Microsoft: Point and Counter-Point

John Kirk / May 1st, 2014

On April 10, I wrote: Say Goodbye To Microsoft. On April 17, I wrote Say Hello To Microsoft 2.0. The two articles, when taken as a whole, argued that:

1. In the beginning, Microsoft’s business model was simple — create the personal computing operating system (Windows) and license it to as many hardware manufacturers as possible.

2. Microsoft’s vision was equally clear:

A computer on every desk and in every home. ~ Bill Gates, Microsoft chairman and chief executive officer, 1980

3. By the turn of the century, Microsoft’s singular vision and simple, yet powerful, business model had virtually achieved its audacious goal of putting a computer on ever desk and in every home and having Microsoft’s Windows operating system running on each of those computers.

4. Ironically, having achieved the seemingly impossible, Microsoft was left without a goal to power them and without a vision to guide them. They drifted from product line to product line and from business model to business model.

5. Microsoft long knew the Mobile Wars were coming but when the revolution finally arrived, the mobile wars were fought with weapons so unfamiliar to Microsoft, and the front lines shifted so quickly and so decisively, that the wars were all but over before Microsoft was able rearm themselves.

  1. By the time Windows Phone 7 was released in October 21, 2010,1 Apple’s iOS had already sewn up the premium end of the smartphone market and Google’s Android had already locked down the low end.
  2. By the time Windows 8 and Microsoft’s Surface tablet was released in the Fall of 2012, millions upon millions of iOS and Android tablets were already in the hands of consumers, and businesses and educational institutional buyers had already adopted iOS as their preferred tablet operating system. By the time Microsoft entered the fray, they found themselves fighting a war already over.

6. In a matter of only a few, short years, Microsoft went from being the only relevant company in computing to a company that was completely irrelevant in mobile computing.

7. Microsoft’s board, which sat idly by for over a decade, finally acted by forcing Steve Ballmer out and naming Satya Nadella as their new CEO.

8. It’s still early days, but it appears Satya Nadella is realigning Microsoft around a horizontal business strategy which strives to sell services in the Cloud layer resting atop today’s modern personal computer (phone, tablet, notebook, desktop) operating systems and to sell those services to every type of personal computer maker and user.

9. If Satya Nadella is truly moving Microsoft to a horizontal-first model, then it logically follows Microsoft will want to jettison unprofitable vertical hardware projects like the Surface tablet and the Nokia phone lines and demote the importance of vertical software offerings like Windows 8 and Windows Phone 8.

Push Back

The truth will set you free, but first it will piss you off. ~ Gloria Steinem

My twin articles produced some extremely thoughtful and thought provoking responses. So I decided to give one reader — RATIONAL GEEK — a chance to respond which, in turn, allowed me to refine my original thinking on the matters discussed above.

Debate

Microsoft’s Functional Re-Organization

KIRK’S TAKE:

Microsoft’s divisional organization may have been dysfunctional but, in my opinion, Steve Ballmer’s attempt to move Microsoft to a functional organization was a disaster waiting to happen.

First, Microsoft’s culture and product lines were simply incompatible with the goals of a functional organization.

Second, making a transition from a divisional organization to a functional organization in these perilous times is like changing the proverbial horse in the middle of the river — or perhaps more like changing the proverbial horse while plunging over a waterfall.

Satya Nadella’s recent job reassignments indicate to me he is starting to undo some of the reorganization that began during Steve Ballmer’s final days. Frankly, I’d like to see Nadella, like a new broom, sweep some people clean out of Microsoft. But — as I was recently reminded by Ben Thompson of Stratechery fame — Microsoft “fires” gently.

RATIONAL GEEK’S REBUTTAL:

In what way is Nadella undoing the reorganization? I don’t see it.

The One Microsoft reorganization is important because the old Microsoft would have powerful groups like Windows, Office and Enterprise hunker down and protect their operating margins at the expense of collaborating towards a common goal. One Microsoft is an attempt to “align the wheels”.

Everything they do is now with a common goal in mind.

We will see our product line holistically, not as a set of islands. We will allocate resources and build devices and services that provide compelling, integrated experiences across the many screens in our lives, with maximum return to shareholders. All parts of the company will share and contribute to the success of core offerings, like Windows, Windows Phone, Xbox, Surface, Office 365 and our EA offer, Bing, Skype, Dynamics, Azure and our servers. All parts of the company will contribute to activating high-value experiences for our customers. ~ Steve Ballmer

The old organizational structure was once one of Microsoft’s biggest criticism. In-fighting everywhere resulting in counter productive disconnects. We’ve all seen this amusing org chart comparison right?

The important takeaway is Microsoft recognizes their sacred cows of the past are no longer sacred. They’ll need to look beyond them towards cloud, devices and services to compete in the future.

