What's Behind Apple's iWork?
Microsoft's Office still dominates the market, but Apple's new software may signal a tectonic shift in the two behemoths' uneasy alliance
by Arik Hesseldahl
It's hard not to wonder if the relationship between Cupertino and Redmond isn't a bit more strained these days. But then again the two giants of the tech industry that reside in those locales have always had a rocky relationship.
Long Cold War-style rivals, Cupertino (Calif.)-based Apple (AAPL) and Redmond (Wash.)-based Microsoft (MSFT) fought a bitter campaign for the hearts and minds of personal computer users everywhere. Microsoft won more minds and wallets than did Apple, which won plenty of hearts, but not enough. Their struggle ended in a peace of sorts in 1997. Microsoft took a $150 million stake in Apple. Apple made Internet Explorer its default Web browser. And they settled a toxic patent dispute.
Making Another Run at Office?
At the time, Steve Jobs was just beginning his comeback as Apple's chief executive (he was called "interim" CEO). Key partnerships, he said, would go a long way toward restoring Apple to health, and none were more important than that with Microsoft. Saving Apple, he said, required getting beyond the insistence that for Apple to win Microsoft would have to lose. It was controversial but it was necessary.
And no application, from Microsoft, has been more important for the Mac's long-term survival than Microsoft Office. Ten years after that historic deal, Office for the Mac continues to be the best-selling piece of Mac software that doesn't come from Apple.
So it was a tad surprising that Apple announced on Aug. 7 a new version of its own office productivity software, dubbed iWork '08. Included in iWork, which will sell for $79, is a new application called Numbers, a spreadsheet application analogous to Microsoft Excel, but as with all things made for the Mac, Apple made it easier to use.
Previously, iWork had contained only Pages, a word-processing program comparable in many respects to Microsoft Word, and Keynote, a presentation program that is comparable to, but far better than PowerPoint. (Al Gore's infamous presentation that led to the film An Inconvenient Truth was created in Keynote, not PowerPoint, as many, including myself, have said.) Adding Numbers completed the circle.
The announcement from Apple also couldn't help but raise eyebrows in the wake of word from Craig Eisler, head of Microsoft's Mac Business Unit, on Aug. 2 that the software giant will delay the release of its next version of Office for the Mac until January, 2008. It was at least the second announced delay for that product. Apple's move in 2005 from using chips from IBM (IBM) and Freescale Semiconductor to using chips from Intel (INTC) apparently contributed to the delay, plus a shift in the file format that Microsoft uses for Office documents complicated the job of updating that program.
So, as of this week, Apple has its own office software suite that does more or less the same things, is compatible with Office, and sells for just a little more than half of Office's starting price of $149.
A Move Toward Google?
It's tempting to think that Microsoft may be in trouble on the Mac front. That's not the case yet, but it could be. The Microsoft Office brand is still, by far, the most powerful one when it comes to basic business software. Say what you will about all the many confusing versions of Office that Microsoft has put out for Windows, when you have a PC, you gotta have Office. And the same thing is true when you have a Mac.
But will that always be the case? Take Google (GOOG), the search giant that has its sights set on toppling Microsoft's dominance. Google Chief Executive Officer Eric Schmidt is an Apple director, as is its special advisor Al Gore. And there are deeper ties between Apple and Google (see BusinessWeek.com, 8/30/06, "Time for an Apple/Google Mashup").
Google's Web-based office applications, Google Docs and Spreadsheets, are free, easy to use, and compatible with Word and Excel. They also work on a Mac. To use them, all you need is a fast Internet connection and a browser.
And besides Google, others are creating Web-based office applications such as ThinkFree and Zoho, both of which are, like Google Docs and Spreadsheets, perfectly Mac-friendly.
Office Market Share
Should Microsoft be worried? Certainly not yet. I checked with Chris Swenson, an analyst with NPD Group, a market research firm that tracks retail software sales. What effect if any, has there been on sales of Office for the Mac in reaction to Google, Zoho, and ThinkFree? "None. Zero. Zip," he said. Microsoft Office for the Mac enjoys a market share in the neighborhood of 91%, while its nearest competitor is Apple's iWork, which comes in at 9%.
You would think that Mac users would be the one market niche desperate to resist the Microsoft-ifcation of everything. Well, there certainly are some resisters. Jobs said at the Apple event on Aug. 7 that the company has sold 1.8 million copies of previous versions of iWork over its lifetime. That's a fair number when you consider that Apple sold 5.3 million Macs during its fiscal year 2006, and has already sold 4.9 million during the first three quarters of fiscal 2007.
Yet what's the first thing many new Mac owners buy before they walk out of the store? A copy of Office for the Mac, usually the $149 student version that allows you to install the software on three machines. (Apparently, no one ever checks for student ID.)
So why does Apple bother with iWork? It must have more to do with something as simple as "offering choice to our users." Apple's core marketing appeal right now for the Mac is to two main groups of people: established Mac users and new users who may be switching from Windows (see BusinessWeek.com, 6/15/05, "Apple's Growing Bite Of The Market"). "Switchers," who are new to the Mac, may be computer novices or computer experts with varying levels of comfort with Microsoft Office and perhaps even a limited need for it. So iWork offers that consumer-friendly option that anyone can use, with Office compatibility thrown in.
