On December 4, 2014, Techpinions’ own Jan Dawson wrote a 33 page report on Windows Phone. While it sounds long, for those interested in the topic, it is easy reading and I highly recommend it to you.
Jan’s report answered the “What” questions — What’s gone wrong with Windows Phone and What should Microsoft do about it. His answers are compelling. But I am far more interested in the “Why” than the “What.” Why is Microsoft doing phones at all?
Why?
Why Windows Phone? Does it help sell more Window’s licenses? No it does not. ((Microsoft launched Office for iPad in March and says it’s seen 40 million downloads of the three apps since then. But the full functionality of the apps has only been available to Office 365 subscribers, and it’s added less than three million Home and Personal subscribers since then, at roughly the same pace as it added subscribers earlier. People have been very interested in the apps, but most haven’t been willing to pay for the full functionality (or already had access to it through existing Home or Business subscriptions ~ Jan Dawson)) Microsoft is now giving away Windows on any device smaller than 9 inches. Microsoft Windows phone is not necessary to pursue that strategy.
Why Windows Phone? Does it help sell more Office licenses? No it does not. Microsoft is now giving away Office on all mobile devices under 9 inches. Microsoft Windows phone is not necessary to pursue that strategy.
Why Windows Phone? Does it help entice more people to upgrade to Windows 365? There is no evidence that it does.
Why Windows Phone. Does it make money from the sale of hardware. Not it does not. Windows phone is a money loser.
Estimated share of Q3 handset industry profits: Microsoft: -4%, Motorola: -2%, HTC, BB: 0%, LG: 2%, Samsung: 18%, Apple: 86%. ~ Kontra (@counternotions) 11/4/14
Why Windows Phone? Does it complement Microsoft’s licensing model? No it does not. If fact, it does just the opposite.
Microsoft’s Windows Phone directly competes with its own manufacturing partners. ((With the Lumia line, now manufactured by Microsoft Mobile following its acquisition from Nokia, Microsoft is now playing Windows Phone from both sides, as the only licensor and by far the largest licensee. It’s competing with its other licensees in the most direct and dominant fashion, even as it seeks to increase the number of OEMs using Windows Phone. ~ Jan Dawson)) And if you think those manufacturers haven’t noticed, then you haven’t been watching as they one-by-one flee the market.
In what is yet another blow to Microsoft’s mobile efforts, Huawei — a top-5 smartphone maker in 2014 — confirmed to The Seattle Times that for the time being, it is done with Windows Phone. What’s more, the company’s head of international media affairs said that Huawei has not made any money with Windows Phone… and neither have any other Microsoft partners. ~ Zach Epstein, BGR
Where Is Microsoft Headed?
Microsoft is doing a great job of moving towards services. Its Windows, Office and on-premise Server businesses are throwing off cash, while Office 365 and Azure are rapidly growing.
Windows hardware is not only doing poorly, it is antithetical to Microsoft’s services business model. Consider the following four quotes from Satya Nadella:
— (Microsoft’s core question is) How do we harmonize the interests across end users, developers, and IT?
— Microsoft wants to be a player everywhere.
— I definitely don’t want to compete with our OEMs.
— We are a software company at the end of the day. ~ Satya Nadella
You cannot harmonize those quotes with the sale of Windows Phone. And, in fact, I don’t think that Nadella actually wants to be in the hardware business. It was forced on him by his predecessor and he is slowly backing away from it.
I’ll make a bold prediction. Microsoft will eventually drop Windows Phone. Unfortunately, based upon what we’ve seen of Satya Nadella’s cautious style, I think it will be later rather than sooner.
Conclusion
Windows Phone is probably a lost cause…
When a lot of remedies are suggested for a disease, that means it can’t be cured. ~ Anton Chekhov
…but so what? That’s not the problem. The problem is that Windows Phone doesn’t advance Microsoft’s strategic interests. Yet Microsoft is pursuing it anyway. That’s bad strategy…
Endurance is frequently a form of indecision. ~ Elizabeth Bibesco
…and it needs to stop.
It is better to run back than run the wrong way. ~ Proverbs
Microsoft needs to stop doing what others are doing just because others are doing it.
Once a problem is solved, you compete by rethinking the problem, not making a slightly better version of the current solution. ~ Benedict Evans (@BenedictEvans)
Instead, Microsoft needs to focus its efforts on those areas where it has a competitive advantage.
It’s not about doing what you can, it’s about doing what others can’t. ~ C. Michel ((Excerpt From: C. Michel. “Life Quotes.” C. Michel, 2012. iBooks. https://itun.es/us/AyIDI.l))
I fully understand that this is easy for me to say and hard for Microsoft to do…but that doesn’t make my advice any less valid. What I’m suggesting is the hard path but its also the smart path and the courageous path.
The right thing and the easy thing are never the same. ~ Kami Garcia
Microsoft’s future is in services and that future can be great. But that future does not need hardware and, in fact, hardware is impeding Microsoft’s progress. And I’m not the only one to say so:
Abandon devices. The devices business is only worthwhile if you are able to sell at a high margin; while this does not offer the margin percentage of software licensing, the absolute monetary value of a high margin device is significant ($300+ for an iPhone, for example). However, Lumia’s are simply not competitive at the high end; all volume to date is that the very low end (<$150), and is being sold at a loss. Moreover, Lumia volume is too low to be supply chain competitive, at least once the former Nokia feature phone business is spun off. ~ Ben Thompson
Microsoft should embrace their future and let go of everything that ties them to their unsuccessful past. And that especially includes Windows Phone.
Post Script
Jean-Louis Gassée has a very different, yet very compatible, take on Microsoft’s hardware future. Highly recommended.
Schadenfreude |ˈSHädənˌfroidə | noun | pleasure derived by someone from another person’s misfortune. ORIGIN German Schadenfreude, from Schaden ‘harm’ + Freude ‘joy.’
Samsung has reported a 60% fall in quarterly profits. Just three years ago, Samsung rose from seemingly nowhere to dominate the global smartphone market. Today, Samsung is being pressured from above and below as Apple steals away its premium customers and Xiomi and others steal away customers from the low-end.
Keep in mind that these numbers come from BEFORE the introduction of the iPhone 6 and 6 Plus. The blood-letting has just begun.
Cheer up, the worst is yet to come. ~ Philander Johnson
The Church Of Market Share
Truth be told, I take no pleasure in Samsung’s distress. It is the pundits who preached the gospel of the Church Of Market share who grind my gears.
I don’t suffer fools, and I like to see fools suffer.~ Florence King
They jeered Apple’s premium business model, all the while cheering Samsung on and on — encouraging them to grow market share faster and faster…
…until the train that was Samsung went right off the rails.
Why Can’t Apple Be More Like Samsung?
Remember when the analysts were saying that Apple should be more like Samsung? Seems like only yesterday. Oh wait! It WAS only yesterday.
Thinking of all the pundits that wanted Apple to be like Samsung (low-end iPhone etc.). They aren’t saying that this morning. ~ Sammy the Walrus IV 10/7/14
Remember blogger turned @WSJ then @nytimes columnist recommending Apple cut prices and give free products to gain market share? ~ Rags Srinivasan (@rags)
Ah, good times. Good times.
Here’s a couple of additional Samsung/Apple predictions/recommendations from the archives just to remind us all of how long this nonsense has been going on for.
How royally stupid does that statement look, now that Samsung is the one that is getting crowned…if you take my meaning.
After spending the better part of yesterday digging deeply into Samsung’s analyst day materials, it has become clear to me that Apple, over the long haul, stands very little chance against the Samsung behemoth. ~ Ashraf Eassa, Seeking Alpha , 7 November 2013
Hmm. It seems to me that your digging created a hole, and you fell right into it.
If you find yourself in a hole, the first thing to do is stop diggin’. ~ Cowboy wisdom
Why Isn’t Apple Suffering The Same Fate As Samsung?
All this bad news for Samsung begs the question: If all these bad things are happening to Samsung, why aren’t they happening to Apple too? I could be all snarky and simply say it is because Apple doesn’t follow easily disprovable economic principles and business practices — and that would be true — but it would make this article way too short.
So, just for funsies, let’s do something that the High Priests of the Church of Marketshare never seem to do. Let’s stop and think.
Never be afraid to sit awhile and think. ~ Lorraine Hansberry
It is neither an accident, nor a surprise, that Samsung is struggling while Apple continues to thrive. Many astute observers predicted it long ago.
Logical consequences are the scarecrows of fools and the beacons of wise men. ~ Thomas Henry Huxley
Why then was this a shock to so many? And what lessons can we learn both from Samsung’s fall and Apple’s continued ascent?
