Microsoft Mesh Empowers A Heterogeneous Holographic Collaboration

On day one of the winter edition of Ignite, Microsoft announced the launch of Microsoft Mesh, a new collaboration platform powered by Azure, that allows people to have a shared virtual experience on a variety of devices from Mixed Reality (MR) and Virtual Reality (VR) headsets to PCs and Macs and phones. In his opening remarks, CEO Satya Nadella compared Microsoft Mesh to Xbox Live’s launch in 2002. The service made online multiplayer gaming for consoles mainstream by making it easier for developers to connect their games to the internet. The launch’s result was a rapid growth in online multiplayer titles for the Xbox and Xbox 360, giving Microsoft an advantage over Sony and Nintendo for years. It will be interesting to see how Mesh will change the approach taken by companies like Spatial, a brand that many already associate with virtual collaboration. In my mind, a common platform is the only way to achieve a level of collaboration that can be genuinely inclusive and natural. Yet, I realize all too well that business models sometimes get in the way, and it is much easier for Microsoft to focus on a common platform when monetization comes not from the platform itself but the cloud that powers it.

Microsoft’s Alex Kipman, the mind behind Kinect and HoloLens, spent an hour on the keynote stage talking about the opportunities this platform opens up as several guests from the science and entertainment business, all appearing in holographic form, bore witness to his belief that the future is paved with potential for shared virtual experiences.

I had the opportunity to experience the keynote, not through my PC, as I have been accustomed to for the past year, but as an avatar by the edge of the stage where Kipman’s hologram stood. While Kipman looked like himself, my fellow participants and I appeared as much more basic AlspaceVR avatars. The fact that I could not tell who was in the audience, even if I was aware that there were other fellow analysts and reporters I knew, did not make the experience less engaging. I could see people moving around, using emojis to react to the presentation, and even being annoying when they teleported themselves too close for comfort.

It is not a secret that I am not a great fan of VR. I usually find the effort I put into setup and the experience always to outweigh the perceived value I get from it. So I was surprised to find the keynote experience quite engaging. While there was still a gimmicky side to it, like having a whale shark circling over my head, it clearly gave me an idea of what events like Ignite could be like in the future. More importantly, though, it showed me what collaboration might be like. Maybe it is because I have not been in a room with as many people in over a year, but the experience did feel more personal than watching it on a computer screen. Having experienced HoloLens as well, I can certainly say I prefer the holographic experience in the room I am in, especially when it comes to collaboration. When working with someone, the experience is created more so by the interaction you have than the environment. This is why we have been struggling so much with remote work during the pandemic.

One of the aspects of workflows and collaboration I have been highlighting over the past year is how heterogeneous the set of applications and operating systems we work with every day really is. Whether you are a Microsoft Office or a Google Workspace user, you are most likely jumping between the two environments and using apps like Zoom or Slack on top, even if both productivity suites offer chat and video solutions. This might be because of personal preference or because of the people you work with. Either way, it is rare to be all in with just one solution. You might be able to do it within your organization but not when you work with external people.

Now think about a real-life meeting. While our work might be on a PC, a Mac, or a phone, shared across several apps, what we bring to the meeting is, first and foremost, us. Now think about how not having a common platform would limit that experience. Mesh offers developers a full suite of AI-powered tools for avatars, session management, spatial rendering, synchronization across multiple users, and “holoportation” to build collaborative solutions in mixed reality. More importantly, however, Mesh allows people to meet others where they are. The ability to benefit from this future even without a top-of-the-line device like HoloLens means that, hopefully, we will all have a seat at the table. Mesh also guarantees consistency in the way I show up to my meetings. I am me, and in real life, I show up in the same way. This is, of course, critical if you want to create a realistic experience, and right now, it is not possible. The way I showed up at a Spatial meeting a few weeks ago was very different from how I materialized at the Ignite keynote. It goes without saying that these inconsistencies prevent you from creating a genuine connection with the people you interact with.

The proximity with our office co-worker will make collaboration easier, but at a societal level as well. I loved what filmmaker James Cameron (Avatar, the movie) said about MR driving more empathy because we can share more with someone. Again, think about the past twelve months and how being in your colleagues’ home office, kitchen, or living room helped us increase our empathy, and that was simply through a screen.

Satya Nadella wrapped up his opening remarks with one of his favorite lines used to describe the possibilities for HoloLens: “When you change the way you see the world, you change the world you see.” It will certainly be fascinating to see what people build on Microsoft Mesh. Still, there is no doubt in my mind that building a platform that brings different devices together is an excellent example of a growth mindset; something Nadella has instilled throughout the company.

Samsung #Unpacked2020: Strong High-End Portfolio & Deeper Collaboration with Microsoft

The Samsung Galaxy Unpacked part one, back in February, was the last live event I attended. Hence, as we approached this week’s Unpacked, I was as curious about the products to be announced as I was to see how Samsung would pull off their first digital launch.

Overall, I thought Samsung did a good job mixing content videos, technical and informational videos and time on the virtual stage. Personally, I was not a fan of the virtual audience, but I think it did fit the feeling that the live venues over the past couple of times created, with the big floor to ceiling screens that displayed both content and the audience in the room.

I appreciated having the opportunity to see new faces from the engineering and design teams. I suppose it is the silver lining of having a digital event and recording in Korea. This setup also brought more women on stage, which is always a good thing!

There was a lot to cover product-wise, but Samsung kept a fast pace and, for the first time, brought all the products together, demonstrating the value of having more than one Samsung product. Samsung has been trying to paint that “better together” picture, but what was missing was the software portion that would bring the products together. This time, both thanks to Samsung’s software and a renewed partnership with Microsoft, that the dotted line between products was much more obvious and natural.

Products that Do More At a Time When We All Do More

With August-Unpacked being the Galaxy Note reveal show, we have been accustomed to focusing on the latest and greatest tech and so the very high-end of the Samsung portfolio. Over the past year, there have been some questions on whether the Note line continued to fulfill the initial promise of being the best of what Samsung has to offer in mobile, especially as the market moves into Foldables. I think the Galaxy Note20 Ultra took care of those concerns by embracing quite a few technology firsts from the 5G Snapdragon 865+ chipset to Gorilla Glass Victus and UWB.

