You never know where they hit. Once Apple admitted their iPhone 4 had the antenna problem, they had to either make a major recall (3 million units sold already) or provide everyone with a free iPhone case. Of course, it’s a no-brainer. So they went with the free cases and accidentally wiped out the market for iPhone case manufacturers. While it may seem that the smartphone case manufacturing is not an important business, still there are companies that make their money by making and selling the cases. I guess they could never imagine that Apple would start giving cases for free.
There is another point of view, that Apple has actually significantly expanded the iPhone case market, now that everyone is going to need one. Since Apple cannot create that many cases in a limited time, they will go and buy them from third-parties. However, Apple is a hard bargainer, so they will probably be buying a hundred for a dime, destroying the margins.
Market destruction with a free offer is a fascinating theme. The most famous example is Microsoft’s offering of IE and IIS for free, bundling it with Windows, and eventually wiping out Netscape Communications, once a $13B company. A lot of startups offer their services and products for free these days, in the hope of hitting it big via ads or some magic freemium model. This is basically a market destruction from the very beginning. When this happens, they don’t even need Apple or Microsoft to drop a nuke. The startups are destroying the market themselves.
A good business is a company that generates profits. A good investment is the investment that grows significantly better than the market on average. If a company (Apple) exceeds another company (Microsoft) in market capitalization (i.e. it’s a better investment), but their profits don’t catch up, that means that the investment growth is based on faith. The faith that Apple will eventually generate better profits than Microsoft. That might happen or might not. And if that doesn’t happen soon enough, the investors will be disappointed and they will punish Apple’s capitalization. Simple as that.
Despite all the criticism, Microsoft is a very innovative company. They created tablet PCs, ebook readers, and Windows Mobile ten years ago. Too bad these things were too early for that time.
The Always Amusing Futurama is back! You surely want to know about the Third World, the eyePhone, and the evil Killer App a thousand years from now. Watch episode 3! Did I say a thousand years?
While nobody likes Microsoft, and Apple has recently topped their market capitalization, Microsoft remains to be a very strong business. There is a good post Microsoft by the numbers that shows it.
A few of my favorites:
$8.2 Billion
Apple Net income for fiscal year ending Sep 2009. [source]
$6.5 Billion Google Net income for fiscal year ending Dec 2009. [source]
$14.5 Billion
Microsoft Net Income for fiscal year ending June 2009. [source]
What? Microsoft makes the same amount of money as Apple and Google COMBINED?
There is an insanely useful guest post on the Jason Cohen’s blog: Bending over: How to sell to large companies. It’s not about the sales magic, i.e. not about how to get a large company like your software and decide to buy it. It is about different technical problems that can occur on the way, including weird contract clauses, the curse of the purchase orders, and so on.
I’ve encountered all of those problems firsthand and thus I highly recommend reading the post.
First, Facebook is the company that finally owns our online identity. Microsoft couldn’t do it with its HailStorm and Passport. Google couldn’t do it with Gmail/Google account. Facebook, with all the sites that use Facebook Connect is the 800-pound gorilla in the online identity market.
Second, web search is quickly becoming a commodity. It’s not hard for a large company to build a search engine or license someone else’s search engine. Its search quality won’t be as good as that of Google, but see the next point.
Surprise! The search quality as it has been understood by Google is not important to the consumers anymore. That’s why there are new players in the field, who innovate by delivering different search experience: Bing, Wolfram Alpha, and others. While Google does a good job of counting incoming links and clearing search results off spam, 99.99% of those search results are still irrelevant for me and you. But imagine what would happen if Google sorted the search results by bringing the posts “liked” by your friends to the top? Now, this would be like by thousand times more relevant! The only problem is that Google doesn’t know who my friends are, leave alone what pages they “liked”.
The mathematical approach of Google to the web search fails miserably when compared to the social approach. People always want to know what movies their friends watch, what music they listen to, where they go to dine, get excited. There will always be hardcore users who will use Google for search, but the rest of the population and advertisement dollars will go to Facebook.
We released MobileNoter for iPad about a month and a half ago, just at the iPad grand opening. Looking back, we can review the impact it had on our sales.
The release resulted in a huge spike in downloads and a modest spike in sales. It turned out that iPhone version sales were up, while iPad version sales were not good immediately after the release. How that happened? Simply enough:
1. The iPad version of MobileNoter had some problems that we could not find without testing it on a physical device. Thus not a lot of people was buying it.
2. All the iPad buzz and discussion of how Microsoft OneNote was good for tablets in general and for iPad in particular led to more downloads of the iPhone version of MobileNoter and consequently to more sales.
Therefore we were able to ride Apple’s marketing hype of iPad and increase our sales.
Once we got the device in our hands, we released a significantly improved version for iPad, and people are downloading and purchasing iPad version of MobileNoter in droves. The total sales increased by roughly 50% and continue climbing.
It seems that EverNote’s growth of paying customers is more or less flat recently. If this continues, we expect to match them in the number of new paying customers added monthly by the end of this year!
Our iPad arrived a couple of weeks ago. We use it to test iPad’s version of MobileNoter. While all previous comments and comparison to the rock still apply, there is a new problem with the iPad.
It is surprisingly heavy. So heavy that it is definitely not going to become a widespread household device that everybody wants. The iPad is nice, sleek, and all that. But when you take it into hand, you immediately realize that it is just another computer, not a miracle device.
Most modern netbooks and tablets (iPad included) are powerful enough for average Joe. They can render sites, play YouTube and even run sophisticated games. Thus device weight and battery life are becoming the most important features and main differentiator. The iPad doesn’t have any significant advantage in these categories against netbooks. So the battle with netbooks is not over.
The recent news and rollouts by major companies are going to have a huge impact on the startup surface, and sink a lot of them as well. Here are some I want to mention:
Microsoft’s roll-out of web-based and free Office is going to damage web office suites developers, like Zoho;
Microsoft’s new Outlook 2010 is going to include social network features. Bye-bye Xobni (which is a social Outlook plug-in);
Twitter buys one of the iPhone clients – Tweetie. It means all other iPhone twitter clients are screwed;
Facebook, in addition to their Credits system, is rolling out an offers system – a very popular way of monetization. Wait till they make their Credits the only way to take money from the users, and numerous startups will kiss good-bye.
However, the top prize for screwing its ecosystem and partner network goes to Apple:
Their are introducing their ad platform iAd. No doubt it will be the exclusive way for advertising on iPhones and iPads;
Their new SDK licence agreement clearly prohibits use of any development platforms except for Objective C. This is a major blow to Adobe with their new Flash CS5, which includes tools to easily port Flash apps to iPhone OS. It also potentially makes Unity – a new platform for 3D game design outlawed.
The lesson we all can learn: when your application totally depends on some company’s product for monetization or value for users, the company can evaporate your business in a blink. Our MobileNoter also falls into this category. People like our product, but if Microsoft decides to port its OneNote to MacOS and iPhone OS, we’ll have to have a much better product than theirs in order to win the customers.
Posted by Oleg Kokorin 
