Two million iPads and counting. Meanwhile, late last month, Apple surpasses Microsoft in market capitalization. The engineers from Cupertino now power the largest tech company in the world and rank second only to Exxon Mobil. How did the once niche computer company find itself in the company of the giant from Redmond and the purveyors of black gold? Is it merely the magic of the man in the black turtleneck?
Many journalists in this landmark market moment were seduced by a faux irony, falling for the myth of the Microsoft “rescue” of Apple back in 1997. (In reality, Microsoft’s huge stock investment then was partially a lawsuit settlement rather than a benevolent bailout.) Yet Apple may owe a more important strategic debt to Microsoft. Twenty-five years after losing the first OS-wars, it has brilliantly adapted their business model to the emerging space of digital content. In the early 1980’s, a strategic miscalculation by IBM gave Microsoft control over the operating system for the newborn PC industry. As I’ve written about a couple of years ago, Apple has benefited because of a similar lack of vision from the music industry labels which ceded control over their digital channel to iTunes.
If you navigate beyond the divergent personas they’ve constructed for TV, our two technology giants have pretty similar sources of sustainable competitive advantage. A digital conduit for content bears much in common with an operating system, the conduit for software applications. Yes, Apple’s new Master of the Universe stock market flexing is largely because its code runs deeper than Exxon’s non-renewable oil wells. Market power in the evolving digital content business lies in the control of the rendering interface. This is the real power of Grayskull, in the ownership and control of the code that converts those millions of bits of your media files into human-consumable images and sounds, locking your media collection into their DRM and file format, and keeping you coming back to organize and add to your collection.
Enter the iPad, which I see as a general purpose rendering device for your digital content – your music, video, pictures, and yes, your electronic books, newspapers and magazines. Powered by iTunes and the iBookstore, and integrated seamlessly with their excellent library software, it poises Apple to rule the future of digital content intermediation.
(with iterative remixing from Gorditamedia)
