BusinessWeek: The Mac In The Gray Flannel Suit

8/14/2019 BusinessWeek: The Mac In The Gray Flannel Suit

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h e McGraw-HillCompanies MAY 1 2, 2008 [ BU SI N ESSW EEK. C O M

T H E M A CI N T H E G R A YF L A N N E L S U I TIs bu sine ss ready fora workforce that'sdem anding M acs?Is Apple? 036BY PETER BURROWS

T H E F E D :W H Y I T S H O U L DK E E P C U T T I N G 0 24R E N A U L T - N I S S A N :I S G H O S NS T R E T C H E DT O O T H I N ? 0 4 8G O O G L E :E R IC S C H M I D TO N I N N O V A T I O N 05 4
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B u s in e s s W e e k CONTENTS 00 3

IS MAC READY TO GOCORPORATE?M illions of consum ers,infatuated w ith their iPodsand iPhones, are turning to theMac. And that zeal is spillingover into the wo rkplace. But isbusin ess ready for the New MacOrderand is Apple? IBWIPAGE 036

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P E R S O N A L B U S I N E S SBOOK EXCERPT Gene Marcial's 7Comm andments of Stock InvestingCREDIT Pr i va te l oans fo r co l l eg eQ&A Surv i v ing s tuden t l oan tu rmo i lPAR KER O N W I N E T h e u n d e r r a t e dcabs o f Napa 's Seavey V ineyard

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6 THE [ MI N T H E G R A YF L A N N E LS U I TBy Peter BurrowsI l lustrations by Istvan Banyai

More off ice workers infatuated wi thiPods and iPhones are dem andingMacs. Is business ready? Is Apple?

IN DEPTH

B u s i n e s s W e e kSoo n after Michele Goins becam e chief information of-ficer a t Juniper Networks in February, she de cided t o re -spond to the growing chorus of Mac lovers among thenetworking company's 6,100 emp loyees. For years, manyhad use d Apple's com puters at hom e and clamored for themin the office a s well. S o s h e launched a test, letting 60 0 Juniperstaffers use Macs instead of the standard-issue PCs that ru nMicrosoft's Windows opera ting system. A s long a s the extrasupport costs aren't too high, she plans to open the flood-gates. "If w e opened it up today, I think 2 5 % of our employeeswould choose Macs," she says.Funny thing i s , she has never received a single sales callfrom A pple. While thousan ds of other compan ies scratch andclaw for t h e tiniest sliver of the corporate comp uting market,Apple treats this vast market w ith utte r indifference. After aseries of failed offensives by the comp any in th e 1980s and

1990s, Chief Executive Steve Jobs decided to focus squarelyon consumers and education customers when he returned toApple in 1 9 9 7 . A s a result, the company does n't have ranks o fcorpora te salespeople or armies of repairmen waiting to respon d every time a hard drive fails. Nothing that could diverth is minions from staying focused on Apple's core calling: ere-ating the next cool thing for the world's consum ers.FADING RESISTANCEAnd why not ? In the March quarter, Mac sales blew away allforecasts, soaring 5 1 % over the previous year, or more thanthree t imes the rate for the person al-com puter industry.Throw in the iPod and iPho ne, and A pple's total sales havesurged from $ 5 . 2 billion infiscal2002 to $ 2 4 billion last year.Its share price h a s risen 2,300% over the pastfiveyears, giving the company a mark et cap italization, at $154 billion, that

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8 tops those of tech giants Hew lett-Packard, Dell, and Intel.Millions of consum ers are seeing the M ac in a new ligh t.Once an object of devotion for stud ents and artists, the M acis becoming the first choice of many. Surging demand for th emachines led Apple to predic t revenue s will rise 33% in thesecond quarter, to $7.2 billion, even in the face of an econ omic slowdown.What's less obvious is that theenthusiasm is starting to spillover into the corporate market. It's a people's revolution, ofsorts, w ith w orkers increasinglypressing their employers to letthe m u se Macs in the office. In asurvey of 250 diverse companiestha t h as yet to be released, the m arket research firm YankeeGroup found tha t 87 % now have at least some Apple com puters in their offices, up from 48% two years ago. "There's alwaysbeen th is archipelago of Macintosh use" among graphic artistsand adv ertisin g managers, says Scott Teissier, chief inform a

tion officer of Turne r Broadcasting System . "My sense is thatCIOs are more willing to see that expand without puttin g up asmuch resistance as in the past."Mac fanboys have been singing Apple's praises for years,of course. But now the call is coming from mainstream users,people who may have started off w ith an iPod, then bo ught aMac at home and no longer want a "Windows-by-day, Mac-by-n ight" existence. At Sunnyvale (C alif.)-based Juniper,

CEO Jobs hassaid he thinksit's difficult forany companyto sat isfy bothconsumers andcorporate buyers