Samsung, grab your sh*tty stylus and prepare to take f*ck*ng notes. ~ not Jony F*ck*ng Ive
Commoditization, Average Sales Price, And Margins
COMMODITIZATION
(T)he Apple brand has faltered … And it’s all because Samsung ignored the industry lock-in to constantly focusing on product, and instead changed the game on Apple. ~ Adam Hartung, Forbes, 4 April 2013
…it’s clear that Samsung will brute-force its way into taking more and more marketshare from Apple at the high end while at the same time will enjoy key structural advantages in the low end that Apple would – at least in its present form – not be able to match. ~ Ashraf Eassa, Seeking Alpha , 7 November 2013
This is the “Samsung-is-so-big-they-don’t-have-to-play-by-the-rules” theory of business. Samsung didn’t change the game. Pundits only thought they did because they didn’t understand the rules of the game.
Pundits have predicted, correctly, that hardware would inevitably become commoditized. This, they proclaimed with confidence, would cause Apple’s prices to fall while Samsung, with its good-enough and better-than-good-enough hardware and its lower prices, would usurp Apple’s market share, relegating Apple to niche status. Ironically, commoditization DOES apply to Samsung — the favorite of the Priests of Market Share — but it DOES NOT apply to their favorite whipping boy, Apple. Why? Differentiation.
From Ben Thompson:
Almost all industries have two tenable positions: the differentiated high-end, and the low-cost low-end. The iPhone faces little threat in the differentiated high-end of the market. Suggesting this market is limited in size is fair; counting the days until customers flee for cheap phones is silly. ~ Ben Thompson
What differentiates Samsung?
Hardware? Please. Xiaomi and others are taking a page out of the Samsung playbook by copying Samsung’s designs and making hardware that is more than good enough.
Software? Please. They’re all running the same Android operating system.
TouchWiz? Please. Stop before I die laughing!
Samsung actually DID have some differentiators like scale, time to market, marketing prowess and budget. But none of those is unique to Samsung, and none of them provided Samsung with sustainable differentiation. To put this in military terms, the Samsung army was able to take ground, but they were unable to hold it.
AVERAGE SALES PRICE
There is no doubt, in my mind, that the whole (smartphone) sector is hugely overstretched. The whole sector is priced as if the average player would sustain 25 per cent margin in eternity. It’s bordering on absurdity. This will end in tears. ~ Per Lindberg, MF Global Ltd, Feb 2009
Well, Samsung and the rest of the mobile hardware manufactures may be overstretched and left in tears, but Apple is doing just fine, thank you very much.
And here’s something else to chew upon. The iPhone 6 Plus is 100 dollars MORE than Apple’s previously highest priced phone model. While the rest of the industry is in a race to the bottom of the pricing barrel, Apple is preparing to INCREASE the average selling price of their phones.
ASP will rise significantly this quarter. ~ Horace Dediu (@asymco) 9/9/14
MARGINS
Here are Apple’s actual margins:
And here is how badly Apple’s critics mis-predicted Apple’s margins:
And even if the industry just continues as it has for the past few years, with companies like Samsung continuing to build phones that are as good as or better than the iPhone, it’s hard to see how Apple’s profit margin will continue to expand the way it has over the last several years. ~ Henry Blodget, Business Insider, 7 Sep 2012
Overall, the iPhone 5 is a good phone and will probably sell well, but in the long run Apple will have a hard time maintaining its extremely high margins because the iPhone is clearly no longer cut above the rest. Since Steve Jobs is gone, Apple should be honest with itself and begin to dramatically increase its R&D budget to stay in the game. Otherwise, the competition will leave it in the dust.” Alvin Gonzales, Motley Fool, 17 Sep 2012
Market Share
Apple’s critics obsess over the relatively high price of Apple’s products and insist that Apple must lower their price in order to gain market share.
I think they should invest more of it in the margin, in the business. Get lower-priced products out there. Stop going after just the premium piece. Get into the real growth engine of the smartphone market, which right now is Android, it’s low-priced phones in China and India, same thing on the tablets. ~ Henry Blodget, CNBC, 3 January 2013
I have been left disappointed by Apple’s decision not to release iPhone Lite as I thought this was the most important product for Apple to stop its marketshare decline. ~ Sneha Shah, Seeking Alpha, 25 October 2013
First, Apple DID NOT lower their prices and their market share has gone UP in important markets such as the United States And Japan.
It’s looking possible Apple will sell more iPhones than Samsung sells Androids this quarter. ~ Benedict Evans (@BenedictEvans)
Second, Samsung followed the pundits advice, lowered their prices…and lost market share anyway.
It appears that Samsung has been cutting prices in order to maintain market share but has lost market share anyway ~ via Charles Arthur, The Guardian
WINNING
The fetish with Market Share is bizarre. Market share times margins equals profits. Market share and margins are the means. Profit is the end. Market share doesn’t mean a thing if it doesn’t lead to more profits and a better platform.
For example, Sony recently announced that it has been improving its smartphone market share in Western Europe and Japan…and is projecting a £1.3 billion loss.
For what hath a man profited, if he shall gain a whole bunch of market share, and loseth his own shirt? ~ John 09:12
Bill Shamblin explains:
More than a 1-to-1 ratio of profit share to market share demonstrates a company’s ability to differentiate its products, provide more value than its competitors, command higher prices, charge a premium and enjoy pricing power.
—
Less than a 1-to-1 ratio of profit share to market share demonstrates that a company is buying market share; that the company has not been able to differentiate its product in the market and is likely competing primarily on price.
—
Pricing to gain market share simply for the sake of market share is a chump’s game. ~ Bill Shamblin
Market share is not the sine qua non of business — profit is. In football terms, market share is the yardage, profits are the points. In baseball terms, market share is the number of hits, profits are the number of runs. In hockey terms, market share is the number of shots on net, profits are the number of goals. Market share, like yardage, hits, and shots, are a necessary means but profits, like points, runs, and goals, are the end. Pretending otherwise for even one second borders on the inane. Continuing to stubbornly believe such rubbish borders on the insane.
To arrive at a contradiction is to confess an error in one’s thinking; to maintain a contradiction is to abdicate one’s mind and to evict oneself from the realm of reality. ~ Ayn Rand
Integration
HARDWARE
If I had to name just one thing that the pundits got wrong about about Samsung and Apple, it would be their myopic focus on hardware (sometimes called “innovation”) comparisons.
Samsung’s hardware was better, they said. Samsung was out innovating Apple, they said. Samsung was on the rise and Apple was all-but-dead, they said.
(T)he Galaxy S II is remarkably easy to summarize. It’s the best Android smartphone yet, but more importantly, it might well be the best smartphone, period. ~ Vlad Savov, Engadget, 28 April 2011
What [Samsung] are doing is they’re innovating faster. just the pace that they’re coming out with [products] is so much faster ~ Gene Munster, Piper Jaffray, 12 March 2013
The competition is increasing its lead over Apple. Samsung’s S5 seems to have enjoyed a strong launch, outstripping the iPhone 5S launch for which Apple bulls were prepared to declare a national holiday. ~ Michael Blair, Seeking Alpha, 4 May 2014
Samsung DOES make superb hardware. But how has all that supposed hardware superiority worked out for them?
SOFTWARE
By focusing on hardware alone, the pundits totally ignored software and — even more — they totally ignored hardware/software integration. Judging a smartphone by hardware alone is like judging a sailboat by the boat alone. The size, shape and design of the boat is important, but the sails make the boat go. Similarly, the size, shape and design of the phone is important, but it is the software that puts the “smart” in smartphone.
As Ben Thomson put it:
Software Matters – For years analysts treated all computers the same, regardless of operating system, and too many do the same thing for phones. … (Y)ou cannot do any serious sort of analysis about Apple specifically without appreciating how they use software to differentiate their hardware. … (M)any people buy iPhones (and Macs) because of the operating system that they run. … Not grokking this fact is at the root of almost all of the Apple-is-doomed narrative. … (And) for the high end buyer app quality matters as well, and here iOS remains far ahead of Android. ~ Ben Thompson
Here is a video (via Abdel Ibrahim (@abdophoto) of The Tech Block) of Steve Jobs explaining that the iPod is just software in a beautiful box.
AUTHOR’S NOTE: When I see a video link, I generally skip it. But I highly encourage you to follow the link and watch at least the first 90 seconds of the video. I think you’ll find it worth your while.
Some professional reviewers may have voted for the Samsung hardware while declaring Samsung more innovative, but the only reviewers that count — the buyers — voted with their dollars, and when it came to premium phones, they voted 3-to-1 in favor of the iPhone.
Platform
PLATFORM ECONOMICS IN BIZARRO WORLD
The real game changers in the S4 are Samsung’s pace of innovation and the platform it is creating to challenge Apple in this crucial area of innovation – platform economics. ~ Haydn Shaughnessy, Forbes, 18 March 2013
Samsung is innovating on ‘platform economics’? Wow. How wrong could one be? Samsung is currently suffering precisely because it has no platform to help differentiate its products. Samsung’s lack of platform makes it the polar opposite of Apple. Which reminds me of an awful, awful joke:
Samsung’s profits.
