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Why Bill Gates is richer than Steve Jobs

7/31/2007

The comparisons of Steve Jobs and Bill Gates, and of their respective companies, is so common that it could be called ubiquitous. Like the Hatfields and McCoys, they are thought to be in a perpetual battle with one another. This week saw an unusual juxtaposition where Apple stock is soaring and being talked up on Wall Street, and Microsoft CEO Steve Ballmer is asking investors to be patient. These are strange times.

Now is as good a time as ever to ask “What is going on?” Many Macintosh cheerleaders have been waiting for the day that Apple finally gets the respect it deserves. Although, as usual, I see it slightly differently. I think it is as important to notice what is not going on, too.

I don’t see the rise of iPods, iTunes and the iPhone as a victory for the Macintosh. In fact, what is finally making the Macintosh attractive to so many new buyers is its ability to run Windows. Ugh! This is hardly the victory for the old Apple Computer Incorporated that I have been hoping for these many years. While I understand the new strategy, and recognize the pressure to perform, and the need to switch to Intel, the best of Apple Inc. is still Macintosh, and it is still something most people have not experienced. Most iPhones were sold to a previous Apple customer. There were no conversions in those sales, and given the price point, there probably won’t be any. The PC iPhone buyers can use PC versions of iTunes and Safari and never give a second glance to the Macintosh.

But that isn’t what I want to talk about. What I really want to explain is why Bill Gates is the richest man in the world. I am going to stick my neck out and state defiantly that it is not because he makes a better product. In fact, he is the richest man in the world in spite of making an inferior product to the Apple OS. However, Microsoft did two things that Apple did not do, and therein lies the entire story. One of these two men was inevitably going to be the richest man in the world, but it required following the script. Since Steve had a bias towards “the Crazy Ones,” he broke from the script. And what is the script, you ask? It’s as obvious as the nose on your face, but it took me a while to see it, too.

Bill Gates is not the first richest man in the world. There has always been a richest man in the world. In fact, there is always a richest man on every continent, in every country, in every state, and even in every neighborhood, regardless of political, economic, technological or social conditions. Bill Gates is simply the latest person to inhabit this high perch. He will be replaced either by death or circumstances, just the same as all the other rich men in the past.

Bill and Steve both had a bit of luck on their side. Mainframes computers were like the new automobile. They were very expensive, built in small numbers, and enjoyed by the very few. Mainframes were generally found only in very rich organizations: universities, banks and government. Desktop computers, in contrast, were like the Ford Model T. It took a highly desirable technology and made it affordable to everyone. A million new customers were born. Just like electricity, railroads, television, telephones and airlines before them, the “if you build it they will come” story seems to be true. However, the creation of millions of new customers does not explain why Bill Gates won and Steve Jobs lost. I am just setting the scene.

All of the previous richest men in the world, not surprisingly, were also associated with the production of new technologies, and each one of those technologies also has a story of the winner and loser among their respective products, too. Ford vs GM; Delta vs Pan Am; RCA vs Westinghouse, etc. This shows us that the Apple vs Microsoft battle is not unique, and provides an opportunity to study why the winner wins and the loser loses.

As noted, it isn’t because of superior technology that Bill Gates and Microsoft are top dog. The “invisible hand of capitalism,” which I regard as a myth of colossal proportions, is certainly not at play. It cannot be claimed that Microsoft’s inefficiency is “more efficient” without taking an Orwellian death plunge.

Price, of course, could be a determining factor. Apple’s desire to control the hardware sale is a double-edged sword, and it makes any analysis a little fuzzy. There is always the “what if” possibility. What if Apple licensed its software, etc., would things have turned out the same? As we know, they tried licensing for a while and stopped. I don’t think that the difference between hardware and software is the the determining factor in making Bill Gates the richest man in the world. Software obviously has less production costs and is therefore more potentially profitable, but Microsoft never had a big ticket sale, either. The difference is really a wash, and the fact is that Microsoft got wealthier by selling products with a lower price. Selling $600 iPhones when everyone else is giving phones away with a service contract would seem to indicate that while Apple can change its name, it probably isn’t going to change its habits anytime soon. Microsoft has many many many more customers than Apple, and as a result, so too do Dell, Gateway, and all the other PC manufacturers.

