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.'"

Ballmer is in damage control mode

[boxlight]

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.

boxlight

Re:Good job Microsoft.

[Falladir]

Are you sure? I mean, it's not like people hate Ballmer enough to sign up for Cingular and put down $500 for iPhones just to spite him, is it?

Re:Spoken Like a True Self-Deluded CEO

[MrBugSentry]

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.

Of course, new product are not profitable

[fermion]

In the MS philosophy, success of a new product is not that it generates a profit, but that it has market share. Just take a look at xbox. Even MSN is more concerned with market share than profit. This is the old we will make in volume what we lose in profit. This business plan is not unreasonable. it is often the case that some product are primarily sold to cover fixed costs. Such products, however, are often the low end or old models, not the high end marquee products. The advisability of such plan also has fallen from grace due to the bankruptcy of some many companies that ascribed to such magical thinking. Apple, fortunately, has generally put forth a more naturalistic bussinees model of selling good products at a a reasonable sustainable profit.

In any case, given the MS philosophy of socializing the computer market through direct private investment, it is no wonder that radical idea of selling a competative product at a profit does not seem viable. How can Apple possibly imagine that it can survive if it sells a mere hundred thousand phones at a $100 profit, when in fact it should try to ship one million units at little or no profit, or even a $126 loss. Such a loss will be made up in volume.

Re:Subsidized by what?

[Anti_Climax]

I find it hilarious that Ballmer suggests that there's no advantage to selling subsidized hardware (which it may be, but likely not by Apple) when that was SOP for the original XBox

Re:Spoken Like a True Self-Deluded CEO

[Drake42]

I had a macbook but it was too damn slow, so I bought a 64 bit, 17inch monster laptop. It had everything, it could play games, have two documents open side by side, it was a beast. I had owned that macbook for almost three years before I gave up on it and bought the PC laptop.

I handed that PC laptop to the trash bin after only 12 months. I couldn't hot swap the battery. I couldn't tell how full the battery was until the stupid thing had booted. It's case was plastic and broke. It got stuffed with stupid software that I couldn't uninstall. I put Suse Linux on it, but it's a cutting edge funky laptop so nothing worked. I went back to windows with a fresh install but the CD ROM drive was loose and unless I held it in its bay the speakers would spew static. Finally it just gave up and the mousepad wouldn't work any more.

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.

Needless to say, I just bought my second MacBook. With 2GB of ram and 2.1Ghz standard the performance has been excellent.

Bottom Line: PC Hardware sucks because no one is in control of it. (Even Dell and Sony can't get it right) Apple has the best hardware for their computers, the best hardware for their music players and I suspect will have the best hardware for their phones. OS X even bugs me a bit, but the fact is that their product is better than the PC products. Vista will be years before it stops sucking. XP on the MacBook might be viable, but realistically, everything I care about runs on both platforms.

It's not about being in the elite. It's not about catchy adds (tho they are funny and true). It's not about corporate personality or hype or history or market 'statistics' (lies, damn lies, statistics, etc). It's about finding and using the best tool available for doing my job.

Current winner: Macbook Pro.

Ballmer's right

[rlp]

Just like a broken clock, Ballmer is occasionally right. This is one of those times. The smart phone market is incredibly competitive. And Apple will be competing with the likes of Nokia, Motorola, Samsung, Sanyo, LG, and other giants. If they manage to distinguish their product, that won't last long. If fierce competition wasn't enough, they have to partner with wireless Telco's (that are used to getting their own way).

Then the product itself is priced too high and is already showing signs of development problems. They pulled developers from Leopard and have taken a (small) schedule slip from the announced date. There are rumors of problems involving the duration 'talk time' per charge. No, I don't think Apple will be a winner in this market.

Re:Oh Microsoft... Always the Technology Visonary.

[moosesocks]

The 640k quote is a total myth [wired.com].

Even though they were convicted of being a monopoly, they pretty much dodged that bullet.

Security wasn't as huge of a deal in 1998 for end users on dial-up as it is today, and insofar, Linux has still failed to take off completely. (On the other hand OS X has been very successful)

(And the iPod/Nomad comments were made [slashdot.org] by our very own CmdrTaco)

Right now, I personally put the odds of the iPhone being a success at 40/60. Unless they can get the price down, and open it up to other carriers, it's just not going to fly. GSM coverage in many parts of the US tends to be very poor in comparison to CDMA.

That's SMART phones

[itsdapead]

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.

...but iPhone and Windows Mobile aren't competing with the 1.3 billion phones sold. They are competing for the same, relatively small subset of the market representing high-end smartphones with EMAIL and serious web-browsing facilities.

