Why The Wheels Are Falling Off Microsoft

by John Kirk   |   December 6th, 2012

This week, highly respected web and technolgy analyst, Mary Meeker, released her end of the year 2012 report on internet trends. The slide deck is 88 slides long and is highly recommended. You can view it here.

As I reviewed Ms. Meeker’s slides, some thoughts on Microsoft’s current prediciment and future prospects jumped out at me. I thought I would use the slides to help illustrate and examine those thoughts.

1. iPods, iPhones, iPads

Take a long hard look at the graph, above. That little green sliver you see represents the growth of the iPod. The very same iPod that powered Apple from near-bankruptcy to a genuine tech contender in less than five years.

Now take a good hard look at the much larger red portion of the graph. That represents the iPhone. The iPhone was the device that rocketed Apple from just one of many to the largest tech company, then the largest company, by market cap, in the free world. For context, that red portion of the graph, alone, is now worth more than all of Microsoft put together.

Now look at the much, much larger blue portion of the graph. Take a long, hard look. Now look at it again. That blue ramp represents the growth of the iPad. It’s growing at three times the rate of the iPhone. Three Times. If you are not awe-struck by the iPad’s rate of adoption, well, you should be.

If you want to know why Appe is rapidly expanding its influence in computing – and why Microsoft is scrambling to catch up – look no further. The above graph says it all.

2. Android And iPhone Adoption

Most people look at the above graph and conclude that the iPhone is in trouble. But you’ll notice that the iPhone is still growing in real terms.

Do you know who’s really in trouble? Anyone not named Samsung and Apple, that’s who. Apple is doing just fine, taking in most of the industry’s profits. Samsung is doing just fine. Google? Not so much. All that market share and little to no profit to show for it has to be worrisome. But this article isn’t about Google. This article is about Microsoft. And no matter how closely you scour the above graph you won’t find a Microsoft product on it anywhere.

(Chart via AllThingsD)

3. Microsoft’s Minuscule Phone Market Share

According to some reports, Microsoft’s phone market share may actually be falling. In the past six years, Microsoft has managed to take its 12% share of the mobile phone market, combine it with Nokia’s 30% share, and convertert it into Windows Phone’s current 2% market share. That’s reverse alchemy – like turning gold into lead.

Steve Ballmer recently claimed that Windows Phone was selling four times faster than it was a year ago. But four times very little is still very little. Microsoft sold 2.8 million Windows phones a year ago. In the same quarter, Apple sold 35 million phones and there were roughly 123 million Android phones sold. So yeah, Microsoft is selling more phones. But so is everyone else that matters.

4. Operating Systems

People think that Microsoft’s Windows is still a powerhouse because it runs 90% of the world’s personal computers. That’s nonsense. Take a look at the chart, above. When you combine phones and tablets and notebooks and desktops, Windows’s only runs on 35% of the world’s personal computers. Android already runs on more personal computers than Windows does and iOS is expected to pass Windows by the end of 2012.

Just as importantly, look at the direction in which Windows is trending. Windows runs almost exclusively on notebooks and desktops, which are a rapidly declining portion of the market. If Windows doesn’t escape its notebook and desktop base and spread to phones and tablets, it is rapidly headed for niche status.

5. Smartphones + Tablets > Notebooks + Desktops

I know that the above graph has a legend, but let me spell this out so that there’s no mistaking the significance of what you’re seeing. The orange portion of the graph represents desktop PCs. The blue portion of the graph represents notebook PCs. Look at how those two portions, combined, are shrinking while the green – representing smartphones – and the yellow – representing tablets – are rapidly growing.

If you look at the above chart, you can clearly see Microsoft’s dilemma. Even if Windows were to power each and every notebook (blue) and desktop (orange) computer made going forward – which they won’t – their share of the market would soon dwindle to near nothingness. Microsoft NEEDS to get their operating system onto phones and tablets and they NEED to do it now.

6. Microsoft Isn’t Even Trying

Here’s the thing. Microsoft isn’t even trying to break into the pure tablet (yellow) portion of the market. Instead, they’re trying to create a hybid device, a new category, a new color, if you will, on the chart above.

In July, I wrote an article entitled: “The PC is the Titanic and the Tablet is the Iceberg. Any Questions?” The purpose of that article was to demonstrate the multitude of tasks that could be done well by a tablet but poorly or not at all by a traditional notebook computer. Windows 8 tablets – with their 16:9 aspect ratio, their desktop mode and their reliance upon keyboards – fall far closer to the notebook than they do to the tablet. One can’t help but feel that, even now, Microsoft still doesn’t totally believe in the stand-alone tablet form factor. Windows 8 tablets are notebooks first – and tablets only in emergencies.

After failing to field a competitor to the iPad for two and a half years, Microsoft is now ceding the tablet market (yellow) to Apple and the rest of the industry – yet again.

7. Conclusion

Microsoft faces a host of problems in the the years to come. Their competitors are far ahead of them in phones and tablets. Their bastion of strength – the notebook and the desktop – is an ever shrinking island. And their strategy to compete in the tablet market is, in my opinion, fatally flawed because it doesn’t even attempt to create a true tablet competitor.

Take a look at that last graph again. The green and the yellow portions are the future of computing. And in that future, Microsoft is nowhere to be found.

John Kirk

John R. Kirk is a recovering attorney. He has also worked as a financial advisor and a business coach. His love affair with computing started with his purchase of the original Mac in 1985. His primary interest is the field of personal computing (which includes phones, tablets, notebooks and desktops) and his primary focus is on long-term business strategies: What makes a company unique; How do those unique qualities aid or inhibit the success of the company; and why don’t (or can’t) other companies adopt the successful attributes of their competitors?
  • steve_wildstrom

    “Even if Windows were to power each and every notebook (blue) and desktop (orange) computer made going forward – which they won’t – their share of the market would soon dwindle to near nothingness.”

    While I don’t disagree with anything you say in this piece, I think you fall a bit into the market-share-is-destiny trap you have done so much to debunk. Meeker’s chart shows a PC market continuing at just south of 400 million units a year. That ain’t nothingness. Microsoft has big problems, both with growth and maintaining margins in existing markets, but it is not about to disappear into oblivion.