But that still doesn’t answer the big question: why did Bill Gates win all these customers in the first place? The answer to that question, is the same answer as what makes every rich man rich: Government Contracts.

For a long time Apple had a strong presence in the schools. When the iBook came out they worked hard to place laptops in school districts. But, as usual, they came to disrespect their customers. Big customers place demands on their vendors, and not just for price. Apple's institutional ego does not believe in putting customers first; they think the only thing that matters is the creation. They want the advantage in any relationship. Apple’s strategy of direct sales means that they are always dealing with a weak client. There is not one Apple client that is strong enough to put any demands on Apple, not even Pixar or Disney. Apple obliterated their dealer network, and the big box retailers just want a box to sell. Mass merchants could care less what happens to the client as soon as they close the cash register draw. AT&T got the iPhone only because they were willing to roll over, and Apple expects the same from all its other partners, as Sony let slip recently. But all of this is just crumbs compared to the main course: Federal Contracts.

If Apple had been paying attention, they would have realized that the richest organization in the world is the US Government. They literally print their own money, and it is accepted everywhere. Therefore, they are the best customer to win. Not only will the government buy your goods, and tax the people to make you rich, they will also protect your claim of “intellectual property” so that you can have no competition. It is the best deal in the world, and it is easy to see why all the other companies that invented or adapted technologies became so rich. The winner was always the one with the biggest government contracts. The government will shower you with wealth, but you must make some effort to be the low bidder, and demonstrate some capacity to either kill or protect soldiers. Whatever the government does, the majority of people will also do.

The government is first and foremost a war machine, and flower power creative types are tolerated, but not valued. The government holds hearings about how to bail out industries and protect the profits of their contractors. All infrastructure players are considered a part of the national defense. Congress will never hold a hearing on why people are poor, why small businesses fail, or why children suffer. If Apple collapsed the government would not care, but if Microsoft collapses, or is threatened by laws, then they will rewrite the laws and come to its aid. The government doesn’t “Think Different,” it thinks the way it always has.

We Apple users are actually doing Apple a disservice. Because we are willing to pay a premium for products that don’t suck, Apple has gotten into the habit of charging us more, when it should have been charging us less all along. All the conflicts with dealers and schools, and lost sales to governments and individuals, have been a burden on us as well as on Apple, and a huge burden on people stuck in a Windows world. But mostly it has been a failure of the “Think” in the “Think Different” equation. We work hard, pay our taxes, and the government gives all our money to Bill Gates, even while we work on a Macintosh. Right behind him is Bechtel and Haliburton, the defense contractors (Lockheed-Douglas, etc.,), and the suppliers to these suppliers. At the bottom of this chain are the schools and the unions that control them. They are not investing in Apple, but maybe that will change soon.

One thing is sure, the people that control government funds are going to prefer companies that they have invested in, directly or indirectly. The government is not an egalitarian enterprise, it is a feed trough where people feed themselves first, and do what is right only if convenient. Microsoft represents job security and easy wealth to many people. It could have just as easily been Apple in that position if they had followed a different marketing strategy. I never understood why Jef Raskin would complain about Apple’s marketing; they followed his advice to concentrate on the consumer, to the letter, right after they fired him.

To be safe is a self-fulfilling prophecy, and that is primarily what Big Brother represents. The lemmings do what the lemmings have been trained to do. The lemmings are still buying Windows, and Apple is still between a rock and a hard place. The more successful it becomes, the less Crazy it is willing to be. They are being co-opted by the same forces that co-opted everyone else previously: money and stock values. The safety in numbers. Think Different will be (is?) lost to nostalgia. The perpetual hunger for “more,” and the measuring of success strictly in terms of numbers is what makes Big Brother an ogre. Every Apple Keynote is now about "good" numbers, as if numbers had more importance than our humanity.

Steve Jobs will probably never get to be the richest man in the world, even if he lowers his prices and goes after federal contracts, but that is not necessarily a bad thing. To rework George Bernard Shaw's line: “Life isn’t about finding yourself. Life isn't about creating something. Life is about creating yourself.” I hope for Steve Jobs that his best days are ahead of him, and that he remembers what it was that the Crazy Ones were saying: It is the government that makes men rich or poor. A wise government and a wise people can create peace and equality, but an unwise government and an unwise people create war and inequality. Wisdom will never be in the technology, but only in the hand that yields it.

Be wise, Steve. Be wise.