What was interesting this year is that Samsung announced a whole portfolio of high-end devices around the Galaxy Note line. Galaxy Z Fold 2 teaser aside, we saw the Galaxy TabS7, the Galaxy Watch 3 and the Galaxy Buds Live. While it might seem strange to bring to market high-end products in the current economic environment, we need to consider that this is not Samsung’s only offering. Earlier in the summer, Samsung launched a whole range of mid-tier phones that added to its Galaxy S line to give smartphone buyers an ample choice of features, designs and price points.

Together with a lot of economic uncertainty, the pandemic also brought a stronger need for technology and reliable devices, whether it is for working from home, distance learning, keeping healthy, or just trying to stay sane. While being stuck at home might have increased the time we spend on larger screens, it has not taken away how much we rely on our phones. Phones also remain the tech device that you can more easily plan for financially thanks to installment plans that limit the impact that a one-off purchase would have.

Samsung’s strong carrier channel and 5G integration might also make the Galaxy TabS7 line to be as easy to purchase as a phone at a time when many consumers are re-evaluating their computing needs as well as their broadband constraints!

The one product that I find harder to justify, although it fits into the portfolio, is the Galaxy Watch 3, where the price point reflects more design choices than technology ones. I would have liked Samsung to double down on its Galaxy Watch Active line maybe with a new color variant to fit with the new Galaxy Buds Live. The good news is that many of the features and capabilities announced for the Watch 3 are software-driven, which might mean we will see them trickle down to the Watch Active line at some point.

The Galaxy Buds Live is possible the product with the smallest footprint and the biggest opportunity across everything that Samsung announced on stage. Having used them for a few days, I am convinced they will become the default for Android users and possibly win over some iOS users too because of their price point and fit. They are by far the most comfortable earbuds I have ever used with good sound and ok active noise canceling.

Samsung and Microsoft Better Together

Microsoft has been focusing on improving how users can move seamlessly from their Android phones to their PCs for quite some time. In the process, the relationship between Samsung and Microsoft got tighter to the advantage of both companies.  For Microsoft, Samsung offers a fleet of mobile phones for their apps and services, especially in the enterprise. For Samsung, Microsoft offers apps and services that help them lessen their dependence on Google and offer differentiation within the Android ecosystem.

This week the relationship between the two companies deepened on the productivity side and expanded into the entertainment side.

On productivity, Microsoft’s Your Phone app and Link to Windows will allow Galaxy Note20 users to access and interact with their Android apps. Samsung updated its Samsung Notes app, which soon will be able to automatically synch with OneNote feed in Outlook on the web or OneNote as an image. Inking support for the Note20 was also extended to photos and Outlook brings the Play My Emails feature to Android.

On entertainment, Xbox Chief, Phil Spencer, announced that from September 15, Galaxy users would be able to download the Xbox Game Pass app from the Samsung Galaxy Store. This version will allow Xbox players to redeem tokens and make in-app purchases like buying skins or DLC items in the Xbox Store. The Xbox Game Pass on the Google Play Store will not offer these types of in-app purchases. Customers pre-ordering the Galaxy Note20 can select the Gaming Bundle at purchase and get three months of Xbox Game Pass Ultimate and PowerA’s MOGA XP5-X Plus, the controller used with xCloud. For xCloud to be successful, Microsoft must reach beyond console and PC gamers and rely on the army of Android users out there. Working with Samsung offers a way to bypass the Google Play Store for some offers as well as leverage Samsung’s market share in TVs, the next logical step where xCloud gaming has a natural fit. For Samsung, who stated two years ago at their developer conference, that it wanted its devices to the best gaming experience in the Android ecosystem, xCloud offers an alternative to Stadia and with it another differentiator against competitors.

A Peak at the Galaxy Z Fold 2

Understandably the Galaxy  Z Fold 2 only appeared briefly on stage, most likely not to steal the moment that belongs to the Galaxy Note20. The time on stage, albeit limited, was very focused. True to its customer-focused nature, Samsung started the segment with an acknowledgment that the launch of the original Fold did not unfold as planned, sorry I could not resist the pun! From acknowledging we issue, Samsung moved on to show what has changed with the Galaxy Z Fold 2 from a design perspective to improve usability and increase confidence in durability. We saw the larger 6.2” external display, the front camera system that went down to a punch-hole from the previous design that took up a larger corner of the screen, creating a lopsided forehead. We were also shown a pretty detailed video on the new “sweeper” technology that Samsung created to limit the amount of debris that can affect the now even thinner gap along the hinge. Technology that apparently was inspired by the bristles used on vacuum cleaners.

We will have to wait till September 1 to know more about the Galaxy Z Fold 2, but from what we heard today, it is clear that there has been quite a bit of refinement from version one.

The Big Picture

 For the first time at an Unpacked event, we had a Q&A where Samsung Mobile’s President and Head of Communications Business, TM Roh, shared his view on the business direction saying 5G and Foldables will be the cornerstones of Samsung’s future. He also shared that he understands the responsibility Samsung has to make a better world safeguarding privacy and security as well as the environment. While not quite the off the cuff conversation I would have liked, it seems that TM Roh wants to make more of an attempt at storytelling (see his blog Steering the Mobile Industry through the next normal), a skill that is certainly growing in importance among tech leaders.

Leading up to Unpacked, there were rumors that Samsung was in discussion with Google to embrace more of their services, but we heard nothing about that on stage. This is not surprising as Unpacked was really centered on the relationship between Samsung and Microsoft. Something we also did not hear much about, however, was Bixby, which to me, is where Samsung might move into more with Google and decide just to embrace Google Assistant. The currently added friction of using Google Assistant on Samsung’s devices is a limitation that will become more and more noticeable as users’ reliance on digital assistant grows and as Google Assistant is embedded in more services and applications and becomes a value add in the experience that products like the Galaxy Buds Live can deliver. The relationship with Google might be more center stage on September 1 when Samsung will provide more details on the Galaxy Z Fold 2, let’s see!

What Windows 10X Can Learn from the Making of Surface

It has been a busy week for Windows and Surface. We started on Monday with a blog post by Chief Product Officer, Windows and Devices, Panos Panay outlining what is coming in the Windows 10 May 10 update as well as some changes in the rollout plans for Windows 10X. Then today, with another blog, Panay announced the Surface Go 2, Surface Book 3, Surface Headphones 2 and Surface Dock 2 all updates to popular products in the Surface lineup. The announcement also introduced the new Surface Earbuds, first seen back in October 2019. I am sure we will see plenty of reviews of the hardware over the coming days and I will share my experience as I try some of the products myself. Still, there are broader and more fundamental points linking these two sets of announcements I thought were worth highlighting.