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Microsoft’s Surface Tablet

KIRK’S TAKE:

I think Microsoft should recognize the Surface Tablet for the disaster it is and drop it like a hot coal.

Surface business worsening? Q2: Surface lost $40 million on sales of $890 million. Q3: Surface lost $45 million on sales of $494 million. ~ Peter Bright (@DrPizza)

First, while it’s very true a few people definitely DO desire and desperately DO need a hybrid device — something between the tablet and the notebook — those road warriors are far fewer than Microsoft thinks (thought?).

Apple is right to shun the MSFT hybridization/bastardization. ~ Jean-Louis Gassée (@gassee)

For example, some people find hybrid utensils such as the spork and knock useful. However, the vast majority of utensil users stick with more traditional categories like spoons, forks and knives. Similarly, while the Surface and other hybrid tablets are extremely useful for some, the vast majority of users will stick to using phones, tablets and notebooks to satisfy their computing needs.

Second, Microsoft’s Surface tablet is in direct competition with Microsoft’s tablet manufacturing partners. How can people not see this is a bad idea? Let me illustrate what a god-awful strategy this is through the use of an equally god-awful joke:

Two Eskimos, sitting in a kayak, were chilly so they lit a fire in the craft. Unsurprisingly it sank, proving once again you can’t have your kayak and heat it too.

Microsoft needs to acknowledge reality and admit they can’t license their software to hardware manufacturers while simultaneously competing directly against those manufacturers too.

What you can expect from Microsoft is courage in the face of reality. ~ Satya Nadella

Third, I reject — and more importantly the market rejects — the entire concept of using the Microsoft Surface tablet as a “showcase” device.

Microsoft didn’t write off 900 million dollars on the Surface last year because they were trying to make the Surface their “showcase” device. Microsoft was all in with the Surface tablet.

One might argue Google’s Nexus devices are a successful example of how to do a showcase device right. One might argue that if one wanted to be wrong.

The concept of a Showcase device DOES NOT work. It’s been a great big zero for Google, it’s been far worse than a great big zero for Microsoft and it will forever and ever continue to be a losing strategy for anyone foolish enough to employ it.

Fourth and finally, while I agree the Surface tablet demonstrates Microsoft’s commitment to Windows 8’s dual OS (desktop and tablet touch) philosophy, I vehemently disagree with the notion a hybrid OS is something Microsoft SHOULD be making a commitment to. The philosophy behind Windows 8 is deeply flawed and it’s not going to be fixed by “committing” to it. On the contrary, the first thing Microsoft needs to do is to abandon, not commit to, the Frankenstein’s monster that is Windows 8.

It is better to run back than run the wrong way. ~ Proverbs

RATIONAL GEEK’S REBUTTAL:

There’s no denying the $900 million dollar loss is a good indicator people didn’t want what Surface, version 1, had to offer. I do however think it is not accurate to then conclude people are rejecting the idea of a converged device — one that is a tablet and can also potentially replace your laptop/desktop. I think the failure to sell has more to do with the painful transition from old style Windows to the new hybrid Windows 8. We are already seeing many small but significant improvements in Windows 8.1 that helps the two modes blend more seamlessly. This stuff happens. The first version tends to be rough around the edges but through iteration we begin to see a more polished product.

EDIT: This just in! Gartner’s latest report shows “hybrid PCs” are on the rise as iPad sales slow down.

This is notable because with all the talk of a declining PC market – if you combine hybrid PCs with traditional PCs, that segment is actually trending upward for 2014. No, this is not worthy of a victory lap just yet but it may be the beginning of a bright future for hybrid PCs.

I confess I am a bit biased, but not blindly. My bias is based on reality. My primary PC is a Surface Pro 2. It connects to a 27″ monitor, mouse and full sized keyboard when I’m at my desk. On the go, it’s just the Surface Pro 2 and a Type Cover. It easily morphs into a tablet when I want one – giving me a great touch experience – AND a laptop when I need it with full desktop support. Who else might be interested in a device that fits this flow? Possibly anyone carrying around an 11″ MacBook Air AND an iPad. Oh! and add to that everyone trying desperately to turn their iPads into laptops with various 3rd party keyboards. That’s no small market.

Regarding Surface itself, we should consider the state of the Windows OEM market at the time Windows 8 launched. Most had no idea what to make of Windows 8. It was new and confusing and expensive to include a touchscreen for their mainstream offerings. They weren’t sold. Left to their own devices, it’s not hard to imagine them abandoning the concept altogether.

Microsoft producing Surface did a couple of important things. One, it showed without a doubt their commitment to Windows 8. There was no hedging. This was their idea of a device that fully embraced the concept of Windows 8. If Microsoft didn’t believe in it then neither should their partners. Two, it represented *one* form factor but left the door wide open for OEMs to build and fill in the rest. You probably won’t see a Surface Ultrabook or a Surface desktop and everything else in between any time soon.