    • http://twitter.com/M_Gauche James King

      I agree with your point but Microsoft’s near absence in nascent markets makes its desktop/laptop franchise vulnerable too. With traditional PCs becoming less important, one of the key factors in Windows’ barrier to entry diminishes. The less important Windows becomes in the overall tech landscape then the less important it becomes on PCs. All of a sudden, Macs and even Linux start to look a lot more attractive. But, more importantly, it opens the door for a hungry upstart that is willing to truly innovate on traditional PCs. There is still a tremendous amount of innovation that could be performed in the traditional PC space. Microsoft has been pedaling in place for quite some time now. The opportunity is ripe for its PC dominance to truly be challenged.

      • Brad Mello

        Please forgive me, but your ignorant comments seem to be flooding this space.

        “If most PC’s were touch-enabled that answer might be different”. – James King

        “The Win8 offers what is actually a unique mobile tablet solution, from a consumer point of view it enables people create truly original content not just read others.” – Josh Hart

        James, What josh has said here is crucial. People want to be productive, deep down people know that they want a hybrid laptop replacement that runs windows 8. It’s going to fill the void of people holding out from getting tablets because they are purely media consumption devices. This is where college students come into play. We are going to jump ship from Macbooks to windows 8 hybrid devices and as such expect the businesses we work for in 5 years to cater to our needs in this market. I think the business strategy microsoft is employing here has to start with a very dedicated group of people that are willing to “preach” for this new cause.

        • jfutral

          “deep down people know that they want a hybrid laptop replacement that runs windows 8.”

          I’m not sure where you get this idea. I don’t want either, laptop replacement or Windows 8. I also do a lot of CAD work. I’m happy to do most of it on my laptop and carry my iPad onsite. I actually do a lot of productivity work on my iPad. A hardware solution is not what is missing. What is missing is “break with tradition” thinking. By definition, this is not a hybrid.

          So, I think your idea that tablets are _purely_ media consumption devices is made out of ignorance. Predominately? Yes. but that is not because of lack of ability, only because that is the way people are primarily choosing use them. Humans are an adaptive bunch. Solutions and new ways of doing things, like digitized input, will occur.

          So I think you miss Microsofts Strategy. The hybrid, from all I can see, is purely a transitional play. I think on its surface (pun intended) that is a smart move on their part. There are enough people who are stuck with old ways of doing things that MS can make some money from them. At the same time they can acclimate their users to MS’s vision of the future when their customers are ready to make the leap.

          However, there is one significant issue, Windows RT and Windows 8 are not exactly cross compatible. I played around with a Surface for all the reasons you seem to think it will be successful. But all the Windows software I use a lot of legacy stuff. None of it will operate under RT. And even my current software (Vectorworks 2013 and Lightwright 5) will not run with RT. So which is the future? RT or W8? As much as I wanted to like the Surface and as much as I actually did like the Surface, I can’t use it. It is a non-starter for me.

          MS is undermining their own future, which is what happens when holding onto the past is of prime importance.

          And when you become that fresh, young graduate, good luck expecting your new employer to cater to _your_ needs. Let me know how that goes for you.

          Joe

          • Brad Mello

            Joe,

            The hybrid technology that I speak of is _NOT_ Windows RT. The Microsoft surface that is launching in early 2013 is the one that I am referring to; the one that CAN run legacy apps.

            *************
            http://www.microsoft.com/Surface/en-US/surface-with-windows-rt/help-me-choose

            *************

            I would almost go as far as to say that the Surface running Windows RT was Microsoft’s way of catering to users seeking to consume. With the release of the Surface running Windows 8 Pro (Notice how Microsoft worded it), I believe Microsoft is attempting to kickstart the market for hybrid laptop/tablet replacements.

            http://www.dell.com/us/p/xps-12-l221x/pd

            http://www.lenovo.com/products/us/laptop/ideapad/yoga/yoga-13/

            http://store.sony.com/c/VAIO-Duo-11-Ultrabook-Laptops/en/c/S_D_SERIES_PAGE

            God damn, look at the ad campaign for Acer ultrabooks: http://us.acer.com/ac/en/US/content/group/ultrabooks

            From HP Website under Windows 8 Ultrabook Category:

            “Business is
            constantly changing.
            Adjust accordingly.
            Work doesn’t always adapt to your style. So we designed an HP EliteBook that does. By designing an ultra-thin, full-performance Windows 81 notebook that transforms into a tablet, you can choose what works best in any situation. The HP EliteBook Revolve. It’s a whole new twist on getting more done.”

            I’m sorry that you have to resort to attacking my age, it is apparent that you don’t enjoy your career.

            “MS is undermining their own future, which is what happens when holding onto the past is of prime importance” – jfutral

            How is Microsoft undermining ANYTHING? Do you think they’re trying to make a fortune off the Surface? It sure does not seem that way to me. Windows 8 will be on every hybrid laptop in the future, RT on tablets and countless other software packages spread around every sector. Microsoft is just doing the right thing.

          • jfutral

            I hope you are correct about Surface coming in 2013. Like I said I actually liked what I saw and I think a lot of the criticism of even the RT Surface, from a user interface perspective, is a more specious than accurate.

            I think clinging to legacy applications, even though that is why I can’t use Surface, is a wrong move long term. Let legacy hardware handle legacy apps. I personally think they should go full on Windows RT. if that really is the future. If Win8 is the future dump RT. One dilutes the other. Or provide more differentiation like OS X and iOS. I think we both agree with Jobs that a tablet does not do away with the need for a PC.

            Otherwise, hybrid is purely a transitional play, not a future.

            I apologize if you feel I was attacking your age. I was not. I was, however, being snarky about your naïveté about potential employers catering to your needs. However, I did not say you are fooling yourself. I have no idea about you. You could be that phenom who a company just might cater to. That’s why I just said “good luck with that”.

            But you should be fine, though since engineering is predominantly Windows. As a father of a Georgia Tech grad, I was a bit surprised how agnostic GaTech’s policy toward platform choice. Plus I was surprised at how popular Apple products were with the student body.

          • Joe_HTH

            “But of my Windows software, I use a lot of legacy stuff.”

            None of that legacy software will run worth a damn on touch screen tablets either, because they weren’t built for it.

            “MS is undermining their own future”

            I don’t think most in the tech blogosphere care. There seems to be an intense hatred or dislike of Microsoft by those very same people.