Panay took over the leadership of Windows about three months ago and, since then, has spoken quite openly how being able to design hardware and software together would make the Windows experience better for the whole ecosystem. A shared leadership has the potential to accelerate innovation and improve execution, two aspects that it would be fair to say Windows could have benefitted from during the past few years. I could not agree more with Panay’s intent and I am convinced there are vital lessons learned from bringing to market the Surface portfolio that will benefit Windows 10 as a whole and Windows 10X in particular.

New Form Factors Are Hard

The original Surface showed that for PC users, getting used to new form factors takes time. This is especially true when in addition to new form factors, you also have a new operating system with different input mechanisms and UI.

Users, especially in the enterprise, are mostly set in their workflows often reliant on legacy apps that don’t do well with change. Business users, or maybe their IT managers, also have expectations of what it takes to do productive work.

The Surface portfolio grew, in some ways, because that early start, aimed at taking users into the PC of the future, had to be accompanied by more traditional form factors for those users who were not quite ready to embrace the future either because of comfort or because or concrete needs that desktops and notebooks can deliver. Now Surface has a full portfolio catering to different users and their workflows. One size does not fit all, especially in an enterprise context.

Making New Workflows Natural

As the Surface portfolio was evolving, so was Windows from Windows 8 to Windows 10. A dual-screen device will certainly require new workflows to be developed to take advantage of the new form factors fully and to do so, Microsoft has been developing Windows 10X. Getting used to a new OS, even when the core stays the same, is even harder than breaking in a new form factor.

Back in October, when we first heard about Windows 10X, I wrote:

“Time and time again, we see users bending backward to fit their workflows around their phones. We do not question whether or not that phone is a computer; we simply use it to get things done. Surface Duo will empower users to find new workflows that take advantage of the dual-screen and highly mobile design. Because it is a phone, Surface Duo will not have to fight for a place in a portfolio of products, which means that users will be heavily engaged with it.”

Windows 10X can help consumer embrace cloud-based workflows now, so they can be ready to transfer them onto dual-screen devices when the time comes, thus making the transition much easier than having to learn both a new form factor and workflows at the same time

Business Response to COVID-19 as a Catalyst

The COVID-19 crisis has been an incredible driver of digital transformation. Microsoft’s CEO, Satya Nadella, said, during their earnings call, that he saw two years of digital transformation in two months. Because of our new reality, the needs and priorities of businesses and individuals alike have changed. It is understandable then that some planned releases both of software and devices might have changed also.

In this week’s blog, Panay said:

With Windows 10X, we designed for flexibility, and that flexibility has enabled us to pivot our focus toward single-screen Windows 10X devices that leverage the power of the cloud to help our customers work, learn and play in new ways. These single-screen devices will be the first expression of Windows 10X that we deliver to our customers, and we will continue to look for the right moment, in conjunction with our OEM partners, to bring dual-screen devices to market.”

Microsoft wants to continue to facilitate this wave of digital transformation to deliver an operating system that is meant for cloud-based workflows. Being able to fit into this wave of change is critical for Microsoft not just for Windows but for Office as well. With more enterprises embracing digital transformation, the search for the right partner and the right tools is on. The strength of having been at the center of most workflows in the past might be seen as a limitation, not an advantage, leading some companies to look for partners like Google, the poster child for the future of work.

Must-Have vs. Nice to Have

The economic downturn kicked started by the COVID-19 pandemic has changed people’s priorities overall, including what they might be able and interested to spend when it comes to tech. The newly found needs to work and learn from home pushed both enterprises and consumers to buy more technology in the past few months than they had likely planned.

Microsoft said they registered a 35% increase in time spent on Windows devices since the beginning of February. People are relying on their PCs more than they have done in a very long time. Under the current stressful circumstances, users want familiarity, straightforward workflows, and ease of use. When the demands for our time and attention are high, the last thing we want is the added stress of figuring out new workflows or new form factors.

Microsoft’s reprioritization of Windows 10 X to focus first on delivering better user experience and improved functionality on single screen devices fits such needs and requirements. The cost of dual-screen and foldable devices, as well as their unproven track record in enabling productivity, would make it difficult to gain the support of IT managers and the budgets of mainstream consumers.


It might be disappointing for industry watchers not to see highly anticipated devices like Surface Neo and frustrating for some partners to have to put on hold their foldable devices. Yet, a lot has changed since last October, a lot has changed since last month, really, and for Microsoft to continue as if it were business, as usual, would be a huge disservice to partners and an insult to customers.


Microsoft Ignite Brings to Life the Power of Microsoft 365

I lost count of the many announcements that came through during Satya Nadella’s keynote at Microsoft Ignite this week. To some extent, it doesn’t even matter how many new features and services were announced because it was the sum of them all that really matters. The value of these solutions and features across products such as Azure, Office, Business Apps becomes obvious as they come together to empower businesses to do more and do differently, but also envision what is possible thanks to the power of AI, cloud, edge and quantum computing. Maybe for the first time, I understood what Microsoft 365 really delivers. For the first time, Microsoft 365 did not feel like an umbrella brand of separate services and applications brought together by a name, but rather a solution that touches every aspect of a business. Ironically this was also the time when Microsoft 365 was the least mentioned product on stage.

Under the theme of “Tech Intensity,” Satya Nadella pulled together what I see as the core investment areas on which Microsoft’s value proposition and differentiation is built. There were a few, but I want to focus on those I believe will have the most significant impact on Microsoft’s business: Trust, Knowledge, Empowerment.


This is probably the most obvious area to spot throughout the keynote and the event, just because of the number of times it was mention. Jared Spataro, VP of Microsoft 365, went as far as calling it “the most valuable asset” Microsoft has. Trust, for Microsoft, is built on three components: Privacy, Security, and Responsible AI.

I wrote in the past about privacy and how specific business models help brands take a privacy-first approach. But privacy is not the only way to build trust, so I was delighted to see Microsoft talk about security as well. Keeping data secure is as important as keeping it private both at a consumer and enterprise level.

Responsible AI is even broader than ethical AI, because it encompasses both the principles you are considering while building your algorithms as well as the understanding of the possible harmful ramifications of how an algorithm could be used.

These three ingredients of trust also come together when you think about the data that is used in machine teaching and how Microsoft has always very openly talked about the data not belonging to them and the steps that need to be taken when creating AI models without looking at the data that goes in nor the data that comes out.

