Apple Reignites the Browser Wars
In the Apple (AAPL) pantheon, hardware design usually stands at the altar, from the company's sleek, silver MacBook computers and its colorful iPod music players to its latest object of desire, the soon-to-be available touch-screen iPhone. But increasingly, software is what Apple relies on to broaden the market for its products—and, it hopes, take a chunk of business from Microsoft (MSFT).
On June 11, Apple Chief Executive Steve Jobs stepped up his assault on the software giant. In a speech before Apple developers, Jobs, clad in his traditional uniform of black turtleneck and jeans, announced new versions of Apple's Safari Web browser for the ubiquitous Windows operating system. That gives PC users a no-risk way to sample Apple software (Safari is free), and possibly an incentive to switch to a Mac computer or buy an iPhone. And to make sure there are enough programs for interested buyers, Jobs also offered Safari's underlying Web technologies to outside software developers so they could write programs for Apple products, including the iPhone, the company's latest potential blockbuster product that goes on sale June 29.
Taken together, the moves could sway more companies to enter Apple's orbit and potentially reignite a browser war that's been dormant for several years. Apple holds about 5% of the Web browser market, vs. 78% for Microsoft's Internet Explorer, which the company includes with Windows, and 15% for the open-source Firefox browser, according to Jobs. But Apple's anemic share of the browser market didn't deter Jobs. During his speech, he demonstrated Safari running twice as fast as Microsoft's browser on common tasks. "We've got the most innovative browser. We've also got the fastest browser for Windows," Jobs crowed to the audience. "Who knows, maybe we can grow our Safari share in the future. We're going to try."
The battle isn't just about browser market share. Windows users already have downloaded Apple's iTunes music software more than 500 million times, according to Jobs. A fast-running Windows version of Safari could give Windows users a better taste of the company's design aesthetic and technical chops, helping to reinvigorate sales of Apple computers, though the company still holds a small share of the overall PC market. "They have little to lose and some things to gain with the unified look on iPhone, if Safari is running on a Windows machine," says Charles Wolf, president of investment consulting company Wolf Insights. "The browser might be another Trojan horse like iTunes—maybe a few [users] go out and buy a Mac."
Apple may have another way to entice Windows users to switch to the Mac: Jobs disclosed that the next version of Mac OS X, code-named Leopard, will include Apple software called Boot Camp that lets users switch from a Mac to a Windows environment, without a performance penalty. The operating system is scheduled to be available in October. "We know how to reach these customers," says Jobs. Microsoft declined to comment on Apple's plans to woo developers, but in a statement said: "With hundreds of millions of Windows users, it's not a surprise that a company that makes Web browsers would want it to work with Windows."
Jobs is trying to expand Apple's ecosystem of developers as it attempts to increase its 4.9% share of U.S. personal computer shipments, and push into new markets including mobile phones and set-top boxes.
Microsoft, whose Windows operating system runs on the vast majority of PCs, has historically been masterful at inducing independent software vendors to write programs that have helped sell more Microsoft products. Promoting Safari as the way for programmers to develop for the iPhone, and for Mac and Windows users to explore the Internet, could help Apple compete in a computer industry in which software is increasingly distributed online. "It's not the standalone apps world of the '80s and '90s," when users waited on big new releases of desktop software as the reason to buy new, more powerful machines, says Guy Kawasaki, managing director of investment fund Garage Technology Ventures, and Apple's former head of developer evangelism. "In that sense, it's a more neutral world."
That's the way Salesforce.com (CRM) sees things. Adam Gross, vice-president of developer marketing at Salesforce, says the software maker plans to create an iPhone version of the company's lead management software for sales reps. Apple's approach could make it simpler to extend the software for the iPhone compared with other mobile devices. "It's going to be a lot easier to create apps for the iPhone than for other mobile platforms," says Gross. Salesforce sells a version of its software for Research In Motion's (RIMM) BlackBerry, and the programming can be complex. "Writing applications for mobile devices is not trivial. It's been difficult relative to desktop software. That's what's interesting about the iPhone announcement," he says.
Software prowess is also powering Apple's stock price, Goldman Sachs (GS) analyst David Bailey wrote in a June 11 research note: "Software remains Apple's biggest competitive advantage. It enables the company to move into new markets…and take a leadership position versus entrenched incumbents that often seem to treat software as an afterthought." Bailey said the iPhone launch should boost the price of Apple shares, which fell $4.30, or 3.45%, June 11, to close at $120.19. And the company's ability to apply its software research-and-development spending across Macs, iPhones, and Apple TV products, means Apple's earnings will likely outgrow its revenues. Goldman raised its price target for Apple during the next year to $135, from $120.
Apple still must prove that embedding Safari in the iPhone, then letting developers create programs for it that enlist technologies from the Web, will create enough incentive for outside companies to embrace the product. Naturally, Jobs sees this approach as "an awesome way to write apps for iPhone." In a demonstration, an Apple executive showed a database of sales contacts built using Safari that displayed iPhone's graphical hallmarks and touch-screen capability, and leveraged its ability to make calls, write e-mails, or view Google Maps.
The announcement begins to answer some software companies' concerns over how—and whether—Apple would let them build iPhone products. Jobs has forecast Apple will sell 10 million iPhones by the end of 2008, and the product could add $10 billion in revenue to Apple's top line within a few years, according to analysts (see BusinessWeek.com, 6/7/07, "How Big Will the iPhone Be?").
Some analysts are predicting an iPhone-sparked sales tear starting in 2009 (see BusinessWeek.com, 6/7/07, "A Look Inside Gene Munster's Crystal Ball"). In his speech at Apple's Worldwide Developers Conference, Jobs put Safari at the center of the discussion. "You've got everything you need, if you know how to write apps using modern Web standards, to write apps for the iPhone today," he said. "We've come up with a very sweet solution."
All Eyes on iPhone
Apple stopped short of opening up the iPhone's native code to developers, leaving unanswered questions about the performance of third-party software on the phone. Apple has said providing unfettered access to the iPhone's operating system would compromise its software quality and security. "The good news is at least they recognize that developer applications are necessary for the iPhone," says Kawasaki. "Vis-à-vis developing iPhone apps with Safari: to be determined."
What's still unclear is how readily third-party software will be able to connect to the iPhone's basic functions, like storing data on the phone for offline use, and playing multimedia files. "As a developer, how much of the iPhone am I going to be able to take advantage of?" says Salesforce.com's Gross. "Will I have access to the guts of the phone to be able to do sophisticated things?"
And at least one longtime Apple partner isn't pleased by the company's decision to make Safari the hub for iPhone development. Adobe Systems (ADBE) issued a statement on June 11 saying that Apple should have chosen Adobe's ubiquitous Flash software delivering music, video, and other content over the Web. "Apple hasn't disclosed any level of detail on the technology iPhone will support," Adobe says. "It would make sense for them to use Flash on their phone given their desire to have a great mobile experience for their users."
It's that kind of chafing that Apple will need to avoid as it tries to bring members of its Mac ecosystem into the fold for the iPhone and other new products. If its plan gains adherents, it could intensify competition for Web browsers. And that could give Jobs yet another weapon to use against Microsoft, as both companies try to extend their influence beyond the desktop.