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Apple and Netscape
``` [I don't know much about Jim Barksdale, but this DMP has some good analysis of Apple and Netscape.]
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Date: Wed, 31 Jan 1996 16:38:58 -0800
From: Digital Media Perspective
This publication should be viewed with a monospaced typeface such as Courier or Monaco
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DIGITAL MEDIA PERSPECTIVE
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January 31, 1996
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Table of Contents
Editorial: An Open Letter to Netscape's Jim Barksdale
Inside the Current Issue of Digital Media
Who We Are, How to Reach Us
How to Subscribe to DMP and Get Back Issues
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Open Letter to Jim Barksdale
from Mitch Ratcliffe
Dear Jim,
I'd like to suggest a career change that could have a profound impact on the future of media, one even more important to the development of a consumer market on the Internet than the strategy you are pursuing as CEO of Netscape Communications Inc. Quit Netscape and take over at Apple Computer.
I know, Jim, that you are saying to yourself, "Apple is the past, Netscape is the future." I contend that Apple with the right leader has a better future than Netscape. If Apple were not a great company, I wouldn't be writing to you now.
Before telling you why I think Apple still holds great potential, I'll take a moment to tell you why I believe you are the executive who can turn that company around. Three encounters have convinced me that you have the unique touch of one who can impose business discipline within an environment filled with creative people without destroying the magic. Two people who worked at Federal Express during your tenure there told me that they cried when you left the company. Here were folks hardened by years of intense competitive pressure who felt something for you. To them, you were as important to the success of FedEx as Fred Smith. My encounters with Craig McCaw, with whom you worked to build the largest cellular network in the world, as well as the conversation I had with you during your time at McCaw, convinced me that you listen indulgently, without confusing the phantoms born of passion with business reality. This management skill, more than any other, has been woefully lacking at Apple.
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Why Apple? Why now?
Apple's down, but not out. It continues to lead the computer industry in the development of great technologies for consumers, even if it's doing a lousy job of turning innovation into products and profits. The Macintosh has actually gained market share through the third quarter of 1995, albeit at considerable sacrifice of margins. The brand, while bruised, has not run through its supply of goodwill in the marketplace. But Apple must do two things to revive its fortunes: deliver a new operating system for desktop applications that incorporates Internet connections, and partner and license that operating system while widely supporting hardware and components.
For too long, Apple has been ruled by the belief that keeping technology to itself enhances its value. Despite the decision to license the Mac OS, this superstition continues. Just look at the slow pace of innovation in the Mac OS today if you want proof. The company's executives are paralyzed by the fear that they will give away something valuable, so they keep lots of great technology locked away in the lab.
Apple has made some half-hearted efforts to appear open by giving away pieces of technology, such as the newly announced QuickTime 3D file format. Where successful Internet companies like Netscape have given away control of the basic building blocks of the World Wide Web to capitalize on value-added software and services, Apple continues to feign generosity in the best tradition of the PC old guard. The scattershot contributions Apple has made to the computing industry in recent years are virtually meaningless, precisely because each announcement has been unrelated to the others. Lack of coherence in Apple's vision has sabotaged licensing opportunities. Because it is impossible for would-be licensees to understand where the technology they might use actually fits in the marketplace or in the Apple product line, it is impossible for them to analyze their investment.
Illustrative of Apple's pathological inability to see opportunity in licensing is the story of Yoichi Morishita, Matsushita's president, and his visit to Apple in late 1994. He was ushered into a room with CEO Michael Spindler and Apple's head technology honcho David Nagel to view Apple interactive television technology. Nagel led Morishita and the Matsushita delegation through a demonstration of the ITV system but was interrupted near the end of his presentation. "This is all very nice, but we don't need an interactive television system," Morishita is reported to have said. "However, I am very interested in this handheld remote control you have," pointing to the Apple remote in Nagel's hand. Spindler and Nagel stammered something to the effect of, "This is a complete system. The remote's not available without the system." Morishita pressed on: "This remote is so easy to use that we could literally make millions more dollars in the VCR market if we included it with our VCRs. Sell it to me. Please give me the terms. I cannot leave without them." Spindler and Nagel refused to unbundle the remote from the ITV system, and Morishita went back to Japan empty-handed. That was a screwup on Apple's part, just one of many in recent years.