Trust should be a priority for any brand, and while some might think the drivers I just highlighted are readily available, there are plenty of examples in the market today pointing at leadership who believes to be immune from judgment or just clueless as to the role trust will play in growing or retaining business.


Knowledge is the second area of investment, where I feel Microsoft is pushing ahead very fast and with determination. Project Cortex is probably the best example of how Microsoft wants to generate knowledge, not just data. The idea is to have AI do the heavy lifting so that people do not spend time going through the data or figuring out what data they have, but rather focus on creating, making decisions, being productive, by using a set of information that has already been pre-curated for them.

Project Cortex is a knowledge network, not a knowledge management solution. You might be forgiven to think they are the same. The good old knowledge management has been around since the 1990s and was built on a quite structured approach, and while it helped with gaining an understanding of what data was available it did not necessarily connect that data for you.

With Project Cortex, Microsoft is looking at assisting organizations in cutting down on duplicate work by letting you know if the work has already been done or if parts of what has been done can be leveraged for something you are working on. Project Cortex connects projects, products, customers and processes together. It also aims at helping with mining skills by identifying people who might be working on similar projects, all, of course, respecting the permission your company has applied to see and access the data.

A premium feature of Microsoft 365, Project Cortex will launch in the first half of 2020. While some might be quick in fearing for their jobs, as it is often the case, it will be more an opportunity for humans to focus on what they do best, which is bringing context and business expertise into the equation, the most valuable aspect of their contribution. In this context, Project Cortex is an empowerment tool.


Empowerment is the last area of investment I saw clearly rising from several of the products offered within Microsoft 365. Nadella’s mantra has been on empowering every business and every human to do more thanks to technology. In this “tech intensity” moment, we must pay more attention to us humans as we might just be the biggest hurdle not just in adopting technology but also, and maybe more importantly, in seeing the value it brings.

The empowerment of employees and businesses does not stop with Project Cortex. Microsoft is also focused on helping those organizations to empower people who have the business knowledge to drive some of the work on AI and apps but lack the digital skills to do so. PowerApps, Power BI, Power Platform, and AI Builder and the new Power Virtual Agent all speak to empowering organizations to bring employees’ skills to the digital world. Such an investment might help lower the need to fully retraining staff to code or learn new coding tools. This is not just a significant step to highlight the value these solutions bring by potentially providing cost savings on hiring new people or retraining existing staff, but it addresses what is a clear shortage in business apps developers and data scientists not just in the US but worldwide.


It is when I think about the network of services that Microsoft is building on the Microsoft Graph that I see how the value of Microsoft 365 will deepen the relationship enterprises have with Microsoft in a much more meaningful way than the sum of each individual product like it was in the past. In such a relationship to pinpoint which single product or feature is critical to a business will be much harder, leaving less opportunity for competitors with a more narrow or single purpose-built solution.

What Bill Gates’ Mea Culpa Says About Microsoft

This week, in an interview at venture firm Village Global, Bill Gates admitted that his biggest mistake was not to empower Windows to become what Android is today. More specifically, he said:

“In the software world, particularly for platforms, these are winner-take-all markets. So, the greatest mistake ever is whatever mismanagement I engaged in that caused Microsoft not to be what Android is. That is, Android is the standard non-Apple phone platform. That was a natural thing for Microsoft to win. It really is winner take all. If you’re there with half as many apps or 90 percent as many apps, you’re on your way to complete doom. There’s room for exactly one non-Apple operating system, and what’s that worth? $400 billion that would be transferred from company G to company M.”

This is the first time Gates takes responsibility for not doing what was needed to be where Android is today. Over the years, the misstep was always associated with CEO Steve Ballmer and his dismissal of the impact that Apple’s iPhone will have on mobile computing. Hence why the most common commentary on this topic has always been that Microsoft missed mobile. They misjudged the importance that mobile phones will have in taking time away from PCs.

What transpires from this week’s comments is both a sharing of responsibility by Bill Gates, but most importantly, in my view, an admission to missing the opportunity to monetize from consumers not missing mobile.

Missing the Forest for the Trees

Back in 2008, Microsoft’s revenue was still highly dependent on software license sales, as a letter to shareholders clearly outlines.

“Fiscal 2008 was a successful year for Microsoft that saw the company deliver outstanding financial results, introduce significant innovations across the breadth of our product portfolio, and make key investments that position the company for strong future growth.
Thanks to the continued success of our core Windows and Office businesses, and double-digit growth in all of our business groups, revenue jumped to $60.4 billion in fiscal 2008, an increase of 18 percent compared with the previous fiscal year.
Throughout fiscal 2008 we saw strong adoption of Windows Vista, which has sold more than 180 million licenses, and the 2007 Microsoft Office system, which has sold more than 120 million licenses. Microsoft Office SharePoint Server 2007 passed the 100 million mark for licenses sold and recorded more than $1 billion in revenue.”

Microsoft’s performance was linked primarily to the enterprise market and only indirectly to the consumer market. What I mean by this is that PC buyers were buying hardware that was running Windows they were not buying Windows. As a result, Microsoft saw consumers only as a dotted line to a license fee rather than a clear target audience.

It wasn’t Natural

With the rise of the iPhone and Android, Microsoft did not look at mobile in a conceptually different way from PCs. Mobile was just another “channel” for its license and software business. It certainly did not represent a new opportunity to rethink engagement with consumers so that “Windows was not just something they used, but something they loved” as Nadella said many years later. So, being where Android is today was not as natural as Bill Gates makes it sound because the battle strategy was fundamentally flawed.

Google had the foresight to appreciate the real impact that mobile will have on its core business and had the advantage of having a core business that was already centered on consumers. Going from Android as a vehicle for search and advertising to Android as a platform for all services was a natural progression for Google. If you look back at the initial priorities Google had with Android, it was clear that the goal was different than what Apple was doing with Apps. An app store was needed to compete with iOS, but it was not seen as a serious source of future revenue. Google services on phones provided that source through the engagement they drove. Engagement that in turn, benefitted the core business of search and advertising.

Restarting the Race

These reflections on past pivotal moments are very timely. In Cloud and AI, Google and Microsoft were let loose again after the safety car moved out of the way in the race. Both companies are addressing the enterprise with Cloud and AI, and Google is clearly keeping its investment in the consumer market albeit trying to distance the two so that it is clear the business models in these two areas are different.

