On Tuesday, May 20, Microsoft unveiled the Surface Pro 3 Tablet. You can view the webcast here.
Yesterday I reviewed and analyzed the introductory comments of Microsoft CEO, Satya Nadella. In essence, I concluded Microsoft was at war with itself — the conflicts inherent in Microsoft’s tri-part business strategy pitted its hardware products against its cloud customers and its hardware partners. That’s no way to run a business.
Today, I will explore why Microsoft’s grand strategy is self-contradictory and self-defeating. Why, in essence, Microsoft is playing a game of Roshambo (rock, paper, scissors) — Microsoft wants to simultaneously throw the rock, the paper and the scissors — with wholly predictable results.
Roshambo
In the game of Roshambo, each weapon (rock, paper, scissors) has a great strength along with a single fatal weakness. Rock easily defeats Scissors, but Paper defeats Rock; Scissors destroys Paper but succumbs to Rock; and Paper smothers Rock but is cut down by Scissors.
Instead of rock, paper and scissors, Microsoft has Cloud, Software, and Hardware. While each Microsoft product or service is strong on its own, combining all of Microsoft’s various services and products under the umbrella of one company actually makes those products weaker, not stronger. The strengths of one tool negate the strengths of the others and exposes its vulnerabilities as well.
— Microsofts’s cloud wants to be the friend of everybody (other than other cloud service providers). It wants to be ubiquitous and available across all platforms and running on all devices.
— Microsoft’s software (Windows) wants to be the friend of all computer hardware manufacturers. However, it wants nothing to do with competing operating systems, which it abhors. In other words, the ‘Paper’ that is Windows software attacks the very customers the ‘Rock’ that is Windows Cloud is trying to woo.
— Microsoft’s hardware wants to be the friend of the end user while directly competing with other hardware manufacturers. In Roshambo terms, the ‘Scissor’ that is the Surface Tablet cuts the hardware manufacturers that the ‘Paper’ that is Windows is trying to partner with.
Microsoft is trying to win in every engagement by throwing rock, paper and scissors on every occasion. Rather than helping Microsoft defeat their competitors, it has instead simply nullified its own strengths as it competes against its Cloud customers and its hardware partners.
Question: If the Surface Tablet hardware conflicts with both Microsoft’s nascent Cloud services and Microsoft’s venerable software licensing businesses, then why are they doing it? Well, it’s like the old lady who swallowed the fly. Allow me to explain.
There Was An Old Lady Who Swallowed A Fly
In the children’s poem, “There Was An Old Lady Who Swallowed a Fly,” an old lady, somewhat unsurprisingly, swallowed a fly. What was surprising was how she responded to that unfortunate turn of events. The old lady in the poem proceeded to swallow a variety of increasingly larger animals — including a spider, a bird, a cat, a dog, a cow and a horse — in order to rid herself of the fly and later, the consequences of ridding herself of the fly. Microsoft is acting just as foolishly.
The Fly Microsoft Swallowed
In January 2007 and again in January 2010, Apple announced the iPhone and the iPad, respectively. That was the fly Microsoft was forced to swallow. Ever since, Microsoft has been swallowing bigger and bigger strategic mistakes in order to rid itself of the fly that is mobile touch computing,
— They built Windows Phone 7, now 8, but it never gained any traction.
— They built Windows RT. Why is anyone’s guess. No one seems to know.
— They built Windows 8.
— They built Surface Tablet
Like the little old lady who swallowed a fly, each attempt by Microsoft to rid itself of the “fly” that is mobile touch computing, leads it to create a newer and bigger problems for itself. Things went from worse to worse until, at last, Microsoft didn’t know how to get rid of the cow that was Windows 8, so they swallowed the hardware horse that was the Surface Pro 3. They’re dead of course.
Microsoft Is Giving Us Excellent Answers To The Wrong Questions
The wise man doesn’t give the right answers, he poses the right questions. ~ Claude Levi-Strauss
I can almost hear the howls of outrage echoing across the internet in response to my suggestion the Surface Pro 3 is dead. Those protestors are missing the point and they’re missing it badly.
In his fine article entitled “It’s Time To Kill Surface“, Ben Thompson writes:
(I)t is not enough to consider whether or not Surface in isolation is a successful (i.e. profitable) product (although, like the Xbox for much of its existence, it’s not). Rather, we need to consider the overall goals for Surface… ~ Ben Thompson
What is the overall goal for the Surface Tablet? To answer that, we need to take a step back and view the forest rather than the trees.
