Apple's threat to sue companies that use the word "Pod" in product names is reminiscent of the bully-boy tactics that made Microsoft so unpopular in the 1990sby P L / October 21, 2006 / Leave a comment
Peas in a Pod™
Fears that Apple aims to become the Microsoft of the music download business by using proprietary technology to lock in the dominance of iTunes have already attracted the scrutiny of Nordic competition watchdogs. So it is a worrying indication of Apple’s monopolistic intentions that it is laying legal claim to the word “Pod,” threatening to sue companies that use the word as part of their product names for infringing its iPod trademark. It is already taking action against the small start-up that makes the Profit Pod, an infrared scanner used to record activity on video-arcade machines. But lest Steve Jobs forget, Apple did not invent the word “pod.” By trying to appropriate it, he risks alienating millions of people who were once attracted to Apple’s apparently upstart brand, as well as fanning the fears of European trustbusters. After all, even Microsoft has not dared to lay claim to the word “Word.”
The company that became famous for its iconic Walkman continues to stumble in the era of the iPod. It was bad enough that Sony failed to anticipate the appeal of MP3 players and was usurped by Apple in the music-player market; now it may fall behind in games consoles too. Howard Stringer, the Welsh-American who took charge of the Japanese consumer electronics and entertainment giant last year, has so far ducked the challenge of shaking up Sony’s sprawling empire, opting instead to muddle along in the hope that its PlayStation 3 (PS3) games console and its Blu-ray standard for next-generation DVD players will restore its fortunes. But now Sony has had to delay the launch of the PS3 for the second time—until next March in Europe, leaving Microsoft’s Xbox 360 and Nintendo’s Wii a free run at the important Christmas market. Since the PS3 doubles up as a Blu-ray player—indeed, the delay is the result of problems in producing the blue lasers at the core of the Blu-ray technology—the setback is also a blow in Sony’s DVD-standard war with Toshiba’s HD-DVD. This risks becoming a rerun of the VHS-Betamax battle, where Sony’s technologically more sophisticated format ended up losing out. Stringer’s gamble—that thanks to its superior technology, Sony’s PS3 would beat its much cheaper rivals, and that this would propel its pricier Blu-ray format to victory in the DVD war—was always risky, but now it looks foolhardy. Sony’s once-vaunted technological prowess looks increasingly dodgy: witness the embarrassing recall by Dell and Apple of over 5m faulty Sony laptop batteries, after videos of them bursting into flames circulated widely on the internet. As concerns grow that the Blu-ray technology is also not quite up to scratch, Sony cannot afford to pin its recovery hopes on products that are late, expensive and potentially flawed. Unless Stringer embraces root-and-branch reform soon, Sony risks becoming an also-ran.
Can Europe keep growing?
When the US economy sneezes, the rest of the world catches a cold. Or so it used to be said. But not this time, we are told. With Germany, France and Britain all growing faster than America in the second quarter of 2006, Europeans are feeling in fine fettle. Jean-Claude Trichet, the head of the European Central Bank, seems unperturbed by the mounting evidence of a US slowdown and the increasing risk of a recession next year. He is worried instead that Europe’s resurgent growth will spark inflation, and has signalled that he plans to press on with interest rate rises. Officially, Gordon Brown also remains bullish that Britain’s economy is hardy enough to shake off a foreign incubus. But the chances that Europe’s economies can escape unscathed from an American recession are slim. For a start, many of the factors that are dragging the US down also weigh on European countries, such as high oil prices driving up inflation and interest rates, thereby threatening to prick many countries’ house-price bubbles. What’s more, a US recession would soon knock Asia’s export-led economies and thus deal a double blow to Germany and other European countries that remain dependent on export growth. Although Britain may initially appear more robust, it would surely suffer from a simultaneous slowdown in the US, Asia and the eurozone. Worse, the ECB’s complacency about the risk of contagion from America suggests that it will continue to raise interest rates—thereby also heightening the risk of a dollar collapse, and hence a growth-choking surge of the euro—until it is too late to prevent a eurozone recession. And with deficits in Germany, France and Britain already around 3 per cent of GDP, there would appear to be little scope for fiscal stimulus either.
Despite this gloomy outlook, the Dow is back near its record high, while European and Asian markets have also rebounded strongly. Optimistic investors appear to be betting that if US interest rates have peaked, this is positive for corporate profits and doubly so for share prices. But this is only part of the picture. If the reason interest rates are now expected to be lower than was previously thought is that the economy is slowing, the prospect of recession will hit companies’ earnings far more than lower interest rates will boost them. That can hardly be positive for share prices.