This is somewhere in the middle of old Microsoft where OEMs built the entire range of devices and Apple who builds all their devices. Understandably, Apple’s hardware selection is limited because they can’t make them all. For example, there is no 17″ MacBook Pro but I bet many would love there to be. Microsoft’s new approach is effectively the best of both worlds. They can produce a showcase lineup – though limited – and rely on their partners to build everything else.

Lumia+Surface+Xbox = Microsoft sells several billion dollars worth of hardware per quarter now. ~ Alex Wilhelm (@alex)

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EDIT: Two hundred million IT workers want Windows tablets. ~ Forrester

Microsoft’s Nokia Phone

A reminder: Microsoft now is the world’s biggest software company, and 2nd biggest phone maker by sales. ~ Shira Ovide (@ShiraOvide)

KIRK’S TAKE:

I don’t think Microsoft should be making phone hardware any more than I think they should be making tablet hardware (See “Microsoft’s Surface Tablet”, above). Unsurprisingly then, I think Microsoft’s acquisition of Nokia — which was just completed this week — was a huge mistake.

I would like to blame Ballmer for the monstrously confused and strategically backwards Nokia purchase. It was, after all, done on his initiative.

But the Microsoft board has to take the lion’s share of the blame. Apparently, the board didn’t agree with Ballmer’s pursuit of Nokia — but they let the purchase go through anyway, even as they were forcing Ballmer out the door. What the heck were they thinking?

The best thing — perhaps the only thing — the Microsoft board did on Microsoft’s behalf in the past ten years was to replace Ballmer with Satya Nadella. The second best thing they could do now would be to resign, en masse, in order to allow Nadella to get on with the job of fixing the mess they allowed Ballmer to make.

Please understand, the purchased portion of Nokia is still capable of making great products. But that is irrelevant. What is relevant is having one consistent business strategy. Microsoft can’t expect phone manufacturers to make Windows 8 Phones if Microsoft is making them too. It’s just common sense.

Further, you can’t justify the purchase of Nokia by pointing out Windows 8 phone sales are bad. This is tortured logic. If third party Windows 8 phone manufacturers are having trouble selling their wares now, how the hell is that situation going to be improved by having Microsoft compete against them too?

Reports indicate Satya Nadella originally opposed the idea of purchasing Nokia but later agreed it was the right thing to do. I take this as a good sign. I don’t think Nadella truly changed his mind. Instead, I’m hoping Nalella still thinks the purchase of Nokia is a mistake — but he was politic enough to know the Nokia acquisition was going ahead whether he was on board or not and he choose to climb on board rather than risk being left standing at the dock.

RATIONAL GEEK’S REBUTTAL:

This one is interesting because if the circumstances were different, i.e. Windows Phone was not dominated by Nokia and was getting traction with other OEMs, I would agree. But because the exact opposite is true, Nokia is too important to be left out of Microsoft’s control. Microsoft has recently announced WP will be free of charge. This should help entice more OEMs to build Windows Phones. Carriers have incentive to see a 3rd platform emerge and OEMs do as well. The fact Microsoft is now making WP free is a great example of OEMs benefiting from this competition.

Also, I wouldn’t compare Microsoft’s Zune to their current foray into hardware. Side note – the Zune was pretty great! 🙂 The big difference is the MP3 player market was a dead end. Apple completely dominated it and by the time Zune came along people were already transitioning away from dedicated players to their phones.

Unlike the MP3 player, no one would dare say the mobile phone market is a dead end. This space is full of potential – and it keeps growing!

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Cash Cows

KIRK’S TAKE

Microsoft has two cash cows — Windows and Office — that are NOT fully aligned with Microsoft’s new horizontal strategy.

In my opinion, Microsoft should milk those cash cows for all they’re worth. However — and here’s where it gets hard — they should always, always, always favor their new horizontal strategy over their cash cows whenever conflicts inevitably arise. For example, they should release Office for iPad, regardless of how it affects the sales of Windows licenses, Surface tablets, etc.

Oh wait…Microsoft just did that!

Tim Cook says he’s happy to have Office on the iPad. “If it had been done earlier it would have been even better for Microsoft, frankly.” ~ Harry McCracken (@harrymccracken)

And Microsoft should give up the notion that they’re going to be able to make a profit from licensing mobile operating system software.

Oh wait…Microsoft just did that too!

These are, in my opinion, signs that things are changing at Microsoft and changing in a very positive way.

Ideals may tell us something important about what we would like to be. But compromises tell us who we are. ~ Avishai Margalit

RATIONAL GEEK’S REBUTTAL:

I think we mostly agree here. Microsoft should definitely continue to milk their cows except I don’t think abandoning Windows and Office should be part of the goal. The strategy to move to the cloud should not require they abandon Office and Windows. In fact, the ultimate goal for Microsoft would be for people to continue using Office and Windows while leveraging Microsoft’s cloud and services. The key difference here is it is not “all or nothing”. Microsoft understands the current reality. There will be a mix of users on different devices and platforms and Microsoft wants to be a part of their flow. But their goal should still be people will get the best experience using all of Microsoft.