CEO Scott Kriens is one of the people with a new MacBooklaptop. "Everybodytoldm elshouldgetone/ 'hesays. "It 'snotanything to do with negative perceptions about M icrosoft. It'sjust th at Macs are cool." IBM and Cisco Systems are runningsimilar tests on whether to le t Macs into the office. Google hasallowed employees pick their m achine of choice for years.Others are sure to follow suit. MarkSlaga, chief information officer of Dimension Data , a large computer services firmbased in suburban Johannesburg, says hehas received 25 e-mails recently from employees who want permission to use Macsat work. So far h e has refused, b ecause hedoes n't w ant to hire people to provide Mactech support, but "it'll happen someday," heconcedes. "Steve Jobs does n't need a sales force because healready has one: employees like the ones in my company."

Jobs declined to com men t for this story. In the past he hassaid Apple is better off focusing on the c onsum er m arket. Hebelieves it's difficult for any company, inclu ding his, to be effective at satisfying both corporate buyers and con sum ers.E-MAIL O N I P H O N E SApple's current approach of letting workers lead the chargeinto the workplace isn 't a ba d one. The market for PCs sold tobusinesses was $150 billion last year, and Apple held a measly2.19% ofthat, accordingto market researchfirm IDC. For everypercentagepointthatthe$24bilhoncompanypicksup,itgams

W HY M AK E SENSE IN THE CORPORATE MARKET I ^J2SE222"m *m



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IN DEPTH

M I C R O S O F T 'S M I S S T E P S W I T H V I S T A , I T S W I N D O W SU P G R A D E , M A Y H A V E H E L P E D . " T H E Y ' V E C R E A T E D AH U G E O P E N I N G F O R A P P L E , " S A Y S A H A R V A R D P R O F

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$1.5 billion in sales on top of its existing growth. Not bad for acompany th at's no t really trying. And the bottom line wouldbenefit a s well. If Apple were to gain one point of share in thecorporate market this year, that could boost expected earnings forfiscal2008 b y 11.5%, t o more than $ 5 billion.The iPhone may b e Jobs' entree into co rporate offices. It'sthe one product for which Apple has create d an explicit planfor reaching corpora tions. And it plans to deliver a softwareupgrade in June that will letthe iPhone work with popularcorporate e-mail systems such a s Microsoft Exchange and allowcustomers to create their own customized iPhone programs,say, for checking inventory or logging e xpen ses. Apple saysmore than 1 6 0 major corporations are testing the software.

E R C L O U Ts jumpe d to more than 10 % in the consumer PC market, according to IDC. Andapplications, from chat to Facebook, are seeping into offices. As more business people

a s well as work activities, many choose Apple's MacB ooks.

Gartner G roup analyst K e n Dulaney says all the discussionof iPhones i s causing tech buyers to ponder whether t o bringin Macs as well. At the least , mo re Macs will be appearingin some com panies ' research and development labs. That'sbecause the software required t o create iPhone applicationsruns only on Macs. "The iPhon e is creating enough interestthat people are starting to talk about whether Macs oughtto be perm itted, bo th here at G artner an d with our clients,"says Dulaney.

Apple is getting help from an unlikely rival: Microsoft.Vista, the lates t version of the software giant's Windows o perating system, looks like it could turn out to be one of thegreat missteps in tech history. Not only does it lack com pelling new features, but analysts say Vistarequires companies t o buy m ore expensiveP C s , incur hefty trainin g costs, and to dealwith maddening glitches. About 90% ofoffice workers still use its previous operating system, XP. "Microsoft has let thishapp en," says David B. Yoffie, a Harv ardBusiness School professor an d Intel boardmember. "They've created a huge openingfor Apple."

Z Y S O F T W A R Ee say Apple's ope rating system, called OS X, is superior tot W indows by many metrics. It's well-designed , efficient, relatively bug-free, and less

U T I N Ge and m ore office work will be done using W eb-based applications, as opposed to

rams stored on a hard drive. That trend erodes Microsoft's dominance in office app licationseduces the need for Windows PCs. (And Windo ws runs well on Macs with Intel chips.)

S T A D E B A C L Epast, chief information officers stuck with W indows because it was cheap, ubiquitous, andB u t just 1 0% or so have adopted V ista, the latest version of Wind ows. DisaffecVista creates a unique opportunity for the Mac.

U I T M E N Tty on campuses is soaring, say researchers Student Monitor. Of students w ho% say they want a Mac (up from 8% in 200 3). They're especially popular withve types companies want to recruitandMac fans may not put up with PCs at work.

