The McGraw-Hill Companies MAY 1 2, 2008 [ BUSINESSWEEK.

COM

THE MAC
IN THE GRAY
FLANNEL SUIT
Is business ready for
a workforce that's
demanding Macs?
Is Apple? 036
BY PETER BURROWS

THE FED:
WHY IT SHOULD
KEEP CUTTING 024

RENAULT-NISSAN:
IS GHOSN
STRETCHED
TOO THIN? 048

GOOGLE:
ERIC SCHMIDT
ON INNOVATION 054
 BusinessWeek
IS MAC READY TO GO
CORPORATE?
Millions of consumers,
infatuated with their iPods
and iPhones, are turning to the
Mac. And that zeal is spilling
over into the workplace. But is
business ready for the New Mac
Order—and is Apple? IBWI
PAGE 036
0 0 4 THE B U S I N E S S W E E K
004 NEWS YOU NEED TO KNOW
010 BUSINESS OUTLOOK Jim Cooper
says the Fed can't relax just yet
013 NUMBERS The global inflation
picture isn't so clear-cut
014 THE NEXT BUSINESS WEEK
017 BTW Air bags on car hoods; Asia's
days of wine and comics; and more
021 FACETIME Maria Bartiromo talks
about the food crisis with the W o r l d
Food Programme's Josette Sheeran
024 N E W S
£ 024 THE FED After the rate cut, more
strong medicine may be needed
THE FOOD CRISIS Shortages could
inspire some long-term solutions
028 RICE No actual scarcity yet, but
high prices and hoarding aplenty
031 GM North American operations are
still in trouble
MEDICAL DEVICES More companies
\<5 032
are outsourcing to China
a a 034 DEALS Why Wrigley said yes to Mars
CONTENTS 003
0 3 6 IN DEPTH 066 P E R S O N A L BUSINESS
036 THE MAC IN THE GRAY FLANNEL SUIT 066 BOOK EXCERPT Gene Marcial's 7
044 MEDIA The newly formed Thomson Commandments of Stock Investing
Reuters will dwarf Bloomberg, but 069 CREDIT Private loans for college
challenges lie ahead
070 Q&A Surviving student loan turmoil
071 PARKER ON WINE The underrated
0 4 8 WHAT'S NEXT cabs of Napa's Seavey Vineyard
048 AUTOS A s the global car market
evolves, even a fast mover like
0 7 3 OPINION
Renault-Nissan C E O Carlos
Ghosn must struggle to keep pace 073 TECH & YOU Steve Wildstrom finds
vTap a boon for mobile video
050 ENTERTAINMENT MySpaceTV is
taking on YouTube with cheap W e b 075 M EDIA CENTRIC Jon Fine can't see
programs. Will it deliver the clicks Mike Bloomberg chasing the Times
News C o r p . wants?
076 INSIDE WALL STREET
051 MARKETING To compete with the
078 FEEDBACK Readers differed on our
likes of Nike, China's Li Ning must
notion of "innovative" companies
do everything it can to look global
080 BOOKS B o w e n : The Board Book:
054 FTnTJTJl I N N O V A T I O N Google's
An Insider's Guide for Directors
I ' U C l 1 formula for its idea factory
and Trustees
060 GREEN BIZ Corn-based ethanol is
084 THE WELCH WAY Jack and Suzy
blamed for many social ills, but may
point the way to better alternatives W e l c h on weighing that job offer
064 INFO TECH Sites like JuicyCampus
raise questions about just how 079 CORRECTIONS & CLARIFICATIONS
unfettered W e b posts should be
081 COMPANY INDEX
MAY 12,2008 I BUSINESSWEEK
 IN DEPTH

036

THE [ M
IN THE GRAY
FLANNEL
SUIT
By Peter Burrows
Illustrations by Istvan Banyai

More office workers infatuated with

iPods and iPhones are demanding
Macs. Is business ready? Is Apple?