In the world of ubiquitous computing, we want Windows to be ubiquitous but that doesn’t mean one price or one business model. It’s actually a market expansion opportunity and that’s how we’ll execute on it. ~ Satya Nadella

Microsoft’s Universal Apps

KIRK’S TAKE:

Microsoft has announced Metro and RT apps will run across the phone, tablet, PC and even Xbox form factor. I am DEEPLY suspicious of the concept of Universal Apps. It sounds as if Microsoft has done a wonderful job with them but this “write almost only once and run almost everywhere” concept has been the Holy Grail — desired by all, found by none — of personal computing ever since there were two or more form factors or two or more operating systems to choose from.

I am willing to wait and learn but I am not willing to give Microsoft the benefit of the doubt. They can’t just tell me universal apps can be done. They have to show me they can be done.

RATIONAL GEEK’s REBUTTAL:

Yes I’m old enough to remember Java’s promise a long time ago. I think one of the big challenges for Java was it depended on Virtual Machines installed on various platforms, i.e. Windows, Mac, Unix, Linux etc. The same Java code would need to be interpreted and translated to each operating system’s specific language. I don’t think it’s unreasonable to say this model had many variables working against it. Contrast this to Windows RT. You are no longer dealing with multiple operating systems. There is only one – Windows. The universal app developer should be able to leverage the bulk of their code while focusing on adapting their User Interface to various form factors.

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Microsoft’s Muddled Thinking

KIRK’S TAKE:

In my opinion, having a horizontal business model that emphasizes services in the cloud AND having a hardware business model that sells Surface tablets and Nokia phones AND having a proprietary operating system model that licenses software and tries to create operating system lock-in, is muddled thinking. A company should have only one, not multiple, business models.

The response I often get when I suggest Microsoft has to choose one business model or another is: “Why? Why can’t Microsoft do it all? In fact, it’s Microsoft’s ability to do it all that makes them unique; that gives them a competitive edge.”

I’m sorry, but that kind of thinking is not just wrong, it’s dangerously wrong.

There is nothing worse than a sharp image of a fuzzy concept. ~ Ansel Adams

A company’s products are like the wheels of a car. They support the vehicle and enable it to speed ahead. A business model aligns the “wheels” of a company. If they’re not aligned, the vehicle will shimmy and shudder and run inefficiently.

Having multiple business models that prioritize different things is like pointing the wheels of your car in four different directions and expecting that to make your car go faster. What’s going to happen instead is you’re going to get a lot of wheel spinning, a lot of rubber burning, a lot of noise, a lot of smoke, a lot of engine wear and tear and not a lot of traction. In other words, you’re going to get the old Microsoft.

Satya Nadella has said “It’s gold rush time” in the cloud and SaaS markets. There are just a couple of companies positioned to capitalize on the dual opportunity of SaaS and infrastructure services and Microsoft is one of them.

Well, there are two ways to make money in a gold rush. You can pan for gold or you can sell the pans to the gold miners. This is the key — YOU CAN’T DO BOTH.

Microsoft is a big company but it’s not now, nor was it ever, so big that it could ignore the laws of business. If it wants to be good at any one thing, then it has to stop trying to be good at multiple things.

RATIONAL GEEK’S REBUTTAL:

I look at all of this in the context of ecosystems. The ecosystem story is important – maybe the most important. Microsoft, Google and Apple are all working very hard to keep users in their world. I think it would be quite compelling if Microsoft is uniquely capable of offering users the ability to buy an app on the phone once and download a version on a tablet and PC for free – or in any order therein. This is a value proposition easy to understand. With respect to apps, Google’s Android ecosystem starts at the phone and ends at the tablet. Same with Apple and iOS. With Windows RT, Microsoft can complete the circle.

I’d also like to note that competing ecosystems can be hostile. Take Apple for example. Their move to drop Google Maps from iOS and use Bing as Siri’s default search engine is a good example of why relying on another platform to deliver your services can be risky. Then there’s Google who’s still denying Microsoft any native Youtube application for Windows Phone. It would be wise for Microsoft to take necessary steps to control as much of its destiny as possible.

Microsoft’s Satya Nadella

Satya Nadella has really impressed me. The tone at Microsoft has completely changed since he’s taken charge and he’s saying all the right things.

In particular, Nadella has said Microsoft needs to “ask the hard questions” and have the “courage to face reality.” To many, these seem like mere platitudes. To me, they are an accurate diagnosis of what ails Microsoft and a prescription for how to fix it.

