Cringely: Why Apple will one day stop making iPods, Microsoft’s Zune decoy, and more

Mac Greer interviews tech guru Bob Cringely, employee No. 12 at Apple, for The Motley Fool. A few choice snippets from Cringely:

Apple will stop making iPods the day that they can make more profit from an iPod license than they can make from selling an iPod. And that day will come. A switch will flip, and suddenly you will be able to buy an iPod from anyone, and Apple will just be in the iTunes business, but they will be making money from Apple IPE [intellectual property enforcement] and iPod licenses.

I think Microsoft is not stupid. Microsoft is big and lumbering and brutal, but they are not stupid, and what they know is that they have more resources than anyone, and they are fully capable of doing some little Zuney thing that is relatively meaningless except that every potential competitor has to take it into account. So Microsoft spends $500 million developing the Zune. Five hundred million is nothing to them, and they spend that much marketing it, which again, is nothing to them. And Apple and Samsung and all the other guys have to respond to it. In the meantime, what is Microsoft’s real strategy? Microsoft’s real strategy in the home has to be built around Xbox, and Xbox is actually doing some smart things, so I view Zune as a deliberate distraction; it is a decoy.

Full interview here.
Never confuse stupidity or the lack thereof with ineptitude, hubris, and mismanagement. With Zune, Microsoft is simply reinforcing their reputation for making mediocre products. Regardless of the amount, that’s not money well spent.

60 Comments

  1. “Apple will stop making iPods the day that they can make more profit from an iPod license than they can make from selling an iPod.”

    Well, DUH. Except with one significant difference: they’ll limit the license to people who have the same high standards of quality.

    And I don’t think it’s likely that the day Apple will make more from licensing will occur.

    See, there’s nothing inherently unprofitable in licensing. The mistake Apple made in its earlier attempts at licensing Mac OS was that they priced the cost of the license way too low. If Apple makes the same amount of profit from a licensed clone as it does from its own hardware, then licensing is a good thing. But in the earlier attempt, Apple priced the license too low. Of course, if they had priced it at the regular value, the clones would not have been price-competitive with Apple hardware. Which is exactly why we’ll never see an iPod license: it will always be more profitable for Apple to build an iPod than to license the iPod software to someone else.

  2. To say that $500 million is nothing to Microsoft is…rather ridiculous. There is no company in the world that would consider $500 million play money…

    I’ve never understood why anybody pays any credence to anything that “Bob Cringely, employee No. 12 at Apple” has to say. He has been so wrong so many times that “Bob Cringely, employee No. 12 at Apple” seems to be making it up as he goes along….for a laugh.

  3. Apple has what Microsoft wants but will never have – they contol the software, hardware and the distribution ( their stores) and that’s huge folks. Their store presence allows them develop and distribure their total digital hub concept which still has a few surprises on the horizon. They have put together a solid business plan which will be the envy of all of their peers.

    The previous post was absolutely correct – this train is just leaving the station

  4. “Microsoft’s real strategy in the home has to be built around Xbox, and Xbox is actually doing some smart things…”

    Ya, like staying on store shelves when everyone is looking for a Wii. Have you shop for a Wii or a PS3 lately? You go to any Bestbuy, Walmart… and you’ll see people desperatly looking for Wiis, if not Wii, PS3s, but XBox, come on? Stores are loaded with Xbox 360, too bad no one wants them…

  5. I think that Cringely is wrong about Zune, but his comment on the iPod is perfectly sensible.

    The market available for iPod rivals is too small to be viable and there are no signs that anybody other than Apple is making significant profits from selling MP3 players. Apple can kill off any remaining products by simply licensing iPod technology to other companies.

    The main reason why alternatives to the iPod exist is because nobody but Apple may build them, if others could build them, they surely would. If Apple let it be known that they were prepared to licence iPod technology to third parties, don’t you think that manufacturers would come running ? Apple wouldn’t have to licence them for cut price deals, they could negotiate a worthwhile fee. The important point is that it has to be done while iPod sales are solid and increasing so that others will want a slice of the action and be prepared to pay well for the privilege.

    As Cringely says, once that licence fee is comparable to the profit gained from manufacturing and distributing iPods, there’s no point in continuing much longer, you might as well let somebody else deal with all the hassles of building, distributing and supporting them and simply collect the revenue. The money can then be used to fund the next great thing.