No, that THAT awful joke. This awful joke:
Question: Why couldn’t the polar bear get along with the penguin?
Answer: They were polar opposites.
THE NUMBERS LIE
There is an illusion that the current lopsided shipment market share is irrelevant. This idea is completely false. Losing market share is almost always never a good sign. Android is roasting Apple and if things keep going the way they are, Apple will be toast. ~ Alvin Gonzales, Motley Fool, 21 Dec 2012
That was written in 2012 and it got it exactly wrong. Android currently runs on two times as many devices as iOS. TWO TIMES. But it is Samsung, not Apple that is getting roasted.
Sooner or later that [market share discrepancy] ought to make a difference. ~ John Gaffney (@jfpgaffney)
And there it is. Your faith based argument:
“Sure, Apple’s App store is doing okay now — BUT JUST YOU WAIT! Once Android has more market share than iOS, the tide will turn.
Okay, okay, Android has more market share than iOS and the developers haven’t flocked to the Google Play store…yet. BUT JUST YOU WAIT. Once Android has a super-majority, iOS is doomed.
Okay, okay, Android now has twice as many handsets in the wild as does iOS and the Apple App store just keeps growing stronger every day. BUT JUST YOU WAIT! Sooner or later the weight of Android’s market share ought to make a difference.
JUST. YOU. WAIT!”
The bedrock theory upon which the Church of Marketshare is founded, is that the platform with the most market share wins. And that theory is demonstrably wrong.
The great tragedy…the slaying of a beautiful hypothesis by an ugly fact. ~ T.H. Huxley
ABSOLUTE NUMBERS
Absolute numbers matter more than share (percentages).
As of June (2014 there were 886,580,000 iOS devices sold. 1 Billion sold will happen well before this year is out. Horace Dediu (@asymco)
One billion units is hardly niche.
Absolute numbers matter more than percentages – While it’s natural to talk about market size as a percentage, the absolute size is just as important. In the case of Apple, for example, the fact they “only” had 15.5% percent of the market in 2013 is less important for understanding the iPhone’s viability than is the fact they sold 153.4 million iPhones. That is more than enough to support the iOS ecosystem, percentages be damned. ~ Ben Thompson
OPEN
The collective development opportunities made possible by the fact that Android is Open Source will see to that. (What will) matter to the mobile application developer (is that) there are eight or ten Android handsets shipped for every iPhone. Addressable market will again trump elegance. ~ Brian Prentice, Gartner, 21 September 2009
That’s flat out wrong. Always has been. Always will be.
Developers don’t care about people who spend time on the platform. They care about people who spend on the platform. Platforms aren’t a democracy. It’s not one vote per person. It’s one vote per dollar, and each person is free to vote as often as they can afford to do so.
METCALF’S LAW
Perhaps you’re thinking of Metcalf’s law. Metcalf’s law says that the more people you have on a network, the more valuable that network becomes.
Android and iOS are platforms. Nowadays, the internet is the network. Don’t conflate the two. iOS can remain closed and still communicate with the rest of the world via the internet.
There’s something problematic in the idea that platforms with 1.5 billion users and 100 billion+ 3rd party apps installed are ‘closed’. ~ Benedict Evans (@BenedictEvans) April, 2014
PREMIUM DEVELOPERS
There is a striking difference between the two companies though, Apple produces their own hardware and software, they collect all the money whereas Google licenses out the software and occasionally gets in on the manufacturing of a device. iOS is a closed system, Android is open-source and if history proves to be right time and time again then I’m sure that Android will end up winning the battle. ~ Ash Anderson, Motley Fool, 21 Dec 2012
Once Steve Jobs goes away, which is probably not far away, then Apple will have to make a strategic decision on whether to open up the platform. Ultimately a closed system just can’t go that far … If they continue to close it and let Android continue to creep up then it’s pretty difficult as I see it. ~ Patrick Lo, CEO, Netgear, 31 January 2011
That’s the theory of “Open”. These are the facts.
The Apple App Store has now paid out over 20 billion dollars to developers, half of that in the last 12 months.
The Apple App Store has paid out 10 billion dollars to developers in the past year. During that same time, Google has paid out 5 billion.
In other words, Apple has half the users that Android has but pays out twice as much to developers. That means that an Apple user is worth four times more than an Android user to developers or, conversely, that it takes four Android users to equal one Apple user.
A sobering thought: in order for Google to match Apple’s iOS revenue with Android, they would need 3.6 billion Android users. ~ Ari Najarian (@stickbyatlas) 6/27/14
Arguing that the Android market share is going to sink the iOS platform is like arguing that the Titanic is going to sink the iceberg.
PREMIUM CUSTOMERS
The difference in payout between iOS and Android is telling in a whole different way too. We used to think that Android engagement averages were much lower because there were so many more Android users. It was assumed that high-end Android users were worth as much to Android as high-end iOS users were worth to Apple. The numbers tell us that this is not so.
There are roughly the same number of high-end Android and iOS users. Yet the total payout over the past 12 months was 5 billion for Android and 10 billion for iOS. This means that Android engagement numbers are not lower because of all the low-end users. It means, instead, that high-end Android users act very differently than high-end iOS users.
Either the Apple App Store motivates the high-end user to spend more or the high-end user chooses the Android platform because they want to spend less. Neither bodes well for Android developers.
THE NEW PLATFORM PARADIGM
The Prophets of the Church Of Market Share have had it wrong all along. Market share does not draw developers to a platform. Dollars draw developers to a platform.
And the strength of a platform is not dependant upon the number of users. It is dependant upon the amount those users spend.
Premium
NICHE
Android now commands 80% of the smartphone O/S market and over 50% of the tablet O/S market. Apple, which pioneered the touch screen smartphones and tablets, finds itself increasingly becoming a niche premium player. ~ Sneha Shah, Seeking Alpha, 16 January 2014
Shah treats the role of the premium provider as though it were that of a vulgar street walker.
As the mobile phone market increasingly offers more quality phones at a range of price points, Apple now faces a difficult choice. Does it try to remain a premium product-premium price company, or does it dive into the commoditized lower priced arena? Neither choice is very appealing. ~ Bob Chandler, Motley Fool, 2 May 2013
Why does Chandler think that choosing between being a premium provider and a low-cost provider is difficult? If you can make the choice, premium is the obvious choice to make.
In the fourth quarter of 2013, Apple sold 64% of all the premium smartphones in the U.S. That number will grow in the the fourth quarter of 2014. Yet pundits seem to treat the premium sector as a ghetto that must be avoided at all costs.
Presuming all decisions are based on price is the easiest way to mispredict the future. ~ Ben Thompson (@monkbent)
The pundits seem wholly incapable of understanding two simple facts. First, Apple WANTS to be the premium provider. They are targeting that market. Second, Apple will not pursue additional market share if it endangers their position as the sector’s premium provider.
This is such heresy to the priests of the Church of Market Share that they simply cannot grok it.
The hardest thing to explain is the glaringly evident which everybody had decided not to see. ~ Ayn Rand
Yet it is the norm everywhere in every market! There isn’t a good or service that doesn’t have a premium and a low-end sector and, as a general rule, the premium sector is the place to be.
Brand
Samsung makes some truly lovely high-end phones, but by selling a million, bazillion, gazillion mid-tier and low-end phones too, their brand has become diluted.
If I’ve told you once, I’ve told you a thousand times: Resist hyperbole. ~ William Safire
No one mentions of “Samsung” and “premium” in the same breath.
Middle
High end buys iPhones. Low end cares only about price. No middle. There.~ Ben Thompson (@monkbent)
Samsung sells high, mid, and low-end phones — which is exactly what the pundits have been urging Apple to do — and Samsung is paying dearly for it. Samsung is losing the high-end to Apple. They are losing the low-end to Xiaomi and others. They’re trapped in the wholly undifferentiated and wholly indefensible middle.
Two Ways To Grow
There were two ways for Apple to broaden its ecosystem – take a chunk of the mid-range or take another chunk of the high-end. ~ Benedict Evans (@BenedictEvans) 9/11/14
Clearly, Apple has chosen the latter. Unlike Samsung, Apple doesn’t WANT to corner the phone market. They want to corner the PREMIUM phone market.
If you want to catch trout, don’t fish in a herring barrel. ~ Ann Landers
And they’re doing it, too. The new iPhone is a direct assault on that part of the premium market still being controlled by Samsung.
(W)ith the iPhone 6 and iOS 8, Apple has done its best to close off all the reasons to buy high-end Android beyond simple personal preference. You can get a bigger screen, you can change the keyboard, you can put widgets on the notification panel (if you insist) and so on. Pretty much all the external reasons to choose Android are addressed – what remains is personal taste. ~ Benedict Evans
Apple Is Doomed Anyway
“Apple is screwed” – 1997, 1998, 1999, 2000, 2001, 2002, 2003, 2004, 2005, 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013, 2014. ~ Sammy the Walrus IV (@SammyWalrusIV)
None of what I’ve said will deter the High Priests of The Church Of Market Share from continuing to predict Apple’s doom. If the facts disprove their theory in the here-and-now, they simply fall back upon irrefutable prophesies that will only occur in the here-in-after.