    • FalKirk

      “I think you fall a bit into the market-share-is-destiny trap you have done so much to debunk.” – Steve Wildstrom

      Perhaps so. The difference, I think, is that much of Microsoft’s current value is based upon their monopoly position and the idea of Enterprise-wide compatibility across all devices. Remove these two buttresses and Windows market share might not just shrink, it might collapse.

      • steve_wildstrom

        I’m not saying all is well at Microsoft; it most certainly isn’t. But I think there is a tendency in the tech world to seriously underestimate Microsoft’s position in the enterprise, where extremely complex (read, difficult and expensive to replace) transactional systems are built on the infrastructure of Office, .NET, Exchange, SharePoint, etc. Schools, too, have a surprising amount of Microsoft dependency.

        This doesn’t protect Microsoft from erosion, but it does mean that collapse is extremely unlikely. Even IBM, in its darkest days, never faced a collapse of its core mainframe business, which remains extremely profitable to this day. It’s problem was erosion of its market in the face of minicomputers and later, PCs.

        I think Alfiejr, in his comment below, has it right. It has to continue to use the profits from its enterprise business to build new consumer business.

        • melci

          Trouble is, the corporate market is only 15% of the total PC market now compared to 60% back in 2000 according to Goldman Sachs.

          The corporate market just is not large enough for what you suggest.

          • steve_wildstrom

            You have to look not only at share but at the absolute size of the markets and the sort of profit margins you can get in them. I suspect that the 15% market today is bigger than the 60% market in 2000. Everyone has chased the consumer market for the past decade because that’s where the growth was, but there’s still a lot of money in enterprise. Ask IBM, Oracle, SAP, and even HP, which is making money in enterprise operations and nowhere else.

          • melci

            That’s possible.

            The point however is that the corporate market has far less influence on the bulk of the PC market than it used to have. Notice that Apple is making far greater profits from the consumer market than IBM, SAP or HP put together are making from the enterprise.

          • W. van Dam

            “The corporate market just is not large enough for what you suggest.” & “The point however is that the corporate market has far less influence on the bulk of the PC market than it used to have.”

            Apple was on the brink of bankruptcy when it put the iPod on the market.

            I’m sorry, but what you’re describing sounds like a poor excuse. The kind that is used to cover up the lack of a capacity to put highly attractive consumer products on the market.

          • melci

            Sorry? Not sure what you’re saying.

          • W. van Dam

            My point is that all this talk about market size & share is pretty irrelevant to the questions of whether or not Microsoft can stay alive, successfully recover, and even come back to a dominant position.

            If you were to appraise a fresh start up, would you look at it’s market share? Of course not! It has none (to speak of). Yet, start ups can turn into multi billion companies, such as Facebook, Google or Microsoft.

            Now about the reference to Apple in my previous comment. If profits and market share figures were a decisive factor in the capacity to develop great products – the kind that generate a lot of profit – , could Apple, being borderline irrelevant in terms of market share and nearly bankrupt to boot, have developed the iPod and grown into the dominant giant it is now?

          • melci

            Sure anything is always possible.

            However, I am addressing the argument that Microsoft can use their large presence in business to gain advantage in the consumer space.

            I have shown that with the corporate share of PC sales having shrunk to a tiny 15% of the market, this advantage has been severely compromised and does not provide the leverage it gave back in the glory days of Microsoft market dominance.

          • W. van Dam

            Ah, I think everyone here agrees with you.

            Steve commented that he agrees with Alfiejr (comment below), who clearly describes that MS is in all sorts of trouble, and ended with the statement that MS has to give up on their “embrace and extend” strategy and basically hope for the best with “hug and hold on.”. Alfiejr even stated that MS should port Office and their enterprise services to Android and iOS, or risk becoming irrelevant in the portable realm. That’s about minimizing damage, not creating advantage.

            To me it seemed the focus of Steve’s comment was actually in pointing out that while indeed the relative market share is smaller, the business market is still growing in absolute terms, and still making MS a profit. Furthermore, he pointed out that this profit is something MS can use to invest in consumer business. I’m not able to say whether that would be a good investment strategy, but it certainly is an option.

          • Joe_HTH

            He obviously doesn’t pay attention because Office will be coming to iOS and Android.

          • steve_wildstrom

            Apple was on the brink of bankruptcy in 1997. It got on the road to recovery with the successful introduction of the iMac in 1998 and by 2001, when it launched the iPod, was reasonably healthy if not yet thriving. By the way, Apple’s Q4:2001 financial release makes amusing reading in light of all that has happened.

          • Joe_HTH

            Microsoft helped bail their ass out, which was a mistake.

          • Mhe She

            This is a very good point about Apple’s profits. It is because of all the credit based buying that is happening in the developed world. Instead of productive companies like SAP, Oracle, and HP, companies that manufacture toys are making all the money!

          • melci

            Heh, funny as it is Microsoft who makes a dedicated game console not Apple. :-)

  • Rich

    I said it before…Microsoft has their head and heart in the 1990s. However I do think they’ve made some attempt to get modern. The problem is that that effort seems to have been immersed in confusion about how to go forward. Will they get un-confused?

  • Ronald

    I doubt Katy’s figures. IDC predicts that PC continue to grow at 7.1% until 2016.
    http://www.digikey.com/purchasingpro/us/en/articles/supply-chain/idc-downgrades-pc-forecast/1408

    • FalKirk

      I doubt Katy’s figures too. I think tablets (yellow) will grow even faster than she projects and desktops (orange) and notebooks (blue) will shrink even faster than she projects.

      • Ronald

        What data support your claim?

        • FalKirk

          That’s just my opinion, Ronald. I base it on the many reports and seemingly endless anecdotes I’ve read. Off the top of my head, and without doing any further research, let me give you three data points to support my opinion.

          1) Almost every time I read a projection from IDC, Gartner, etc, they consistently adjust their previous PC sales downward and their tablet sales upwards. In other words, they still haven’t caught on to the magnitude of the transition that we’re in.

          2) Slide #12 of Katy’s deck was a bar chart illustrating that “An impressive 29%+ of USA Adults Own Tablet/eReader, Up From 2% Less Than Three Years Ago.” That is a simply astonishing adoption rate.

          3) Slide #13 illustrated a survey that indicated that “iPad = 48% Of American Kids Want One For Christmas While 36% Want Mini…”

          Taken altogether with hundreds of other data points, I believe that tablet adoption – which is already growing at an astounding rate – is about to make another leap this year. Look, in particular, for the adoption of tablets to become nearly commonplace in schools this upcoming year.

