Apple hands Palm a problem and gets slapped by Microsoft

Great article from today's MediaGuardian

It's a dog-eat-dog world in the technology jungle. For the best part of two years, Apple's iPhone has had the top end of the smartphone market to itself. But then along came the Palm Pre, which has had a very favourable reception from the geek crowd, and is a much more polished product than early versions of the Android (aka Google) phones. Personally I thought it unlikely that the Pre would seriously challenge the Apple product, but it seems that Steve Jobs & Co are taking no chances.

How do we know this? Well, the Palm phone had an intriguing feature: it could sync (techspeak for synchronise) with Apple's iTunes software, thereby enabling Pre owners to take their music with them, just as iPhone owners can. Quite how this was possible is an interesting question. Was it a happy accident that the Pre could exploit a loophole in the iTunes system? Or was it a clever wheeze dreamed up by Palm engineers? Either way, Apple was not amused.

So last week Apple released an update to iTunes that closed the loophole and effectively screwed Palm, whose share price immediately declined. How did Apple describe its tactic? Merely by saying that the upgrade "addresses an issue with verification of Apple devices", which upon translation reads "Yay dudes! You're stuffed."

Meanwhile, in another part of the jungle, Apple itself was getting grief from Microsoft. Of course, with only 7.6% of the PC market, Mr Jobs's outfit is a flea compared to the Redmond-based giant. But this particular flea has infuriated the elephant over the past two years with its "I'm a Mac, I'm a PC" ads, which went viral and successfully implanted in the public mind the idea that Macs were chic and efficient whereas PCs were worthy but dull, and distinctly uncool. It took Microsoft a while to find out how to hit back: an advertising series with the message that consumers were paying a pretty steep premium for Apple coolness. In other words, while Macs might be OK for trendy folks with lots of money to fritter away on fashionable kit, real people on a budget would always find Windows-based machines a better buy.

Last week, Microsoft's CEO, Steve Ballmer, claimed that this campaign has rattled Apple. "All of our research shows that our 'I'm a PC' ads, [which] talk dramatically about the price of Macintoshes, work quite effectively," he said. "We've gained market share quite effectively against Apple over the past six to nine months."

Well, he would say that, wouldn't he? But his colleague Kevin Turner reported that "two weeks ago we got a call from the Apple legal department saying, 'Hey, you need to stop running those ads, we lowered our prices.' They took like $100 off or something. It was the greatest single phone call that I've ever taken in business." So, Turner went on, "we're just going to keep running them and running them and running them."

Microsoft's next offensive suggests that the company still has a thing or two to learn about strategy, though. It announced that it's planning to attack on another front - by opening Microsoft retail stores next to Apple stores.

This looks like a bold move. After all, Apple has managed to transform tech retailing by creating stores that customers appear to enjoy visiting (and which are still thronged, despite the recession). What could be better than to prove that the elephant can go head-to-head with the flea on the high street? And to show that it's serious, Microsoft has recruited a senior Wal-Mart executive to lead its assault on the world's shopping malls.

The prospect of Microsoft and Apple stores side by side is rich in comic possibilities. For one thing, what will the Microsoft store sell? It's a software company: its hardware range consists of the Xbox games console, some keyboards and mice, and the Zune music player - which, compared with the iPod, looks like something produced by the Soviet Union in its heyday. But a retail store needs exciting hardware to attract people in off the street and create a buzz.

Stand by, then, for a new range of viral ads from Apple. A Tale of Two Stores, perhaps. One establishment is crowded with teenagers browsing Facebook and trying to get off with one another, watched by benevolently smiling, T-shirted geeks. The other is a deserted cavern, rather like one of those Sony outlets, in which dispirited chaps in ties try to interest passing tramps in the new features of Office 2009. YouTube here we come!

By John Naughton