What we have not seen with enough clarity is how Microsoft will use Cloud and AI to focus on consumers. Of course, there is Office 365, Surface and Xbox that are all relevant to consumers as well as enterprise. But I believe there is a much broader role Microsoft could play as the boundaries between work and home become more blurred. For more and more users, the devices, software, and services they use at work are also those they turn to in their private life. This means that there is a significant opportunity to use cloud and AI to make my overall experience better, use my data across the board to drive more value to me without indirectly monetizing from me. I would actually argue that done right, this value of added intelligence and data protection and privacy could provide a source of direct revenue in itself. Apple certainly believes that and as their core business is hardware and services that is where they aim to monetize.

Pondering on the whats and ifs of winning mobile seem somewhat irrelevant at a time when there are so many more technology touchpoints in our life. It also misses the point that the real target was winning consumers. Leveraging existing mobile platforms today to create synergies with the parts of the ecosystem, Microsoft controls could be beneficial enough to the business in itself. But to harvest such an opportunity, Microsoft must do something that seems to be more natural to them now than it ever was in the past: taking a human-centric approach whether that human is at the office or home.

Why is Everybody Getting into Wireless Earbuds?

In just over a week we have heard rumors that both Amazon and Microsoft Surface might be bringing wireless earbuds to the market. This should be no surprise to anyone, but not for the reason that most highlight which is: wanting into some of Apple’s action with AirPods.

There is no question about Apple’s success with AirPods. Apple managed to get AirPods across gender, age, and even income level despite their price point not putting them in the “most affordable” category. The experience is described by many as magical. In a study, we, at Creative Strategies, conducted with Experian when AirPods first came out, customer satisfaction was the highest for a new product from Apple. 98% of AirPods owners said they were very satisfied or satisfied. Remarkably, 82% said they were very satisfied. By comparison, when the iPhone came out in 2007, it held a 92% customer satisfaction level, iPad in 2010 had 92%, and Apple Watch in 2015 had 97%.

Assuming Microsoft and Amazon are just after the revenue that a good set of wireless earbuds could generate is a little shortsighted.

Voice and Ears

Ambient computing and voice-first are certainly big drivers for both Microsoft and Amazon. As computing power is spread out across devices and digital assistants are helping to bridge our experience across them, voice has grown in importance as an interface. Many consumers are, however, less comfortable shouting commands across a room or speaking to technology outside the “safety” of their own home. As voice moves into the office, the need and desire to be able to speak quietly to an assistant and hear it back is even more evident.

Wireless earbuds that can be worn comfortably throughout the day allow us to build a better relationship with our assistants and, even more so, build our reliance. Interestingly, I would argue, this is where AirPods have not been as successful as Apple might have hoped for but certainly, through no fault of their own but more due to some limitations Siri has.

For both Alexa and Cortana, who do not have a smartphone they can call their own home, wireless earbuds are a great way to be with a user in a more direct and personal way rather than being relegated into an app. As I often say, this is not about consumers having only one assistant but making the assistant they use more often more intelligent and therefore creating a vicious circle: the more I use it, the more it gets better, the more I want to use it.

Eyes and Ears

Aside from voice and ambient computing, another trend that will benefit wireless earbuds is augmented reality. Starting with phones, consumers can build on the habit of wearing wireless earbuds while consuming information through their phones. Creating a habit and making wearing wireless earbuds natural rather than bearing the stigma that Bluetooth headsets had when they first came to market.

In a non-distant future, as we see more use cases focusing on displaying information across apps and we will move from phones to glasses, wireless earbuds will play an even more critical role in our augmented reality experience.

No Longer an Accessory

Whether they are critical to our relationship with a digital assistant or they help us immerse in an augmented reality experience, what is clear is that headsets overall are no longer an accessory but a device in their own right that for many vendors will grow into a platform.

Sensors already allowed headsets, whether buds, over the ear or on the ear to become smart to improve user experience, like when detecting if you are wearing them or not to determine if you want to pick up an incoming call from the phone or the headset. Plantronics and Jabra have had these kinds of features for years. Improvements in miniaturization added functionalities that turned some earbuds into wearables, or hearables devices, if you prefer. Devices that can track full workouts like the Bragi Dash. Considering the great work Microsoft had done with Band (not so much on the hardware but capabilities) they could even think beyond Cortana and leverage some of that know-how to deliver a fully-fledged hearable solution increasing stickiness and return on investment.

I would not be surprised if Apple considered the role AirPods or Power Beats Pro could play as a wearable device as an alternative to Apple Watch for those users who do not want to wear a watch but are interested in fitness tracking. I would also expect Samsung to consider a “sport” or “active” version of their Galaxy Buds to cater to a similar market.


AirPods have certainly become the benchmark for wireless earbuds in the same way iPhone has been the benchmark in the smartphone market. The “AirPods killer” is the earbuds’ version of the “iPhone killer” in the smartphone segment. Yet, I find that when it comes to wireless earbuds, there is much more dynamism in what brands can deliver and how they differentiate building on what their core competencies are, including artificial intelligence and machine learning, which will make it harder to compare like for like.

With Windows Phone It’s Not The What, It’s The Why

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 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

Further, if is far more likely that Microsoft is making far more money from licensing its patents to Android manufacturers than it is from selling its own phone hardware.

Strategy Tax/Conflict Of Interest

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.


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.

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.

Microsoft Is (Sorta) Doomed

On October 27th, 2014, Techpinion’s very own, Brian S. Hall, wrote an article entitled “Microsoft Is Doomed. Doomed!

Brian was, of course, being facetious. Far from predicting doom for Microsoft, he was mocking the Microsoft doomsayers. Let’s take a look at a few of his article’s choicer bits:

I have to believe Microsoft’s latest earnings has finally obliterated all the silly “Microsoft is doomed!” discussion that’s been so bien pensant across the blogosphere these many years. This is a company that generated $23 billion in revenues and is clearly poised for growth.

Repeatedly, the analysts trotted out “jobs to be done” and “the innovators dilemma” and “the smartphone is the computer” to explain why Microsoft was so obviously doomed. How could they all have been so utterly wrong?

Microsoft is welcome to serve up a bowl of tasty claim chowder.

That sound you hear now? That’s Satya Nadella, laughing from his CEO chair in Redmond.

Hmm. With all due respect to Brian, Microsoft is not poised for growth, the critics aren’t wrong yet, there’s no claim chowder to be had here, and I very much doubt that Satya Nadella is laughing about the challenges facing Microsoft.