          Time will tell if I am right or I am wrong. But I feel very confident that we’re only at the very beginning of the greatest computing revolution since the initial adoption of the personal computer.

          • symbolset

            Bingo

          • Ronald

            Regarding your 3 data points,

            1. IDC is not necessary right, and so is your source. But having one semi-accurate report is still better than endless anecdotes since quality matter more than quantaty.
            2.If 29% US adult own the tablet, it also mean that it is closer to saturation point. The US smartphone market is approaching saturation with 50% and I bet tablet penetration will be lower than tablet.
            3. Similar to 2, if most potential buyers own a tablet, what is the next incentive to upgrade when they already got retina display and quadcore? MTK has a 8-core chip using the ARM’s Big-little architecture. I guess
            only 4 smaller or bigger core will be turned on simultaneously? Anyway, it will only be minor improvement that won’t be compelling enough for upgrade.

            BTW, even quadcore is pretty useless for tablet since the OS and app do not need to support many threads. Most PC software don’t know how to use multi-core, not to mention the apps.

          • http://twitter.com/M_Gauche James King

            “The US smartphone market is approaching saturation with 50% and I bet tablet penetration will be lower than tablet.” – Ronald

            It could easily go in the opposite direction though. There are many factors that could propel tablets to an equal or greater saturation point, such as price, mobility in relation to computing power, etc. Moore’s Law is rapidly increasing the power of tablets to the point that they will soon be competitive with PCs in raw power. Imagine an iPad mini with the power of a desktop machine selling in the $300 range. That’s some compelling stuff. It means that almost EVERYONE, regardless of financial means, has a realistic chance of owing a REAL computer that they can keep with them at all times. Smartphones are becoming exceedingly powerful but their ergonomics limits them. Once a screen moves past a certain size, it becomes a tablet from an ergonomic standpoint, even if it has mobile phone capabilities. It could easily be argued that any device with a screen size over 6″ is a tablet, so that leaves a lot of room for “phablets” to swell the numbers of tablet users.

            With the mobility of smartphones and the power of PCs, tablets occupy a very interesting area in the computing spectrum, one that I think makes establishing conventional wisdom regarding them very difficult.

          • Ronald

            iPad is good for content consumption task but it definitely cannot match the processing power of desktop selling in $300 range. If one don’t need to do any serious work of content production, like writing a term paper or CAD/CAM design, tablet may be good enough.

            The small screen is also unproductive for serious work. Larger display for desktop can increase the productivity when you need to process lots of information.

            I cannot agree you optimism on tablet saturation point.

          • Brad Mello

            Agreed. Student influence on the market will be huge. I am an engineering student that needs the ability to write a term paper AND CAD/cam design on the go. It will only get more serious when supporters (read UNDERSTANDERS) of the tech happening right now enter the workforce. Microsoft is so confident in what they’re doing that they DON’T NEED A BACK UP PLAN.

            Again, angry birds is not the future, digitized input is.

          • lucascott

            You keep saying that like it’s some profound statement but it’s not. Far from it and it makes you look rather dumb that you are clinging to it as THE argument you are making. The two things are totally different realms of discussion. And there is a hell of a lot more going on with tablets (iPad or otherwise) than games, watching movies and reading books. Perhaps if you bothered to educate yourself you’d make a decent argument about this topic instead of parroting the same thing over and over like a modern remake of Rainman

          • Mark

            A good strategist will attempt to take the figurative “road less travelled”. But a prudent strategist always knows that their strategy is a theory about the future and as we live in a world of uncertainty and risk knows how to respond if their theory is wrong. Early information will always be anecdotal and, but it is the closest thing we have to leading indicators. Studies are historical with hopefully intelligent extrapolations thrown in.

            In this discussion what strikes me is that Microsoft has a strategy that concerns numerous pundits. The concern is not just that of having a weak theory of the future but little confidence that they will be even later to the ball if this turns out to be unfortunately true. What is Microdoft’s fall back? We don’t know and this is worrisome to many.

          • FalKirk

            I don’t think that we’re anyway close to the saturation point, Ronald. People are whining that computers are on the decline but they’ve got it all backwards. Desktops and notebooks are on the decline – but OVERALL computers are on a rapid incline.

            The key to understanding tablets is that they are doing tasks that previously couldn’t be done by computers before. For example, a tour guide can take a tablet with them whereas they could not have carried a laptop with them. There are a seemingly infinite number of new tasks that can be accomplished with tablets and phones and we’re only beginning to learn what those tasks are.

            Tablets aren’t anywhere near saturation – we’re only at the very beginning of our understanding off all that they can do and all the ways that we can use them.

          • Ronald

            “Desktops and notebooks are on the decline – but OVERALL computers are on a rapid incline” Falkirk.

            We better clarify to avoid misleading information. In relative terms, PC proportion decline rapidly. In absolute terms, the annual sales number may drop a bit this year.

            You have over-emphasize tablet’s role. Tablet can do many new task. But the old task won’t disappear. Consumer will choose whatever do the old task and new task efficiently. It is too early to assume tablet can replace PC now.

          • Brad Mello

            INDEED. Angry birds is not the future. Digitized input is. I feel terrible for flooding the comment space with these same words, but it must be done. The normal consumer does not understand these numbers. I wish I had the ability to become a technology analyst while still pursing engineering. The advancements biding their time are going to EXPLODE.

    • Defendor

      Worldwide there may be some growth left as there is still some catch up. But in the USA PC sales are consistently declining and think that trend will be followed world wide, sooner, rather than later.

      Black friday sales of Windows notebooks dropped 10% despite (or is that because of) the Windows 8 introduction.

      http://www.pcmag.com/article2/0,2817,2412831,00.asp

      I am critical of Windows 8, but given the massive ad spend, I would not have expected this steep of a drop right now.

  • http://twitter.com/M_Gauche James King

    “That’s reverse alchemy – like turning gold into lead.” – John Kirk

    Best line of the article IMO.

    Can’t argue with any of this at all. If I was Ballmer, I would have wet myself when I saw those charts.

  • http://twitter.com/qka qka

    A minor quibble with #1. The graph shows unit growth over the first 10 quarters (2.5 years) of each new products life. Did the iPhone really pass all of MS in the first 2.5 years? My understanding was that it took a year or two longer. The upshot is the same – MS was passed by the iPhone, and the iPad is dwarfing that.