IWork complements iLife, also updated on Aug. 7, the suite of consumer-grade applications like iPhoto, iMovie, and Garageband, all of which are for fun things like managing photos, making home movies, and creating music. So between iWork and iLife, Apple can say it has a complete range of "essential" software applications, and thus can ensure those "switchers" that they'll be able to do everything they need to do without Windows.
You might also ask why Microsoft bothers building Office for the Mac? Because its profitable. Practically everyone who owns a Mac buys Office at one time or another. Assuming everyone buys that $149 student version, you're looking at sales in the neighborhood of $800 million in 2006, and perhaps as much as a $1 billion this year, assuming a strong back-to-school quarter.
Backing Off of Mac
Yet Microsoft has been reducing its commitment to Mac software overall. Gone is VirtualPC, a Windows emulator made more or less obsolete by virtualization software from Parallels and VMWare (EMC), which, along with Apple's Boot Camp, allow Mac users to run Windows and Windows versions of Office on a Mac.
Gone is Windows Media Player for the Mac. It has been replaced by Telestream's Flip4Mac, which allows Windows Media files to played in Apple's QuickTime. Gone is Internet Explorer, Microsoft's Web browser, made irrelevant by Safari (now also available for Windows), Firefox, and Opera—and the general hostility of Mac users to Microsoft.
What's left? Microsoft Messenger, but most Mac users eschew it in favor of iChat, which supports both AOL's (TWX) instant messenger and GoogleTalk, or AdiumX, which supports more or less every instant-messaging scheme under the sun, including Microsoft's. There's Entourage, Microsoft's answer to Outlook for e-mail, calendaring, and so on, which can in most cases be replaced by Apple's freebie trio, iCal, Address Book, and Mail. You might think that Microsoft might get fed up with all these upstart competitors on the Mac, and walk away, focus on its core business, Windows—which, given the underwhelming reaction to Vista so far, seems to certainly need some attention.
Workplace Cred
But Apple still needs Microsoft, and especially Office, to remain on the Mac. Office gives the Mac the stamp of workplace respectability. Without it, sales into businesses would be all that much harder if only because customers will worry about compatibility issues with their PC-using vendors, customers, and so on. And that fact is only going to become more true as Microsoft migrates toward its new XML-based format. Expect some confusion to reign as more companies buy Office 2007 on Windows, while others languish behind on Office XP.
So why would Microsoft reduce its exposure to the Mac when the number of people using it is growing? Mac sales growth is ahead of the rest of the PC industry. So tell me where in the textbooks of business strategy does it say that the time to walk away from the market is when it's beginning to grow? If Microsoft is so passionate about the Mac, why is the Mac Business Unit down to producing one flagship application and a few others? That sounds to me like a great opportunity for Google. Perhaps the Cold War never really ended.
Google Completes Office Suite with PowerPoint Product
Rob Hof
Google CEO Eric Schmidt used his brief appearance at the Web 2.0 Expo today to announce the company this summer would add a PowerPoint editing tool to Google Apps, its Microsoft Office suite, with the help of Tonic Systems, a startup it just acquired. Oh wait, Schmidt says the still-to-be-named service isn't competitive with PowerPoint. To which interviewer John Battelle replies: "C'mon!" Indeed. Yes, Google Apps isn't a clone of Office, since it has only a fraction of the features and is aimed at collaboration. But still. Another stick in Microsoft's eye. I like Nick Carr's description of Google Apps:
You first use them as add-on tools for manipulating and sharing Microsoft files online, and then, eventually, you find that you don't need the underlying applications anymore. Google Apps, in other words, is designed not as an Office Killer but rather as a kind of Office Bodysnatcher. Google doesn't want to fight the Microsoft apps head-on. It wants to get inside them, and slowly take them over.
Speaking of Microsoft, Battelle asked Schmidt what he thought of Microsoft raising antitrust concerns about Google's just-announced deal to buy DoubleClick. "Microsoft?" Schmidt asked, his voice dripping irony. "AND AT&T?" His assessment: "They're wrong. C'mon, they're wrong, gimme a break."
Time for an Apple/Google Mash-up
The two titans are drawing closer together. If they would just combine their offerings, they'd pose a real threat to Microsoft
Today I've been thinking of a spot that those of a certain age will remember well: Two guys walking, one eating chocolate, the other, inexplicably eating peanut butter out of a jar. They bump, and the chocolate drops into the jar. The rest, of course, has become marketing history, summed up by the jingle for Reese's Peanut Butter Cups: "Two great tastes that taste great together."
Funny, the ad comes to mind in the wake of an announcement that Google (GOOG) CEO Eric Schmidt is joining the board at Apple Computer (AAPL). It's the latest indication these two Silicon Valley stalwarts are getting closer all the time. And the possibilities for cooperation between the two are legion.
