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Article #541 (635 is last):
From: xx004@cleveland.Freenet.Edu (Atari SIG)
Newsgroups: freenet.sci.comp.atari.news
Subject: THE BIG SPIN
Posted-By: xx004 (Atari SIG)
Edited-By: xx004 (Atari SIG)
Date: Sat Sep 20 17:24:03 1997

    Date: 14 Aug 1997 01:57:16 -0400

    THE BIG SPIN
    by Donald A. Thomas, Jr. [datj@compuserve.com]
    (c)1997 - permission granted to distribute/reprint for non-profit


    There are different types of spins. There is the spin around the block.
There is the spin programmers use to rotate sprites in a video game. There
are spins on the way stories are told. There are dance spins and toys that
spin. There is also the BIG SPIN as it applies to the evolution of the
computer industry.

    On Wednesday, August 6, Mr. Bill Gates and Mr. Steve Jobs cooperatively
announced that Microsoft was contributing to Apple's bottom line with a
monetary figure of $150 million. Assuredly, there are undisclosed
stipulations Microsoft is placing on that contemporary bail out, but Jobs
says Microsoft wants to "own the industry". In theory, Microsoft now has
influential control over Apple-based proprietary PCs as well as traditional
IBM-compatible PCs. Microsoft will tell you that consumers deserve a choice
and that they are protecting their investments in Apple-based applications
by helping to revitalize the platform.

    It is as if the investment community does not care about the whys. They
simply see "Microsoft" and "Apple" in the same press release and stock
values bend up on the speculation. But, what are they speculating on? All
they really know is that Apple's dike is being plugged by Microsoft. They
know that Microsoft will benefit in some way by having some non-active
share in the company.

    If we spin the world back to 1994, Wednesday, September 28 to be exact,
there was an announced $90 million bailout Sega promised to Atari. Terms
included Sega's acquisition of Atari shares, tentative agreements to
exchange software titles and a forgiving of a pending lawsuit Atari had
registered against Sega. Hmmm, what parallels exist there? Are there any?
For $150 million, has anyone bothered to find out?

    Some answers are revealed with an understanding of motivations. There
are two types of motivations in making business decisions; both start with
"P". They are "Performance" and "Pride". Companies get in serious trouble
when these motivations are not spinning together in a synchronized balance.
These two categories can be demonstrated by looking at advertising
decisions. There are "institutional" ads. Those are advertisements that
promote brand awareness, but lack any sense of urgency. For instance, there
are no prices, no sales and no limitations on the act to purchase. An ad
that simply states "Drink Coca-Cola" is an institutional ad. Institutional
ads fall under the category of "Pride". If you run nothing but
institutional ads and never give consumers motivation to buy now, the
competition storms in with a strong price/value message and steals the
consumer.

    A "Performance" orientated ad is one that creates some urgency. The ad
is strictly placed to generate a measurable profit after backing out the
cost of manufacturing, distribution and advertising. The ad features a sale
price or a value message or places some type of "get it now or lose" theme
such as limited edition collectable items. Running too many
performance-orientated ads teaches the consumer to only buy the product
when there is a deal. Companies need the "Performance" advertising to get
people to often think about purchasing their product. A basic example is
the decision to buy Coke or Pepsi in the grocery store. Many consumers will
buy either one first based on price- secondly what they prefer. Personal
preferences are statistically based on name recognition. Therefore, the
institutional ads help to make decisions when the prices are virtually the
same.

    Rather than dwell more deeply in the philosophies of business
principles, let us look specifically at the motivations between Apple and
Microsoft while keeping the philosophies in mind. Apple is in serious
trouble. They have had consistent quarterly losses, write-offs and
lay-offs. They are desperately trying to make "Performance" orientated
decisions to compensate for the years and years of imbalance of a "pride"
orientated business philosophy... decisions that successfully built a huge
dedicated base of users, but failed to lure new generations of new users.
Instead, novice purchasers were swayed by the appeal of universal
compatibility offered by the IBM clone. Microsoft, on the other hand, is so
immensely successful that they very well may face litigation for forming a
monopoly. They do not have a dire need to generate quick profits, but they
do have a need to make sure the population is pleased with them as a
company and for the products they sell. Imagine the problem!

    If/when Apple fails and Microsoft seems to be standing over them with the
dagger in their hands. In the long run, it is healthier for Microsoft's
image to show they made every effort to help Apple be successful.

    Not to belittle the value of $150 million, but Microsoft will not feel
the loss. It can be compared to many of us buying a new microwave oven...
we certainly have to juggle some finances around, but it won't come close
to bankrupt most of us. On the flipside, $150 million is a big bite of what
Apple needs to survive and Microsoft (Gates) knows the public views $150
million to be a great deal more than a couple annual salaries. So why did
Microsoft give Apple the money?