BusinessWeek
Soon after Michele Goins became chief information of-
ficer at Juniper Networks in February, she decided to re-
spond to the growing chorus of Mac lovers among the
networking company's 6,100 employees. For years, many
had used Apple's computers at home and clamored for them
in the office as well. So she launched a test, letting 600 Juniper
staffers use Macs instead of the standard-issue PCs that run
Microsoft's Windows operating system. As long as the extra
support costs aren't too high, she plans to open the flood-
gates. "If we opened it up today, I think 25% of our employees
would choose Macs," she says.
Funny thing is, she has never received a single sales call
from Apple. While thousands of other companies scratch and
claw for the tiniest sliver of the corporate computing market,
Apple treats this vast market with utter indifference. After a
series of failed offensives by the company in the 1980s and
1990s, Chief Executive Steve Jobs decided to focus squarely
on consumers and education customers when he returned to
Apple in 1997. As a result, the company doesn't have ranks of
corporate salespeople or armies of repairmen waiting to re-
spond every time a hard drive fails. Nothing that could divert
his minions from staying focused on Apple's core calling: ere -
ating the next cool thing for the world's consumers.
FADING RESISTANCE
And why not ? In the March quarter, Mac sales blew away all
forecasts, soaring 51% over the previous year, or more than
three times the rate for the personal-computer industry.
Throw in the iPod and iPhone, and Apple's total sales have
surged from $5.2 billion infiscal2002 to $24 billion last year.
Its share price has risen 2,300% over the pastfiveyears, giv-
ing the company a market capitalization, at $154 billion, that

BUSINESSWEEK I MAY 12,2008

 St
^
038
tops those of tech giants Hewlett-Packard, Dell, and Intel. CEO Scott Kriens is one of the people with a new MacBook
Millions of consumers are seeing the Mac in a new light. laptop. "Everybodytoldmelshouldgetone/'hesays. "It'snot
Once an object of devotion for students and artists, the Mac anything to do with negative perceptions about Microsoft. It's
is becoming the first choice of many. Surging demand for the just that Macs are cool." IBM and Cisco Systems are running
machines led Apple to predict revenues will rise 33% in the similar tests on whether to let Macs into the office. Google has
second quarter, to $7.2 billion, even in the face of an econom- allowed employees pick their machine of choice for years.
ic slowdown. Others are sure to follow suit. Mark
What's less obvious is that the CEO Jobs has Slaga, chief information officer of Dimen-
enthusiasm is starting to spill said he thinks sion Data , a large computer services firm
over into the corporate mar- it's difficult for based in suburban Johannesburg, says he
ket. It's a people's revolution, of any company has received 25 e-mails recently from em-
to satisfy both
sorts, with workers increasingly consumers and
ployees who want permission to use Macs
pressing their employers to let corporate buyers at work. So far he has refused, because he
them use Macs in the office. In a doesn't want to hire people to provide Mac
survey of 250 diverse companies tech support, but "it'll happen someday," he
that has yet to be released, the market research firm Yankee concedes. "Steve Jobs doesn't need a sales force because he
Group found that 87% now have at least some Apple comput- already has one: employees like the ones in my company."
ers in their offices, up from 48% two years ago. "There's always Jobs declined to comment for this story. In the past he has
been this archipelago of Macintosh use" among graphic artists said Apple is better off focusing on the consumer market. He
and advertising managers, says Scott Teissier, chief informa- believes it's difficult for any company, including his, to be ef-
tion officer of Turner Broadcasting System. "My sense is that fective at satisfying both corporate buyers and consumers.
CIOs are more willing to see that expand without putting up as
much resistance as in the past." E-MAIL ON IPHONES
Mac fanboys have been singing Apple's praises for years, Apple's current approach of letting workers lead the charge
of course. But now the call is coming from mainstream users, into the workplace isn't a bad one. The market for PCs sold to
people who may have started off with an iPod, then bought a businesses was $150 billion last year, and Apple held a measly
Mac at home and no longer want a "Windows-by-day, Mac- 2.19% of that, accordingto market researchfirm IDC. For every
by-night" existence. At Sunnyvale (Calif.)-based Juniper, percentagepointthatthe$24bilhoncompanypicksup,itgams