Faith is an oasis in the heart which will never be reached by the caravan of thinking. ~ Kahlil Gibran
Apple’s lack of market share will be their doom, they say. It is going to happen, they say. All we have to do is patiently wait for the day that is sure to come, they say.
CAPTION: Waiting and waiting and waiting and waiting and…
And what the hey, while we’re waiting, we can always have some fun by twisting every story into anti-Apple FUD:
Well, of course Samsung’s problems are bad news for Apple. All news is bad news for Apple…in accordance with the prophecy!
My only hope is that the pundits who told Apple to be more like Samsung, shorted Apple and invested heavily in Samsung. That would be some schadenfreude that I could really get behind.
The best way to convince a fool that he is wrong is to let him have his own way. ~ Josh Billings
Ben Thompson of Stratechery wrote yet another brilliant article on Microsoft entitled: “It’s Time To Split Up Microsoft“. Highly recommended reading. I agree with Thompson in part, and I disagree with him in part. Let’s start with the parts where we agree.
1.0 Balmer
1.1 Innovation Inflation
The following is from Steve Ballmer’s 2004 memo “Our Path Forward:”
“The key to our growth is innovation. Microsoft was built on innovation, has thrived on innovation, and its future depends on innovation. We are filing for over 2,000 patents a year for new technologies, and we see that number increasing. We lead in innovation in most areas where we compete, and where we do lag – like search and online music distribution – rest assured that the race to innovate has just begun and we will pull ahead. Our innovation pipeline is strong, and these innovations will lead to revenue growth from market expansion, share growth, new scenarios, value-add through services (alone and in partnership with network operators), and using software to open up new areas.” ~ Steve Ballmer, via Ben Thompson’s Article
Hmm. If you have to use the word innovation 7 times in the span of a mere 115 words, you probably don’t know what the word means. Dogs chase cars, but that doesn’t mean they know how to drive. And Microsoft can chase innovation all it wants, but that doesn’t mean they know how to innovate.
I suspect what Ballmer was actually talking about in his memo was iteration, not innovation. Iteration is highly valuable too, but it has nothing at all to do with innovation.
Iteration is incremental improvements in an existing product or service.
Innovation is unique, yes. And it is uniquely useful, yes. But its key characteristic is that it meets unanticipated, unexpected, or unarticulated needs.
The trouble with innovation is that truly innovative ideas often look like bad ideas at the time. That’s why they are innovative — until now, nobody ever figured out that they were good ideas. ~ Ben Horiwitz
Iteration is preserving the status quo by enhancing it. Innovation is radical. It’s revolutionary. It’s subversive. It doesn’t build upon the old market, it shatters the status quo and creates a new market to build upon.
Truth be told, Ballmer wanted nothing at all to do with innovation. When Ballmer wrote his memo in 2004, Microsoft was the undisputed king of the tech world. Innovation is a change agent and last thing Ballmer wanted was to change things. On the contrary, Ballmer wanted things to stay exactly the way they were.
1.2 Focus
“Ballmer then listed (in his memo) 10 different areas of “focus”, the vast majority of which were themselves so broad as to be meaningless.” ~ Ben Thompson
I love the point Ben Thompson is making here. Focusing on ten things is the same as focusing on nothing. Yet Microsoft’s “focus” problem went even deeper than this. In a perverse way, Microsoft WAS very focused. Only they were focused on the wrong thing: their competitors. Jeff Bezos nicely sums up the problem with that approach:
If you’re competitor-focused, you have to wait until there is a competitor doing something. Being customer-focused allows you to be more pioneering. ~ Jeff Bezos
Does this sound like the Microsoft we all know and love? The Zune was a response to the iPod. Windows Phone 7 was a response to the iPhone. Surface was a response to the iPad. And all of those responses came to market late, late, late.
During Ballmer’s reign, Microsoft didn’t so much have a strategy as they had an anti-strategy. (See my article: Microsoft Is The Very Antithesis Of Strategy.) They waited for their competitors to act and then they reacted. They reacted far too slow and far too late. Even worse, they made bad choices, the worst of which was the choice to make their own hardware. The Zune flopped, the purchase of Nokia is a boondoggle and the Surface is a financial anchor weighing Microsoft down. Microsoft needs hardware like a fish needs a net.
1.3 Microsoft’s High-Water Mark
Ben Thompson:
“Ballmer and Microsoft simply could not break free of their Windows-first mindset, and while it would be another 3 years before the iPhone arrived, it was this memo and what it represented that marked the beginning of Microsoft’s decline.”
A belief is not merely an idea the mind possesses; it is an idea that possesses the mind. ~ Robert Oxton Bolt
[pullquote]Before you criticize someone, you should walk a mile in their shoes. That way when you criticize them, you are a mile away from them and you have their shoes. ~ Dave Barry[/pullquote]
This is the point in my article where I’m supposed to trash Steve Ballmer for being shortsighted. But, truth be told, I have a lot of sympathy for him. The only thing harder than saving a dying company is saving one at the top of its game.
A company near death HAS to focus.
The absence of alternatives clears the mind marvelously. ~ Henry Kissinger
A company near death HAS to be innovative.
Mortal danger is an effective antidote for fixed ideas. ~ Field Marshal Erwin Rommel
[pullquote]Until you walk a mile in another man’s moccasins you can’t imagine the smell. ~ Robert Byrne[/pullquote]
Microsoft’s problem was they didn’t have a problem. Without the impetus of bankruptcy or any credible threat, they had little reason to change. In fact, they had NO reason to change and EVERY reason to stay the same. However, as Carrie Fisher put it, “There is no point at which you can say: ‘Well, I’m successful now. I might as well take a nap.'”
If everything’s under control, you are going too slow. ~ Mario Andretti
If everything seems to be going well, you have obviously overlooked something. ~ Steven Wright
In this business, by the time you realize you’re in trouble, it’s too late to save yourself. Unless you’re running scared all the time, you’re gone. ~ Bill Gates
1.4 Vertical Or Horizontal — Pick One, Not Both
Ben Thompson:
“(T)ech companies ought to be either vertically/platform focused, with software and services that differentiate hardware (like Apple), or horizontally/service focused, with the goal of offering superior software and services on all devices (like Google and Facebook). To try and do both, as Ballmer explicitly did with his “Devices and Services” strategy, is to do neither well: differentiating your devices by definition means offering an inferior service on other platforms; offering superior services everywhere means commoditizing your own devices. “Devices and Services” was nonsense.”
I LOVE this.
Microsoft used to have a clear and simple business model. They made the operating system, they licensed the operating system to hardware manufacturers. The end.
Microsoft didn’t compete with their hardware manufacturers by selling hardware. They didn’t compete with their developers by selling software. ((There is one HUGE exception to this rule and that is Microsoft Office. Ben Thompson does a great job of explaining why this conflict worked and worked well — for a while — so I refer you to his article, “It’s Time To Split Up Microsoft“. I couldn’t have said it half as well.)) They competed with other operating systems and boy, did they ever compete. During the eighties, Microsoft squashed challenger after challenger and when the dust from the PC wars settled, the only rival operating system left standing was the Mac — and even it was on its metaphorical knees. ((STEVE WILDSTROM: “From the day that the IBM PC overtook the Apple ][, Microsoft software dominated the market. The Macintosh, introduced in 1984, never challenged MS-DOS or Windows for dominance.”
—
“Other rivals to Microsoft did indeed lose: Novell’s DR-DOS and IBM’s OS/2 operating systems disappeared, along with Netware, Novell’s once-dominant office networking system.”))
Today, of course, it’s a very different story. Microsoft still licenses its operating system to hardware manufacturers. But it also directly competes with those same hardware manufacturers by selling hardware of its own. And while Microsoft is currently making serious inroads into the business of providing internet services that run across all platforms, they continue to directly compete with the very same platforms that they are attempting to sell their services to.
No man can serve two masters: for either he will hate the one, and love the other; or else he will hold to the one, and despise the other. ~ New Testament, Matthew 6:24
It’s really, really tough to make a great product if you have to serve two masters. ~ Phil Libin, Evernote CEO
Two masters? Microsoft is trying to simultaneously serve THREE masters. Yikes!
Microsoft fits the definition of a business model ménage à trois: There are three of ’em, and they’re all trying to screw one another.
2.0 Nadella
2.1 Better Than Ballmer
Ben Thompson:
“To understand why so many serious Microsoft observers were encouraged by Satya Nadella’s week-ago memo, “Bold Ambition and Our Core,” it’s useful to go back 10 years and read Steve Ballmer’s 2004 memo Our Path Forward.”