Truth springs from argument amongst friends. ~ David Hume

The difference between Brian’s view and mine reminds me of a joke:

    Holmes and Watson are on a camping trip. In the middle of the night Holmes wakes up and gives Dr. Watson a nudge. “Watson,” he says, “look up in the sky and tell me what you see.”

    “I see millions of stars, Holmes,” says Watson.

    “And what do you conclude from that, Watson?”

    Watson thinks for a moment. “Well,” he says, “astronomically, it tells me that “there are millions of galaxies and potentially billions of planets. Astrologically, I observe that Saturn is in Leo. Horologically, I deduce that the time is approximately a quarter past three. Meteorologically, I suspect that we will have a beautiful day tomorrow. Theologically, I see that God is all-powerful, and we are small and insignificant. Uh, what does it tell you, Holmes?”

    “Watson, you idiot! Someone has stolen our tent!”

circus tent 3d illustration

Brian, like Watson, is very observant but he’s overlooking the problems that are closest at hand. Just because Microsoft made lots and lots of money last quarter does not mean that all is well. Profits are great, profits are swell, but they do not, the future foretell. For example, Nokia outsold the iPhone for four years after the iPhone’s launch…and we all know how that story ended.


The Microsoft that just brought in record quarterly income, is the same Microsoft that faces severe challenges going forward. First, Mobile is the fastest growing segment in tech and Microsoft has no prospects there. Second, Microsoft’s business model is dependent upon licensing its Windows Operating System to manufacturers and that business model has been disrupted and is no longer viable. Third, approximately seventy percent of Microsoft’s income is generated by its Windows Operating System and its Office productivity suite but all of that income is coming from PCs (notebook and desktop personal computers) and PC sales are flat or declining.

Let’s examine each those issues in one by one.


In 2006, Microsoft Windows ran on about 95% of all personal computing devices in existence.


Today, that number is well south of twenty-five percent and Microsoft itself estimates that number to be around fourteen percent. ((MS COO Turner: We have 14% share of all devices (including our 90% PC share).”~ @maryjofoley) 7/14/14))


In 2010, Microsoft saw that it was nowhere in Mobile and they tried to turn things around with the introduction of Windows 8 and Windows RT. Microsoft was going to use its Windows Operating System as leverage to drive sales of Windows 8 tablets and it was going to use its Office productivity suite as leverage to drive sales of Windows RT.

Four years later, Windows tablet sales are nonexistent, Windows RT is gone, and both Windows and Office are being given away to mobile users for free.

We’re seeing the consumer valuation for those [Offce] start to approach zero,” said Wes Miller, an analyst at Directions on Microsoft, a research firm that tracks the company.

“Lots of consumers don’t need a PC,” said Rick Sherlund, an analyst at Nomura Securities. “They just need an Internet connection. They don’t need Office as much.”

In other words, free Windows and Office on Mobile devices are now being used by Microsoft to 1) mollify their existing user base; and 2) as a freemium product designed to entice mobile users to try, and then potentially buy, the full product. Mollifying Microsoft’s existing base is, in my opinion, a good move. Microsoft needs to milk Windows and Office for all they are worth, for as long as they’re worth something.

However, using freemium to attract new users has proven to be a losing proposition.

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

[pullquote]Neither Windows nor Office have any significant value on mobile devices[/pullquote]

This is the reality facing Microsoft today: Neither Windows nor Office have any significant value on mobile devices.

The problem with MS Office isn’t the price. Jordan Cooper (@blenderhd)

Exactly right.

User behavior isn’t the same on phones as it is on PCs. ~ Jared Newman

[pullquote]User behavior isn’t the same on Mobile as it is on PCs[/pullquote]

Let me repeat that, because this is the part the many people are still not getting. User behavior isn’t the same on phones (and tablets) as it is on PCs. In other words, operating systems like Windows and productivity suites like Office, have great value on PCs but have little or no value on phones and tablets. Accept that as a fact and your entire understanding of what is happening to Microsoft dramatically changes.

One’s destination is never a place, but a new way of seeing things. ~ Henry Miller

Microsoft is GIVING AWAY both Office and Windows for free…and the move is being met, not with applause but, with apathy:

Was poised to download MS Word, Excel for mobile. Then thought: what do I need them for again exactly? Charles Arthur (@charlesarthur) 11/7/14

Notice how long the web cared about free Microsoft Office for iOS. Times have indeed changed. Sammy the Walrus IV (@SammyWalrusIV) 11/7/14

Mobile is where it is at and Microsoft is nowhere in Mobile.

The high-growth parts of the tech industry, smartphones and tablets, are not built on Microsoft software. Microsoft applications have very little presence on those devices. Meanwhile, on the Internet it continues to be an also-ran to giants like Google and Facebook. ~ Ben Thompson, Stretechery

But perhaps you think that Microsoft is going to make their money in Mobile by selling hardware.


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

Microsoft’s hardware has done nothing but bleed red ink. For an excellent discussion of Microsoft’s hardware woes, check out the Mark Rogowsky’s article entitled: “Amazon, Microsoft And The Quixotic Quest To Sell Mobile Devices“.

CAPTION: Microsoft is never going to make any money off of any of these mobile devices.

If you think Microsoft’s short-term earnings makes their long-term problems in Mobile go away, then you’ve got another think coming.

Business Model

Business models are the best crystal ball technology ever invented. ~ @andreascon

Microsoft makes its money from Windows by licensing the operating system to manufacturers and consumers. Google killed that business model by giving their operating system away for free. Apple piled on by bundling their operating system for free with the purchase of their hardware.

Incumbents are rarely disrupted by new technologies they can’t catch up to, but instead by new business models they can’t match. ~ Aaron Levie (@levie)

Operating systems are losing all of their value. Their price is rapidly moving to zero. Yet Microsoft still makes approximately thirty percent of its income from this dying business model.

Moving from one technology to another is difficult. Moving from one business model to another is one of the hardest transitions there is. But that’s exactly what Microsoft now has to do.

If you think Microsoft’s short-term earnings makes their long-term problems in licensing Windows go away, then you’ve got another think coming.

PCs (Notebook and Desktop Computers)

This is what Windows sales looked like in 1995:


We’ve come a long way since then and yet, in some ways, it would be apt to say that Microsoft is still partying like it’s 1995.

  1. Approximately seventy percent of Microsoft’s income comes from Windows and Office.
  2. Almost all of that Windows and Office income is generated from sales to PC manufacturers and owners.