Windows 8 is supposed to be supporting Microsoft. Instead, we now find Microsoft trying to prop up Windows 8 by designing hardware specifically optimized to work with Windows 8. ((“Wait,” I hear you saying. “Isn’t this exactly what Apple does?” No, it is not. Apple sells hardware and gives away their software for free. Microsoft is trying to sell BOTH its hardware AND its software.)) This is completely backwards and it can never work for two reasons.
First, as we’ve seen above, the Surface Tablet competes with Microsoft’s Cloud customers and its hardware partners. The more successful the Surface is, the worse the problem becomes.
Second, Microsoft, like the little old lady who swallowed the fly, has forgotten its original problem. The little old lady was supposed to be ridding herself of the fly. Microsoft was supposed to be ridding itself of the pain of mobile touch computing. Swallowing a bird, cat, dog, cow, horse had nothing to do with the fly — it had to do with fixing ever worsening decisions. Creating Surface also has nothing to do with the original problem (mobile). The Surface Tablet is an attempt to fix Windows 8, which was an attempt to fix Windows 7’s inability to work on tablets, etc, etc, etc. In no way does the Surface Tablet make Microsoft better in the mobile space. In fact, the Surface Pro 3 is clearly an attempt to move AWAY from the mobile space.
So, again — and this is crucial — no matter how successful the sales of the Surface Tablet may become, those sales won’t be fixing the problem that Microsoft is supposed to be solving i.e, Mobile Computing.
Conclusion
The future ain’t what it used to be. ~ Yogi Berra
QUESTION: Should Microsoft be building its own hardware and thereby poisoning its relationships with its Cloud customers, gutting its hardware partners, and virtually destroying its Windows licensing model, just to prop up a declining Windows franchise?
ANSWER: Well “duh”, of course not.
Abraham Maslow is famous for saying “when all you have is a hammer, every problem begins to look like a nail”. The Windows franchise has been Microsoft’s “hammer” for a long, long time. And with apologies to Mr. Maslow, in Microsoft’s case, the saying should be “when all you have is a hammer, every problem begins to look like a thumb”. That’s why Microsoft, in its desperate efforts to save its Windows cash cow, keeps painfully hammering itself.
Microsoft’s Surface tablet harms its efforts to build a new cash cow in the Cloud and it actually attacks and corrupts the very Windows business it is supposed to saving! The Surface 2-in-1 Tablet is not, as its proponents claim, the best of all worlds — strategically, it’s the worst of all worlds.
If you find yourself in a hole, the first thing to do is stop diggin’. ~ Cowboy wisdom
Microsoft needs to kill the Surface and they need to do it as soon as possible. The further down the hardware path they go, they further back they’ll have to run when they realize just how wrong they’ve been
If the answer is wrong, fix the question. ((Excerpt From: C. Michel. “Life Quotes.” C. Michel, 2012. iBooks.))
Microsoft is giving the right answers to the wrong questions. They don’t need any more “right” answers, like the Surface. What they need is to change their questions.
What if Microsoft moved away from mobile completely i.e. “Proper” laptop?
Why ever would they want to move away from mobile – where all the growth is – and towards PCs which are a fading category?
pic.twitter.com/syXsJo5PPm
“There is a super-important role [for the Mac] that will always be,” Schiller said. “We don’t see an end to that role. There’s a role for the Mac as far as our eye can see. A role in conjunction with smartphones and tablets, that allows you to make the choice of what you want to use. Our view is, the Mac keeps going forever, because the differences it brings are really valuable.”
Kyle, you’re missing my point, perhaps because I am not explaining myself very well.
I think that there is a lot of juice left in the old PC market. However, Windows ALREADY dominates that market. Windows 8 and the Surface were supposed to be Microsoft’s vehicle for entering the TABLET marketplace. Even if the Surface were so successful that it blew every other PC design out of the water and came to dominate the laptop market, it would STILL be a strategic failure because it wouldn’t be taking Microsoft where they need to go.
If RT is dead, Windows Phone is dead, and Xbox and Surface are trains to nowhere, the only growth story for Microsoft seems to be Azure on every iPad app’s backend.
If the desktop computer is not going away, yet simultaneously OEM licensing is becoming less valuable, what are they to do?