Hmm. Apparently “serious” Microsoft observers are more willing to overlook the serious problems with Nadella’s memo just because it’s better than Ballmer’s memo, while less serious Microsoft observers, like me, take those serious shortcomings more seriously.
A…speech should be like a lady’s dress—long enough to cover the subject and short enough to be interesting. ~ R. A. “RAB” Butler
[pullquote]He can compress the most words into the smallest idea of any man I ever met. ~ Abraham Lincoln[/pullquote]
Let’s set aside the fact that reading Nadella’s memo was like gargling with broken glass ((With apologies to Hugh Leonard)).
And let’s set aside the fact that what Nadella’s memo lacked in depth it made up for in length. ((With apologies to Chares de Montesquieu))
And let’s agree Nadella’s memo is better than Ballmer’s memo…so long as we also agree that still isn’t saying very much.
So what? At best that’s damning with faint praise. ((Damning with faint praise is an English idiom for words that effectively condemn by seeming to offer praise which is too moderate or marginal to be considered praise at all. In other words, this phrase identifies the act of expressing a compliment so feeble it amounts to no compliment at all, or even implies a kind of condemnation.)) Exactly what was it Nadella said in his memo that “serious” Microsoft observers could possibly have found even remotely encouraging?
2.2 Going Sideways
Ben Thompson:
“In contrast to Ballmer’s anything-but-“focus,” Nadella was quite specific:”
More recently, we have described ourselves as a “devices and services” company. While the devices and services description was helpful in starting our transformation, we now need to hone in on our unique strategy. ~ Satya Nadella
What a great start! (Well, technically, it’s not really a “start” since we’re already 558 words into Nadella’s memo. But let’s set that aside, for now.) This is great stuff. Nadella has tactfully repudiated his predecessor’s strategy without actually saying it in so many words. Further, he’s promising to hone in on Microsoft’s unique strategy. I’m all agog. Can’t wait to hear what’s coming next!
“At our core, Microsoft is the productivity and platform company for the mobile-first and cloud-first world. We will reinvent productivity to empower every person and every organization on the planet to do more and achieve more.” ~ Satya Nadella
Seriously? That’s Nadella’s idea of honing in on Microsoft’s unique strategy? Prepare thyself for a MASSIVE rant.
Microsoft is a “platform” company? That could mean a lot of things. Or anything. Or nothing. Microsoft is a “productivity” company? Whoop-de-doo. Who isn’t? Microsoft is “mobile-first and cloud-first?” Newsflash: They can’t both be “first.” Microsoft will “reinvent productivity?” No, it won’t. You can’t reinvent productivity anymore than you can manufacture new antiques. Microsoft will “empower….” Ugh. Enough said.
We will…empower every organization on the planet to do more and achieve more. ~ Satya Nadella
Ben Thompson seems to put particular stock in this phrase. I’ll discuss its “horizontal” business model implications below. However, in terms of defining Microsoft’s mission, it’s a complete dud. Microsoft is going to empower people to “do more and achieve more?” Wow, thanks for narrowing it down. Helping people “do more and achieve more” is about as non-specific, over-generalized, feel-good-but-means-nothing, applies-to-practically-every-company-that-ever-existed as it gets. That’s not honing-in, that’s zoning-out.
2.3 Teasing Out A Tortured Message
Ben Thompson:
“Nadella was clear that focusing on “every person” meant focusing on every device as well:
[Microsoft’s productivity apps] will be built for other ecosystems so as people move from device to device, so will their content and the richness of their services – it’s one way we keep people, not devices, at the center.” ~ Satya Nadella
This is exactly right. Nadella is making a choice here: productivity as a single unifying principle and, by extension, services based on people, not differentiation based on devices. Moreover, it’s a far more difficult and brave choice – obvious though it may be – than outside observers could likely understand. It was only a little over a year ago Ballmer declared, “Nothing is more important at Microsoft than Windows.”
Last week, Nadella said “No.” ~ Ben Thompson
Let’s break that analysis down.
“(I)t’s a far more difficult and brave choice – obvious though it may be – than outside observers could likely understand.”
First, I concede I am an “outside observer.” However, I’m not willing to cede the interpretation of Nadella’s words solely to Microsoft insiders.
“Nadella is making a choice here: productivity as a single unifying principle…”
Second, I’m totally not buying this. “Productivity” is far too broad a term to constitute a “single unifying principle.” And as for it being a “choice,” what exactly is Nadella choosing between: Productive and non-productive?
“(S)ervices based on people, not differentiation based on devices.”
Third, what I think you are saying is you think Nadella is saying Microsoft is moving toward services, and away from devices. (If that’s what Nadella actually meant to say, it would have been nice if he had actually said it.) Further, I think you are saying you think Nadella is saying Windows is no longer Microsoft’s be all and end all. And — despite the tortured path used to get us there — I kinda agree with that interpretation. Unfortunately, Nadella’s actions — and Ben Thompson’s own analysis — disagree.
2.4 Two Problems
How do I know Ben Thompson’s analysis doesn’t support the suggestion Microsoft is moving away from devices and toward services? Because he says so in his article when he discusses Windows, here ((BEN THOMPSON: “For all the talk of moving beyond Windows (and Windows Phone), I am deeply skeptical Microsoft can truly pursue its potential as a software and services company as long as Windows is around.”)) and when he discusses Nokia, here ((BEN THOMPSON: “The effects of (the Nokia) deal – and understanding why it was made – have convinced me that Microsoft cannot truly reach its potential as a services company as long as Windows and the entire devices business is in tow.”)) and here ((BEN THOMPSON: “When Nadella took over earlier this year Microsoft had not only missed the mobile boat, he was now saddled with a $7.2 billion dollar anchor and 34,000 new employees. That’s the thing about last week’s layoffs: even after shedding 18,000 employees Microsoft will still be about 16% bigger than they were before the acquisition, and still tightly bound to a devices group that is working at diametrically opposed goals from the software and services businesses that are Microsoft’s future.”)) and when he discusses devices, here. ((BEN THOMPSON: “I’m bothered by the phrase “We have a big opportunity.” For (COO Kevin) Turner, the opportunity is in growing that 14%. As quoted by Gregg Keizer: We want to go from 14% to 18%, from 18% to 25%, from 25% to 30%. That’s the beauty of this model … [the opportunity] is much bigger than anything we’ve had in the past.
—
Turner is still talking about devices, and it’s really too bad.”))
And how do I know Satya Nadella isn’t moving Microsoft from devices and to services? Because his actions speak far louder — and far clearer — than do his words.
We know what a person thinks not when he tells us what he thinks, but by his actions. ~ Isaac Bashevis Singer
I’ll agree Satya Nadella has said “yes” to services. But what has he said “no” to? The Windows operating system licensing business model and the hardware business model (Nokia phones and Surface Hybrid) and the services business model all continue to co-compete, one with the other. Nadella is doing what Ballmer always did. When faced with a choice, he has chosen not to choose. When faced with a decision between business models, he has decided not to decide.
Action expresses priorities. ~ Gandhi
Yes, action expresses priorities. And inaction obscures them.
It’s true services may gain primacy at Microsoft. However, so long as three business models remain — like nesting dolls, one within the other — Microsoft’s internal conflicts and external turmoil will continue, unabated.
Deciding what not to do is as important as deciding what to do. That’s true for companies, and it’s true for products. ~ Steve Jobs
Conclusion
Okay, let’s agree Nadella isn’t the best communicator in the world. That’s too bad because words can make your heart soar…or they can make your head sore. ((Tip of the hat to Dr. Mardy and his aphorisms.)) However, words aren’t everything. When the Nokia phone line is cut; when the Surface hybrid is cut; then we won’t have to read Nadella’s memos to know where Microsoft is headed. Nadella’s actions will speak far louder than any words could.
A man is judged by his deeds, not by his words. ~ Russian Proverb
Until that day, Microsoft should be careful that they don’t become a joke:
A Jewish woman had two chickens. One got sick, so the woman made chicken soup out of the other one to help the sick one get well. ~ Henny Youngman
Microsoft is in danger of making chicken soup out of their healthy business divisions in order to sustain their ailing businesses. If they’re not very, very careful, they’ll end up with a bunch of dead chickens and egg all over their face.
On May 12, 2014, Ed Bott posted an article entitled: “Apple and the cloud: A magnificent missed opportunity“. It is a scathing critique of Apple’s efforts to master the cloud. It’s very well written and well worth a read.
Only, here’s the thing. While Mr. Bott’s obeservations seem accurate, his analysis and conclusions are wildly off base because the cloud “opportunity” he thinks Apple has missed is not the cloud opportunity Apple is — or should be — pursuing.
Snippets
Here’s a couple of snippets from Mr. Bott’s article:
— So, three and a half years later, how far have Apple’s cloud efforts progressed? Compared to the leaders in the cloud ecosystem, not very far at all.