What Apple fails to realize or accept is that it is the only computer company that could, through licensing, spin off hundreds of consumer electronics products.
Netscape's give-to-get market-building strategy is ideal for Apple. Its soon-to-be-released CyberDog, an Internet-oriented application toolbox that lets almost anyone piece together a customized view of the Internet, is an ideal foundation for a new Apple market presence. Apple, IBM, Lotus Development Corp. and Novell have signed on to support the programming tools CyberDog is built on, an object-oriented application platform, called OpenDoc, that will allow rapid customization of applications on a wide variety of computers. With CyberDog, a consumer will be able combine features from a library of prefabbed applets. For instance, by dragging an applet into the application window, a computer user will be able to create an Internet-powered stock ticker that tracks a stock portfolio and graphs its changing value within an OpenDoc-based spreadsheet. It's Java without the programmatic complexity, delivering much more utility to the average person than Netscape's JavaScript.
Were OpenDoc to succeed, especially if it were to embrace the Internet, it could wipe out Microsoft's OLE (Object Linking and Embedding) initiative before the giant from Redmond cements Windows at the intersection of interapplication communications. Because the Internet will be represented within Windows machines by OLE objects that deliver Net services, OLE, rather than dedicated TCP/IP connections, will soon be the onramp to the Internet for 80 percent of the installed base of computers worldwide. Application software will use OLE to call outside to other applications and across the Internet to servers and services. Jim, if you allow Microsoft to retain the Windows/OLE advantage, all the Java in the world won't budge third-party developers from their dependence on Microsoft, because Bill Gates will control the circulation of information within the individual PC.
The OpenDoc companies are on the same side as you, Jim, in the battle against Microsoft. But they have no incentive to work with Netscape, because your current strategy requires that Netscape take them on head-to-head in the server and workgroup application software markets. Netscape's mission is to destroy Notes, ruin Novell and obliterate IBM's still energetic dominance of the bridges between corporate data and the personal computer. Freeing all the information collected by companies in databases for the past 25 years is critical to the success of Netscape and the commercial World Wide Web. Netscape doesn't have the resources to fight all these battles and Microsoft.
Apple, on the other hand, has arrived at the moment in its life when it can and must completely reinvent itself, both its products and its marketing strategy. If it is successful, Apple will be one of a few companies to pose an adequate threat to Microsoft. Apple is the only company that can mount products in the desktop computing, consumer and corporate MIS markets to provide a comprehensive response to Microsoft.
I suggest that Apple follow the example of Netscape, by giving away its operating system to anyone who wants it. Copland, as Mac OS 8 is currently known, should be made fully OpenDoc- and Internet-compliant (though it still needs a lot of work on Internet connectivity), then offered free to anyone with a modem on the Apple Web site. A version of Copland for Intel-based PCs ought to follow close on the heels of the Mac version.
Apple should develop and market its own extensions, as well as broker third-party OpenDoc objects that enhance Copland's performance, selling these via the Internet, as well as retail and direct-mail channels. So if a consumer wants to add a printer to their free Mac OS, he or she will pay Apple five dollars. An object that allows customization of the desktop wallpaper might sell for two bucks. An OpenDoc object that adds a stock-quote ticker might be sold for $100 a year. An object that links the consumer to Apple's customer support services might go for $15 a year, and so on.
Blending content and components is a killer business in the Internet era. There is much more revenue in this content/component market than the existing operating system market, even if Apple were to rely on revenue splits from content providers for its income. There are also a lot more third-party development niches in this scenario, so it would be possible to quickly revive the moribund Mac software marketplace.
Apple has a lot of enhancements to sell. To name just a few: QuickTime VR; Kaleida's ScriptX; the AppleSearch information server; QuickTime 3D tools; and all that hardware, from CPUs and the GeoPort communications adapter to digital cameras and printers. Apple's PowerPC hardware rivals the most powerful CPUs in the computer industry, and their easier-to-manage operating system has already made them a popular Web server. Once the company has revived its revenues, it can grow by rolling out more of the great technology languishing in its labs and by acquiring technologies that consumers have demonstrated they want.