I would say that Azure and Cloud services, like Azure, are Microsoft’s future. The Cloud is a “layer” that rests above all operating systems and can serve all operating systems. Microsoft wants to dominate the Cloud. Anything that holds them back from getting there needs to be jettisoned.
Including Windows?
Here’s a quote from Steve Jobs when he was exiled from Apple:
If I were running Apple, I would milk the Macintosh for all it’s worth and get busy on the next great thing. The PC wars are over. Done. Microsoft won a long time ago. ~ Steve Jobs [Observation when running Pixar]
Microsoft needs to milk Windows for all it’s worth and get busy on the next great thing. And yes, if Windows gets in the way of whatever Microsoft has planned for its future, than the products that are going to sustain future Microsoft, not Windows, need to receive priority.
When I read the word Windows it actually makes me laugh, because in my view Windows equals ANCIENT PRODUCT. I don’t see Ford still promoting the Model T.
Windows may be very ancient in tech terms, but it is still bringing in very new dollars for Microsoft . It’s easy for me to tell Microsoft to do things that will hurt their cash cows, but I won’t suffer the consequences as the board, employees and stockholders go nuts.
Still, Microsoft needs to think long-term or – as absurd as it sounds – they won’t have one. Windows is, as you say, ancient history. Microsoft needs to move forward and products like the Surface that seek to prop up the old instead of building on the new aren’t helping.
Especially Windows. Other than a handful of geeks and IT folks, most people really, really, really don’t like Windows.
“Other than a handful of geeks and IT folks, most people really, really, really don’t like Windows” – Space Gorilla
I strongly suspect that is true. And I strongly suspect that Ballmer never got that. I think he confused ubiquity with love. He truly believed that Windows was loved.
One of the reasons why Apple’s success always baffled him.
Because their heart lies in the days when they were dominant.
When you say mobile you really need to distinguish, because growth in tablets appears to be stagnating already. Neither Tablets, nor laptops, are going away. Now that tablets are a significant part of the market, we will reach a new stable market share base for each, where they will both grow slowly going forward.
They need to be in both markets.
More importantly they need to be in Phones, because that is where the real growth and money is.
I know that I am in the minority, but I think that there is plenty of growth left in the tablet space. Even if I’m wrong, the tablet space is growing while the PC space is shrinking. Microsoft needs to be in tablets and the Surface is is a step back towards PCs, not a step forward toward tablets.
I also disagree with you that Microsoft needs to be in phones because that ship has and Microsoft has been left standing on the dock. What Microsoft needs to do next is to 1) Milk Windows and Office for all they’re worth; 2) Create the “next great things (Cloud services, right?): and 3) Stop shooting itself in the foot.
” the tablet space is growing while the PC space is shrinking.”
Is it really shrinking for Microsoft though? The PC market is hurting, because fewer PCs are being sold every year than the year before. MS has in the past hitched their software business to the hardware business because that was easy and simple and people were buying new computers every couple of years anyway. But they don’t have to hitch it to that, and with office 365 and the new annual updates to Windows, they’re moving away from that method of selling their software.
Sure, MS has a short-term problem of transitioning away from making money by bundling their software with every hardware purchase to making money by selling people this year’s software. But they don’t have to depend on hardware sales to survive — once they stop selling a sticker on the side of every computer and start selling an annual service contract to every computer user, then it doesn’t matter to them how much the annual sales of PCs decline as long as the total installed base of PCs in the world stays stable or continues to rise.
PC sales have been hurting for a while now. On the one hand, people (mostly consumers) are buying tablets rather than PCs, and on the other, both people and businesses are deferring upgrading to new PC hardware because the old hardware still works and still does an acceptable job of doing all the stuff it’s asked to do.
The first one is real shrinkage. The second is not shrinkage but rather a slowdown as the short hardware upgrade cycle of the past doubles or triples in duration. Figuring out how much of the market contraction we’ve been seeing the past few years is due to real and permanent shrinkage vs how much of it is due to the hardware cycle stretching out is not easy.
Just thinking about the kinds of work that need to be done in offices, I think it’s highly unlikely that very many businesses are going to shift away from a Keyboard/mouse/monitor setup to a touchscreen/virtual keyboard setup. Which means the installed base of PCs is going to stay stable or continue to rise (more slowly than in the past). Which means as long as Microsoft can continue to produce PC software that businesses want to use, their market isn’t going to be shrinking.