OBSOLETE RIVALRY?Corporate customers are in open revolt.Microsoft plans to stop PC makers fromshipping machines with XP on June 30,but there has been an outcry from customers who don't want to switch to thetroubled Vista. "We are being forced toupgrade," says the CIO at one Midwestman ufacturer, who could not speak for a ttribution because of his company's presspolicies. "There is no business reason toupgrade." Dell has worked out an altern ative whereby customers can still get XP,bu t only if they pay full fare for Vista a ndthen "downgrade" to its less problematicpredecessor.Microsoft CEO Steve Ballmer co ncedesVista is still a "work in progress," but headds that many companies are happy with

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the new operating system. Mike Nash, corporate vice- pres ident for Windows product m arketing, says companies oftentake years to move to a new operating system and sales areright on track, withmore than 140 million c opies of Vista soldso far. As for com plaints about the software, Nash says Microsoft h as an opportun ity in getting people to give it a try. "Thething that can best help perceptions is more and more peopleusing Vista," says Nash.Microsoft argues that it is highly doubtful Apple will makesubstantial progress with corporations. Nash points outthere's trem endous expense in building a corporate sales andsupport staff, and Apple's secretive culture w ould probablyhamp er t he communications necessary to develop strong re

lationships with corporate tech buyers. What's more, Appleisn't likely to modify product designs to satisfy th e numerou s,often conflicting, requests from corporate clients. "There's ahigh level of conservatism [among co rporate te ch buyers],"says N ash. "Their job is to not be paged."Microsoft is already hard at work on its next operatingsystem, Windows 7. While details are scant, experts think itmight be late 2010 or 2011before it's on the market. And that'sassum ing there won't be any major d istraction s if Microsoftwins its fight to buy Inte rnet giant Yahoo! Certainly, Apple'sad team se em s to smell blood. Most of the company 's "I 'm aMac" ads are aimed at taking V ista's rep even lower, includ ing

one in which a yoga instructor gets stressed out about howVista screwed up her billing system .By the star t of the next decade, the compe tition betweenWindows and Mac maybe far less relevant. G artner analystMichael Silver points out that many companies are shiftingfrom old-style software programs that run on a particulartype of compu ter to software services doled out over the Web.Andmany departments may be able to do witho ut Windows -specific applications sooner, since day-to -day programs suchas word processing and sales man agem ent are moving to theWeb first. "This is the new worldthe Intern et has replacedWindows as the platform," says Marc Benioff, chief executiveof Salesforce.com, a Microsoft rival and a pionee r in softwaredelivered over the Net. "Now we are free to c hoose the besttechnology for the job."WINDOWS-FRIENDLYCurrently, Apple is making progress with corporations almost in spite of itself. Werner Enterprises, a trucking com pany based in Omaha with $2 billion in sales, decided to startletting em ployees use a variety of computers a few yea rs ago.When they began to choose Macs, the company reached outto Apple. "They all but to ld us to take a hike," says Anthon yDiCanti, vice-president for technology. But DiCanti persisted, and Apple eventually sent an account rep.

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IN DEPTH

D E M O G R A P H I C T R E N D S M A Y B E O N A P P L E ' S S I D E .A L L T H O S E C O L L E G E K I D S W I E L D I N G i P O D S H A V EC R E A T E D A D E E P P O O L O F P O T E N T IA L M A C U S E R S

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Today, DiCanti is happ y ab out his re lationship with Apple, and Werner has 150employees using Macs out of 2,000 totalcomputer use rs. Its policy is that as tra ditional PCs are retired, employees canchoose Macs if they wis h. DiCanti expectsthe trucking concern will add 25 or 30Macs this year.For companies like Werner, moving toth e Mac isn't nearly as difficult as it usedto be. Since Apple adopted Intel's microprocessors a s the brains of its computers in2006, Macs have been able to run Windowsjust like any Intel-based PC. In addition,Macs can run what's known as "virtual-ization" software, which lets people usethe M a c operating system and Windows atthe same time and switch easily betweene a k e y reason the New Museumhattan recently switched to all Macs. The organiza

t o t a p into databases that w orkedt operating system. B u t in December it made th e" T h e ability to run Windows m ade the Mac the perfectfor u s o n a very practical operation al level," says Johnield, the contemporary art museum 's deputy director.

Apple will find it more difficult to gain ground in largecompanies, which tend to have more complicated information technology systems and fixed rules for tech practices.CIOs have long had objections to Macs, and those still apply.Com plexity is o n e . Just a s having Macs and P C s in your homecreates headaches, supp orting bo th in corporations meansextra training for em ployees and extra outlays for Mac su pport staff. Then there are software limitations. Some industrial-grade programs won't run on Macs, including thepopular software from Germ any's S A P that com panies u s e torun everything from operations to sales. Getting Microsoft'sExchange e - mail to run on the Apple machines is often a hugehassle, which m akes them a non starter in some offices.SECRETIVE CULTUREApple's culture is another challenge. Like Jobs, the Cupertino(Calif.) company is secretive and so litary. Yet corporate cu stomers need coop eration. For example, most CIOs insist onknowing how a particu lar prod uct is going to evolve in yearsto come. Y et Apple wo n't share that information, except witha handful of need-to -kno w partners. Instead , Jobs tells corporate buyers abo ut new p roduc ts the same way he tells thegeneral publicwith dramatic unveilings, often at the an nualMacworld convention.Plus, many CEOs like to sign up big services companies,such a s Electronic Data Systems, that canbuy and deploy the