    Otherwise, an interesting article, as usual.

    • FalKirk

      “Did the iPhone really pass all of MS in the first 2.5 years?” – qka

      No. I was not trying to imply that although I may inadvertently have done so. I can’t recall when the iPhone became more valuable than Microsoft, but I think it was only within the past year.

  • Defendor

    This is a very interesting article. But we are looking at old saturated markets vs new unsaturated rapidly growing markets.

    What do these markets look like in a few years when saturation is closer.

    Where does it settle in terms of ownership rate for a:
    Desktop/Laptop
    smartphone
    Tablet.

    What will the turnover rate be for the above?

    The desktop/Laptop market seems fully saturated now, and the turnover rate is likely quite slow and likely to remain that way. But that doesn’t mean they will fade rapidly.

    In a couple of years, I expect the tablet market will look similar. While we are in the initial burst right now of technology overhaul and market growth, once you have a quad core CPU and a retina type display, there will be scant reasons to upgrade a tablet at much higher pace than a laptop/desktop.

    Smartphone are likely to remain golden. They will have the highest ownership rates and the “subsidized” data plan model encourages a high turnover rate. It even holds margins high. It there is one place Microsoft really wants a piece of the pie (as does everyone), it is here.

    The tablets might be having their time in the sun right now, but IMO the real gold will continue to be the smartphone market as long as the subsidy model keep on encouraging rapid turnover, and propping up margins.

    • Ronald

      Every market has a life cycle. Most analysts are good at linear extrapolation but usually fail to predict the inflection point.

      It would be a billion-dollar answer if anyone can predict the saturation point of the tablet market.

      • Brad Mello

        You are in the midst of it right now. Angry birds is not the future. Digitized input is. Will competition drive prices down on Windows 8 hybrid devices? Microsoft sure hopes so. It sucks that they had to sell the surface for so much, as it limits the availability to the student market, which they respect and are trying to foster a relationship with.

  • Alfiejr

    MS’ true “bastion of strength” is its enterprise products and services – including the Office suite. that is the “IBM side” of its business, it’s very profitable, and it is solid for the long term.

    it’s the “consumer computer” side of its market that is being eaten away rapidly by all the new alternatives, especially portables, as shown above. and there is no hope there. trying to jam Windows somehow onto a tablet is simply crazy, and Windows Phone is just too late an entry into a very crowded race-to-the-bottom commodity market.

    there is one niche consumer market left for MS – the home media ecosystem market centered on the XBox. where now it basically competes well with Sony – but otherwise everyone else has access to all the same media company content.

    what should MS do?

    at least port Office and all its enterprise services and software to iOS and Android, to keep them fully relevant in the portable realm too.

    likewise, port all its XBox home media software and services to iOS and Android to expand the potential user base of its media ecosystem XBox and services.

    cancel the mis-begotten Surface tablets, and instead quickly produce a pure tablet version of the Windows Phone 8 OS (something like RT without the Windows gunk) that it can license to all the OEM’s who are looking for an alternative to Android.

    MS needs to realize it “can’t beat ‘em,” – too late – so it has to “join ‘em.” in the past, the MS goal was to “embrace and extend.” now it has to just “hug and hold on.”

    • FalKirk

      “MS’ true “bastion of strength” is its enterprise products and services – including the Office suite.” – Alfiejr

      Your post is strong, but I’m not as sanguine as you about the future of Office. I have written a rough draft on this and I may address this question further in a future article.

      • Alfiejr

        Thanks!

        • melci

          As I mention above, with the corporate PC market only being 15% of the PC market vs 60% back in 2000, that bastion of strength is a pale shadow of what it was…

          • Alfiejr

            no, it’s Server and all the other enterprise-only software/services that are the big cash cow for MS, not the mere OS sales. and Office is just icing on the cake.

          • W. van Dam

            You’re misunderstanding the context. That the corporate PC market is now 15% of the entire market does not change the fact that MS obtains most of its profit from the corporate PC market.

    • http://twitter.com/M_Gauche James King

      “hug and hold on.” – Alfiejr

      Loved that line. Your post was spot on, I agree on all fronts. However, I just don’t think Microsoft would legitimize other platforms by porting its software to them. MSFT doesn’t like any environment in which its products are subject to real competition. That’s why it tries to bring Windows en masse to every other form factor.

  • dr.no

    Maintenance of Monopoly is hard work.
    Microsoft has to bring its twin spoiled child to every party.
    If it didn’t it wouldn’t have a clear message to Corporation
    who keep paying for maintenance contracts.
    iPhone and iPad basically take Microsoft to 1990 when
    NeXT was trying to sell custom MIssion Critical Apps to Enterprise.
    Only difference is that Microsoft couldn’t use FUD and Bullying to
    keep the market from developing.

    Problem of Microsoft is that PC is not going to raise
    any productivity in Corporations. Touch on PC is not going to do that.
    Cloud may do that but Amazon, Google, IBM, etc are just as good.
    iphone does it because it is blackberry on steroid.
    Microsoft had no answer for Blackberry either.
    So Microsoft is being attacked in several fronts by several technology/companies
    while Microsoft is protecting the bread and butter with raising Exchange prices.

    • steve_wildstrom

      Microsoft didn’t need an answer for BlackBerry. BlackBerry Enterprise Server was built on top of Exchange and Outlook, which Microsoft really wanted to sell. And BlackBerrys complemented Windows rather than competed with it.

      • W. van Dam

        I guess the lesson here is to not only keep an eye on developments in your own market, but also on developments in the markets of your partners.

        • Brad Mello

          Or just create your own market. Surface. Hybrid laptop replacements. Grandmothers want media devices. I want a hybrid laptop.

  • def4

    “Microsoft still doesn’t totally believe in the stand-alone tablet form factor.”

    Microsoft doesn’t believe in anything. They just want to make money.
    As much as possible and as easily as possible.

    That’s why their strategy is not to compete by trying to build the best product or the cheapest good enough product for a particular set of tasks.
    Instead they try to shoehorn any advancement or breakthrough into their existing monopolies using their infamous “embrace, extend, extinguish” pattern.

    Combining Windows with touch in Windows 8/RT makes as much sense to the company and as little sense to consumers as combining iTunes with social in Ping.
    It may well end up being as successful.

