Apple and Microsoft: Tiger and Longhorn Convergence?

Bill Gates suggests that there is a degree of convergence between the functionality of Longhorn, Microsoft’s 2006 Window’s operating system, and Tiger, Apple’s new operating system released this week. In particular, Gates emphasizes similarity in usability, search facilities, and ease of switching between applications such as chatting, gaming, and Internet.

While it is debatable whether Windows will ever be as easy to use as Apple’s operating systems, there is nothing to prevent Microsoft incrementally improving the usability of Windows until it approaches that of Apple. But that would not be a good idea for either company.

The reason is that the only way to outsell a competitor with a product similar to your own is to promote better, distribute better, or price lower. Unfortunately, all these options have the effect of reducing profits for both parties. The winner is therefore typically the company with the greatest capital reserves. That would be Microsoft.

A better way for Apple to compete is to aim for product divergence or differentiation from Windows. That would allow it to compete on four instead of only three dimensions: features, price, distribution and promotion. In order to maximize its own profits, Microsoft should of course do the same and differentiate itself as much as it can from Apple.

The question is therefore how these companies might differentiate from each other. One important difference, for example, is that Apple provides both the hardware and operating system for its systems unlike Microsoft which provides only the software. Apple could therefore introduce innovations that rely on the tight integration between its hardware and software. For example, its PCs could become music centers - extensions of iTunes if you will. Microsoft would not easily be able to imitate this.

Similarly, Microsoft is differentiating itself by integrating its Xbox games unit more tightly with Windows – something Apple would find difficult to copy.

All in all, there are many ways for these companies to differentiate. I do not understand why Gates speaks so highly of convergence.

Source: http://maxblumberg.typepad.com/dailymusings/apple_strategy/index.html