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Your Turn…

One of the quickest ways to find out if you are wrong is to state what you believe. ~ Penn Jillette

I want to thank Rational Greek for helping me with this point/counterpoint experiment. He went above and beyond the call of duty. Truth be told, I’m not sure I agree with a single word he’s written (and I think the feeling is mutual – he doest agree with a single word of what I’ve said) but I do deeply respect his arguments. They were rational and well thought through. They were just built upon a different set of premisses than my own.

Fencing with Rational Geek has helped me to hone my arguments and further clarify my thinking on the future of Microsoft.

The aim of an argument or discussion should not be victory, but progress. ~ Joseph Joubert

You’ve heard from me and you’ve heard from Rational Geek. Now it’s your turn. What do you think is going to happen to Microsoft? Let us know in the comments, below.

The point of seeing both sides isn’t to hover between them but to be able to come down on the right side with the right degree of conviction. ~ Julian Baggini

  1. Windows Phone 7 came out seven months AFTER Apple started selling the iPad. In other words, Apple had started the next revolution in computing before Microsoft even fired a single shot in the nearly completed smartphone revolution. []

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?
  • JoshuaBPrewitt

    In a matter of only a few, short years, Microsoft went from being the only relevant company in computing to a company that was completely irrelevant in mobile computing. http://sn.im/28v77x3

  • klahanas

    “Well, there are two ways to make money in a gold rush. You can pan for gold or you can sell the pans to the gold miners. This is the key — YOU CAN’T DO BOTH.”

    Unless, of course, you’re panning for gold in Cupertino. Then you can exclusively sell the pans, pan for the gold, unilaterally decide the pan sizes, demand clockwise pan rotation, supply the river, get a tithe, and collect tolls coming in and discourage people from leaving. In this one case…it’s not only good, but it’s proper.

    One company truly can’t do it all. Apple’s no different.

    • stefnagel

      Bad enough? No. That was a bad as it gets. There was no opt in or opt out. Decades of computing innovation lost cus Microsoft choked the life out of any bit of competition it could “embrace.” A wasted generation.

      • klahanas

        No excuses, but controlling me on my iOS devices (yes, we have them) as an involuntary IT department, IMO is actually worse. Differn’t strokes…

        Just because we have two candidates from each party does not mean we have to like either choice. Too often we chose the lesser evil.

        • stefnagel

          Just saying. For Microsoft, it was always about Gates, not Windows.

          • klahanas

            I can accept that. Don’t give Jobs a bye.

          • stefnagel

            Save your energy for what really matters: This week a Princeton and Northwestern US study concludes “… mass-based interest groups and average citizens have little or no independent influence…” and “When a majority of citizens disagrees with economic elites and/or with organized interests, they generally lose.” and the press with neither fanfare nor fear admits that the US functions more like an oligarchy than it does a democracy.

          • klahanas

            One must try… 🙂

          • Mayson

            Speaking of which, Lawrence Lessig just launched (fittingly enough on May Day) the SuperPac to [literally end all SuperPacs: https://mayone.us At present, it’s already 11% toward its initial funding goal.

    • FalKirk

      “Unless, of course, you’re panning for gold in Cupertino”- You have completely missed the point of the paragraph you quoted and probably the point of the article.

      First, Panning for gold is vertical. The miner works for his own benefit and does not benefit from the gold mined by others. Selling pans is horizontal. The seller of pans wants every miner to mine more gold so that he can sell them more pans.

      Your comment goes into some inane tirade about Apple that 1) shows how much your hatred of Apple distorts your perspective; and 2) how little you understand the subject currently under discussion.

      Second, criticizing Apple for being vertical is like criticizing Picasso for being a painter. Apple is the very epitome of how to do vertical right. You may not like Picasso’s paintings, but you can’t argue with any credibility that he wasn’t a good painter. You may not like Apple’s products but you can’t argue with any credibility that they don’t do vertical well.

      Third, clearly you hate Apple. I have no problem with that.

      But you also seem to hate vertical with a religious fervor that defies, nay denies, all reason. Vertical and horizontal are tools, not religions. They are not right or wrong per se. They are right for a job or wrong for a job. There’s are no moral implications associated with them.

      Third, THIS ARTICLE WAS NOT ABOUT APPLE. In fact, this article was not about vertical or horizontal. It was about choosing one business model or another.

      Fourth, saying that one can’t pan for gold and sell pans had nothing to do with the advantages or disadvantages of horizontal or vertical business models. What I was saying — and which you not only ignored but hijacked in your comment — was that a company has to choose – it can only do ONE business model well. It can’t be both horizontal and vertical at the same time.

      In a comment that is so far afield that it belongs at the bottom of some entirely different article, you seem to argue that a company can only do one THING at a time if it wants to do it well and that attempting to take control of the whole stack makes them egomaniacal or, frankly, I don’t know what since your argument lacks coherence.