Unfortunately, MS has depended for far too long on monopoly lock-in to sell their software. That lock-in is getting more and more brittle as more and more free/cheap alternatives to office appear, and as more and more businesses decide “screw this, we’ll just keep using the software we already have.” Whether or not MS *can* start making software that businesses will *want* to use is a huge question.
With Microsoft owning 95% of the PC market, Office was a shoe-in and became even more profitable for Microsoft than Windows. However, there is no more operating system lock-in. The Cloud resides above the operating system and allows us to pick and choose the software that works best for us.
Now that Office is subject to competition I believe it will rapidly lose its unique status as the one and only way for businesses to do business. Many, perhaps most, disagree. I am confident that time will prove me right. Then again, I’ve been confident before…
Or maybe they are both flatlining:
http://1.bp.blogspot.com/-0sUg4JVwjRk/U2xmtCchmAI/AAAAAAAAVzk/L6MvPdzjM3k/s1600/Tablets+vs.+PCs.png
Some interesting info in this story:
http://thenextweb.com/insider/2014/05/05/smartphones-the-silent-killer-of-the-web/
It is looking more like Tablets are for older people, who are looking for a more convenient device to give them a big web browser for the net, like they are used to from PC’s, but they really aren’t catching on with young people, the majority of which are cell phone centric in connecting to the web, which is already more convenient than using a tablet. Since they younger are already one a more convenient form factor, tablets are not a big draw for them.
This is even more the case when you have a 5″+ phones, the tablet jump is even less necessary. I really do see Phones putting stopper on tablet growth.
Microsoft are nowhere in either tablets/phones, but phones are hugely more important that tablets.
Also Microsoft phones have none of the legacy/split OS issues that their tablets do.
Also Microsoft is raking in profits. They can afford to attempt to get to get third place to enough share to have some relevance, along with funding cloud services etc…
Five years from now, I am sure Microsoft will still be chasing all these markets.
“It is looking more like Tablets are for older people, who are looking for a more convenient device to give them a big web browser for the net, like they are used to from PC’s, but they really aren’t catching on with young people” ~ Defendor
I read that article too and I don’t agree with that conclusion at all. Kids have phones because they can only afford one deceive and are hyper-mobile. The group to look at are the twenty-somethings and they’re rapidly moving to tablets.
The fact that older people have adopted tablets first does not make tablets a backwater related to the aged. On the contrary, it shows that tablets will meet with very little resistance as they take over the role of computing for most people.
The cries that the tablet has peaked or that sales are capped are not only premature they are, in my opinion, dead wrong.
I see this with my kids and their friends (all teenagers). They get an iPod Touch, and when they can afford it they get an iPhone, and when they can afford more they also get an iPad.
From a business analysis perspective, you may well be right. I’m not qualified, or interested enough to judge. Time will tell.
Where I do care, greatly, is how things impact me as a customer and where “things are going”. I acknowledge that business practices do impact me, but I can only very weakly influence them with my purchasing decisions. It’s a binary yes or no.
Being that a computing environment consists of several aspects: hardware, OS, applications, retail, and content, I’ve struggled with what exactly it is you mean by a vertical business model. Clearly these are broad environments. Today’s post hit a light bulb! It comes down to ownership.
In the Apple sphere, especially under iOS, Apple owns every aspect of the environment. They are the ultimate arbiter. In the PC world, we have MS “striving” to own everything. The difference is on how they get/got there. One can assume Apple has a “moral superiority” from a business practice perspective because they built it that way, whereas MS achieved past dominance via coercion over other companies. If you look at the macro view they both coerce. Where it impacts me is that MS coerces other companies (thus me indirectly), whereas Apple has direct user control (thus me directly).
Switching gears, and at the peril of praising MS (which I’m not)…
I’ve said before that Tablets in general, are the evolution of the netbook. In that regard the market has spoken. Mobile computing raised the floor. This is not intended as a dig. If a tablet suffices for your needs, then get a tablet. I always though the truck analogy of mobile versus PC to be based on a false assumption. Rather, I consider desktops to be “on road” vehicles and mobile to be “off road” vehicles. Laptops are in between. I see the SP3 as one of the best compromises between those two extremes. If you want more than a tablet, and are willing to put up with slightly less in a laptop, it’s not a bad choice on paper (until I see it). The SP3 (and other dual mode devices) are the evolution of the Ultrabook, which has many of the same compromises between extremes.
Still it’s a full blown PC with a tablet mode. This gives:
-More user control.