What Apple needs is someone who'll spur them to think more entrepreneurially than it has any time since its inception. History is calling you, Jim Barksdale. Do you want to sell sugared water or change the world?
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Net escape velocity
Can Netscape change the world? It already has, but that doesn't mean the company can capitalize on its position at the headwaters of the Internet era. Netscape is off to a fantastic start. It likely will topple Lotus as the all-time first-year-revenues champion with around $135 million flowing in after its initial public stock offering. However, the costs of servicing the myriad alliances and partnerships forged by the company in the past year will be astronomical and ultimately destructive to the company. These costs will make meeting investors' expectations for Netscape very difficult, if not impossible. Whichever way one measures the corporate balance sheet, it will shortly become clear that future earnings will never support today's valuation.
The more that I watch Netscape rack up announcements of alliances, partnerships and licenses, the more I am reminded of previous initiatives that have collapsed under their own weight: the Advanced Computing Consortium, the PowerPC alliance, Apple's Newton, General Magic's Telescript and Magic Cap, and so on. At some point Netscape is going to be whipsawed by the demands of your company's partners, blinding the company to a fatal threat.
Netscape's server is, in fact, little more than an interim layer between a content provider and content consumer. Databases, especially relational object databases that can mix and match page layout elements and content to meet individual consumers' needs, are the real heart of the Web.
Serving up content to Web browsers is stupid-simple; any server could deal with the problem with only a little jiggering of code, and the addition of a layer of software adds Web functionality to existing databases (see Digital Media, Vol. 5, No. 3, p. 9). That means Netscape will soon face competition from a wide range of better-funded companies, including Oracle, Informix and Microsoft, all with much larger installed bases than Netscape Navigator's 4.9 million users (assuming a 70 percent share of seven million daily Internet users). I don't accept, nor should anyone inside or outside Netscape believe, the loopy claim that 15 million people are using a Netscape Navigator browser. That's delusional.
Netscape is, in fact, educating its future competitors as it works with IBM, AT&T, Deutsche Telekom, Macromedia and even Sun Microsystems. IBM is learning how to build Web servers that ride atop its many customers' legacy systems, as well as how to position its Lotus Notes products to compete against Netscape. AT&T and Deutsche Telekom are soaking up the rules of market development on the Internet. Their interests are in growing network traffic, not making Netscape a new Microsoft; they are not likely to shut out non-Netscape browsers that increase network usage. Macromedia's Shockwave scripting tools for presentations on the Net will ride on any browser. Sun is probably your most dangerous potential competitor of all, as it will soon be looking for ways to grow revenues on the back of its Java programming language, the new heart of Netscape's browser.
The value that Netscape's server software adds is in the way it uses electronic commerce technologies and supports "intranets," or internal corporate networks for collaboration and sharing information. However, as the Internet market matures, Netscape's advantages become increasingly tenuous. To ensure continued success for its Web browser software at retail prices, Netscape must make its servers increasingly incompatible with other companies' browsers. If Microsoft, for example, adopts a competing standard for electronic commerce in its Office suite that Netscape does not support in short order, Netscape servers risk being marginalized.
Certainly Netscape enjoys a huge advantage in the form of its market share among Web browsers, but that could change rapidly as Internet communications are built into operating systems and application software. The introduction of new Web features, like database access, 3D graphics, audio and video, could shift the sands beneath Netscape's growing empire.
Netscape and its products have already lost the ability to control the agenda on the Web, and the Web is only one dimension of an exploding media environment on the Internet. Every time Netscape embraces an outside technology to accommodate new competition, it surrenders more control over the future development of the Web. Browsers as we know them today may be obsolete tomorrow, as some new content format emerges from the Net soup.
Netscape could be destroyed by its most recent alliances, just as Aztec civilization was destroyed by the diseases and modern weapons brought by the Spaniards, who portrayed themselves as allies when they first arrived in Mexico. Sun's Java will likely be Netscape's smallpox virus; Sun's president and CEO Scott McNealy could be Cortes willing to betray Montezuma in pursuit of greater glory.