      Fifth, I don’t mind your disagreeing with me. I relish a spirited debate. But it’s important that your comments disagree with something that I said in the article and not just rocket off to some fantasy argument land that you’ve constructed in your head.

      One last time. A company has to choose ONE business model. Whether that business model is vertical, horizontal or other is irrelevant to the current discussion.

      • Space Gorilla

        This is exactly why I no longer engage klahanas. The bias is just so strong, there’s not much chance of reasonable or intelligent discussion, or good analysis, it just all comes back to Apple bashing, it’s waste of time really.

        • klahanas

          My loss is your gain. Be well.

      • klahanas

        So based on your premise, a vertical company (Apple) can do it all, but a horizontal company (MS, everyone else) cannot? And I’m the only one that’s biased?
        Within the iOS ecosystem, Apple both competes with and controls what gets used. The App Store guideline specifically forbid “Apps that duplicate functionality”. Apple sells you the hardware, then controls the App Store. That, as a matter of FACT, regardless of my bias, is Apple both mining for gold AND selling pans.
        We’ve argued about this before. These are computers, not a calculator, not a game console. If they are restricted to vertical applications, they should then be compare to other vertical applications. It’s like taking a synthesizer and restricting it to piano functions, and praising that.

        • FalKirk

          “So based on your premise, a vertical company (Apple) can do it all, but a horizontal company (MS, everyone else) cannot?” – klahans

          This is what I’m talking about. You’ve got the equivalent of some kind of geek beer goggles. I say “business model” and you say “apple sucks”.

          You are mixing up two totally unrelated concepts and conflating them into some kind of congealed mass, then saying that I’m biased. Sheesh.

          I’m writing the following, not for you — because you’re not listening to what I’m saying anyway — but for anyone else who might be following this thread:

          — Horizontal Model

          Horizontal models focus on many different markets or niches. Often, entrepreneurs spread themselves over a variety of markets that, by themselves, make very little money. However, when combined, the separate components generate a reliable income. The website eBay is a prime example of a horizontal business model. It deals with a variety of products and include millions of customers with divergent interests and motives.

          Read more: http://www.ehow.com/facts_6823281_horizontal-vs_-vertical-business-model.html#ixzz30VV0vsqf

          Vertical Model

          Vertical business models have a very specific focus and delve deeply into whatever topic or product the company is involved in. They hire and consult with experts on their product in an attempt to become the leading source for customers who seek out their product. Website blogs are examples of vertical business models. Successful blogs focus on a single topic and build a loyal following based on the blogs’ status as an expert on the topic.

          Read more: http://www.ehow.com/facts_6823281_horizontal-vs_-vertical-business-model.html#ixzz30VV97nmQ

          No one business model is inherently better or easier or harder than another. They’re just business models.

          What I’m saying is that a company can’t successfully employ BOTH a vertical model and horizontal model at the same time.

          • klahanas

            Of course I say “Apple sucks” in different words…

            Thanks for the attempt to give me an education (sarcasm).
            You did a very good job explaining that (not sarcasm).

            While it’s useful to model based on extremes, the world is more of a congealed mess. The extremes are aids for our understanding, the world is what it is. More gray than black or white, though things are often more towards one extreme or the other. In the vertical versus horizontal, there is no law of nature that makes them mutually exclusive. It is people that tend to gravitate towards one or the other.

            In your “There are two ways to make money in a gold rush” comment, I wanted to point out that Apple has found a way to make money on both ends. Mining AND selling pans. My snarkiness was more towards the presumed tolerance you would show for Apple doing this versus the stated (in the article) position that MS can’t do this. That’s a double standard. It’s also subjective, and opinion based. Opinions are fine, in fact they are critical, but there’s only room for them in the absence of the complete answer.

            Now, you can legitimately ask why I was presumptuous towards you. Like you, that comes from past dialogue.

          • FalKirk

            “In your “There are two ways to make money in a gold rush” comment, I wanted to point out that Apple has found a way to make money on both ends” – Klahanas

            No, they haven’t.

            Apple has one business model. It has some strategy taxes, but its fairly consistent. The old Microsoft used several inconsistent business models. They’re at war with themselves.

            Apple is not making money on “both ends”. When you do that, one end hurts the other.

          • klahanas

            Clearly we are looking at things through different filters. From your answers, I see that you’re focused on business strategies. I can accept that (narrow) position. I’m taking a more macro view. They OWN the entire ecosystem, and thus are making money from multiple disparate avenues. If the gold rush is “mobile”, the devices are “mining”, Apps and the App Store are “pans”. iAds is (was?) also a “pan”. So are all those credit card numbers.

            In that regard, yes, you can view Apple as BOTH vertical and horizontal in outcome, regardless of the business practices that got them there.

