Apple vs. Microsoft: Who Gets to Define the Computer? A Long Fight Over Who Sets the Terms in Tech | Ad Wars, Part 3

The 30-year argument over "what is a computer," fought out in Apple and Microsoft ads, is a history of technological change covering the golden age of the PC industry.

"There is no final defeat."

That was how Roger A. Enrico, then president and chief executive of the Pepsi-Cola Company, summed up the ad war between Pepsi and Coca-Cola in the 1960s.

It was one of the earliest cases in the history of marketing, and still one of the most instructive. By challenging Coca-Cola, Pepsi won the No. 2 spot in the market, and Coca-Cola grew stronger through the fight as well. The attention of consumers expanded the whole market.

But as Enrico also said, the trick was that the "Cola Wars" had to stay fun. If the war ever looked like one company was on the ropes, dogged by bad luck and past saving, the mood of the game would sour at once.

The war had to feel bloodless, and endless. Everyone's interest lay in keeping the public curious: all right, this is what Pepsi is doing today — now, can you imagine what Coca-Cola will do tomorrow?

Ad wars between big companies, full of rivalry and attack, have never stopped: Microsoft and Apple, Burger King and McDonald's, Nike and Under Armour, Mercedes-Benz and BMW.

And there are subtle differences between them. Apple, for instance, ran a series of ads taunting IBM in the 1980s, switched the target of its mockery to Microsoft in the 1990s, and is now the one being challenged; the "ad war" between BMW and Mercedes-Benz, by contrast, reads more like a pair of best frenemies. Working out those differences is an interesting process.

That is one reason we started this series. The more important one is that behind every "ad war" is a corporate fight — sometimes an even match, sometimes a new challenger on the way up. Through that window you can see how a market is changing, and how the power to set the terms changes hands.

In their ads they open fire on each other's stupidities. In reality, the fighting between them uses live ammunition.

We are talking about advertising, but never only about advertising.

The best ad showdown in technology is back.

Two months ago, Apple released an ad for the iPad Pro on the theme "What's a computer?"

"This is a computer," Microsoft shot back quickly with the Surface Pro 4. It also shot four more short spots, taking the chance to name and mock the MacBook for having no touchscreen: "That Mac can't even feel you touching it!"

iPad Pro - What's a computer?

Surface - What's a computer, Just ask Cortana

You can see Microsoft's provocation in that. But this showdown drew little attention — the view counts of the ads put together did not match the iPhone 7 introduction video from a month earlier.

That is no surprise. The iPad is the one Apple product whose sales are now falling, and falling by more than 10% (down 23% in 2015), while the whole Surface line made up only 4% of Microsoft's total revenue last year.

What makes it worth talking about is that it is a small picture of a larger fight between Microsoft and Apple over who sets the terms in technology. On the question of "what is a computer" — really, the question of who has the right to define "what is a computer" — Apple and Microsoft have been arguing for at least 30 years, trading offense and defense along the way, across the most glorious years of the PC industry.

You will notice that whichever company is questioning, mocking, or attacking its rival in an ad is, at that moment, the weaker one in the market. That follows: the side doing the provoking always wants to be the disruptor, taking the right to define things away from the industry leader. And that usually means you need a product or service innovative enough to break the existing order.

Every time a company strikes a challenger's pose in an ad, it at least believes it has that capability, and is ready to make its case to consumers.

1984

Thirty years ago, breakthroughs in technology and falling costs for parts meant a computer was no longer a giant machine installed in a government office, a university, a company, or an institution. The personal computer had become a new market, and people were excited about it.

The U.S. Bureau of Labor Statistics wrote in 1986 that over the previous 25 years, the computer and peripheral equipment manufacturing industry had been one of the most dynamic and fastest-growing industries in the United States. New hires grew by an average of 6% a year, nearly ten times faster than jobs in manufacturing as a whole. Personal computer sales went from double digits to 2.1 million units in 1984 in just four years. Even the recession of 1981-1982 did little to slow the industry's growth.

Apple was, without question, the star of this new market. The Apple II, which Steve Jobs tinkered together in a garage, helped the company's sales jump from $2.7 million in 1977 to $200 million in 1980; by 1981, Apple controlled 23% of the $2.2 billion global PC market — though Apple and Microsoft were close in those days, and most of Microsoft's revenue came from writing software for Apple.

In fact, on the August 1981 day that IBM launched its personal computer, Bill Gates was at Apple, paying a visit to Jobs.

