Open Letter to Jim Barksdale
from Mitch Ratcliffe
Dear Jim,
I'd like to suggest a career change that could have a profound impact on
the future of media, one even more important to the development of a
consumer market on the Internet than the strategy you are pursuing as
CEO of Netscape Communications Inc. Quit Netscape and take over at Apple
Computer.
I know, Jim, that you are saying to yourself, "Apple is the past,
Netscape is the future." I contend that Apple with the right leader has
a better future than Netscape. If Apple were not a great company, I
wouldn't be writing to you now.
Before telling you why I think Apple still holds great potential, I'll
take a moment to tell you why I believe you are the executive who can
turn that company around. Three encounters have convinced me that you
have the unique touch of one who can impose business discipline within
an environment filled with creative people without destroying the magic.
Two people who worked at Federal Express during your tenure there told
me that they cried when you left the company. Here were folks hardened
by years of intense competitive pressure who felt something for you. To
them, you were as important to the success of FedEx as Fred Smith. My
encounters with Craig McCaw, with whom you worked to build the largest
cellular network in the world, as well as the conversation I had with
you during your time at McCaw, convinced me that you listen indulgently,
without confusing the phantoms born of passion with business reality.
This management skill, more than any other, has been woefully lacking at
Apple.
___________________
Why Apple? Why now?
Apple's down, but not out. It continues to lead the computer industry in
the development of great technologies for consumers, even if it's doing
a lousy job of turning innovation into products and profits. The
Macintosh has actually gained market share through the third quarter of
1995, albeit at considerable sacrifice of margins. The brand, while
bruised, has not run through its supply of goodwill in the marketplace.
But Apple must do two things to revive its fortunes: deliver a new
operating system for desktop applications that incorporates Internet
connections, and partner and license that operating system while widely
supporting hardware and components.
For too long, Apple has been ruled by the belief that keeping technology
to itself enhances its value. Despite the decision to license the Mac
OS, this superstition continues. Just look at the slow pace of
innovation in the Mac OS today if you want proof. The company's
executives are paralyzed by the fear that they will give away something
valuable, so they keep lots of great technology locked away in the lab.
Apple has made some half-hearted efforts to appear open by giving away
pieces of technology, such as the newly announced QuickTime 3D file
format. Where successful Internet companies like Netscape have given
away control of the basic building blocks of the World Wide Web to
capitalize on value-added software and services, Apple continues to
feign generosity in the best tradition of the PC old guard. The
scattershot contributions Apple has made to the computing industry in
recent years are virtually meaningless, precisely because each
announcement has been unrelated to the others. Lack of coherence in
Apple's vision has sabotaged licensing opportunities. Because it is
impossible for would-be licensees to understand where the technology
they might use actually fits in the marketplace or in the Apple product
line, it is impossible for them to analyze their investment.
Illustrative of Apple's pathological inability to see opportunity in
licensing is the story of Yoichi Morishita, Matsushita's president, and
his visit to Apple in late 1994. He was ushered into a room with CEO
Michael Spindler and Apple's head technology honcho David Nagel to view
Apple interactive television technology. Nagel led Morishita and the
Matsushita delegation through a demonstration of the ITV system but was
interrupted near the end of his presentation. "This is all very nice,
but we don't need an interactive television system," Morishita is
reported to have said. "However, I am very interested in this handheld
remote control you have," pointing to the Apple remote in Nagel's hand.
Spindler and Nagel stammered something to the effect of, "This is a
complete system. The remote's not available without the system."
Morishita pressed on: "This remote is so easy to use that we could
literally make millions more dollars in the VCR market if we included it
with our VCRs. Sell it to me. Please give me the terms. I cannot leave
without them." Spindler and Nagel refused to unbundle the remote from
the ITV system, and Morishita went back to Japan empty-handed. That was
a screwup on Apple's part, just one of many in recent years.
What Apple fails to realize or accept is that it is the only computer
company that could, through licensing, spin off hundreds of consumer
electronics products.
Netscape's give-to-get market-building strategy is ideal for Apple. Its
soon-to-be-released CyberDog, an Internet-oriented application toolbox
that lets almost anyone piece together a customized view of the
Internet, is an ideal foundation for a new Apple market presence. Apple,
IBM, Lotus Development Corp. and Novell have signed on to support the
programming tools CyberDog is built on, an object-oriented application
platform, called OpenDoc, that will allow rapid customization of
applications on a wide variety of computers. With CyberDog, a consumer
will be able combine features from a library of prefabbed applets. For
instance, by dragging an applet into the application window, a computer
user will be able to create an Internet-powered stock ticker that tracks
a stock portfolio and graphs its changing value within an OpenDoc-based
spreadsheet. It's Java without the programmatic complexity, delivering
much more utility to the average person than Netscape's JavaScript.