          • jfutral

            “They OWN the entire ecosystem”

            Well, that is pretty much a definition of vertical, right? Apple’s one attempt to go horizontal or some permutation nearly broke them. It had to be ditched. Apple is very vertical. Any horizontal moves you could point out aren’t really more than a short branch here or there, more just variations on or accessories to vertical.

            MS is definitely more financially able to weather such a permutation than Apple was, but so far their attempts within the Windows strategy have (Zune) or are (Surface, Nokia) meeting with similar results, although Nokia has a better chance than Surface in my opinion because this, at least, _was_ Nokia’s core competency at one point.

            But just like Motorola caused other Android handset makers to question Google’s dedication to _them_, Nokia should have a similar affect to potential Windows Phone handset makers. I think MS would be better served to ditch licensing Windows Phone, unless someone just begs them (which could be happening, for all I know).

            Joe

          • klahanas

            Again, it depends on your filters…
            The entire ecosystem is broad. It involves hardware (including accessories), software, and retail.

            Both vertical (in it’s controlled integration) and broad (in it’s scope).

            The PC ecosystem is also broad, but no one party controls every aspect. MS owns OS’s and Office Suites, Intel CPU’s, OEM’s individual machines, and retailers, retail, etc.

          • jfutral

            Filters have nothing to do with it. What you are trying to do is called spin.

            Joe

          • jfutral

            “The old Microsoft used several inconsistent business models. They’re at war with themselves.”

            Which is kind of interesting that they haven’t learned from their own mistakes (Zune, for instance) and their one arguable success in vertical (XBox). I wonder what the elimination of organizational silos will do to XBox?

            Joe

  • stefnagel

    A computer … in every home. ~ Bill Gates

    That statement always had an ominous feel for me.

  • stefnagel

    There is nothing worse than a sharp image of a fuzzy concept. ~ Ansel Adams

    Ha. This will sit on my desktop for a long time.

    • klahanas

      Funny! It strikes me as something to be strived for….
      You can always keep the fuzzy artistic image. They are not mutually exclusive.

  • krabbie

    It would seem like RATIONAL GEEK’s whole side of this is built on the Pro version of (Looking for a Surface) Surface. I see the weakness of the Surface IS the introduction of the very complicated Windows OS into a tablet. If MS came out with a Surface tablet with Windows Lite and Office Lite and left the big guns for the laptop/desktop crowd, I believe that MS would have been in a much better position. But the phone call never came. But then again this is what Apple did with the iPad/ iPhone. And look what a disaster that was/is. s/

  • Space Gorilla

    “Two hundred million IT workers want Windows tablets. ~ Forrester”

    Something important to note I think, that article is actually 15 months old. Shouldn’t the headline be “Two hundred million IT workers said they wanted Windows tablets and then didn’t buy them”?

    I’m seeing that Forrester report in a few places today, and it seems like people think it’s current. It isn’t. It’s already claim chowder. Unless my dates are completely mixed up, but the article does say February 4, 2013.

    • FalKirk

      Only hours before this article was published, Rational Geek asked me to include this report so I did.

      I want to point out that, as the writer and as the one with the last say, I may not have given Rational Geeks’ arguments their due. I tried my best to give his side a fair shake but I had the last say and I had the power of editing and that inevitably allowed me more time and scope to refine my side of the argument.

      In my opinion, under difficult circumstances, Rational Geek did a yeoman job of upholding his side of the debate. I’m sure that his arguments would have been even more powerful had our roles been reversed.

      Thank you again, Rational Geek for your help. It was and is much appreciated.

      • Space Gorilla

        It helps the discussion I think, because we can almost time travel 15 months into the future, so to speak, and see that the Forrester report’s forecast has not come to pass. I’m seeing that a number of people didn’t check the date and are using it as evidence of Microsoft’s impending success in tablets, when in reality it shows us that the impending success simply did not happen.

        • FalKirk

          “we can almost time travel 15 months into the future, so to speak, and see that the Forrester report’s forecast has not come to pass…” – Space Gorilla

          Agreed. I didn’t want to attack the report because I felt that would be unfair to Rational Geek who would get no chance to reply.

          However, John Gruber DID address the report in yesterday’s Daring Fireball. People Who Don’t Use Tablets Want Windows 8 Tablets

    • Defendor

      The kind of survey that you know is BS the moment you see it. It all depends on how the question was presented.

      “We are going to replace your desktop with a tablet. What kind do you want?”

      What do you think the answer is going to be. It is going to be one that runs their desktop software. It isn’t that they want it, they just want to do their jobs.

      • FalKirk

        Your right, Defendor. Suppose they asked: “We are going to replace your truck with a car. What kind do you want.” Most farmers, construction workers etc. would say they want the fastest car possible so they can drive over to the surveyors house and fill him full of buckshot.