    In spite of all of this, Microsoft is not yet in any massive immediate danger because their desktop operating system and office productivity software monopoly profits will continue to sustain them comfortably even while slowly shrinking.

    The other shoe will drop in 2014 when Apple will start to offer cheap computers running OS X on top of the same in house designed 64 bit ARM SoC will be powering the iPad at the time.
    A $200–400 Mac Mini and an $800 Retina MacBook Air will tag team with the $100–200 Chromebox and the $200–400 Chromebook (capable of running Android apps) to beat the stuffing out of the Wintel PC market, just like iOS and Android obliterated Symbian.
    Microsoft will have trouble responding to this if they continue to keep Windows RT locked down to Metro apps only.

    • Brad Mello

      The statement that Microsoft does not care about anything is ridiculous and unwarranted. The push that Microsoft is making towards student application development and education is crucial here. It has not gained recognition yet. I do not want a tablet in the traditional sense, most students agree with me here. Microsoft should NOT cave in and develop media-oriented tablets to compete with the market. Instead they should create a new market for themselves which is windows 8 and associated technologies. They had to introduce a device to do this for them, the Surface. If they didn’t, no one else would have. It’s too pricey still, but competition for hybrid laptop replacements will flood the market. Get a great userbase early with student supporters and then in 5 years when most college students enter the workforce they’re banging from the inside out for their companies to cater to windows 8 hybrid devices for productivity. I’m already sold (and it hasn’t even yet begun).

      • Mhe She

        Microsoft targeting Student population is OK, but it will lose on a big market if it does not produce media only devices. Consumers are all choosing media tablets over fully functional PCs.

  • Rich

    Tim Cook says “(We have) a maniacal focus on making the best products in the world…the absolute best products in the world.”

    Somehow I don’t see Steve Ballmer having the same focus.

    • lucascott

      How about simply the right product?

      Jobs and co figured out that there was a huge untapped market for folks that needed something that could do a few common computer like tasks (email, etc) but didn’t want the complexity of a full computer. From this the iPhone and iPad were born. With software built especially for it etc

      And yet Microsoft is still trying to shove a computer into a tablet. With computer software even

  • Alexcroce@me.com

    At some point MS will stop growing profits. When that happens, the great hollowing out of the company will begin, as in HP. That process, once begun, is irreversible.

  • steve_webb

    To paraphrase Presidential Candidate Bill Clinton, “It’s the software, stupid!”

    Microsoft is (was?) a software company. Their best products are Windows and Office. The WinTel combine turned the PC into an “Office” machine that enabled Microsoft to monopolize the corporate PC market.

    In 1997, I wrote that the Apple/Microsoft deal gave Apple five years to turn the Mac into a “not an Office” machine. Steve Jobs agreed. He said that Microsoft won the OS wars, but the truth is that Microsoft won the IT war. What did Apple do in those 5 years?

    Apple created iWork, Mail, and Safari to lessen its dependence on Microsoft; but it also created iLife, the first step in making the Mac a “not an Office” machine. It introduced the digital hub concept. When third parties did not hop on that bandwagon fast enough, Apple created the iPod.

    The iPod was (is) clearly “not an Office” machine! It is not even a “productivity” machine. The iPhone, on the other hand, IS a “productivity” machine (despite what the “haters” say). Steve Jobs called it “a mobile device”. For this conversation, think of it as an “outside the office” machine. Problem is, it did not stay outside the office. Traveling in pockets and purses, it made an end run around IT. The iPad did not even have to do that.

    The iPad is like the perfect cracker for the cheese that is mobile software. So why is the dominant (software) cheese maker, Microsoft, mostly absent from the dominant mobile platform? Some people might argue that Android is the dominant mobile platform, but that doesn’t change the validity of the question. Microsoft is mostly absent from Android, too.

    Microsoft should be making mobile software for these platforms, rather than hardware to compete with them. The problem is: Office is not mobile software, and Microsoft would rather have Office run everywhere, than invent new software. Thus the Surface is Microsoft’s attempt to transform the tablet into an “Office” machine.

    In fact, that is the problem with the PC, too. The reason the PC is on the decline is that comparatively few new applications are being developed for it. I should say comparatively few new applications uniquely suited to the PC are being developed. This is where Microsoft needs to lead the way. The PC industry does not need Microsoft to show them how to build a “toaster/refrigerator”.

    • melci

      Well said.

      Goldman says that in 2000, 60% of computing purchases were from corporations. Today, it’s only 15%.

      Microsoft is still trying to peddle good old Office, but the world has indeed moved on.

      • Joe_HTH

        “Microsoft is still trying to peddle good old Office, but the world has indeed moved on.”

        LOL! I won’t even bother blowing up this idiot comment.

        • melci

          How about leaving off the personal attacks and giving us a logical rebuttal? When only 15% of purchases are from corporations, it is evident that the market’s emphasis is indeed not Office any more.

    • Brad Mello

      Thank you for this. No one really wants to play angry birds anyway. Digitized input is the future of content creation. Competition for the hybrid laptop market specializing in content creation and processing power will become a force to be reckoned with.

      • steve_wildstrom

        What, exactly, do you mean by ‘digitized input’? The most efficient method we have for entering text or numerical information is still typing, for those who type reasonably well.

        I would love to see an easier method for entering mathematical notation. I have yet to see a handwriting recognitions system that works acceptably for math, The best I know is LaTeX, but it is a difficult to learn markup language and I haven’t seen a reasonable tablet implementation. It doesn’t even work that well on small-screen laptops.

        • Brad Mello
          • steve_wildstrom

            I have used the Microsoft math Input Panel and it doesn’t work very well and cannot handle very complicated expressions. I suppose if I practices with it enough, I could lern to write more the way it want me to, but I know TeX well enough that it is faster. There’s also the Equation Editor in Office, a somewhat stripped-down version of MathType. It’s a point-and-click solution with a shallower learning urve than TeX, but less flexibility and ultimately slower. TeX can be very fast once you know what you are doing, but you can also fuss endlessly geting things perfect.

          • Brad Mello

            Steve,

            I just realized that the Microsoft math input panel was actually part of Windows 7 as well. Do you think that the touch nature of Windows 8 will usher along advancements in mathematical input technology?