    Last evening my wife and I had an occasion to stroll the Hillsdale
shopping mall. I always enjoy ducking into a B. Dalton when I can and I did
again. Predictably, the magazine rack was full of cover stories of the
Apple/Microsoft deal. If it was not a picture of Bill Gates, there was a
headline about him or Apple. I picked up three of them... BusinessWeek,
Newsweek and Time. Each of them is chuck full of stories that provide Gates
and Jobs a forum to express their views. Just for fun, have any of you ever
checked what it would cost to buy the cover of BusinessWeek, Newsweek,
Time, every computer journal, newspaper as well as formidable exposure on
television and radio? Assuredly, $150 million would not make a down payment
except, perhaps, with the agency placing the exposure. The sum of $150
million was a bargain for the measure of "Pride"-orientated exposure the
two companies are now enjoying.

    Microsoft certainly did not deliver $150 million to Apple believing
that Jobs already has a plan to turn things around. As of this writing, no
one at Apple really knows who will be in charge. Jobs is making decisions
now, but he makes it clear that he does not want to be the CEO. Jobs wants
to remain faithful to his Pixar endeavors. He knows that the Apple problems
are too big and he does not want to go down with the ship. On the other
hand, Pixar is doing well and is a better career bet. Jobs does more than
hint that facility and headcount downsizing is imminent. This should have
been clear long ago anyway. Every business must bring expenditures to be
below income.

    This provides us to another opportunity to spin back the hands of time.
Let us return to Monday, July 2, 1984 and the takeover of Atari by the Jack
Tramiel regime. At that time, Atari was losing hundreds of millions a year
and Warner Communications was literally bleeding money and in desperate
need to stop the crisis. Jack walked in and, almost overnight, offices and
buildings were vacated. People left so fast that over $100,000 in unsigned
travelers checks were left in an unlocked safe in the finance office
according to one takeover executive.

    The casualties of personnel and real estate proved to be a key part to
Atari's saving grace. Within a few years, Jack made Atari profitable,
transformed it into a publicly traded company and repaid Warner for all
outstanding debts. In the mid to late eighties, PCs and Apples still cost a
lot of money and Tramiel's Atari found success selling a new generation of
16/32-bit machines for a fraction of IBM-compatible investments...
especially in Europe. But as IBM compatible prices dropped so did Atari's
ability to be competitive and make money. All along the mass market really
wanted 100% compatibility with office computers. When they became almost as
affordable as Atari computers, they won the "Performance" war against any
"Pride" that Atari's proprietary systems built with their users over the
years.

    So now, we spin ahead again to present day. We see Apple hanging on to
proprietary technologies just like Atari did. The are defending their niche
markets in graphics and education just like Atari did in the music industry
with integrated MIDI ports and with affordable desktop publishing solutions
using Calamus or Pagestream. We know $90 million did not save Atari when
Sega gave it to them and we know there is historical proof that companies
that attempt to sell proprietary closed environments such as (Atari,
Commodore, Texas Instruments, Coleco Adam, Next, etc.) to the mass markets
ultimately fail. The consumer wants his home applications to work at the
office. The retailer does not want to carry multiple versions of like
software. Software developers do no like having to provide like development
and support functions for multiple platforms. Just spin the dial in history
and these examples appear again and again.

    Another recurring spin is that technology companies fail to look at
historic evidence to make decisions for the future. They too often feel
what they have is so cool that everyone will want one, regardless of price
compatibility, trend or overall business sense. It is enough to amaze
anyone that Apple encounters a $150 million windfall without having to
expose a firm and conservative plan to turn things around... not just
philosophical, but itemized actions. Actions that will expand the amount of
Mac software exposure in retail stores. Actions that will inspire die-hard
Apple users to give up the machines and buy new ones. Actions that attract
new customers. Actions that attract new software developers. Actions that
satisfy creditors. Yet again, $150 million cannot do all these things, so
we will have to see how Jobs applies his newfound capital assets.

    By looking at the industry spin over the years, Apple's charter should
be quite clear with or without the infusion of $150 million. They need to
build affordable personal computers that are 100% cross compatible with the
rest of the world. They need to cater to their established base with
optional PC-compatible emulation cards that permit the use of Mac software.
They need to divert their technologies to a strong software development
plan based on a MS-Windows framework. Alternatively, they need to put 100%
energies into a relatively small, yet focused high-end solution that will
be out of reach to the mass market (a.k.a. Silicon Graphics).

    Steve Job's pride may prevail and insist on downsizing Apple to a model
that he remembers in days when consumers were willing to consider
incompatible platforms. He may downplay the corporate image of boardrooms
and office formalities. Just like Jack Tramiel at Atari, he may not see
that the world has spun around and has different buying trends than they
did ten or more years ago.... that the money and power of IBM couldn't make
OS/2 fly and that we are now a world that ultimately must have a Start icon
in the corner of their computer screen.

    It is amusing to watch the industry spin so fast that it never slows
down to take a look at where it has been already.

    --END--






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