Were OpenDoc to succeed, especially if it were to embrace the Internet,
it could wipe out Microsoft's OLE (Object Linking and Embedding)
initiative before the giant from Redmond cements Windows at the
intersection of interapplication communications. Because the Internet
will be represented within Windows machines by OLE objects that deliver
Net services, OLE, rather than dedicated TCP/IP connections, will soon
be the onramp to the Internet for 80 percent of the installed base of
computers worldwide. Application software will use OLE to call outside
to other applications and across the Internet to servers and services.
Jim, if you allow Microsoft to retain the Windows/OLE advantage, all the
Java in the world won't budge third-party developers from their
dependence on Microsoft, because Bill Gates will control the circulation
of information within the individual PC.
The OpenDoc companies are on the same side as you, Jim, in the battle
against Microsoft. But they have no incentive to work with Netscape,
because your current strategy requires that Netscape take them on
head-to-head in the server and workgroup application software markets.
Netscape's mission is to destroy Notes, ruin Novell and obliterate IBM's
still energetic dominance of the bridges between corporate data and the
personal computer. Freeing all the information collected by companies in
databases for the past 25 years is critical to the success of Netscape
and the commercial World Wide Web. Netscape doesn't have the resources
to fight all these battles and Microsoft.
Apple, on the other hand, has arrived at the moment in its life when it
can and must completely reinvent itself, both its products and its
marketing strategy. If it is successful, Apple will be one of a few
companies to pose an adequate threat to Microsoft. Apple is the only
company that can mount products in the desktop computing, consumer and
corporate MIS markets to provide a comprehensive response to Microsoft.
I suggest that Apple follow the example of Netscape, by giving away its
operating system to anyone who wants it. Copland, as Mac OS 8 is
currently known, should be made fully OpenDoc- and Internet-compliant
(though it still needs a lot of work on Internet connectivity), then
offered free to anyone with a modem on the Apple Web site. A version of
Copland for Intel-based PCs ought to follow close on the heels of the
Mac version.
Apple should develop and market its own extensions, as well as broker
third-party OpenDoc objects that enhance Copland's performance, selling
these via the Internet, as well as retail and direct-mail channels. So
if a consumer wants to add a printer to their free Mac OS, he or she
will pay Apple five dollars. An object that allows customization of the
desktop wallpaper might sell for two bucks. An OpenDoc object that adds
a stock-quote ticker might be sold for $100 a year. An object that links
the consumer to Apple's customer support services might go for $15 a
year, and so on.
Blending content and components is a killer business in the Internet
era. There is much more revenue in this content/component market than
the existing operating system market, even if Apple were to rely on
revenue splits from content providers for its income. There are also a
lot more third-party development niches in this scenario, so it would be
possible to quickly revive the moribund Mac software marketplace.
Apple has a lot of enhancements to sell. To name just a few: QuickTime
VR; Kaleida's ScriptX; the AppleSearch information server; QuickTime 3D
tools; and all that hardware, from CPUs and the GeoPort communications
adapter to digital cameras and printers. Apple's PowerPC hardware rivals
the most powerful CPUs in the computer industry, and their
easier-to-manage operating system has already made them a popular Web
server. Once the company has revived its revenues, it can grow by
rolling out more of the great technology languishing in its labs and by
acquiring technologies that consumers have demonstrated they want.
What Apple needs is someone who'll spur them to think more
entrepreneurially than it has any time since its inception. History is
calling you, Jim Barksdale. Do you want to sell sugared water or change
the world?
___________________
Net escape velocity
Can Netscape change the world? It already has, but that doesn't mean the
company can capitalize on its position at the headwaters of the Internet
era. Netscape is off to a fantastic start. It likely will topple Lotus
as the all-time first-year-revenues champion with around $135 million
flowing in after its initial public stock offering. However, the costs
of servicing the myriad alliances and partnerships forged by the company
in the past year will be astronomical and ultimately destructive to the
company. These costs will make meeting investors' expectations for
Netscape very difficult, if not impossible. Whichever way one measures
the corporate balance sheet, it will shortly become clear that future
earnings will never support today's valuation.
The more that I watch Netscape rack up announcements of alliances,
partnerships and licenses, the more I am reminded of previous
initiatives that have collapsed under their own weight: the Advanced
Computing Consortium, the PowerPC alliance, Apple's Newton, General
Magic's Telescript and Magic Cap, and so on. At some point Netscape is
going to be whipsawed by the demands of your company's partners,
blinding the company to a fatal threat.
Netscape's server is, in fact, little more than an interim layer between
a content provider and content consumer. Databases, especially
relational object databases that can mix and match page layout elements
and content to meet individual consumers' needs, are the real heart of
the Web.
