My Opinion on Apple's First Priority...
I have been thinking about re-entering Apple for a long time, and, as I do via a bullish options spread, I wanted to share my opinions on the various issues, particularly an obvious way for Apple to reclaim some leadership. I apologize if this is too outlandish for those Mac mavens who are still caught up in the idea that desktop publishing and Photoshop are the Mac's future.
For Apple stock to move up, it needs to do several things: 1) establish firm corporate leadership, which means a new, reputable CEO and a revamped board. This has been exhausted as a topic, so that is all I will say. 2) Sell non-essential divisions to raise cash, to be used to achieve quality corporate leadership, incentivize all levels of staff and to start stock buy back program. Now trading at 0.25x sales and at a 52 year low, this is the time. 3) The topic of this post, establish leadership in a "new" area of computing -- the pervasive thin client.
As a systems administrator, certified in the evil Microsoft product no less, I am aware of how difficult it is to maintain an organization full of Wintel PC's. Mac's are somewhat easier on the client side, but the reality is that the server and the client need to be integrated, and Apple has no enterprise wide solution, so thus we are stuck with Microsoft for the moment. Along comes Oracle and Ellison trumpeting the NC. This is all convenient because Oracle desperately needs to diversify out of client-server databases and because it doesn't want to be left on the margins as Microsoft takes over the Enterprise. Anyway, now Intel, Compaq, the Asian contagion, etc. have driven down the cost of full-fledged PC's to below $1,000, while significantly increasing manageability, etc., which takes a lot of wind out of the NC's sales. As of now, I am confident in saying that the PC will remain the typical machine for most corporations, so where's this post going?
Well, Apple has the potential to benefit from several converging trends in the PC, network, component and service industries.
First, cost of manufacturing is low, so it is possible to make a $500 super-Pippen that does everything that needs to be done. It can have a 1 GB hard drive, MPEG video, 32 MB DRAM, a ZIP drive, whatever modem, and still be near the magical price point. Asian manufacturing is cheap, hardware problem solved.
Second, NeXT Step/Rhapsody technology is probably very good. The super-Pippen should run a light OS, either MacOS or Rhapsody based, while the thin-client server has the ability to run a full, *multi-user*, premmptive multitasking operating system. This is something Windows NT doesn't have yet but will soon. We need a protocol like Citrix ICA (which we could license), and we let the clients interact with the server over the various network media. For the server, we use (and sell expensive high end) symmetric multiprocessing machines running PowerPC or Intel (ideally both) and sell them at a premium. An alliance with SGI, Compaq or Sun Microsystems is easily possible here. On the client side, we use PowerPC G3 et al., Hitachi SH-4 and Intel. The thin client software must be multi-platform, including Java (of course), so wherever a user can use an Internet computer, thin-client services are available. Software problem easily solved (with time).
Third, Compaq has sold the public and the press on the idea of a stripped down computer. Pippen was too new of an idea, and the press didn't get it. Combined with the other problems above, thin client Pippen was viewed as Apple's next pink elephant. Mindshare problem addressed.
Fourth, the Internet is the killer app. It wasn't really there two years ago. Look what Microsoft paid for WebTV. Look how useless WebTV is for anything but surfing. Super-Pippen gives Apple buyers everything WebTV does plus more! Our prototype could really be a useful tool for homework and basic research and email, too. The model of the Commodore 64 (does everything for the home cheaply), the most popular computer of all time, and the NC (distributed computing cheaply) converge !
Fifth, the network bandwidth problem is on the verge of being solved by a combination of cable modems and DMT ADSL. By the time, Apple could deliver this product, cable modems and ADSL will have greater penetration. This makes Internet surfing and thin-client operations fast enough to be usable. Even if cable/ADSL is not available, a 56K modem standard is in the bag. (Citrix WinFrame, the best of the current generation of thin-client, is usable at 56K)
Sixth, Apple benefits from consolidation in the Internet/telecomm business by distributing the product using a cellular phone model. All RBOC's are aggressively expanding market share and need a driver. This is one. RBOC's are also competing with Worldcom(UUNet) and other long distance/voice over data (T, FON). Distribution through RBOC's is useful for sharing the marketing load and as a legitimating force. It does not mean that others who already have Internet access can't buy a machine; it only helps new users make the buy.
Seventh, expanding the RBOC-cell phone model, Apple works with leading Internet service providers to set up "thin-client" POP's. Here, an ISP provides basic Internet service, as usual. Then, for an additional figure, the customer has access to machines running Apple's thin-client server software. This lets them access extra programs beyond the typical applications. Any application that runs on Rhapsody could be accessed from the thin-client. This makes it possible to "rent" or "borrow" software for occasional use, such as Lexis-Nexis, clip art, etc. It also makes it possible to put files on the server for access when at other super-Pippens (the true stateless client which still eludes Wintel). It also makes possible the idea of seamless online backup/replication, just now becoming popular in Wintel, to avoid the problem of "Oh no, my hard drive...". Of course, the server also does Web hosting painlessly, so users can drag and drop files onto their home directory painlessly. Now, most people can't do much with Web hosting because it's such a pain to FTP and whatnot. These value-added services generate addditional demand and address the question, "Why is this better than a PC?"
Eighth, Apple learns how to manage inventory, using Dell's just-in-time model. By now, it is no longer a secret in the industry, being a favorite subject in all the new MBA textbooks. Oversupply in DRAM, storage, networking makes this easy enough even Apple can do it.
Ninth, Apple cooperates with Microsoft fully in bundling Internet Explorer technology. Apple does not need to pick a fight, and the recent trouble with the DOJ gives Microsoft added incentive to have an ally. Microsoft points to ally Apple and says, "Apple loves us, we're not being unfair to our competitors." There is no longer any competitive advantange in bundling Netscape over Microsoft, as the platforms have stabilized at the "3.0" level and will show no significant improvements for years. (Thin-client also means slow pace of change.)
These are my ideas for Apple orchestrating a comeback. They obviously depend on several trends converging, the most suspect of which is that "lower income" families can be satisfied with a $500 Internet terminal instead of a faster $1500 Intel PC. This argument is bolstered by a recession, which may be coming in the U.S. Low interest rates make financing easy, too.
If anyone at Apple would like to hire me to implement these billion dollar ideas, please reply to me here. This is the first plan I have seen that shows Apple how to generate a larger installed base and exploit Rhapsody advantages for multiuser servers, software, and services, all while opening up new demographic markets, appeasing financial analysts and being sustainable in the long run (i.e. staying in the high end graphics market). It helps Apple partners like Motorola stay in the microprocessor business, offers the potential for new partnerships with other industry leaders like SGI and Compaq for servers and RBOC's/major ISP's for thin-client POP's. It makes new services available to customers (seamless backup, Web hosting, stateless access to data, software "metering") that are simply not possible on typical PC's. All trends converge to this model of computing. Apple can be the first to exploit it.
Comments?
Matt Webster |
