.

He knows the iPhone is going to be big and that it will put pressure on Microsoft's hand-held OS to match it feature for feature; but since MS doesn't not design the hardware, they'll be in tough to compete.

The hand-held market is the dominant computing platform and Jobs is going after it with a vigor not seen since the first Macintosh came out. Apple has yet to ship a single unit, but already iPhone (and mini OS X) is a top-ranked contender for that market.

Ballmer is either scared or stupid, plain and simple.

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