This presents Microsoft with two problems.

First, PC sales are flat or diminishing. Second, Microsoft’s portion of that diminishing market share is also rapidly diminishing.


The challenge staring Microsoft in the face is the 1.5 billion copies of Windows being used is not increasing and is, in fact, decreasing. … Desktops and notebooks are not growing in sales and not attracting first time buyers in any meaningful numbers. ~ Ben Bajarin







Here are four recent headlines regarding Google Chromebooks.

Chromebook sales increase 67%, Acer holds the market lead

Chromebooks may grab 5% of PC market

Chromebook sales set to nearly triple by 2017, Gartner says

Microsoft’s next big headache: The Google Chromebook

Chromebooks are eating away at Microsoft’s PC sales from the low-end. And Macs are eating away at Microsoft’s PC sales from the high-end.


Apple’s Mac hits record market share in U.S., says latest IDC research. ~ Walt Mossberg (@waltmossberg) 11/6/14

Apple Grabs Record US PC Market Share On Strong Mac Sales in Q3 2014 ~ AppleTree

26.8% of the PCs sold in the U.S. between July 4th and September 1st were Macs. ~ Horace Dediu (@asymco) 9/24/14

Mac reached the highest PC market share since Windows 95 launched. ~ Horace Dediu (@asymco) 10/20/14

The Apple Mac, by itself, easily generates more revenue than does Microsoft’s Windows.

Mac ~$6bn/quarter, Windows ~$4bn. ~ Jan Dawson (@jandawson) 10/24/14



In the third quarter of 2014, Macs took in more than 25% of the back-to-school sales. And at Harvard University, an astonishing 71% of new students owned a Mac computer.

Further, the trend in education is towards tablets and away from laptops.


This is bad news for Microsoft since their presence in tablets is practically non-existent. Meanwhile, the iPad is capturing 90 percent tablet share in U.S education.

The back-to-school season voted and the Mac won… ~ Tim Cook


Good Technology released the latest iteration of its Mobility Index Report, in which it found iOS holds 69 per cent of the enterprise market — that’s nearly seventy times larger than the 1 percent share held by Microsoft. ~ Jonny Evans


Windows Phone activations remain consistent with the six previous quarters: flat at 1 percent. ~ Venturebeat

The iPad took 89 percent of activations during the third quarter, while Android tablets claimed the remaining 11 percent. Windows tablets are yet to make a dent. ~ Jonny Evans


(O)verall, the trends in the enterprise remain unchanged. Businesses prefer iOS, sometimes choose Android, and essentially ignore Windows Phone. ~ Venturebeat

Custom business apps showed a 107 percent quarter-over-quarter growth and 731 percent growth over the same time period last year. And Windows developers are getting virtually none of that business.

If you think Microsoft’s short-term earnings makes their long-term dependency on an ever shrinking PC base go away, then you’ve got another think coming.


(Wall Street) focuses on the waves and not of the currents. ~ Consuelo Mack

Microsoft’s most recent earnings statement was a wave and an impressive wave at that. But if we want to foresee Microsoft’s future, we need to focus on the currents, not the waves, and the tech currents are flowing against, not with, Microsoft.

Wisdom consists of the anticipation of consequences. ~ Norman Cousins

Windows will continue to make money for some time to come, but it is not a growth sector.

Windows has taken Microsoft as far as it could. ~ Ben Bajarin (@BenBajarin) 10/31/14

And Windows is not Microsoft’s future.

Microsoft has many very interesting things going for them and none of them have to do with Windows. ~ Ben Bajarin (@BenBajarin) 10/30/14

Office is transitioning from a monopoly software suite, running on a monopoly platform, to a cloud service, that is just one of many competing cloud services.

Seventy percent of Microsoft’s income is in flux and is either going to go away or is going to transition to something entirely new. And these sorts of things happen “gradually, then suddenly.” ((“How did you go bankrupt?” Two ways. Gradually, then suddenly.” ~ Ernest Hemingway, The Sun Also Rises))

So no, Microsoft is not “Doomed.” But neither is its future assured.

Realizing Windows is not a hegemony will unleash market forces nobody can predict. ~ Jean-Louis Gassée (@gassee)

Ridiculous to say Microsoft is doomed. But entirely sensible to wonder whether (and how much) it will shrink in the next few years. ~ Jan Dawson (@jandawson) 10/23/14

In fact, the one thing we know for certain is that the Microsoft of tomorrow is going to be radically different from the Microsoft of today. So, in a way, the monopoly Windows and Office supported Microsoft that we know is — sorta — doomed as it makes way to the unknown Microsoft of tomorrow.

The Promised Land always lies on the other side of a Wilderness. ~ Havelock Ellis

And if you think the magnificent earnings of a single quarter are going to change the fact that today’s Microsoft is a Microsoft in transition — not just from one or product to another, but from one business model to another — then you’ve got another think coming.

Microsoft Is Doomed. Doomed!

I have to believe Microsoft’s latest earnings has finally obliterated all the silly “Microsoft is doomed!” discussion that’s been so bien pensant across the blogosphere these many years. This is a company that generated $23 billion in revenues and is clearly poised for growth. Most surprisingly, it’s poised for growth in the consumer and hardware markets, mobile and the cloud.

What’s that? Why, yes. I do hear Steve Ballmer laughing from the comfort of his LA Clippers courtside seat.

Billions Billions Billions Billions

Last week, Microsoft announced FYQ1 revenues of $23.2 billion. That’s up 25% year over year, despite the many proclamations of doom repeated over the years. Profits were a very healthy $4.5 billion, even after a $1.1 billion restructuring charge related to the Nokia acquisition.


  • Cloud services, which includes Office 365 and Azure, grew a whopping 128%, to $1.18 billion.
  • Office 365 grew to 7 million subscribers. Remember: unlike Apple’s iWork, people actually pay for Office.
  • Surface revenue was a surprising $908 million for the quarter — again, despite the persistent declarations it was a dead product.
  • Lumia sales were a robust 9.3 million devices.

According to CEO Satya Nadella:

“We are innovating faster, engaging more deeply across the industry, and putting our customers at the center of everything we do, all of which positions Microsoft for future growth.”