Things went downhill sharply after that. IBM's entry ended the friendship between the two companies. IBM machines running Microsoft's operating system took a little over a year to leave Apple behind, and soon became the "Big Brother" of the personal computer market.

Apple chose the 1984 Super Bowl — the highest-rated television program in America — to run an ad: a woman standing for revolution hurls a sledgehammer at a giant screen that controls people's minds. Yes, that is the one now called a classic, 1984, which Jobs had the famous Hollywood director Ridley Scott shoot.

This was Apple's challenge to "Big Brother" IBM, and the first time an ad took up the question of "what is a computer." The product Apple brought to the fight was the Macintosh, then the only personal computer on the market with a graphical interface that anyone could make sense of. Jobs began explaining to consumers, over and over, how it differed from an IBM machine, and mocked the computers on sale as mediocre and dull.

Macintosh sales reached $100,000 in six months, but the machine still could not shake IBM's commanding lead. What is interesting is that the personal computer market was turning fiercely competitive. A report in The Wall Street Journal at the time said that "companies large and small had appeared, hoping to pry open the Blue Giant's enormous market by cloning IBM." Another landmark: Dell was founded in May 1984 and, with an innovative business model, became a strong competitor in this market later on.

It is worth noting that Microsoft's rise had already begun by then. MS-DOS was being written onto nearly every computer, rather as if one company supplied the engines for the entire international auto market, leaving the computer makers to design and build the shells around them.

So Microsoft became the biggest winner in this market, and sat in a position that was both hard to shake and highly competitive. In that sense, Apple and Microsoft were already lined up for a showdown.

"Think Different"

Personal computers and rock 'n' roll were both marks of "cool" in that era. That is why, when Microsoft promoted Windows 95 in 1995, it paid $8 million for the Rolling Stones' "Start Me Up" as the soundtrack. You have spotted it, of course: when Apple later shipped a U2 album inside iTunes alongside a new iPhone, the logic was the same.

By 1995, with Windows 95, Microsoft had largely finished the job of building a graphical operating system of its own. "Unstoppable" would not be too strong a word for how Microsoft performed in the personal computer market then.

Windows 95 - Start me up

Apple's revenue, meanwhile, hit bottom. According to Forbes, Apple lost more than $1 billion of market in 1996, and its share of the personal computer market fell from 7.9% in 1995 to 5.2% in 1996. The company was on the edge of bankruptcy.

In 1997, Jobs came back. "He was still the same perfectionist, but he was no longer only a perfectionist — he also had to make money. He had become a better company leader." That is how Fortune magazine put it in an article about his return.

You probably know that after Jobs came back he brought another classic ad with him: "Think Different." But it was less a challenge Apple threw at the market than an act of self-rescue. Oh, and Microsoft invested $150 million in Apple around that time.

On October 25, 2001, Microsoft released the new Windows XP, which was again hugely popular. But between 1995 and 2001, even as personal computers reached more households, the desktop came to be seen as "a boring commodity device, lacking innovation." In 1991, PC Magazine could put together product reviews across 72 major PC makers; by 2001, only ten were left to review. The fat profits in building PCs shrank too, as Dell, Compaq, Epson, Hitachi and others fought price wars, and Microsoft and Intel took nearly all the money in the market.

Apple's market share was still small, but it was seen as holding "the appeal of innovation." Apple went on provoking in its ads, too — only this time "Big Brother" had become Wintel (the business alliance of Microsoft and Intel).

Apple "Switch" Ad Campaign

Cutting 70% of the products and keeping the focus on four — the Power Macintosh G3 desktop and PowerBook G3 laptop for professionals, the iMac desktop and iBook laptop for ordinary consumers — turned a $1.04 billion loss into a $309 million profit in Jobs's first fiscal year back at Apple.

More important, Jobs pointed his challenge to the market in a new direction.

That direction was a revolutionary product, the iPod. After its launch in 2002 it quickly became Apple's main source of revenue — iPod sales grew 279% in 2004 and made up 15.8% of total revenue — and facing the much broader group of users that "music" brought in, Apple's advertising turned comparatively mild. The Switch ads aimed at Wintel were no longer fierce and extreme; they teased PC users with humor instead.

"Get a Mac"; "I'm a PC"

Starting with the iPhone in 2007, Apple moved to a plain "How to" style, with simple narration telling you how the product worked. At the same time, in personal computers, the fiercest argument yet between Apple and Microsoft was under way.