Now, in the MS corner, we have Windows Mobile. I have a fairly high-end Windows smartphone, and while I like the pwer of the thing, using it can be like kicking a dead whale along a beach. Using it as a music player is particularly excruciating. I would be very reluctant to recommend it to a non techie. Mind you, some basic phones are pretty nasty to use, as well.

Although nobody has seen an iPhone properly, Apple have a track record and would need to be having a very bad day not to produce something vastly more usable. Its not like XP vs. OSX: personally, ignoring security and reliability, I don't think that there is any clear blue water between OSX and Win2K/XP on the usability front - I actually prefer the XP GUI in some ways - but Windows Mobile feels like a throwback to Windows 2.

Its not that Apple stuff is perfect - just that it usually gives the impression that it was actually designed by people who gave a damn about the product in a world where many - if not most - other computer and home electronics products seem to have congealed out of a committee process.

Also - Apple seem to be capable of making "less is more" decisions. Notice that hardly anybody has matched Apple's minimalist design style? Other manufacturers have produced designer-y ranges but the extra buttons, chrome grills, go-faster stripes and blinkenlighten just creep back in - as if the designers are scared that punters will see "less chrome" as "less power". My phone has about a dozen buttons scattered about its periphery PLUS a thumbwheel PLUS a touch screen/stylus PLUS a slide out keyboard - and while you can pretty much do anything using just buttons, just touch-screen or just keyboard, you need a lot of practices and cover-to-cover RTFMing. Usually, you end up using an inefficient combo of all of them (untilyou drop the stylus). Apple have the cojones to say "no - you're not having any buttons or a slide-out keyboard" and, if they put all their efforts into making the touchscreen work really intuitively, they could have a winner that will "grow" the market for powerful smartphones.

The non-3G thing seems "interesting" though - perhaps it makes sense in the USA but I assume that they don't plan to launch in Europe without 3G or better...

Re:Talk is ever so cheap.

[Jeremy_Bee]

With the iPhone what we have is a big party and another glam-chick pining for attention. She'll attract eyes when she comes through the door but when people realize how shallow of an offering she is they will wait for her younger sister to arrive.

Talk is indeed cheap, and the metaphor used here is also cheap, (and borderline offensive.)

In terms of your actual argument, it's all based on your assumption that the product offering (iPhone), is "shallow" (Possibly like the "chicks" you are used to hitting on at parties). You then give nothing to back up that point.

As a frequent user and longtime owner of a variety of PDA's and smart-phones over the years, the iPhone is a product I can hardly wait for, and I can refute the money argument just from personal experience alone.

I already know that it will cost less than several PDAs that I purchased over the years thinking they were right for me. The iPhone retails for less than my last CLie for instance, and less than at least one of the MS PPC's I have bought. The iPhone will retail for about the same price as the last Motorola cell phone I bought and will also take better pictures (based on the samples I have seen), than my current digital camera which also cost more than the iPhone will retail for.

The latest rumours are that the retail price of the iPhone will be subsidized by aproximately 100 to 200 US dollars, making it cheaper to buy than any of the last few devices I have had in any of these categories, yet it combines all the devices in one. In terms of the actual value of the device, there is nothing to indicate to me that the iPhone will be "weak" or "shallow" in terms of features per dollar. In fact, it's shaping up to be a very good value indeed, replacing at least two or three devices I currently carry at a fraction of the cost.

Market Share 101 - Read it Mr. Balmer!

[dark-br]

Overall market share numbers capture the vast scale of PC disposability, but do not reflect the product profitability that comes from building a better quality product.

While Apple is cited by Gartner and IDC as selling around 5% of all the computers in the US, it isn't obvious that Apple's 5% share is the cream of the market; it's actually worth more than the same or larger percentage shares held by rivals.

There were 9.8 million Macs sold in the last two years, up from 6.2 million in the previous two year period. Those numbers don't compare with the stunning volume of PCs shipped by HP and Dell--which each sold 38 million PCs in 2006 alone--but Apple's profits do.

In the forth quarter of last year, HP and Dell combined sold 10 times as many PCs as Apple in the US, earned 5.5 times as much revenue as Apple, but together only ended up with 2.2 times as much net income as Apple.

In other words, Apple earned nearly half as much net income with its 5% share the market as HP and Dell together, with their combined 55% share of the US PC market: $1 billion for Apple vs $2.2 billion for HP and Dell together!

choices

[Gary W. Longsine]

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

Re:Market Share 101 - Read it Mr. Balmer!