-Much faster CPU’s, memory, and storage.
-Freedom to buy from where you choose (except under Metro-same criticisms apply), thus the freedom to buy what you want.
In Jobsian terms, MS is saying to their OEMS “What you guys are building is s*it, here’s a model. Copy it enhance it, make it less expensive, but do something better”. One could call that leadership.
You are, in my opinion, asking the wrong questions. You are asking questions like: “Is this a good product?” and “Is this a product that consumers will like?” and “Will Microsoft sell a lot of these?” I don’t care what the answers to these questions are and Microsoft shouldn’t care either.
The questions that Microsoft should be asking are: “Is this going to be a ground-breaking category or merely a niche?” (Microsoft cannot afford to dominate a niche if if means abandoning the mainstream) and “Is this consistent with our priorities and will it help to promote those priorities?” The Surface could become the greatest PC product in the world but being the greatest in a diminishing market is not the goal. The goal is for Microsoft to create a new market that will match and eventually eclipse the current Windows and Office markets. The Surface ain’t gonna do that.
I think we can agree that it’s not a ground breaking category. It’s an evolution. The only ground breaking devices In the past several years (IMO) are GPS and the original iPhone.
Agreed. It is, in my opinion, a niche, not a category. And Microsoft needs to stop focusing on niche products and start focusing on their next big thing.
The Surface is like the Xbox — no matter how many units Microsoft sells and no matter how successful it is, all they are doing is dominating a sinking market. It’s like acquiring the best deck chair on the Titanic.
I think you need to separate their back-office and cloud products from Windows 8, Surface, Windows Phone, Bing, and Xbox One. The first group doesn’t appear to be in trouble, the second group definitely is, and I don’t believe Nadella will do much to help the second group.
I do separate Microsofts cloud products from Windows 8 and I thought (at least in my head) that I had made that clear.
Agreed. It is, in my opinion, a niche, not a category. And Microsoft needs to stop focusing on niche products and start focusing on their next big thing.
The Surface is like the Xbox — no matter how many units Microsoft sells and no matter how successful it is, all they are doing is dominating a sinking market. It’s like acquiring the best deck chair on the Titanic.
I’d say this is the best comment on the Surface.
Apple has some similar conflicts. Their biggest strength has, in my opinion, been that their goals have been aligned with their customers’ goals, rather than those of advertisers, enterprises, and cell companies. This has given them a pure incentive to make the best product they can for the end user. But lately they are increasingly conflicted.
For example, iTunes is cross platform, since that promotes iPod and iOS (ahead of Mac), whereas FaceTime isn’t cross platform (as was promised), which is worse for users. No in-app purchase for iOS Kindle protects Apple’s profit model, but is a worse experience for the user. In fact, a break-even revenue share for all content would make more available more conveniently (maximizing hardware value), but they’ve gotten used to making money on this. Apple has the resources to disintermediate content production and distribution but hasn’t, so cable TV persists. And it would be in their customers’ interest to lower prices and add services rather than to return hundreds of billions of dollars to shareholders. So their focus on the end user has certainly softened.
“Apple has some similar conflicts”
Normm, you make some great points and I’ve been working on an article on just this topic.
While I agree with most everything you say in your post, I disagree with you in one major way. Apple knows that iTunes is holding them back and they’re trying hard to figure out how to move away from it. Microsoft, on the other hand, seems desperate to maintain their Windows franchise.
Some problems are hard. But the problems you’re not even trying to fix are impossibly hard.
“Apple has the resources to disintermediate content production and distribution.”
If you mean that Apple has the ability to disrupt content production and distribution, I don’t agree at all. Content is king, and those who create content (and those in a tight partnership with content creators) are not going to change for anyone unless they want to. They sit at the top of the mountain.
Nice job on this two parter. I’ve been thinking about it for a few days now. I think you hit all the difficult points for MS. They really are fighting against themselves. But quite frankly, the way they built their empire, there really is no one else to fight. No one was fighting them. Everyone just went around them or went a different direction altogether. With the internet, it wasn’t hard to catch up because it was a new direction built on software. This direction is built on hardware. But none of their hardware partners caught on, either. They were strapped to MS for software, so they couldn’t adjust if they wanted to, at least not with Windows. Catch 22. They have met the enemy, and it is them. It is easier to beat competitors. Harder to beat a paradigm.
Joe
We always follow your beautiful content, I look forward to the continuation.