WHY MAKE SENSE IN THE CORPORATE MARKET I ^J2SE22££2"m*m

BUSINESSWEEK I MAY 12,2008

 IN DEPTH

039

MICROSOFT'S MISSTEPS WITH VISTA, ITS WINDOWS

UPGRADE, MAY HAVE HELPED. "THEY'VE CREATED A
HUGE OPENING FOR APPLE," SAYS A HARVARD PROF
$1.5 billion in sales on top of its existing growth. Not bad for a Gartner Group analyst Ken Dulaney says all the discussion
company that's not really trying. And the bottom line would of iPhones is causing tech buyers to ponder whether to bring
benefit as well. If Apple were to gain one point of share in the in Macs as well. At the least, more Macs will be appearing
corporate market this year, that could boost expected earn- in some companies' research and development labs. That's
ings forfiscal2008 by 11.5%, to more than $5 billion. because the software required to create iPhone applications
The iPhone may be Jobs' entree into corporate offices. It's runs only on Macs. "The iPhone is creating enough interest
the one product for which Apple has created an explicit plan that people are starting to talk about whether Macs ought
for reaching corporations. And it plans to deliver a software to be permitted, both here at Gartner and with our clients,"
upgrade in June that will let the iPhone work with popular cor- says Dulaney.
porate e-mail systems such as Microsoft Exchange and allow Apple is getting help from an unlikely rival: Microsoft.
customers to create their own customized iPhone programs, Vista, the latest version of the software giant's Windows op-
say, for checking inventory or logging expenses. Apple says erating system, looks like it could turn out to be one of the
more than 160 major corporations are testing the software. great missteps in tech history. Not only does it lack compel-
ling new features, but analysts say Vista
requires companies to buy more expensive
PCs, incur hefty training costs, and to deal
with maddening glitches. About 90% of
office workers still use its previous oper-
1. CONSUMER CLOUT ating system, XP. "Microsoft has let this
Apple's share has jumped to more than 10% in the consumer PC market, according to IDC. And
happen," says David B. Yoffie, a Harvard
consumer applications, from chat to Facebook, are seeping into offices. As more business people Business School professor and Intel board
consider notebook PCs for personal as well as work activities, many choose Apple's MacBooks. member. "They've created a huge opening
for Apple."
2. SNAZZY SOFTWARE
Tech analysts who evaluate software say Apple's operating system, called OS X, is superior to OBSOLETE RIVALRY?
Microsoft Windows by many metrics. It's well-designed, efficient, relatively bug-free, and less Corporate customers are in open revolt.
vulnerable to hackers and viruses. Microsoft plans to stop PC makers from
shipping machines with XP on June 30,
but there has been an outcry from cus-
3. WEB COMPUTING
tomers who don't want to switch to the
In time, more and more office work will be done using Web-based applications, as opposed to
programs stored on a hard drive. That trend erodes Microsoft's dominance in office applications troubled Vista. "We are being forced to
and reduces the need for Windows PCs. (And Windows runs well on Macs with Intel chips.) upgrade," says the CIO at one Midwest
manufacturer, who could not speak for at-
tribution because of his company's press
4. VISTA DEBACLE policies. "There is no business reason to
In the past, chief information officers stuck with Windows because it was cheap, ubiquitous, and upgrade." Dell has worked out an alterna-
reliable enough. But just 10% or so have adopted Vista, the latest version of Windows. Disaffec-
tion with Vista creates a unique opportunity for the Mac. tive whereby customers can still get XP,
but only if they pay full fare for Vista and
then "downgrade" to its less problematic
5. RECRUITMENT predecessor.
The Mac's popularity on campuses is soaring, say researchers Student Monitor. Of students who
want a laptop, 42% say they want a Mac (up from 8% in 2003). They're especially popular with
Microsoft CEO Steve Ballmer concedes
creative types companies want to recruit—and Mac fans may not put up with PCs at work. Vista is still a "work in progress," but he
adds that many companies are happy with

