MICROCOMPUTER TRENDS

It's hard to generalize about the role of personal computers in modern life without cliches and truisms. After our first hands-on experience in high school (1971), we fantasized about one day having a computer of our own ... a fantasy we figured was on par with visiting the moon or succeeding Hugh Hefner.

Today a local area network is in our home, a laptop is our most frequent traveling companion and silicon chips seem as pervasive as pennies.

Owning and managing personal computers is a strategic challenge, even when it's not a financial one. The industry is evolving rapidly; the cost of a given product is probably declining ... and a better technology is always on the horizon.

Nearly everyone has winced to see prices drop right after a major purchase. And we're constantly trying to sort the essential from the optional. We hope this summary of our views on industry trends and technology will be helpful.

You don't have to spend much time on our web pages to realize we prefer Apple's Macintosh microcomputers, but most of what we have to say applies to IBM compatibles as well. This page is about the future of technology as much as it is about the Macintosh.

This commentary was last updated in March 1998.

Among the topics we cover below:

• Apple Will Bounce Back!
• Avoid Microsoft Products
• The Internet Matriculates

---

Apple Is Bouncing Back

Like daffodils, spring has brought the re-emergence of Apple as a major factor in the computer industry.

Nothing will change the minds of those who are Intel-centric to a fault. Many users in both camps suffer from the syndrome of "this is the one that I know, so it must be best." And numbers alone don't make WinTel the better platform. After all, American cheese is popular, too.

Apple's stock price has surged this winter, and it's because the marketplace -- a callous, impartial observer, if ever there was one -- has recognized something afoot.

From our perspective, here's what's going on:

• Apple finally got some decent advertising that highlights its superiority over Intel-based products. On television, the snail ad and then the fire-suit ad made their point dramatically, tartly and memorably.
• Apple has been delivering improvements on time. New generations of superior hardware and software have been reaching users promptly and without major problems.
• A long-term strategy, though not officially announced, is starting to come into focus in crystal balls. This strategy includes:
  • Fast, reliable desktop computers aimed at Apple's traditional markets such as graphic design and education.
  • The Rhapsody software -- ahead of schedule in many respects -- that Apple bought from NeXT company is the core of its long-term strategy for operating systems. This software will debut in server products and later in workstations, though the latter will apparently happen sooner than once expected. Rhapsody will run equally effectively on PowerPC and Intel chips, which means that WinTel users will have a choice in operating systems.
  • A so-called "network computer," about which there has been great speculation and widely varying predictions. We believe this will take the form of a desktop computer based on a PowerPC processor but with a greater dependence on its server -- either an Internet server or a local Rhapsody server -- for resources. The consequence is a cheaper box that is easier for the user to maintain. We think it will have heavy multimedia capabilities but less of the stuff that power users need such as disk space and internal slots. It might be the end of floppy drives.
  • Many people seem to envision the network computer as a home computer for surfing the Internet, but we believe it will find its strongest market in offices. In our business experience, we have seen offices migrating toward more shared resources and a greater emphasis on standardized workstations. Most of the desktop computers sold today -- Mac or WinTel -- are far more powerful than the typical office worker needs. And the reliance on user-maintenance and troubleshooting is a major source of computer problems in offices, to the consternation of the office computer jockey, whether a titled MIS person or just the one everyone calls for problems. A shift to a client-server configuration would ease installation, maintenance and support. We believe this is the direction in which Apple is moving.
  • Meanwhile, the cost of fast Ethernet networks is falling dramatically, which makes client-server models more feasible.

Apple has said it will do less announcing and more delivering in the future, so this strategy is less obvious than previous Apple moves. By fall 1998, however, we think that most of the announcements will be made and this direction will be obvious.

[ Latest Apple Stock Quote ]

---

Avoid Microsoft Products

We respect what Bill Gates has accomplished, and we'd be glad to have his fortune. Microsoft has done a good job of marketing.

But we are increasingly avoiding Microsoft products for a couple of reasons:

• The software is usually bulky and cumbersome ... the lumbering slob on your hard drive.

  Programs such as Excel and Word have every feature imaginable, and 85 percent of them are useless in the average office. Consequently, the learning curve is steep and the pitfalls considerable. The software uses copious quantities of computer resources such as RAM and hard disk space.

  Everything we ever needed in a word processing program was in version 3 of Word. Version 6 is such a travesty that we're still using Version 5.1.

• Microsoft's dominant market position is stifling competition, which is bad for innovation and for users. We fervently believe that two or more strong competitors are best for consumers.

  Example: As a monopoly, AT&T was expensive and stodgy. Deregulated and facing aggressive competitors, long distance rates have fallen, and technology has blossomed. AT&T is a healthier company.

  Microsoft is on the verge of becoming a software monopolist, and we vote against that possibility by patronizing its competitors.

We believe that if Microsoft's juggernaut continues, its market share will become increasingly controversial. We are reluctant to advocate government involvement in market dynamics, but the current trend carried to its natural conclusion is intolerable.

---

The Internet Matriculates!

In previous commentaries, we have noted that the Internet remains a fledgling ... developing nicely but not yet a primary business vehicle. We've occasionally compared its growth to that of a person, noting its advancing maturity but still realizing it's not an adult.

To continue that analogy, we'd now peg the Internet as a college freshman ... markedly ahead of where it was a year ago but still short of everything needed to face the world. Reliability and sophistication have grown, and more companies are depending on the web for software distribution, marketing and information. We established a significant web presence only recently because we thought the medium was too amorphous for a real effort to be worthwhile.

The cost of entry is still very cheap, and the Internet's future is absolutely bright. Companies without a web presence aren't paying a penalty yet, but the opportunity to get established is shrinking.

---

DISCLAIMER: Our founder indirectly owns a tiny quantity of Apple stock, but his dream of a comfortable retirement is hardly dependent upon it.