FAMILY TIES. The companies' interconnections are a study in six degrees of Silicon Valley separation. Former Vice-President Al Gore is an Apple director and senior advisor to Google. Intuit (INTU) Chairman Bill Campbell too is both an Apple director and Google advisor. And Genentech (DNA) CEO Arthur Levinson sits the boards of both companies.
The ties don't end there. Paul Otellini, CEO of chipmaker Intel (INTC), which supplies Apple's microprocessors, sits on Google's board. So does Michael Moritz of Sequoia Capital, an early Google investor who also wrote The Little Kingdom, a 1984 book on the founding of Apple. And who at Sequoia was an early investor in Apple? Founder Don Valentine. Sequoia partner Mark Kvamme also has a history with Apple, having served in management for its French operations. Kvamme's father, Floyd, is an emeritus partner at Kleiner Perkins and was once a VP of sales at Apple. Perkins is also home to John Doerr, an early Google investor and now one of its directors. He also happens to be a director at Intuit.
There are also several Google executives who have time at Apple on their resumes, and those were just the obvious ones listed on Google's executive bios page. I'm sure there are more and certainly plenty of folks at Apple who have spent time at Google.
REDMOND RIVALS. I ran through this litany for a reason: The ties that run between 1 Infinite Loop in Cupertino and the Googleplex in Mountain View are deep, and will only get deeper now that Schmidt is on Apple's board. It all makes me wonder what interesting things they could do together, not as a merged entity (though I admit the thought has occurred) but as closely allied partners.
Consider an element absent from the list. There's a conspicuous dearth of connections to Microsoft (MSFT), a common rival. For the first time in a long time, Apple's Macintosh computing platform has a shot at eroding, ever so slightly, the dominance of Windows as the computing platform of choice among rank-and-file consumers (see BusinessWeek.com, 6/15/06, "Apple's Growing Bite of the Market"). Over time, Macs with Intel chips, the ability to run Windows, the substantially smaller threat from viruses and spyware, and the iPod’s halo effect will combine to make the argument for owning a Mac much stronger among consumers who have never owned one before.
Meanwhile, Microsoft is readying a renewed offensive into territory that Apple currently controls: online music and media. Apple, I'm certain, is ready to respond to the competitive gauntlet, but could certainly use some additional strategic thinking. That's something Schmidt, himself a veteran of the Microsoft wars from his days at Sun Microsystems (SUNW), can provide.
MUTUAL BENEFITS. What else might they do together? The Mac is cool. So is Google. Look at all the interesting moves by Google of late. It has introduced GoogleTalk and Google Earth and acquired the Writely Web-based word processor. There's also Google Calendar, a new batch of hosted services.
Think of ways these and other Google tools could be made more Mac friendly. There's no official GoogleTalk client for the Mac, for instance, although Apple's iChat supports it, as does the Mac-based multiprotocol chat program Adium. And it took a while before users of Apple's Safari browser could log into Gmail accounts.
I love Google's applications, but am sometimes left wanting. Gmail, for instance, is great for its storage capacity, but its interface is weird. Help on that front from Apple would improve it greatly. Brilliant at interface design, Apple's often a little weak on features. A wide-ranging collaboration in these areas would work wonders on both sides. Tight OS-level integration with some of Google's best stuff could really widen the appeal of Leopard, the next version of Mac OS X.
.MAC MIGRATION? Meanwhile, Google is giving Mac users plenty of reasons to ditch their .Mac accounts. Why bother paying Apple $99 a year for services that Google offers for free—does better in the first place? Gmail offers essentially limitless e-mail storage (2.75 GB and growing, as of Aug. 30), while Mac.com e-mail starts at 1 GB and allows you to upgrade to 2 GB for an extra fee.
Meanwhile, as good as Apple's iCal may be, Google Calendar is pretty compelling, and supports the iCal standard anyway. Why not find a way to shift users of .Mac (Apple's dotmac blog says there are more than 1 million) over to Google-based services, and then team up with Google for further improvements?
Even if that doesn't happen, Google now has more reason than ever to make sure that every new application is Mac-ready. Take Writely, for instance. This free word processor is excellent, compatible with Microsoft Word, and completely Mac friendly. Since most Mac users buy Microsoft Office just so they can get their hands on Word, why not make a Writely sign-in an optional feature on .Mac, or a default bookmark on Safari? Same goes for Google Spreadsheets.
REMOTE PRESENTATION. Now I know Apple makes iWork, which includes Pages, its own word-processing application. Why not get Pages and Writely talking to each other, so you could create a document in Pages and automatically save it to your Writely account? And export your tables straight to Google Spreadsheets.
And don't forget Keynote, Apple's vastly superior answer to PowerPoint. Throw a Google-hosted virtual meeting service into the mix, and the possibilities are astounding. Let's call it Google Conference. Upload your Keynote presentation—fancy cuts, transitions, and all—to Google Conference, and deliver your presentation virtually, while talking into the iSight camera embedded in your Mac. Your audience could be thousands of miles away, while your video image and voice walk them through your brilliant slides from the comfort of your office. Google handles the back end, Apple handles the front end. Both show Microsoft a thing or two.
The thought of those peanut butter cups is getting more appealing all the time.