G R O W I N G M O M E N T U M I Enthusiasm Is spilling over Into the corporate market

cing overall PC sales... ..even with substantiallyhigher prices... ..leading to forecasts for moremarket share gainsCHANGE IN UNIT SALES YEAR OVER YEAR

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Data: IDC, Piper Jaffray

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full range of tech gear so they don't have to. Apple doesn't haveclose partne rship s with these companies. Instead, almost allof its sales are made through its online store, retailers suc h asBest Buy, or its own chain of more tha n 20 0 retail stores.Then there's price. While the average cost of PCs hasdropped from $1,046 in mid-2005 to $963, according toIDC, the average price of a Mac has risen to $1,526 because ofnew hig h-e nd pro ducts such as the razor- thin MacBook Air.Apple's more affordable desktop model, the iMac, comeswith a buil t-in screen. That's a problem for budget-conscious buyers, since monitors usu ally last far longer tha n thecomputer itself.Yet non e of these concerns has prevented Apple from succeeding in the consum er m arket. In 2000 , Jobs had a plan togain a po int of market share a year. For years , it didn't happen. But now, bolstered by the popularity of its stores and theafwntion generated by the iPod and iPh one, Apple has beengaining ground steadily in the com puter m arket. It's on trackto hit 7% share this year in th e U.S., according to Minneapolis -based investment bank Piper Jaffray, up from 4% in 2005.It has done sowith a mere six computer m odels, comparedwith the dozens available from major rivals. Its only stumblehas been its mo st affordable model, th e Mac mini, a relativelyplain box sold without a monitor that lacks th e sex appeal andpower of its Apple siblings.

THE REAL CORPORATE STRATEGY?Demographic trends may be on Apple's side. All those co llege kids w ielding iPods have created a deep pool of potentialMac users. According to a survey of 1,200 undergrads by re searcher Student Monitor this year, 43% of college s tuden tswho intend to buy a laptop plan to buy a Mac, up from 8% in2003. "Many of today's technology decision-m akers w ill ultimately be replaced by Mac users," says Eric Weil, manag ingpartner of Student Monitor.Of course, how far Apple gets in th ecorporate market depends largely onJobs. Industry and financial expertsdo n't expect Apple to make any of th emajor stra tegic moves tha t would signala su bstantial new focus on selling M acsto the corporate market. Jobs almostcertainly wo n't license his software to

others to create a second potential Mac hardware supplier, asmost corporate buyers would like. Andhe's just as unlikely tointroduce some bare-bones cheapo desktop model to satisfycost-conscious CIOs. "Apple is happy about its price pointsas they stand today," says IDC analys t David Daoud.Truth be told, a full-scale corporate assault probablywouldn't serve Apple's near-term financial interests. Itslucrative profits stem from its focus on consumers and students who are willing to pay for Apple panache. Corporatecustomers are far more frugal. While Apple's net margin inthe last four quarters was 15.1% , those at Hewlett-Packardand D ell were 7.3% and 4.8%, respectively. To grab chunksof share in the corporate m arke t, Jobs would likely need tospend heavily on sales and support organizations and histeam would have to work much more closely with custom ers and software partne rs. None of that seems to hold muchappeal for him. He has long argued that he wants to sell topeople who spend their own cash and who therefore will appreciate quality and style. Andhis Gulf stream jet seem s to bereserved for trips to store openings and Hawaiian vacations,rather th an corporate sales calls.

Then again, Jobs' public proclam ations are by no meansan indication of his future direc tion. He said Apple wouldn'tsell videos on iTunes or get into the cell-phone business before he changed his mind on both counts. And while Applecan afford to ignore the corporate market now, thatfieldmaylook far more appealing as the company searches for growthin the years ahead. Ha rvard's Yoffie sees some oppor tunity.He teaches a course on the company to top executives eachyear and always asks how many have a Mac. In the past, a half-dozen usually raised their ha nds . This year, it was 16 or so outof 160. "Suddenly, the M ac is acceptable among thes e folks,and it all happe ned in the las t year," he says. 1 B W 1-WithArikHesseldahlinNew York, StephenH. WildstrominWashington, and Jay Greene in Seattle

APPLE'S PROFITS STEM FROM CONSUMERS WILLINGTO PAY FOR ITS PANACHE. A FULL-SCALE CORPORATEASSAULT WOULD BE COSTLY-AND EAT INTO MARGINS


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BusinessWeek: The Mac In The Gray Flannel Suit