— Apple’s iCloud is, first and foremost, a backup target for iOS devices, a job it does reasonably well. But on every other modern yardstick for cloud computing it falls short.
— Apple has been bumbling along for a decade with @mac.com and @me.com and now @icloud.com addresses, but there’s no evidence they’ve gained any traction…
— Apple has some very capable iOS and OS X apps in its iWork suite: Pages, Numbers, and Keynote…but there are no equivalent apps for non-Apple-branded devices…
— Apple has nothing in (the general-purpose online storage) space.
— iCloud syncs photos and videos from iPhones to the cloud and then to other devices. … Windows PCs have limited support; Android devices are unsupported.
Bott concludes:
In short, Apple is in no danger of becoming a “devices and services” company anytime soon.
Misdiagnosis
When I read Ed Bott’s article and its conclusion, I simply have to shake my head. Bott points out target after target after target Apple has missed — apparently oblivious of the fact Apple is not, will not and should not be aiming at those targets.
Bott’s misdiagnosis of Apple’s aims is all the more baffling because he clearly identifies Apple’s goals at the very start of his article:
(Steve) Jobs…remained firmly wedded to Apple’s walled garden. His directive…is extraordinarily blunt: “tie all of our products together, so we further lock customers into our ecosystem.”
In other words, Apple is pursuing a vertical strategy. They want to own the whole “stack” — hardware, operating system, and services — and make that stack, i.e., that ecosystem, so appealing that new customers will be drawn to it and existing customers will never want to leave it. You can Google the words “Apple customer retention” and judge for yourself whether or not their strategy is succeeding.
why, Why, WHY?
If Ed Bott knows that Apple is pursuing a vertical strategy, then why is he bemoaning the fact that Apple is not pursuing a HORIZONTAL cloud strategy?
— Why, why, why would Apple need their mail client to “gain traction” so long as others are more than willing to fill that need?
— Why, why, why would Apple want to provide suites of apps that ran on non-Apple branded devices?
— Why, why, why would Apple want to enter and compete in the general purpose online storage space, a space that serves both Apple and non-Apple device owners?
— Why, why, why would Apple want to provide iCloud-like photo and video syncing to Windows and Android devices?
Microsoft And The Jewish Chicken
Mr. Bott normally analyzes Microsoft. In my opinion, for the past 15 years Microsoft has had one of the most convoluted and wrong-headed business models in all of tech. They had no focus, they had no aim, they had no guiding strategic vision.
Perhaps Mr. Bott has stared at the “sun” that is Microsoft for so long he is now blinded to the possibility that others do not want, have no interest, and are actively avoiding the trap of simultaneouly pursuing incompatible vertical and horitzonal business aims. Claiming that Apple is “missing” an opportunity to become a “devices and services” company is simply bizarre because that was Steve Ballmer’s deluded goal for Microsoft — never Steve Jobs’ goal for Apple.
Which reminds me of a joke:
A Jewish woman had two chickens. One got sick, so the woman made chicken soup out of the other one to help the sick one get well. ~ Henny Youngman
Ed Bott wants Apple to kill their healthy vertical chicken and turn it into soup so it can be used to nurse to health a horizonal chicken that only exists in Ed Bott’s fevered imagination. It’s simply not going to happen.
Conclusion
Until Ed Bott understands the targets Apple is, and ought to be, aiming for, he should stay out of the business of judging whether or not Apple has hit those targets.
“Some have argued that Apple’s era of greatness is over, that with CEO Tim Cook sitting in Mr. Jobs’s chair, the magic is gone, and Apple is now, at best, just an ordinary company. Others have countered that, financially, Apple is still doing quite well, and that there’s no evidence that it’s out of ideas.” ~ Walt Mossberg
Let’s make one thing crystal clear from the start. This is not a new debate. The debate over whether Apple’s “magic” is gone didn’t start with Steve Jobs’ death, it started with Apple’s birth. The only difference between the Apple doomsayers of today and the Apple doomsayers of yesteryear is pundits used to say Apple was doomed BECAUSE of Steve Jobs. Today pundits say Apple is doomed because of the ABSENCE of Steve Jobs. The doomsayers have altered their lyrics, but they haven’t changed their tune.
Where Is This Parade Of Which You Speak?
“Steve Jobs has been dead for about two and a half years now, and it’s hard not to notice that the regular parade of game-changing Apple products for which he was famous seems to have disappeared with him.” ~ Walt Mossberg
Seriously?
The founding premise, upon which Mr. Mossberg’s entire article is built, simply doesn’t exist. There never was and there never will be a “regular parade of game-changing (tech) products” under Steve Jobs or anyone else. True game-changers are few and far between. And they appear sporadically and at anything but regular intervals.
Expecting Steve Jobs’ successor or Steve Jobs himself or anyone for that matter, to produce disruptive, game-changing, category busting products every couple of years simply ignores reality. Tech game-changers are to tech iteration as diamonds are to coal: rare, extremely hard to discover and precious.
Is Apple Like A Movie Studio?
“…I think the most useful way of thinking about Apple is to see it as a movie studio. Studios release blockbuster franchise movies every few years, and then try to live off a series of sequels until the next big, successful franchise.” ~ Walt Mossberg
With all due respect, you simply cannot compare the creation of a movie franchise to the creation of a disruptive, game-changing, category creating product. They’re at different orders of magnitude.
A movie franchise emerges once every few years.
A game-changing product emerges once every few decades.
A movie franchise alters the course a company.
A game-changing technology product alters the course of an industry.
Take, as a single example, the notebook computer.
The notebook computer was basically re-invented when the PowerBook was introduced in 1991.
(T)he first PowerBook would set the standard for basic laptop design for the next twenty years, a fact that still surprises everyone. “We hit a homerun with the PowerBook,” Brunner said. “It surprised me to death. There were so many flaws with that machine and that design. I thought it was going to be a huge failure. But looking back today, basically all laptops are that design—a recessed keyboard, palm rests, a central pointing device.” ~ Excerpt From: Leander Kahney. “Jony Ive.”
The basic design for the notebook wasn’t changed again until the introduction of the tablet in 2010 — some nineteen years later.
Demanding Apple “re-invent” computing again — only 4 years after the release of the iPad — is akin to demanding the movie industry evolve from live stage performances, to silent films, to talkies, to digital special effects, every few years. It’s simply unreasonable.
Is It Now Or Never For The Sequel To The iPad?
(S)equel time is almost up. It’s time for a new franchise. And it had better be desirable, logical and elegant. ~ Walt Mossberg
Are you kidding me?
You say: “time is almost up.” Why is that?
Wasn’t there time enough for the iPod to disrupt the MP3 market? Wasn’t there time enough for the iPhone to disrupt the smartphone market? Wasn’t there time enough for the iPad to disrupt the tablet market?
History’s Answer: “Yes, yes, and oh hell yes.”
You say Apple’s offering “had better be desirable, logical and elegant.” Why is that?
It’s not as if Apple’s tech competitor’s have gotten any traction in the marketplace with the “next great thing” in tech. In fact, when it comes to products like wearables, tech companies clearly don’t have a clue what they should be offering. They keep throwing every conceivable sort of device at the consumer in the hope something sticks and the consumer, in their turn, keeps chucking everything right back at them.
Why The Double Standard?
Why does Apple and Apple alone have to release a new “franchise” every couple of years? Why are there no calls for semi-annual new “franchises” from other tech companies?
Some of the “rules of thumb” regarding success are nothing succeeds like success; success breeds success; past success is a predictor of future success. However, when it comes to Apple — and only Apple — pundits instead apply a “rule of dumb”: Apple succeeded through sheer dumb luck and the odds are bound to catch up with them sooner rather than later; Apple is a one-hit wonder with, admittedly, a string of hits, which only makes it all the more certain their next offering will be a flop; while everyone else is taking target practice, Apple is playing Russian Roulette — each and every time Apple successfully pulls the trigger on another category, it also adds another bullet to the chamber, another nail in the coffin that has been patiently waiting for them these many years.
Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally. ~ John Maynard Keynes
Does Apple Want To Be Pixar?
Apple is not like a movie studio. Pixar is like a movie studio. Pixar had only one innovation but it was a beaut– a process for creating hit animated films. Since then, Pixar has only iterated and iterated and iterated. And not only is that good enough, it’s great. It’s turned Pixar into a movie making hit machine.
Why would Apple want to become Pixar? Think about it. Apple has done everything that Pixar has done, and more. It is Pixar, that might aspire to become Apple. And to do so, they would have to create a new process — a process that would not only revolutionize the way Pixar made movies, but a process that revolutionized the way everyone made movies.
Then they would have to do it again.
And again and again.
Every once in a while a revolutionary product comes along that changes everything. It’s very fortunate if you can work on just one of these in your career. Apple’s been very fortunate in that it’s introduced a few of these. ~ Steve Jobs
Will Apple Ever Be Disruptive Again?