Java has stolen the future from Netscape by opening the Web to heretofore unknown competition. Once programmers and the companies they work for learn how to exploit Web connectivity, they'll being doing end runs around Netscape at every opportunity. Most unsettling of all, Sun has handed the power of the Java virus to Microsoft, which will soon have a suite of Internet products in its existing Office package; all Microsoft applications will know about and use the Net. As Java is integrated into Microsoft's OLE environment, Netscape's ambitious plan for workgroup software (still one of the most overhyped, undefined categories ever invented by the computer industry) will be realized before Netscape can capture even a sliver of the intranet market. Why? As long as Windows rests atop the Intel microprocessor platform, Microsoft can funnel Java's influence toward its own application suite.
So, Jim, as the Internet grows, it will roll over Netscape or slip out from beneath it, leaving an empire constructed from thin, blue sky.
Apple, by contrast, has plenty of real market share, fertile product lines for a daring push onto the Internet and more cash than Netscape has ever seen. A brilliant executive could clean house, attract new talent to the legendary Apple name and license products that create fresh annuity streams for the company. The Mac is the only bulwark against Microsoft's dominance on the Web server side of the market, too. Assuming that Unix will never be a mainstream consumer operating system, the Mac and Windows PCs are left as the only relevant contestants for the hearts and minds of people who would like to create Web sites and profit from electronic commerce. According to a recent survey of webmasters by Mirai, a Chicago consultancy, 17 percent of Web sites run on Mac servers, compared to 14.2 percent on Windows and Windows NT. The Mac also beat out Windows and Unix as an authoring platform for the Web and was well ahead of Windows in the database integration arena.
Were you to join Apple today, it would instantly become more competitive. You've found ways to articulate value internally and out to customers for three groundbreaking companies. You understand how to talk to the business users who can resuscitate the Mac by building intranets around Apple services. People will listen when you tell them that the Mac will be everywhere. Should you succeed, Apple could buy Netscape once its value comes back into line with its earnings, and you can have your cake and eat it too.
Pick up the phone, Jim Barksdale. Call Apple's Mike Markkula now.
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Inside the February 6th Issue of Digital Media
Before Broadband: Midband services, running at twice the speed of today's fastest standard modems, are set to transform the marketplace;
C|Net battles traditional publishers for dollars and eyeballs using individually targeted online design;
On CompuServe and Germany: Acting locally need not dictate or define the thinking globally;
Why the stripped-down "nettop" box may go the way of the $3,990 Yugo;
FireWire, a PC-to-TV bridge designed by Apple, does away with digital-to-analog conversions and opens a really cool can of worms;
Advertising, editorial and merchandizing all get into the mix of Parent Soup, a Web and online channel.
Also in this issue:
ADSL: This is not your father's ISDN, a Bell Labs tech analyst says;
An alternative take on the travails of CompuServe in Germany;
The Good Stuff: The digerati don't-miss-this list.
Digital Media, the monthly paper newsletter that sponsors Digital Media Perspective, brings its readers the most provocative analysis of the developing industry for interactive titles, smart networks and broadband applications. We turn an eclectic eye to the stories of the day to provide a more informed perspective with which readers can judge new technologies, new competitors and the assumptions driving the growth of the electronic economy. We question everything, and bring back the hard facts.
Digital Media is available monthly for $395 a year; individual issues
are $40. Call 800.325.3830/610.565.6864 (voice), 610.565.1858 (fax),
send email to info@digmedia.com, or see
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Who We Are, Where to Reach Us
Digital Media Perspective is an electronic newsletter produced by Digital Media.
Editorial Director Mitch Ratcliffe (godsdog@digmedia.com) Editor Margie Wylie (zeke@digmedia.com) Executive Editor Neil McManus (neilm@netcom.com) Senior Editor Stephan Somogyi (somogyi@digmedia.com) Associate Editor Anthony Lazarus (lazarus@digmedia.com) Editorial Assistant Gretchen Atwood (gorgon@digmedia.com)
Editorial Offices 444 De Haro Street, Suite 126
San Francisco, CA 94107
415.575.3775 vox
415.575.3780 fax
info@digmedia.com
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How To Subscribe to DMP and Get Back Issues
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Copyright (c) 1996 Digital Media. This electronic newsletter may be freely duplicated, reproduced or retransmitted, but only in its entirety. Excerpts used for the purposes of quotation must be attributed explicitly to Digital Media Perspective. ```
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