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What Apple Can Learn From Microsoft

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Dropped calls? Intermittent Web access? Disgruntled customers? This can't really be Apple (Nasdaq: AAPL  ) , can it? 

The iEmpire is supposed to be the upstart, a rebel company famous for cooking quality into every product it bakes. And yet the new 3G iPhone is cutting out on some customers -- we know one personally -- while its MobileMe online service has suffered annoying outages since its debut. Worst of all, some buyers are actually returning the new iPhone. Returning!

Welcome to the new Apple, the one with the giant target painted on its back. It's exactly the sort of bullseye that CEO Steve Jobs painted on Bill Gates' back in the 80s and early 90s. Today, Apple is to digital media what Microsoft (Nasdaq: MSFT  ) is to PC software. Napster (Nasdaq: NAPS  ) , Orchard (Nasdaq: ORCD  ) , RealNetworks (Nasdaq: RNWK  ) -- they're just not enough like Apple.

When Microsoft ascended to the PC software throne with its Office suite, critics emerged. Everything was decried as an extension of Mr. Softy's monopoly power. Often, the complaints were ridiculous, as if a table-thumping group of haters had emerged. Their message: "Microsoft already has too much! We can't let it win anymore!" Minor missteps became front-page material.

Mr. Softy, meet Mr. Mac
And so it is with Apple now. Ask yourself how big the new iPhone's problems really are. Will sales suffer materially? Not according to the numbers: Estimates indicate that Apple sold as many as many as 3 million iPhone 3Gs in the first month since the device debuted.

Don't get me wrong; I haven't changed my mind about AT&T (NYSE: T  ) . I still think that Ma Bell is killing Apple. Any deal that hamstrings innovation is poison to a company that lives on the cutting edge.

Jobs can't be caught drinking hemlock now. Apple is a big dog, a Microsoft-sized market leader, and leaders are always under assault from the Next Big Thing. (Ask Gates about Netscape sometime.)

The worst part? Thanks to a lukewarm reception for Vista and well-documented problems with the Xbox and other products, Steve Ballmer, not Steve Jobs, is better-positioned to play and win the expectations game.

Think about it. We all expect Apple to excel. Conversely, we all expect Microsoft to do Well Enough. Sure, Mr. Softy is facing increased competition from Google (Nasdaq: GOOG  ) , and the Microhoo saga is as sorry and sordid an affair as you'll find in the business world. But Microsoft isn't going anywhere. Office is a dominant franchise, and so is Windows. Gates and Ballmer have spent billions to ensure they remain dominant for at least the next several years.

Mr. Mac on the attack
Which brings us back to Jobs and his team at Apple. They've reached a plateau in digital media, and as with Microsoft, their new lofty perch exposes them to critics. It won't be long before a vocal group of Apple haters emerges.

Jobs can't prevent that. But he can avoid Microsoft's mistakes. He can choose to prepare his company to be the best leader it can be by cultivating the edge it built as a rebel. Here's how:

  1. Innovate aggressively. Microsoft milks existing markets, but Apple creates new ones. Think of the iPod. Yeah, other music players existed before the iPod, but none combined hardware and software as seamlessly as Apple had. The iPod was, if I may say so, a work of craftsmanship. There's no one in the industry better at crafting insanely great devices. Keep working at it, Apple: That inventive spark will keep you a leader.
  2. Course-correct often. We Fools skewered Apple for lowering prices on the iPhone months after its release, but if we're honest, we'd have to admit that Jobs acted quickly on an important insight: He knew the iPhone could be pervasive if he lowered prices enough. Now, Apple appears well on its way to selling more than 10 million iPhones in 2008, and far more than that in future years. Well done, Steve. You've proven that it pays to act quickly in the digital age.
  3. Customers above all. Apple's very profitable retail strategy is important for two reasons. First, it allows customers to try the products they've heard so much about. Second, and more importantly, each store is a one-stop tech support shop. Your retail network is your primary touchpoint with customers, Apple. Expand it as fast as you reasonably can.

Following the leader is easy. Being the leader isn't. Apple is finally getting a taste of what Microsoft has had to live with for years. Welcome to the big time, Mr. Mac. Innovate aggressively, course-correct often, and place customers above all else, and you'll enjoy a nice, long -- though probably not-so-relaxing -- stay at the top.

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Foolish contributor Tim Beyers owned shares of Google -- and Google's 2010 LEAP options -- at the time of publication. When not typing up articles for you'll find him picking growth stocks for Rule Breakers, which counts Google as one of its holdings. Get access to all of his writings here, or enjoy a daily dose of his Foolishness via this feed for your RSS reader.

Apple is a Stock Advisor selection. Microsoft is an Inside Value pick. Try either of these market-beating services free for 30 days. There's no obligation to subscribe.

The Motley Fool's disclosure policy last night found out what happens when you give a cat too much catnip. It has since learned its lesson.

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