          • GrapeBunch

            What’s the first thing to try? Pi-r-squared. MIP got the Pi immediately. The squared was a bit more of a pain. But try as I might, it did not want to give r, even in the alternatives list. Capital gamma yes, r no. In a word, lame. MS’s monopoly got them into bad habits, such as: highest priority given to making competitors’ software not work “Windows not out the door, until DR-DOS don’t work no more.”; crippling applications so that there was always a good reason for the customer to buy the next release and x+2; abysmal documentation … In retrospect, it might have been better if Microsoft had the complete monopoly, hardware and software. Then we would have ended up with better software, a la Apple.

  • Josh_Hart

    I genuinely feel the majority of the comments below are bloated with miss information of those who haven’t truly looked at the product. Or the overall business vision of Microsoft.

    I’m of the opinion that Microsoft unlike Android or to some extent RIM who all jumped on to the Steve Job’s UI look and feel bandwagen, looked at mobile and went their own route leveraging years of experience developing productivity applications.

    iPads are clearly a content consumption device, clearly aren’t manufactured for complex content input. MS are offering a solution which handles both relatively well.

    From an Enterprise point of view, it is clear that Microsoft Surface will be a real contender and I expect the Windows 8 to dominate the mobile productivity space.

    Ultimately there is far more mobile technology available to the consumer offering content consumption but far less content input.

    The Win8 offers what is actually a unique mobile tablet solution, from a consumer point of view it enables people create truly original content not just read others.

    From an enterprise point of view it empowers business to mobilise workforces, track and automate far more complex tasks.

    From a developing of Apps point of view. It is far easier to find competent resources with real technology backgrounds, i.e. not “Just built the next angry birds”… I expect some truly robust innovative mobile applications to come out on the platform.

    Food for thought: maybe the surface never needed to be Hugely successful… maybe Microsoft were trying to set a standard to the other manufacturers to keep the product quality high.

    I fear that Apple may go down the same route as RIM. It all starts with one good idea and we all know the good times don’t last for ever.

    • melci

      Or Apple is going down the same route they did with the iPod. Market dominance for the next decade plus.

    • FalKirk

      “iPads are clearly a content consumption device…”

      “it is clear that Microsoft Surface will be a real contender…”

      I don’t think that either of those things are “clear”. Most of the statistical and anecdotal evidence seem to point to the opposite conclusion.

      • W. van Dam

        Could you provide some links for the statistical evidence? To my knowledge iPads are mostly used for content consumption. In my surroundings some have tried content creation for a while – someone even used it as a phone replacement -, but except for one person they’ve all stopped doing that.

        Also, is the Surface Pro version already available in the US? And are there already reports available? Among (local – EU) IT professionals and enthousiasts I’ve seen quite a few positive responses to the RT edition, and a lot are looking forward to ‘the real deal’. The Surface may not do well on the consumer market, but from what I can tell it looks like the Pro edition is going to be considered by companies.

        • steve_wildstrom

          The Surface Pro will ship in January.

          • Brad Mello

            And like anything else….competition will follow.

        • FalKirk

          Here’s an article on 18 way iPads are being used in classrooms. I tried to divide them into content consumption and creation and then realized that those categories are silly and meaningless. It’s the usefulness of the device that matters. Artificilly breaking devices into consumption or creation categories obscures analysis more than it aids it.

          http://edudemic.com/2012/11/18-ways-ipads-are-being-used-in-classrooms-right-now/

          • W. van Dam

            Nice article. iPads are certainly useful in schools, but you’re evading the question.

            The question is whether the iPad is suitable for complex input. It’s nice that there are a lot of valuable use cases that are not complex, but there are also plenty of valuable use cases that are complex, and do require, or at least benefit from, complex input capabilities.

            The debate about content consumption vs. content creation is not exactly new, and I thought that it has been made clear already that ‘content generation’ is considered to entail complex input. If I made a wrong assumption about that I’m sorry for being unclear. It does indeed leave a gap of simple input, like in the school examples you provided. The iPad certainly is well capable of supporting tasks that require only simple input capabilities.

            However, Josh_Hart already specifically spoke of complex input in an enterprise setting. While the latter element matters less, filling in form fields to answer a few sums hardly is complex input. The use of video to explain these sums on request is a great use of the iPad (I wish we had that for french and latin!), but that obviously is also not complex input. Another example, an attendance list, is also very basic.

            There is one example, which is called “Improving writing skills”, that really caught my attention. It caught my attention because writing an essay is more demanding on the input capabilities. However, it turns out that they only used the iPad to play a game, and then let the students write about it. The writing was not done on the iPad.

            I’m certainly in favor of such teaching methods, but I’m not really sure why they needed to wait for the iPad to start doing this. Could they not have used a Nintendo DS to play that game? Or a iPod Touch if you want to stick to Apple products. Even so, I’m certainly in agreement that the iPad is valuable in education.

            Regardless of all that, the question stands:

            Can you point me to statistical evidence to support your implied claim that the iPod is in fact used (on a significantly large scale) for tasks involving complex input? Preferably in an enterprise setting, but that’s a lesser matter.

          • http://search.websonar.com:8080/ Duane Bemister

            I suggest you have a look at SIMit for an example of a simple solution for complex input and it is only at version 1.

          • steve_wildstrom

            What is a complex input? Direct manipulation of images is about as complex as inputs get and it’s something touch interfaces excel at. Artists are drawing New Yorker covers on iPhones and iPads. What touch does not excel at is typing. But that is a specific mode of input, not necessarily more or less complex than others.

          • Brad Mello

            Here comes hybrid ultrabooks. Compete compete compete. Angry birds is not the future. Digitized input is.

            MICROSOFT SURFACE
            DELL XPS 12
            LENOVO YOGA 13

            Will competition drive down prices enough for all students to afford one? That is Microsoft hopes in my opinion. Cater to the student population early, they will beat companies from the inside out to support windows 8 for productivity. Again, Angry birds is not the future. Digitized input is. I am appaled to the amount of BS being spewed by all these analysts.

            - Sent from my iPhone. (not really, because I’m playing a game on it and texting my girlfriend. You get the point.)

          • lucascott

            Agreed. There are many things that could be ‘complex input’ even ‘complex’ data. Like beauty it is in the eye of the beholder.

            And this particular beholder uses an iPad every day to enter tons of data of all kinds.

