Stardate 20030510.1754

(On Screen via long range sensors): When I heard about Apple's new Music Store, my reaction to it was not the same as Brian Tiemann's (in a number of posts). Brian sees "brilliant marketing move".

What I saw was "exit strategy". Apparently I'm not alone, because John Manzione at MacNet seems to see the same thing:

Over the years there have been talks of Apple’s demise dozens of times, and each time Apple has been able to come back from edge of the abyss. A lot of people think the same thing is happening now; Apple will save the day once more and remain viable. But this time things are quite different. Music will not save Apple, and as more and more customers learn that Apple simply doesn’t care about your problems they’ll begin to think twice before continuing to spend money on the Mac.

The strongest fans of the Mac see themselves as being part of what amounts to a family. They may buy computers from Apple but they also see themselves as joining something akin to a fraternal organization. (In a sense it partakes a bit of the kind of cultishness associated with Amway, except that Apple makes no pretense to claiming that its customers will become rich in any way except spiritually.)

But Steve Jobs' first duty is to Apple's stockholders. That's not just an opinion; it's a matter of law. Jobs' job is to increase stockholder equity. In many cases the interests of stockholders and customers are congruent, for the obvious reason that you can't have a successful business without lots of customers, but there are many ways in which they run counter and in such cases Jobs has an obligation to put stockholder interest first. If he does not, the stockholders can sue him, and I mean sue him personally for his own personal wealth.

Jobs is obviously in a better position to calculate Apple's potential in future to continue to compete in the computer business, because he has access to proprietary information about Apple's own business and that of certain critical suppliers (i.e. IBM and Motorola). But from open sources and a general idea of how the industry is going, we can at least make some guesses about what he might be looking at.

Suppose that he is pretty certain that Apple's computer business is doomed. Not doomed in the short run, not doomed to imminent collapse, but doomed to long term decline through gradually increasing uncompetitiveness.

That's not at all implausible, based on two assumptions. First, that Motorola has given up on further development of high-speed PPCs, which is almost certain. What we're seeing now out of Motorola in terms of new processors is the result of process improvements on existing designs. The G4 as it exists has hit its ceiling, and the only way Motorola could again become competitive at the top end is by completely rearchitecting, in particular to increase the number of pipeline stages. (Both Intel and AMD have just gone through that, with the P4 and Hammer respectively.) This is a massively expensive undertaking, and given the significant cuts in Motorola's semiconductor group over the course of the last two years, and given that Apple is the only customer they have for top-end processors, it is easy to see that if they had to cut anything, top end PPCs would be high on the list. For their embedded customers, the existing design is more than adequate since in embedded applications low power consumption (and heat generation) is much more important than high compute power.

The second assumption is that IBM's 970, when it arrives, will perform at least acceptably, but that it will be much more expensive. Which is to say that once the 970 appears, Apple would be able to produce Macs based on it whose performance would once again be competitive with PCs based on Intel and AMD's latest processors, but which could only be sold for a price which will cause gasps of disbelief.

That, too, is believable. For one thing, Apple's all-in-one business model requires Apple to charge a higher markup on its computers in order to finance Apple's inherently higher overhead. Most of that comes from Apple's immense costs to develop their own software, which is amortized over far fewer units sold than their competitors.

That means that relative to hardware performance, Apple's computers must be relatively expensive, even ignoring other factors. The only way to make that back up, so that the overall product is still perceived by customers as being worth the money, is to compensate with other kinds of value. Among other things, Apple has tried to differentiate itself with the features of the operating system itself, but that's reached the point of diminishing returns. In recent years they've tried to differentiate themselves with innovative packaging design, but that is an empty approach because case plastic doesn't crunch bits. Which is why Jobs has turned up the hype, and been so intent on "insane greatness".

I have enough faith in IBM's desi