    It’s not restricted to iPods either. If Apple wanted to, they could licence OS X compatible PCs to be built by other manufacturers. The design of the motherboard would be very tightly controlled by Apple and they might actually insist on supplying the motherboards themselves, but others would assemble them into ready to go systems and then market and support them. If Apple could get a licence fee that was comparable to the profit from selling a Mac, it would be a great way to expand production and distribution. Indeed it might be the only way to get past a certain market share.

    Apple have learnt a lot from their previous experience with clones and won’t repeat the same mistake. The previous clones were negotiated from a position of financial weakness and by somebody who wasn’t a brilliant negotiator. Apple is now holding an entirely different hand and is playing from a much stronger position.

  6. When I defined guidelines for users I always gave them two choices, both of which I was happy with. It made the user feel they were in control (they were). We see this in democracy in Western governments where we have a choice of two very similar liberal vs conservative governments (left and right used to be far more different) and we are happy within our limited choices.

    THUS I believe Apple needs to partner with one other company to offer their announced products under the partner’s name. It needs to be a hardware company with a good name who is desperate for a deal, makes quality products and will not work against Apple. If they agree, the best fit is Sony. They are so far down the toilet they must be desperate for some sales, good will and decent software. Plus they have HUGE amounts of content (music & movies), expertise in micro-devices, plus a games console (PS3) they could cross-licence to Apple. They would need to drop their music stores, but connecting an iTV to a Sony/Apple Bravia or Sony/Apple HD Pro Camera to a Mac Pro would be a good fit. Apple needs to move in before Sony recovers from their annus horibilus (bad year, not sore bum).

  7. What will be interesting to see is what type of device the iTV will become. Will Apple evlove that device into some sort of intergrated gaming/HD streaming/music downloading/????……..that’s what we’re talking about. And will it take the home entertainment/computer market by storm and relaegate the MS’s and Sony’s, HP’s and Dell’s to playing catch-up and without any stores to contol their distribution.

  8. i totally agree with Cringley.
    Apple actually really has to watch out for Zune3 cause that is the typical KILL product date in almost EVERY version of the MS product cycle.
    its absolutely scary, and saddly this game is Apple’s to loose.

    Remember this has happened, with Windows, Windows Mobile, Xbox, SQL server, access, Exploder, OFFICE, everything, everything that they have made that is now dominant originally came off as a joke to the competitors and then blew them out of the water after version 3.0, this is a very clear and precise bs plan, and hopefully apple is aware.

    the constant and retarded, “MS products suck and the people who buy them suck too” is synonimous to putting your head in the sand.
    The truth is that that once MS is really in the ring, all should really worry.
    cause in a war of attrition, almost always the strongest survive, and even with its present good fortune, Apple is but a tick to MS’s Elephant. ” width=”19″ height=”19″ alt=”confused” style=”border:0;” />

  9. critic,

    I think you’ve hit on a good point.
    MS doesn’t ‘scare’ anybody anymore.

    Whatever huge sums of money and large market-share they still have, they’ve lost their ability to influence and convince.

    MS’s present situation and the cringing Cringely’s of this world remind me of Hans Christian Anderson’s fairy tale, The Emperor’s New Clothes. The ending goes like this:-

    And so the Emperor set off under the high canopy, at the head of the great procession. It was a great success. All the people standing by and at the windows cheered and cried, “Oh, how splendid are the Emperor’s new clothes. What a magnificent train! How well the clothes fit!” No one dared to admit that he couldn’t see anything, for who would want it to be known that he was either stupid or unfit for his post?

    None of the Emperor’s clothes had ever met with such success.

    But among the crowds a little child suddenly gasped out, “But he hasn’t got anything on.” And the people began to whisper to one another what the child had said. “He hasn’t got anything on.” “There’s a little child saying he hasn’t got anything on.” Till everyone was saying, “But he hasn’t got anything on.” The Emperor himself had the uncomfortable feeling that what they were whispering was only too true. “But I will have to go through with the procession,” he said to himself.

    So he drew himself up and walked boldly on holding his head higher than before, and the courtiers held on to the train that wasn’t there at all.

  10. Just for those good folk who have ‘casting’ problems.

    The Emperor is MS.

    Cringely is, of course, one of the courtiers holding the non-exsistent train.

    The little boy is Apple Computer Inc. who people are finally starting to believe.

  11. “Apple is but a tick to MS’s Elephant.”

    If the OS market is 90% Windoze and about 4.5% OS X, then that’s about 20X larger. Hardly a “tick” to and “elephant” let’s look at some numbers:

    Mature Bull Elephant = 6 tons (12,000 pounds) / 20 = 600 pounds

    What do you know, the weight of a mature Male Siberian Tiger is around 600 pounds!

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