Apple is a hit machine, like Pixar, but they’re also serial disruptors — like no one else I’ve ever seen. The hits come out year after year after year. The disruptions (Apple II, Macintosh, iPod, iPhone and iPad) arrive not so regularly and not so much.
Don’t cry because it’s over. Smile because it happened. ~ Dr. Seuss
I honestly don’t know if Apple will ever create another disruptive product. Truth be told, we should be amazed Apple has created as many game-changers as they have. When you look at the careers of geniuses, almost all of them had their breakthroughs before they were thirty. Steve Jobs had breakthroughs before the age of thirty but as the days of his life dwindled, the speed and size of his disruptive innovations grew. And despite his premature death, his biggest disruption may be still to come.
I discovered that the best innovation is sometimes the company, the way you organize a company. The whole notion of how you build a company is fascinating. ~ Steve Jobs
Pixar has created a process that routinely churns out mega-successful movie hits. Did Steve Jobs create a process that would allow Apple to remain a serial disruptor? Only time will tell…
…but time knows how to keep a secret and it probably won’t be telling us any time too soon.
Last week I said goodbye to Microsoft. This week I say hello to Microsoft 2.0. But before we look at where I think Microsoft is headed, let’s take a quick look at where they’re coming from.
The further back you look, the further forward you can see. ~ Winston Churchill
Microsoft 1.0 had one of the most successful business models of all time. But no matter how successful Microsoft became, management seemingly could not abide the thought of any other technology company sharing the spotlight of success.
If a competitor was being successful with customers Microsoft wasn’t addressing, Microsoft had to have those customers as well.
If a competitor was being successful in a market where Microsoft didn’t compete, Microsoft felt compelled to compete there as well.
Most damning of all, if a competitor’s success could be attributed to its business model, Microsoft felt compelled to assimilate that business model and make it their own.
Microsoft wasn’t setting their own agenda. Instead, they were letting the successes of their competitor’s set the agenda.
Next to knowing when to seize an opportunity, the next important thing is to know when to forego an advantage. ~ Benjamin Disraeli
[pullquote]Thinking that adding another business model will make your company stronger is like thinking that adding another iceberg would have made the Titanic more seaworthy[/pullquote]
No company can satisfy every customer. No company can satisfy every market. And as for simultaneously employing different business models, thinking that adding another business model will make your company stronger is like thinking that adding another iceberg would have made the Titanic more seaworthy. ((Inspired by Chet Hurley))
iPod
As an example, look at how Microsoft responded to the success of the iPod.
In 2001, Apple introduced the iPod to mostly tepid reviews. However, approximately two years later, Apple added iTunes integration. The iPod’s popularity skyrocketed, becoming the vehicle that both saved Apple from the technology graveyard and later propelled Apple to technology greatness.
Now what does any of this have to do with Microsoft?
Absolutely nothing.
And that’s the point.
The iPod was no threat to Microsoft’s overall business strategy. In fact, when iTunes came to Windows, the iPod STRENGTHENED the Windows ecosystem.
However, the iPod’s success drove Microsoft mad with envy. Like a spiteful neighbor, Microsoft couldn’t stand to see Apple enjoying any success, even in an area where Microsoft didn’t compete and had no compelling reason to compete. Without ever clearly addressing the question of “why” they needed to respond to the iPod, Microsoft decided that it had to crush the iPod with a competing product of its own.
At first, Microsoft came out with their own MP3 software layer called “Plays-for-Sure” and licensed it to their hardware partners. When that failed to make a dent in the iPod’s success, Microsoft abandoned its traditional licensing business model (and their so-called hardware “partners”) and, with the Zune, adopted a vertical business model — the very same vertical business model that Apple had been honing and perfecting for over thirty years.
The Zune experiment was a dismal failure. Are we surprised? The goal of strategy is to make our opponents play to our strengths — to play our game on our home field. Microsoft did exactly the opposite. NO ONE does vertical technology like Apple. Apple lives and breathes vertical. Yet Microsoft — with virtually no experience in using a vertical business model — challenged Apple where Apple was strongest; where Apple had an inherent advantage; where Apple held the home field advantage.
It was a bloodbath. Not only did the Zune fail, it failed so spectacularly that it became the poster child for how NOT to compete with Apple ((The iPod remained the poster child for how not to compete with Apple until 2007, when Steve Jobs famously introduced the iPhone and Steve Ballmer famously responded by laughing at it.)).
If you can’t imitate him, don’t copy him. ~ Yogi Berra
Multiple Business Models
If you don’t know where you’re going, you might not get there. ~ Yogi Berra
Business models are not cords of wood that can be stacked up, one upon the other. You do not grow better by adding a new business model; you grow confused. You do not become bigger by adding a new business model; you become bloated. You do not become stronger by adding multiple business models, you become stranger.
FAKE CAPTION: The Simplest Known Explanation Of Microsoft 1.0’s Conflicting Business Models
A good business model — like a good argument — should be consistent, self-supporting and contain no inherent contradictions. You can tell when you have a good business model by how little internal friction it causes. You can tell when you have a bad business model by how your company always seems to be at war with itself.
To arrive at a contradiction is to confess an error in one’s thinking; to maintain a contradiction is to abdicate one’s mind and to evict oneself from the realm of reality. ~ Ayn Rand
Say Hello To Microsoft 2.0
With the changeover from Steve Ballmer to Satya Nadella, Microsoft has entered into a new era.
We can’t quite be sure yet exactly WHERE the good ship Microsoft is headed, but we can be very sure that Microsoft’s new Captain, Satya Nadella, is steering Microsoft in a radically different direction.
Microsoft is no longer pretending that its Office software suite will help it sell more Surface tablets. They have accepted the reality that Office should be untethered from their Windows operating system and from their Surface tablets so that it can be free to reside on Microsoft devices, Apple devices, Google Chrome devices…and as many other personal computing devices as possible.
It’s but little good you’ll do a-watering the last year’s crops. ~ Eliot Adam Bede
Microsoft is also no longer pretending that they can make a profit from selling mobile operating systems. They have accepted as reality the fact that Apple’s bundled hardware/operating system model and Google’s freemium operating system model have reduced the price of mobile operating systems to zero.
Face reality as it is, not as it was or as you wish it to be. ~ Jack Welch
Microsoft offering free Windows on phones and tablets is nontrivial. This is a big move, as it changes their business model entirely. ~ Aaron Levie (@levie)
Month’s back I stated Microsoft needed its “hell freezes over moment.” I wonder if giving Windows software on smaller screens for free is it. ~ Ben Bajarin (@BenBajarin)
For a company which has been too long stuck in the fog of Redmond, it’s a remarkable turnaround. ~ Kontra (@counternotions)
Microsoft is re-inventing its business model which is the same as saying Microsoft is re-inventing themselves.
Say goodbye to Microsoft 1.0. Say hello to Microsoft 2.0.
Entrepreneurship is essentially identifying the path that everyone takes; and choosing a different, better way. ~ Sheldon Adelson
Horizontal
A coming together, a cloud for everyone and for every device; the first step on a journey. ~ Satya Nadella
Microsoft is going to a horizontal business model with a services layer above device platforms that isn’t dependent on any one operating system and provides Cloud services to all operating systems. Microsoft 1.0 was about Windows on every computer. Microsoft 2.0 is about MICROSOFT on every computer. It’s a subtle distinction with huge implications.
Horizontal business models thrive on cooperation and abhor confrontation with their vertical partners. Microsoft 2.0 — and its horizontal business model — wants its products to run almost everywhere, therefore it wants to be friendly with almost everyone.
Before Microsoft moved to a horizontal business model, try to imagine the following Twitter exchange taking place:
Welcome to the #iPad and @AppStore! @satyanadella and Office for iPad ~ Tim Cook (@tim_cook)
Thanks @tim_cook, excited to bring the magic of @Office to iPad customers #cloud4mobile ~ Satya Nadella (@satyanadella)
Or try to imagine John Gruber being on-screen at Microsoft’s Build conference:
This is odd/interesting. MS highlighting Apple watcher @gruber’s Vesper as an Azure developer/customer #bldwin ~ Mary Jo Foley (@maryjofoley)
In my opinion, John Gruber on screen at Microsoft’s Build Conference in 2014 is the poor man’s equivalent of when Bill Gates towered over Steve Jobs at Macworld in 1997.
Sometimes I’ve believed as many as six impossible things before breakfast. ~ Lewis Carroll
We didn’t know it then, but in 1997 Steve Jobs had just stooped to conquer — he had just conceded the PC wars to Microsoft thereby setting the table for his later post-PC triumphs. I think Microsoft — on a lesser scale — is doing the same today. They’ve conceded the post-PC wars…because they want to win the next war – the war for the Cloud.
Horizontal v. Horizontal
When you have a Horizontal business model, Verticals (like Apple) are not your enemies, they’re your friends. Your enemies are other horizontal business models competing in the same space as you. Hmm, who else do we know who has a Horizontal business model and competes in the Cloud?