      • Space Gorilla

        Yes. It’s interesting that after 15 months Windows tablets haven’t made serious gains in the enterprise. Or is there new data that shows they have? It would seem the iPad is the tablet of choice for enterprise, I would guess in part because it’s relatively easy to build custom apps for it, plus the wide range of quality apps already available.

  • Bruno Deserto

    Fantastic article.

  • Mauryan

    Microsoft has built a bad reputation of being a bully who has wiped out healthy competition (Lotus, Netscape, Word Perfect etc.), and then delivering relatively mediocre product that customers had to live with. So long as IT base was the customer, they could tweak things for themselves and make the system work. However, the average consumer was left defenseless. So when the consumer market picked up due to the arrival of mobile technology and smart phones/tablets, Microsoft’s attitude as surprising. Both Bill Gates and Ballmer laughed those products off initially (The Titanic is unsinkable) until they realized the floor collapsing under their feet. They realized that the consumers had to put up with Microsoft’s products for lack of alternatives. The mobile market changed all that. Microsoft still believed that the world revolved around the PC and tried to make a swiss Army knife like product to catch up.

    They cannot be written off. They are still a well settled company. They have products that will bring them money no matter what they do with their hair. By relieving Ballmer off his hold on the steering wheel, they have made the right move. Microsoft must be bold enough eject divisions that won’t fit into the company’s goals. They do not have to compete on every front – Bing for Google search is an example. Fortunately they have not developed an alternative to YouTube or FaceBook or Twitter. Software industry has grown far and wide and one company cannot have its feet in all of them. It is important to play to the strengths and focus on core products.

    Microsoft simply cannot ape Apple all of a sudden. Apple stuck to its principle all the way through and it is paying dividends now. Twenty years ago that model did not click. Today it does. Tomorrow who knows what will work.

    If MS considers itself as a pioneering company in the software business, it has to stop copying everything others are doing and trying to derail them in the bargain. That has been their business model all along. They need to make a paradigm shift in their philosophy.

    Microsoft must focus on its existing strengths on one hand. Then it has to decide which course it must take for the future. Windows Phone might work or might crack. But Satya must be able to give the company a timeline after which it is alright to give up the pursuit and move in a different direction. IBM did just that and has been doing well ever since.

    Microsoft will survive if it follows the IBM model or we will be reading about its history like we do about the US steel industry.

  • N.G.S.

    “The second best thing the board could do now would be to resign, en masse.”

    John, you’ve identified the problem: except for Ballmer, the same crew who drove Microsoft down so far are still the top management.

    • FalKirk

      Frankly, I’m amazed that the Board picked Nadella to succeed Balmer. I didn’t think they were capable of picking a good CEO. But, so far, he looks to have been an excellent choice.

  • DrewBear2

    “I do however think it is not accurate to then conclude people are rejecting the idea of a converged device — one that is a tablet and can also potentially replace your laptop/desktop…Who else might be interested in a device that fits this flow? Possibly anyone carrying around an 11″ MacBook Air AND an iPad. Oh! and add to that everyone trying desperately to turn their iPads into laptops with various 3rd party keyboards. That’s no small market.”

    I don’t know how small that market is, but I think it’s safe to say it’s a minority market. Remember Apple initially sold an iPad keyboard dock, but discontinued that product. Besides, the iPad with a keyboard is still running iOS apps. It does not attempt to run OS X apps. Big difference.

    That said, I imagine there’s a hybrid device somewhere in one of Apple’s labs. Maybe one with a 12” screen and full keyboard with trackpad. But this device would be able to run either iOS or OS X depending on the application and/or whether the keyboard was attached or not. Think MB Air with a detachable iPad Air for a display. The problem is a processor that can run both iOS and OS X. I’m sure it’s more complicated than that, but basically the technology isn’t ready.

    Microsoft has a habit of getting the gist of a grand idea early (tablets, smartphones), but missing the important details that give consumers what they need. Apple sweats the details and waits until the technology catches up with their more thoughtful vision.

  • Defendor

    On Surface. Losses and clearance.

    I am amazed that I still still see regular sales of Surface RT (the first one) at our largest electronic retailers. They are still chipping away at the stock of these dismal little machines.

    The Surface RT machines must be the biggest miscalculation since Atari ET cartridges to still be running clearance on these.

    IMO at this point they would almost be better off in a land fill, with those Atari ET cartridges.

    The product is so far behind that each one sold at this point, can only further tarnish the “Surface brand” (If such a thing exists) with bad word of mouth.

    • FalKirk

      I can’t imagine the types of constraints that Nadella may be working under. Many of his predecessors decisions are like dead bodies that he has to quietly dispose of without incriminating the former regime.

      Nadella has the “disadvantage” working for a successful Microsoft. When Jobs returned to Apple, they were so close to bankruptcy; they were so desperate, that anything he said, they did. Nadella has to toss each of Ballmer’s overboard but do so without making any “splash”.

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