Serving up content to Web browsers is stupid-simple; any server could
deal with the problem with only a little jiggering of code, and the
addition of a layer of software adds Web functionality to existing
databases (see Digital Media, Vol. 5, No. 3, p. 9). That means Netscape
will soon face competition from a wide range of better-funded companies,
including Oracle, Informix and Microsoft, all with much larger installed
bases than Netscape Navigator's 4.9 million users (assuming a 70 percent
share of seven million daily Internet users). I don't accept, nor should
anyone inside or outside Netscape believe, the loopy claim that 15
million people are using a Netscape Navigator browser. That's
delusional.
Netscape is, in fact, educating its future competitors as it works with
IBM, AT&T, Deutsche Telekom, Macromedia and even Sun Microsystems. IBM
is learning how to build Web servers that ride atop its many customers'
legacy systems, as well as how to position its Lotus Notes products to
compete against Netscape. AT&T and Deutsche Telekom are soaking up the
rules of market development on the Internet. Their interests are in
growing network traffic, not making Netscape a new Microsoft; they are
not likely to shut out non-Netscape browsers that increase network
usage. Macromedia's Shockwave scripting tools for presentations on the
Net will ride on any browser. Sun is probably your most dangerous
potential competitor of all, as it will soon be looking for ways to grow
revenues on the back of its Java programming language, the new heart of
Netscape's browser.
The value that Netscape's server software adds is in the way it uses
electronic commerce technologies and supports "intranets," or internal
corporate networks for collaboration and sharing information. However,
as the Internet market matures, Netscape's advantages become
increasingly tenuous. To ensure continued success for its Web browser
software at retail prices, Netscape must make its servers increasingly
incompatible with other companies' browsers. If Microsoft, for example,
adopts a competing standard for electronic commerce in its Office suite
that Netscape does not support in short order, Netscape servers risk
being marginalized.
Certainly Netscape enjoys a huge advantage in the form of its market
share among Web browsers, but that could change rapidly as Internet
communications are built into operating systems and application
software. The introduction of new Web features, like database access, 3D
graphics, audio and video, could shift the sands beneath Netscape's
growing empire.
Netscape and its products have already lost the ability to control the
agenda on the Web, and the Web is only one dimension of an exploding
media environment on the Internet. Every time Netscape embraces an
outside technology to accommodate new competition, it surrenders more
control over the future development of the Web. Browsers as we know them
today may be obsolete tomorrow, as some new content format emerges from
the Net soup.
Netscape could be destroyed by its most recent alliances, just as Aztec
civilization was destroyed by the diseases and modern weapons brought by
the Spaniards, who portrayed themselves as allies when they first
arrived in Mexico. Sun's Java will likely be Netscape's smallpox virus;
Sun's president and CEO Scott McNealy could be Cortes willing to betray
Montezuma in pursuit of greater glory.
Java has stolen the future from Netscape by opening the Web to
heretofore unknown competition. Once programmers and the companies they
work for learn how to exploit Web connectivity, they'll being doing end
runs around Netscape at every opportunity. Most unsettling of all, Sun
has handed the power of the Java virus to Microsoft, which will soon
have a suite of Internet products in its existing Office package; all
Microsoft applications will know about and use the Net. As Java is
integrated into Microsoft's OLE environment, Netscape's ambitious plan
for workgroup software (still one of the most overhyped, undefined
categories ever invented by the computer industry) will be realized
before Netscape can capture even a sliver of the intranet market. Why?
As long as Windows rests atop the Intel microprocessor platform,
Microsoft can funnel Java's influence toward its own application suite.
So, Jim, as the Internet grows, it will roll over Netscape or slip out
from beneath it, leaving an empire constructed from thin, blue sky.
Apple, by contrast, has plenty of real market share, fertile product
lines for a daring push onto the Internet and more cash than Netscape
has ever seen. A brilliant executive could clean house, attract new
talent to the legendary Apple name and license products that create
fresh annuity streams for the company. The Mac is the only bulwark
against Microsoft's dominance on the Web server side of the market, too.
Assuming that Unix will never be a mainstream consumer operating system,
the Mac and Windows PCs are left as the only relevant contestants for
the hearts and minds of people who would like to create Web sites and
profit from electronic commerce. According to a recent survey of
webmasters by Mirai, a Chicago consultancy, 17 percent of Web sites run
on Mac servers, compared to 14.2 percent on Windows and Windows NT. The
Mac also beat out Windows and Unix as an authoring platform for the Web
and was well ahead of Windows in the database integration arena.
Were you to join Apple today, it would instantly become more
competitive. You've found ways to articulate value internally and out to
customers for three groundbreaking companies. You understand how to talk
to the business users who can resuscitate the Mac by building intranets
around Apple services. People will listen when you tell them that the
Mac will be everywhere. Should you succeed, Apple could buy Netscape
once its value comes back into line with its earnings, and you can have
your cake and eat it too.
Pick up the phone, Jim Barksdale. Call Apple's Mike Markkula now.