[Oswald]

Yours seems like an honest comment, so I'll point out an honest error in your evaluation. You strip out the most profitable part of the PC when you look only at the hardware makers.

Apple Computer had net income of just under $2000 million last year. I haven't even bothered to subtract out their iPod business from that number. Microsoft, on the other hand, netted just under $12000 million, including all the money-losing operations they subsidize with Windows and Office. Six times as much, just for the software.

Don't get me wrong, Apple is hitting the ball very hard. But don't underestimate the profitability of the PC business just because MS manages to take their share off the top and leaves little for Dell, et al.

Re:Spoken Like a True Self-Deluded CEO

[@madeus]

Sorry, but it's hard to see that as anything but snooty.

So to take that, and get back to my example, do you think American Idol MIGHT actually be better TV than Planet Earth, just because some people (uncultured trailor trash) think so?

I don't, no matter what they think, and I don't care to pander to the idea that we should seek to avoid offending the tasteless. I don't think it's being snooty to say that, I think it's being a realist.

Even the people that make crap TV invariably know exactly what they are doing (they typically arn't idiots), the same is true of so many other crap products (e.g. The Sun might be the UK's favourite newspaper, but I'm sure Rupert Murdoch doesn't read it except to check up on how the current editor is doing - he knows full well it's crap and so does she). At least that's mostly the case... ;-)

Some things can reasonably be called subjective, sometimes its approproate not mince words and say what you mean - some things are just crap, even if lots of people are too stupid to realise they are crap (e.g. virtually all MySpace homepages, much of daytime TV, Fox News, supermarket white bread).

All three of IE7, FireFox and Safari have their share of problems, it's really 'pick your bugs'.

Well, I've got to say no it's not.

I think a primary reason why people think crap things are good is that they just don't know any better - and I would add I'm sure there are plenty of things that are crap but that I think are good because I'm ignorant about them.

IE7 has some pretty big flaws that are immediately apparently when trying to create websites with even a modest degree of sophistication. Firefox has a small number, and things like far better perfomance in it's ECMA script engine, Safari has the least issues and an excellent JS implimentation - something that you'd have to use to appreciate), though it does lack XSLT support, which is a shame.

IE7 is significantly inferior not only technically - with regard to it's rendering engine's core features and performance - but from a user perspective too. You can't even customise the interface! It has totally retarded button positioning, and the MENUBAR only goes *BELOW* the toolbar. I mean WTF? And the Home button being where it is (and stop and refersh being where they are) - who's idea was that?

I think you can say, objectively, it's badly designed, as is Vista itself (as pretty as the widgets are, it behaves dementedly). Sure parts of Mac OS are currently badly designed too (the Finder specifically) but Vista is in a world of it's own when it comes to sucking.

Windows XP's *default* UI was pretty lousy (hid icons from users, replace it with a large and invariably confusing Start menu users didn't know what to do with), Windows 2000 was decent, if boring and shows they can *nearly* get it right (or at least, get it right when it's mundane - which is good - just not when they trying to do an 'innovative' design).

The enduring popularity of Media Player Classic is another testiment to this (a boring interface, but otherwise a very well designed piece of software). People can't seem to wait to get away from horrible new fangled Microsoft UI's (even if they are on the surface of it pretty looking in an attempt by MS to stay competitive when it comes to initial visual impact).

Comparing MacOS 6 and 7 to Windows 3.1... All of those options are from the last century. I am talking about Windows 2000/XP vs. MacOs 9 and X.

I only said that as you said "I've used plenty of OSes, and prior to FreeBSD, for me and my uses, Windows was the best OS." and prior to FreeBSD, that's all there was, I guess I just misunderstood your meaning there.

Of course, that you apparently like FreeBSD over Debian or Ubuntu proves you are deviant! 8) [1]

[1] Joke!

As far as usability goes - MacOS is the only one that I find has severly hindered usability in the UI

Re:M$ exec says Apple will grab 2%

[simong]

I'm not sure about overseas sales, haven't been since the announcement. Compared to Nokia's current flagship phone [nokia.co.uk], the N95, the iPhone looks pretty weak. It's possible that things will change before release but while the closed system will help Apple's support overheads it restricts access to logical extensions of the system like Skype and other VoIP systems and Blackberry and Blackberry-style email systems, possibly at the behest of Cingular. My Nokia E61 from T-Mobile does Skype and VoIP over 3G as well as WLAN, but only because Symbian 60 is an open platform. But that's where the iPhone has to be to truly compete. I'm a Mac user and Unix bigot but I'm not going to consider the iPhone if and when it gets to the UK unless it can so what my E61 does now.