          • steve_wildstrom

            Stay tuned. I’m working on a column on the use of touch screens with Windows 8 on conventional laptops. But one thing I can tell you is that Adobe software, particularly Photoshop, as it exists today is very touch-unfriendly, meaning direct image manipulation is a lot better in theory than in practice. There is lots of software work needed.

          • FalKirk

            “Can you point me to statistical evidence to support your implied claim that the iPod is in fact used (on a significantly large scale) for tasks involving complex input? Preferably in an enterprise setting, but that’s a lesser matter.”

            That was never my claim. I simply disputed your claim that it was “clear” that the ipad was a consumption device. I think that trying to classify tasks as consumption or creation is a false dichotomy. The iPad does both depending upon the task at hand.

            I like this quote from “Lessons from a Big iPad Enterprise Adopter”:

            “Four-hundred dollars to make a knowledge worker 10 percent more productive is money extremely well spent.”

            http://www.cio.com/article/712185/Lessons_from_a_Big_iPad_Enterprise_Adopter

          • jfutral

            That’s quite a good article. I see tablets as good supplements also because it could extend the life of the employee’s PC hardware (excepting maybe a company’s policy about “retiring” hardware for tax purposes). Not many employees are doing such extraordinary work that requires constant upgrading of hardware. Alternating an iPad and PC/laptop upgrades could save some cash.

            Joe

          • Brad Mello

            Angry birds is not the future. Digitized input is. Thank you.

          • Dan

            You keep throwing out “digitized input”. What the heck is that. It can’t just be a keyboard unless your just talking about fingers?

        • Brad Mello

          Thank you. Would you please contact me at bradmello@outlook.com to discuss this in more detail? This space is filled with ignorance.

      • Brad Mello

        Angry birds is not the future. Digitized input is.

        • jfutral

          What’s actually kind of ironic about your statement is that it was games that played a huge role into pushing the PC industry forward both in hardware and mass market acceptance. A lot of people considered this Apple’s weakest position when considering purchasing a Mac.

          What’s also kind of ironic is that, as much as you decry tablets as “consumption” devices, this is what a vast majority of PC users used their PCs for most of the time (games, youtube, Facebook, Twitter, Pinterest, Flickr, shopping, Hulu, Spotify, iTunes, books, news, etc.). I think this is a large part of why iPads are such no brainers for so many people.

          I don’t think it is a hard stretch to consider “productivity” as quite the minority reason to own a computing device for personal reasons. So hybrid laptops may find some acceptance in the corporate world, but I just don’t think it will find much traction in the consumer space. The hybrid devices are still heavier than tablets. It may not seem like much, but it is hardly noticeable to grab an iPad versus even an ultrabook.

          Joe

        • lucascott

          Angry birds etc are not all that iPads can do.

          Seems like many are buying into Ballmers line about creating and his meaning that creating = using MS Office. And only that.

          There a all kinda of content and all kinds of creating and many can and are being done on iPads or at least assisted by iPads. And not one of them is running Office

    • http://twitter.com/M_Gauche James King

      Good products are successful when they are useful and easy to use. Is Windows 8 significantly more useful than Windows 7? My guess is that most people will say “No.” Is Windows 8 easy to use? For the overwhelming majority of current use cases, which means the current Windows installed base, the answer is “No.” If most PCs were touch-enabled, that answer might be different. But not in the current landscape. And that doesn’t include the major UI issues in Windows 8. Microsoft is currently swimming upstream.

      The only thing keeping the iPad from completely supplanting Windows in the enterprise is a unified file system. If apps could all share files seamlessly and had a slightly greater level of interoperability, the iPad could easily replace the majority of laptops in the enterprise. That’s a solvable problem for Apple. Apple is the company with the momentum creating the solutions.

      • Brad Mello

        FALSE. Angry birds fosters an unintelligent youth. Windows 8 is the future.

        • lucascott

          Cars and dogs argument. One is a game, the other an operating system.

          You might as well be on comparing shoes to refrigerators

    • symbolset
  • Steve

    This is funny. I am not a Microsoft stock owner – neither Apple’s one. I do not care. For myself, Apple is just a handset device manufacurer with only marginal desktop computer influence. I do not need Microsoft to be yet another hendset device manufacurer. In fact – I do not want it to go there. I wish Microsoft to remain serious desktop software producer not yet another mobile-all-in-one-mumbo-jumbo player. I am irritated stock owners want Microsoft to grow endlessly looking only for their profit. I am not interested in their profit. If given day money is in selling bubble-gum – should Micorosoft become a bubble-gum producer? So, if the poeple one day realized they do not need desktop computer any more but they feel more comfortable with mobile-all-in-one-mumbo-jumbo device – well let them buy yet another mobile phone. Who cares! Desktop market will not die. Whoever tries to write anything longer than a tweet sees immediately the value of regular keyboard and Microsoft Office. Whoever is in a need to process a pile of data will realize dual screen desktop, Excel, mouse and keyboard are better than whatever mobile-all-in-one-mumbo-jumbo device. Etc. etc. So – this market will not vapor – let the zillions of hipsters masturbate wih their iPads – who cares. Let Apple become a successful mobile washing-mashine-TV-combo manufacturer if they wish. I bet zillions of their fanboys will rush to buy – who cares? And let MS release their desktop/server products and let them keep off this mobile nonsens as these are completely two different markets, different targets and different expectations. It’s time to say it clear – a computer has been proven too complex device for an average American housewife. She does not need a computer – she needs a portable phono-camera-lipstick device. And I do not need Microsoft to focus on that market. Even if that means it will become an average size company rather than a software giant.

    • Brad Mello

      Thank you. I’m sorry I’m posting this everywhere but everyone is jaded on tablet use. Angry birds is not the future. Digitized input is.

      • jfutral

        “Angry birds is not the future.”

        Right. Everyone knows Fruit Ninja is the future!

        Joe

  • Peter

    The number of smartphones is indeed impressive but it is also misleading. Many people have remarked upon the strange characteristic that global shipments of Android phones far exceed sales of iPhone/iPad and yet iPhone/iPad traffic is much larger than that for Android. One theory is that Android is less expensive and more likely to be sold to a not-so-discriminating customer as an upgrade from a feature-phone, whereas iPhone buyers know what they want. Many buyers of Android phones are treating them as feature-phone replacements and using them that way, rather than the way that iPhone users work with their devices.

    Microsoft still doesn’t have traction, but the train isn’t running away quite as fast as the green bars would suggest.