MAY 12, 2008 I BUSINESSWEEK

040
the new operating system. Mike Nash, corporate vice-presi-
dent for Windows product marketing, says companies often
take years to move to a new operating system and sales are
right on track, withmore than 140 million copies of Vista sold
so far. As for complaints about the software, Nash says Micro-
soft has an opportunity in getting people to give it a try. "The
thing that can best help perceptions is more and more people
using Vista," says Nash.
Microsoft argues that it is highly doubtful Apple will make
substantial progress with corporations. Nash points out
there's tremendous expense in building a corporate sales and
support staff, and Apple's secretive culture would probably
hamper the communications necessary to develop strong re-
lationships with corporate tech buyers. What's more, Apple
isn't likely to modify product designs to satisfy the numerous,
often conflicting, requests from corporate clients. "There's a
high level of conservatism [among corporate tech buyers],"
says Nash. "Their job is to not be paged."
Microsoft is already hard at work on its next operating
system, Windows 7. While details are scant, experts think it
might be late 2010 or 2011 before it's on the market. And that's
assuming there won't be any major distractions if Microsoft
wins its fight to buy Internet giant Yahoo! Certainly, Apple's
ad team seems to smell blood. Most of the company's "I'm a
Mac" ads are aimed at taking Vista's rep even lower, including
BUSINESSWEEK I MAY 12,2008
one in which a yoga instructor gets stressed out about how
Vista screwed up her billing system.
By the start of the next decade, the competition between
Windows and Mac maybe far less relevant. Gartner analyst
Michael Silver points out that many companies are shifting
from old-style software programs that run on a particular
type of computer to software services doled out over the Web.
And many departments may be able to do without Windows -
specific applications sooner, since day-to-day programs such
as word processing and sales management are moving to the
Web first. "This is the new world—the Internet has replaced
Windows as the platform," says Marc Benioff, chief executive
of Salesforce.com, a Microsoft rival and a pioneer in software
delivered over the Net. "Now we are free to choose the best
technology for the job."
WINDOWS-FRIENDLY
Currently, Apple is making progress with corporations al-
most in spite of itself. Werner Enterprises, a trucking com-
pany based in Omaha with $2 billion in sales, decided to start
letting employees use a variety of computers a few years ago.
When they began to choose Macs, the company reached out
to Apple. "They all but told us to take a hike," says Anthony
DiCanti, vice-president for technology. But DiCanti persist-
ed, and Apple eventually sent an account rep.

DEMOGRAPHIC TRENDS MAY BE ON APPLE'S SIDE.
ALL THOSE COLLEGE KIDS WIELDING iPODS HAVE
CREATED A DEEP POOL OF POTENTIAL MAC USERS
Today, DiCanti is happy about his rela-
tionship with Apple, and Werner has 150
employees using Macs out of 2,000 total
computer users. Its policy is that as tra-
ditional PCs are retired, employees can
choose Macs if they wish. DiCanti expects
the trucking concern will add 25 or 30
Macs this year.
For companies like Werner, moving to
the Mac isn't nearly as difficult as it used
to be. Since Apple adopted Intel's micro-
processors as the brains of its computers in
2006, Macs have been able to run Windows
just like any Intel-based PC. In addition,
Macs can run what's known as "virtual-
ization" software, which lets people use
the Mac operating system and Windows at
the same time and switch easily between
them. Such improvements are a key reason the New Museum
in Manhattan recently switched to all Macs. The organiza-
tion used to have about half of its employees on Windows
machines because they had to tap into databases that worked
only with that operating system. But in December it made the
switch. "The ability to run Windows made the Mac the perfect
solution for us on a very practical operational level," says John
Hatfield, the contemporary art museum's deputy director.
GROWING M O M E N T U M I Enthusiasm Is spilling over Into the corporate market
Sales growth for Apple's Macs is far ..even with substantially
outpacing overall PC sales... higher prices...
CHANGE IN UNIT SALES YEAR OVER YEAR AVERAGE SALES PRICE
ItltJtll
JPtltlt
• I I
'05
'FIRST QUARTER ONLY Data: IDC, Piper Jaffray
IN DEPTH
041
Apple will find it more difficult to gain ground in large
companies, which tend to have more complicated informa-
tion technology systems and fixed rules for tech practices.
CIOs have long had objections to Macs, and those still apply.
Complexity is one. Just as having Macs and PCs in your home
creates headaches, supporting both in corporations means
extra training for employees and extra outlays for Mac sup-
port staff. Then there are software limitations. Some in-
dustrial-grade programs won't run on Macs, including the
popular software from Germany's SAP that companies use to
run everything from operations to sales. Getting Microsoft's
Exchange e - mail to run on the Apple machines is often a huge
hassle, which makes them a nonstarter in some offices.
SECRETIVE CULTURE
Apple's culture is another challenge. Like Jobs, the Cupertino
(Calif.) company is secretive and solitary. Yet corporate cus-
tomers need cooperation. For example, most CIOs insist on
knowing how a particular product is going to evolve in years
to come. Yet Apple won't share that information, except with
a handful of need-to-know partners. Instead, Jobs tells cor-
porate buyers about new products the same way he tells the
general public—with dramatic unveilings, often at the annual
Macworld convention.
Plus, many CEOs like to sign up big services companies,
such as Electronic Data Systems, that can buy and deploy the
..leading to forecasts for more
market share gains
I I I
'06 '05 '06 W
Data: IDC, Piper Jaffray
MAY 12, 2008 I BUSINESSWEEK

