From Today's Economist:
Revival of the fittest
S A N F R A N C I S C O
Having taken on Microsoft and lost, Novell and Apple are both staging
come backs. How?
The case against
Microsoft
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NEWS of a death can be greatly
exaggerated-especially in high-tech
industries. Only a year ago, most
observers saw Novell, a software firm,
and Apple, a computer maker,
heading towards extinction. Today,
both are alive and kicking. Having
realised that they can't beat the
juggernaut from Redmond, they are
devoting themselves instead to smaller
markets, ones they have the strength
to dominate-behaving, in other
words, like mini-Microsofts.
Novell tried to compete head-on with
Microsoft in desktop software, such
as the word processor Word Perfect.
Apple struggled with an alternative to
the dominant "Wintel" (Windows and
Intel) standard for personal computers. Both failed miserably. Over the past
four years, Apple's share of the global PC market has shrunk from 9.4% to
2.6%. Novell is in better shape; but, in its struggle with Microsoft, it neglected
the customer base for its flagship product, NetWare. Five years ago, NetWare
owned about 70% of the market for operating systems connecting local area
networks (LANs). Today, this share has fallen to 50%, as Microsoft's
Windows NT operating system encroaches.
Once they hit bottom, both companies hired new chief executives with solid
geek reputations, but very different characters. Novell's Eric Schmidt, a former
chief technologist of the computer maker Sun Microsystems and the driving
force behind its Java programming language, is known for his calm
competence. Apple's Steve Jobs, who returned to the company last year, is as
mercurial as he was in 1985, when he was ousted from the company he helped
found.
Both did some brutal housekeeping. Mr Schmidt temporarily halted product
shipments and fired 1,000 employees-17% of Novell's workforce-including
half of its senior executives. Mr Jobs's predecessor, Gil Amelio, had already
done most of the dirty work. But Mr Jobs made some harsh decisions too,
rescinding the licences of competitors who have been cloning Apple's
Macintosh computers, and killing the Newton, an ill-fated hand-held device.
Mr Schmidt and Mr Jobs have both made their peace with Microsoft. Novell
has even developed a Windows NT version of its Novell Directory Services, a
kind of comprehensive telephone book that controls how users access a LAN.
And Apple's "interim CEO", as Mr Jobs still likes to be called, successfully
invited his former arch-enemy to invest $150m in the company.
Both companies are now devoting their energies on discrete, clearly defined
markets. Novell is concentrating on a new version of its flagship product
NetWare 5 which will be in the shops sometime this summer. It will, at last,
fully embrace the Internet protocol (IP), the Net's lingua franca, thus finally
catching up to the standard for computer networks. Novell is also rolling out a
range of associated new products-half a dozen since last September.
Apple, for its part, stabilised its business by launching in November a new line
of powerful and competitively priced computers called G3. Last week, it also
unveiled a product targeted at the consumer market-a machine baptised
iMac, whose startling design recalls the original Macintosh.
On May 11th, Mr Jobs finally presented a new software strategy. He knew
that, in order to strengthen Apple's hold on its niche of Mac-lovers, he had to
make sure that they can get the software they want. So he all but killed
Rhapsody, which was due to become Apple's new operating system. Instead,
the company intends to develop the existing Macintosh operating system. That
means that software developers will find it easier to rewrite their programs for
the new operating system, Mac OS X.
Both companies aim to define their territory and take up most of the available
space. In Novell's case, this space is software for intelligent computer
networks, a market that is expected to grow rapidly. Apple, for its part, seems
to have identified computer users who don't see themselves as part of the
mainstream: graphic designers, students and anyone else who like to think that
they are different.
Is this sort of strategy viable? Carving out a niche and filling it, rather than
competing head-to-head with Microsoft, allows such companies to offer more
targeted and clearly superior products. "Microsoft is a generalist. You need to
be a specialist," says Jon Oltsik, an analyst at Forrester Research, a high-tech
consultancy. The results seem to support this idea. Although nobody is
predicting that Apple is about to return to its glory days, the firm has reported
two successive quarters of profit, and its stock has passed $30, double what it
was at the beginning of this year. After a better recent performance, Novell is
expected to report another profitable quarter on May 21st. At more than $11,
its shares are doing nicely.
Novell and Apple still have a long way to go. Mr Schmidt has the better hand:
Microsoft will not release Windows NT 5 until spring next year at the earliest,
and many companies are likely to delay installing it until after 2000, when the
millennium bug has been swatted and the code has proved stable. And even
after that, Windows NT 5 is unlikely to steamroller NetWare. Novell's program
has clear advantages in running large LANs connecting many different
computers and IT managers may think twice before they change to Microsoft.
Apple's flashy new hardware is unlikely to increase the company's market
share significantly, but the software strategy may help stem the tide of
defectors.
What can other Microsoft competitors learn from these companies' travails?
Successful challengers need a large installed customer base, time, and
managers intent on dominating a niche. And they need to know when to get out
of the way. |