Microsoft is clearly gunning for Android more than Apple now. ~ Matt Rosoff (@MattRosoff)
Legacy Business Models
Even if I’m right and Microsoft is trying to move toward a pure horizontal business model, they are still burdened with several dysfunctional legacy business models. I expect Satya Nadella to employ a two-pronged strategy to rid himself of these cancerous business models:
1) Unprofitable strategies (like Windows RT, the Surface tablet, Windows Phone 8, buying Nokia, moving to a functional organization) will be undone. This will take some doing but the process has already begun.
2) Profitable strategies (like the cash cows of Windows and Office) will be milked until they’re “udderly” dry. Then those cash cows will be put out to pasture while Microsoft moves on to the next great thing.
If I were running Apple, I would milk the Macintosh for all it’s worth and get busy on the next great thing. ~ Steve Jobs [Observation made before returning to Apple]
Part of me feels, at times, that Microsoft’s base case for mobile is to wait it out until the next disruption hits the reset button. ~ Ben Bajarin (@BenBajarin)
The End…Or Is It The Beginning?
It’s still early days for Microsoft 2.0.
Lots of good stuff at the Build keynote, but it feels like Microsoft is still in the fairly early stages of a years-long transition. ~ Harry McCracken (@harrymccracken)
Any prediction would be premature.
Never make forecasts, especially about the future. ~ Samuel Goldwyn
With Microsoft’s bankroll, there’s still time to make the transition from Windows everywhere to Microsoft everywhere.
It’s never too late to be what you might have been. ~ Mary Ann Evans (under the pen name, ‘George Eliot’)
Microsoft 2.0 is very, very late to the game. Or maybe I’ve been looking at this all wrong. Maybe Microsoft is very late to the post-PC game but very early to the Cloud game. If so, then Microsoft 2.0 may have been well worth the wait after all.
If a girl looks swell when she meets you, who gives a damn if she’s late? Nobody. ~ J. D. Salinger, The Catcher in the Rye
On Twitter, Ben Bajarin, and others, recently argued that the value in tech tends to inevitably shift from software to hardware and, finally, to services.
Hardware to software to services. Apple is in a unique position to capture content. ~ Ben Bajarin (@BenBajarin)
Ben, you’re essentially saying Apple is beginning a new business model around iOS. ~ eric perlberg (@eric_perlberg)
I’m not so sure.
I think Apple’s business model is similar to the Disney World business model. There are boardwalks and amusement fairs aplenty, but there is only one Disney World. It it the crème de la crème of amusement parks. Similarly, there are smartphones and tablets aplenty but there is only one “Apple World.” It is the crème de la crème of mobile computing.
Disney World does not charge per ride. Rather, they charge a single admission fee to allow admission to their parks. Similarly, Apple does not charge for its platform. The iPod Touch, iPhone or iPad is the price of admission to their ecosystem — the “ticket” to “Apple World.”
Hardware As A Ticket
Pundits often ignore the value of Apple’s ecosystem. They compare Apple’s hardware to the hardware of Apple’s competitor’s and, finding it wanting, proclaim it to be “overpriced”. But if one includes the Apple ecosystem in the cost of the hardware, then the premium charged by Apple for their hardware is more than justified.
Without a doubt, Disney World generates huge amounts of money from the sale of foods, concessions and hotels, but it is the Disney Park that draws the customers. Similarly, Apple makes huge amounts of money from the sale of apps, music, TV and movies but it is Apple’s entire ecosystem — not just their content — that draws the customers.
Strategy Bonus
Microsoft sells its software licenses to Original Equipment Manufacturers (OEMs). They, not the consumer, are Microsoft’s true customers. Google gives away its services and sells consumer eyeballs to advertisers. The advertisers, not the consumers, are Google’s true customers. Apple, on the other hand, sells their hardware — their “ticket” to their ecosystem — directly to the end user.
Microsoft, Google and Apple all want the end user to have a superior user experience. But since Apple sells their hardware directly to consumers, it is easier for them to stay focused on that task. With Apple, the customer and the end user are one and the same. Apple’s desire to help its customers is perfectly aligned with Apple’s desire to help its end users. One might call this a Strategy Bonus. Microsoft and Google, try as they might to please the end user, have a customer layer between themselves and that end user. Apple does not.
Different, Not Best
Am I saying Apple’s business model is superior? Not at all. Throughout my life, I’ve enjoyed going to my local boardwalk and I would be unable to do that if the Disney World model were the only amusement business model available. On the other hand, it took a unique man with a unique vision to create a unique place like Disney World. It’s a one of a kind, world class, amusement experience. And the world would be a lesser place without it.
Similarly, it took a unique man with a unique vision to create “Apple World”. I’m glad the world has Microsoft and Google. But the world would be a lesser place without the unique vision that created Apple. It’s the Disney World of tech.
Market Share is like a bikini. What it reveals is suggestive, but what it conceals is vital. ((Inspired by a quote from Aaron Levaenstein))
Market Share by itself means nothing. If it’s not taking you where you want to go, it’s worse than nothing – it’s destructive.
Trading profits for market share is like selling your car for gas money.
The Missionaries of Market Share are the pro wrestlers of analysis. ((Inspired by Rick Overton)) In fact, calling them analysts is like calling bald a hair color.
Facts do not cease to exist because they are ignored. ~ Aldous Huxley
You can always pick out the Ministers of Market Share by the glazed look that comes into their eyes whenever facts begin to wander into the conversation. ((Inspired by Michael Wilding)) The Church of Market Share — like any revealed religion — eschews facts and is largely made up of prophesies. ((Inspired by H. L. Mencken))
Market Share Maniacs staunchly maintain you can’t have a viable platform without market share. When you point out iOS — the minority player in smartphone market share — runs on 95% of enterprise apps and Apple’s iPhone is the most coveted smartphone brand in the developing world, they smugly fall back on scripture:
“Microsoft won with market share. Thus it was, thus it shall be again.”
Great. Just great.
If you gave a Market Share Historian a penny for their thoughts, you’d get change.
Arguing what Microsoft did in the Nineties has to happen again — that the market today is in any way similar to the market in 1995 — is just flat out wrong. There is simply no evidence to support it.
It is better to know some of the questions than all of the answers. ~ James Thurber
Instead of looking solely at market share, we should be looking at what each company is trying to accomplish.
— Apple wants to make profits and build a premium platform. Are they doing that? Yes they are.
— Google wants to sell eyeballs to advertisers. Are they doing that? On the desktop, yes. On mobile, not so much.
— Microsoft wants to sell licenses and build a platform. Are they doing that? No they’re not.
Apple doesn’t need a lot of market share, they need a lot of the premium share of the market. Google doesn’t just need market share, they need the kind of market share willing to open their wallets and buy their advertisers’ products. Microsoft DOES need market share both because they’re a distant third in the race to create a smartphone platform and because their licensing model — unlike Apple’s vertical model — thrives on volume.
Yes, market share matters, but it matters differently to different companies because they’re using a different means to accomplish a different end. Saying market share matters is like saying water matters. Of course it does – but it matters a lot more to a farmer than to a city dweller and it matters even more to a fisherman. Market share without context is like most anything without context — meaningless.
Conclusion
Skeptical scrutiny is the means, in both science and religion, by which deep thoughts can be winnowed from deep nonsense. ~ Carl Sagan
Of course, there’s not much use arguing with the true Market Share Believers. As Mark Twain put it: “You can’t reason someone out of something they weren’t reasoned into.”
Not to know is bad not to wish to know is worse. ~ African Proverb
Faith based arguments are not subject to reason. Nevertheless — as Agatha Christie put it: “Good advice is always certain to be ignored, but that’s no reason not to give it.” So here’s my wholly unsolicited advice for those who insist on making fact-free arguments:
If you don’t think too good, don’t think too much. ~ Ted Williams
With all due respect, you simply cannot compare the creation of a movie franchise to the creation of a disruptive, game-changing, category creating product. They’re at different orders of magnitude.
It’s not as if Apple’s tech competitor’s have gotten any traction in the marketplace with the “next great thing” in tech. In fact, when it comes to products like wearables, tech companies clearly don’t have a clue what they should be offering. They keep throwing every conceivable sort of device at the consumer in the hope something sticks and the consumer, in their turn, keeps chucking everything right back at them.
In my opinion, John Gruber on screen at Microsoft’s Build Conference in 2014 is the poor man’s equivalent of when Bill Gates towered over Steve Jobs at Macworld in 1997.
It’s still early days for Microsoft 2.0.
I think Apple’s business model is similar to the Disney World business model. There are boardwalks and amusement fairs aplenty, but there is only one Disney World. It it the crème de la crème of amusement parks. Similarly, there are smartphones and tablets aplenty but there is only one “Apple World.” It is the crème de la crème of mobile computing.