042
full range of tech gear so they don't have to. Apple doesn't have
close partnerships with these companies. Instead, almost all
of its sales are made through its online store, retailers such as
Best Buy, or its own chain of more than 200 retail stores.
Then there's price. While the average cost of PCs has
dropped from $1,046 in mid-2005 to $963, according to
IDC, the average price of a Mac has risen to $1,526 because of
new high-end products such as the razor-thin MacBook Air.
Apple's more affordable desktop model, the iMac, comes
with a built-in screen. That's a problem for budget-con-
scious buyers, since monitors usually last far longer than the
computer itself.
Yet none of these concerns has prevented Apple from suc-
ceeding in the consumer market. In 2000, Jobs had a plan to
gain a point of market share a year. For years, it didn't hap-
pen. But now, bolstered by the popularity of its stores and the
afwntion generated by the iPod and iPhone, Apple has been
gaining ground steadily in the computer market. It's on track
to hit 7% share this year in the U.S., according to Minneapolis -
based investment bank Piper Jaffray, up from 4% in 2005.
It has done so with a mere six computer models, compared
with the dozens available from major rivals. Its only stumble
has been its most affordable model, the Mac mini, a relatively
plain box sold without a monitor that lacks the sex appeal and
power of its Apple siblings.
THE REAL CORPORATE STRATEGY?
Demographic trends may be on Apple's side. All those col-
lege kids wielding iPods have created a deep pool of potential
Mac users. According to a survey of 1,200 undergrads by re-
searcher Student Monitor this year, 43% of college students
who intend to buy a laptop plan to buy a Mac, up from 8% in
2003. "Many of today's technology decision-makers will ul-
timately be replaced by Mac users," says Eric Weil, managing
partner of Student Monitor.
Of course, how far Apple gets in the
corporate market depends largely on
Jobs. Industry and financial experts APPLE'S PROFITS STEM FROM CONSUMERS WILLING
don't expect Apple to make any of the
major strategic moves that would signal TO PAY FOR ITS PANACHE. A FULL-SCALE CORPORATE
a substantial new focus on selling Macs
to the corporate market. Jobs almost
certainly won't license his software to
ASSAULT WOULD BE COSTLY-AND EAT INTO MARGINS
BUSINESSWEEK I MAY 12,2008
IN DEPTH
others to create a second potential Mac hardware supplier, as
most corporate buyers would like. And he's just as unlikely to
introduce some bare-bones cheapo desktop model to satisfy
cost-conscious CIOs. "Apple is happy about its price points
as they stand today," says IDC analyst David Daoud.
Truth be told, a full-scale corporate assault probably
wouldn't serve Apple's near-term financial interests. Its
lucrative profits stem from its focus on consumers and stu-
dents who are willing to pay for Apple panache. Corporate
customers are far more frugal. While Apple's net margin in
the last four quarters was 15.1%, those at Hewlett-Packard
and Dell were 7.3% and 4.8%, respectively. To grab chunks
of share in the corporate market, Jobs would likely need to
spend heavily on sales and support organizations and his
team would have to work much more closely with custom-
ers and software partners. None of that seems to hold much
appeal for him. He has long argued that he wants to sell to
people who spend their own cash and who therefore will ap-
preciate quality and style. And his Gulfstream jet seems to be
reserved for trips to store openings and Hawaiian vacations,
rather than corporate sales calls.
Then again, Jobs' public proclamations are by no means
an indication of his future direction. He said Apple wouldn't
sell videos on iTunes or get into the cell-phone business —
before he changed his mind on both counts. And while Apple
can afford to ignore the corporate market now, thatfieldmay
look far more appealing as the company searches for growth
in the years ahead. Harvard's Yoffie sees some opportunity.
He teaches a course on the company to top executives each
year and always asks how many have a Mac. In the past, a half-
dozen usually raised their hands. This year, it was 16 or so out
of 160. "Suddenly, the Mac is acceptable among these folks,
and it all happened in the last year," he says. 1 BW 1
-WithArikHesseldahlinNew York, StephenH. Wildstromin
Washington, and Jay Greene in Seattle