Innovators Were the Big Winners in 2006

By Rob Pegoraro
Sunday, December 31, 2006

To succeed, computing and electronics firms need to reinvent themselves regularly, not just their products. Doing business in the same old way only invites competitors to leap ahead.

Consider the firms that were willing to rip up their own scripts this year, such as Google and Apple Computer. They were often rewarded with dramatic success, while those that couldn't play against type, such as Microsoft and most of the big movie studies, fell behind.

Google turned out to be one of the most aggressive innovators of this year. Had the company motored through 2006 on autopilot, it likely would have remained a fine Web search engine. Instead, it accelerated its software-development efforts with free, frequently improved releases, such as the Google Desktop search tool, the Picasa photo editor and the Google Pack of Internet and media software. The company also introduced an assortment of simple sites that offer free calendar, spreadsheet and writing tools. They're not fancy, but are far simpler and cheaper than Microsoft Office.

Apple also surprised the world in 2006. In January, only six months after announcing its decision to switch from its existing PowerPC processors to Intel chips, the company shipped its first Intel-powered models -- and by October, it had finished that transition. At the same time, Apple persuaded most developers of Macintosh software to make the switch to writing for Intel chips, which can't have been an easy sell. But most quickly rewrote their programs, earning impressive gains in performance. Apple's Intel adoption yielded another benefit: With extra software from Apple and other companies, new Macs run Windows programs as fast as a PC can.

Apple, whose fortunes have been rising with the popularity of its iPod, became even more of a force in online media this year by continuing to dominate music and TV-show downloads -- and then adding movies to its iTunes Store.

But video downloads at iTunes were dwarfed by clips produced (or just copied and uploaded) by everyday users at YouTube and rival sites. No cable or satellite-TV service had as much to watch as the Web of 2006.

That should be a lesson to any company doing business online: Nothing is as attractive to users as other people. Whether it's a YouTube video clip, a MySpace or Facebook page, or a Skype videophone call, the best reason to go online is your fellow humans. And because people's tastes are so diverse, companies that try to package their creative outburst into little boxes are unlikely to succeed.

AOL ended its own attempt to run a gated community online in August, allowing free access and finally merging its content with the Web at large. By casting aside one of its core tenets -- charging for its content and limiting access to subscribers -- AOL may have preserved its viability.

Wireless-phone carriers, however, appear determined to repeat AOL's error by only allowing certain, favored sources of media on their networks. This is classic phone-company bossiness, but the paucity of competing mobile-broadband options may let them get away with it.

Movie studios were another contingent that refused to learn in 2006. Even as TV networks finally moved to put their content online, the film industry kept limiting movie downloads to expensive, tightly restricted services that appeal only to viewers who are unable or unwilling to go to a regular video store or open a Netflix envelope.

It's especially critical for studios to stop this now that DVD players outnumber VHS players in U.S. homes and disc sales are leveling off. No new recorded format is set to replace the DVD -- certainly not when users must pick between two competing, incompatible, expensive types of high-definition disc -- so Hollywood will have to meet its viewers online.

Microsoft, traditionally the one company nobody can afford to ignore, found itself dangerously close to becoming irrelevant in 2006 because it, too, fell prey to old habits. Its two most-anticipated, most-delayed products, Windows Vista and Microsoft Office 2007, slipped even further behind schedule this year. These flagship releases now won't land in stores until the end of January.

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