When we talk about "ad wars," it is almost impossible to skip the three years of competing Mac and PC ads from 2006 to 2009. Apple is said to have spent more than $300 million shooting 66 ads in all, from the first "Get a Mac" spot in 2006 to the end in 2009, in which a lively young man who called himself Mac kept mocking a man in a suit and tie named PC, attacking him for crashing, for catching viruses — and for every other way a Windows computer drove people mad in those years.

A compilation of every Get a Mac ad from 2006 to 2009

Not until 2008 did Microsoft, worn down at last, respond. It released an "I'm a PC" ad with stars, public figures, and ordinary people of different colors and occupations, Bill Gates among them, all saying "I'm a PC" on camera, to show Microsoft's reach around the world. It was the first time Microsoft had answered Apple's provocations in an ad.

Microsoft - I'm a PC

Over this period, Mac OS's share of the personal computer market rose from 2.1% to 5%, while Microsoft held more than 90% from beginning to end. By conceding that Microsoft was another word for "PC," Apple's competitive ads did the job of holding on to that small slice of the market.

Microsoft's empire rested on how widely Windows had spread. However the PC market fought itself, Windows and Office kept Microsoft the company closest to individual consumers. In 2009 Microsoft's revenue reached $58.4 billion, and that September it released Windows 7, which many consider the best version of Windows. But its luck seems to have run out there.

The smartphone market the iPhone led began to grow explosively, and the fight over who sets the terms in technology moved from the desktop to mobile devices almost overnight. Apple's revenue passed Microsoft's for the first time in 2010, and stayed ahead after that. But Apple never beat Microsoft with the Mac, the product that actually looks more like a computer.

It became the tech giant with the most say by way of the iPhone — a device that was not a PC, but that fits today's definition of a "personal computer" better in every sense.

"to bring Windows 8 to life"

Microsoft built a highly efficient business on Windows that ran for 20 years, and that same momentum cost it its feel for the market. As late as January 2012, Steve Ballmer, Microsoft's CEO at the time, still insisted: "At Microsoft, nothing is more important than Windows."

But with Microsoft drifting ever further from individual consumers, a tablet with a keyboard appeared. When the Surface was born in 2012, its founding mission was "to bring Windows 8 to life" — the words are those of Surface designer Ralf Groene.

From the moment Microsoft launched the Surface, it switched into mockery mode against Apple. Its target kept moving: sometimes it griped that the iPad had no keyboard, sometimes it attacked the Mac family for having no touchscreen and still costing so much.

Ads Surface ran against the Mac and the iPad

2013.5 Windows 8 mocks Siri

2013.6 Microsoft Tablet vs iPad

2014.5 Surface Pro 3 vs iPad, which also mentions that it costs less than a MacBook Mini

2014.8 Surface Pro 3 vs Mac

2016.9 Surface Pro 4 vs Mac

Surface Mocks Apple Again

One hard-to-believe thing happened along the way, though: Julia White, general manager of Office marketing, walked onstage holding an iPad Air and demonstrated Office for iPad herself. The first touch version of Office was built for the iPad, not the Surface.

That came two months after Satya Nadella took over as Microsoft's CEO in February 2014. A Microsoft veteran, Nadella had run internet services, then Office, then cloud computing — every major Microsoft business except Windows. Under Nadella, the Surface was no longer a vehicle for promoting Windows and Office. It was a product Microsoft controlled from software to hardware, focused, like Apple's Mac, on the high-end office market.

In May 2014, Microsoft released the third-generation Surface, the Surface Pro 3. The tagline then was "the tablet that can replace your laptop," and in the quarter after it went on sale the whole Surface line took in $908 million, up 117% from a year earlier. In October 2015, Microsoft brought out the Surface Book, and the Surface became a PC more completely; its rival became the MacBook family, not only the iPad as before.

Apple, for its part, is redefining what a computer is by disrupting itself. The iPad Pro, released last November, was seen as the biggest innovation and change in the iPad's history, and Apple set it up as a challenger to the laptop, a machine that could become your main work tool with an external keyboard and the Pencil.

Even though that means competing with its own Mac line. Microsoft's high hopes for the Surface as a driver of innovation began with the "mobile first" strategy Nadella laid down. At the end of this month, the Surface will get a new version as well.

Now that we have come this far, does the ad we opened with make more sense?

So the showdown over who has the right to define "what is a computer" is not over.

Also: Microsoft is still a financially healthy company. What people fault it for is innovation and vitality.

Apple is still the one leading in innovation, but the innovations it can deliver now have trouble meeting what the public expects.

You see, what comes next could still be quite something.

(Graphics: Wu Lingwei)