CEO speak. Yada yada. That said, to view Microsoft as a one trick pony, stuck in the past, as so many analysts still do, is to utterly misunderstand Microsoft and the industry. Simply check the numbers. Microsoft has one division with about $10 billion in quarterly revenue, and another five with quarterly revenues of about $2 billion or more. For comparison, Yahoo — all of it — just reported quarterly earnings of $1.15 billion.

microsoft revs

Claim Chowder

The facts are clear:

  • Microsoft is still printing money.
  • The death of the PC (and Windows) (and Office) (and Surface) (and Xbox) has been greatly exaggerated.
  • Yes, Microsoft can do hardware: Xbox, Lumia, Surface all had strong y-o-y growth. As Jan Dawson noted, “Lumia sales and Surface revenue were both the highest they’ve ever been.” Xbox was the highest outside of a holiday quarter.

Microsoft is welcome to serve up a bowl of tasty claim chowder. You know why.

Again and again, we were told Microsoft was dead or would be by now. You’ve heard this more times than you can count: The PC is dead — not merely dying. Bing? Dead. Skype? Irrelevant. Windows? Free or dead are its only options. Office? iWork and Google Apps will force it to be offered for free — and then kill it off.

Repeatedly, the analysts trotted out “jobs to be done” and “the innovators dilemma” and “the smartphone is the computer” to explain why Microsoft was so obviously doomed.

How could they all have been so utterly wrong?

No, it wasn’t a herd mentality that brought them all to the same, erroneous conclusion. It’s worse than that: They were not paying attention. What the analysts and blogosphere were doing — what led them to be so utterly wrong — is they were comparing single, often minor aspects of giant Microsoft against the primary driver of another tech giant’s entire operations.

Google search is far bigger than Bing, therefore Bing dead. Therefore Microsoft dead.

Windows Phone sells far less than iPhone, therefore Windows Phone dead. Therefore Microsoft dead.

It gets worse. By comparing one aspect of yesterday’s Microsoft to all of today’s Apple, for example, these seers of doom missed out on what Microsoft was actually doing in the cloud, and with social in the enterprise, with hardware, software, and on meeting the mission critical requirements of governments and Fortune 1000 companies.

Oh, and worst of all, Apple supporters in particular, so vigorous in their defense of Apple hardware prices and margins — because people will pay for quality — repeatedly failed to acknowledge these same “people” will pay for the quality and benefits they receive from Windows and Office and Azure, among other Microsoft products and platforms.

Long Slow Decline Except Not

You’ve seen the posts, many, many times: Microsoft must focus on the consumer. Microsoft must abandon hardware. Microsoft must give away Windows. Windows is doomed. Xbox is doomed. PCs are doomed. Over the past few years, Microsoft Is Doomed is the gift that kept on giving.

I will unfairly single out John Gruber because he is typically so understated and sparing with his criticism. That said, his “Microsoft’s Long Slow Decline” post from July 2009, which he proudly linked to less than three months ago, is one he no doubt would love to have back.

A few other favorites:

  • “These Two Photos Show What a Disaster Microsoft Is Today”
  • “The irrelevance of Microsoft”  (with charts)
  • “How Microsoft Lost Its Way, as Understood Through The Wire” (a personal favorite)
  • “The PC Industry Is Digging Its Own Grave”

When Vanity Fair opens its long post on Microsoft with “over the last decade, as the biggest force in tech history hurtled toward irrelevance (albeit lucratively),” you know the meme — despite being 100% false — is simply being parroted by writers who are willfully not paying attention. The utterly nonsensical pairing of “irrelevance” and “lucratively” stood in place of thoughtful analysis.

If billions of dollars are wrong, I don’t wanna be right. 

Pundits have for years now insisted Microsoft was dead or dying, brandishing the “dying” PC ecosystem as the doomed company’s massive blind spot. In fact, these analysts revealed a rather shocking blind spot in their own understanding of this highly iterative, multi-faceted industry.

Despite the many billions in profits repeatedly generated by Microsoft, drive by bloggers continued to insist:

  • Microsoft = packaged PC software
  • Packaged PC software is dying
  • Therefore, Microsoft is dying

Viewing 2014 Microsoft as being just like 2004 Microsoft is as wrong as viewing today’s Apple as no different then pre-iPhone Apple. Again, Microsoft has six lines of business all generating billions  — and all likely to continue growing, and continue delivering actual profits.

Stop the Microsoft is doomed nonsense. It was always wrong. It is wrong still.

That sound you hear now? That’s Satya Nadella, laughing from his CEO chair in Redmond.

The Microsoft Surface Is A Yachting Cap, Not A Yacht

Following Microsoft’s Earnings, a lot of people started talking about how “successful” the Surface 2-in-1 computer was becoming. That reminded me of the following anecdote:

    Tristan Bernard (1866–1947), was a French dramatist and novelist.

    A friend saw Tristan Bernard on the promenade at Deauville wearing a jaunty new yachting cap. When he remarked on it, Bernard replied that he had just bought it with his winnings from the previous night’s play at the casino. The friend congratulated him.

    “Ah,” said Bernard, “but what I lost would have bought me the yacht.” ((Excerpt From: Andre Bernard. “Bartlett’s Book of Anecdotes.” iBooks.

When we find ourselves tempted to congratulate Microsoft on the success of its Surface 2-in-1, let us remember that it is but a yachting cap, not a yacht.

The Apple Mac Takes Its Place In The Post-PC World

PC Resurgent

The PC market turnaround is real. ~ Bob O’Donnell (@bobodtech) 10/15/14


A: No.

Macs are resurgent. Google Chrome is slowly gaining ground. However, sales of traditional personal notebook and desktop computers that run the Windows Operating System and are known as “PCs”, continue to falter.


In the second quarter of 2014, Apple’s Mac sales grew by 18% while overall PC sales declined by 1%.

In the third quarter of 2014, Apple’s Mac sales grew by 21% while overall PC sales declined by 1.7%.


On the other hand according to NPD, PCs went from 75% share to 68% in two years.

Source: “PC market still shrinking, with smaller firms squeezed out“, Charles Arthur

Conflating Apple’s Mac, Google’s Chrome, and Windows powered PCs conceals, rather than reveals, what is happening in the personal computing category. PCs were expected to get a big bump in sales from the end of life of Windows XP. A bump occurred, but it hasn’t signified a recovery, it has only slowed the PC’s decline.

PC Dead

So you believe the Windows PC is dead? ~ Oren Kaufman (@HorhayAtAMD) 10/20/14

PCs dead? I think not…when are people going to finally wake up? ~ Bob O’Donnell (@bobodtech)



No reasonable, rational observer of the tech marketplace is claiming the PC is dead. That’s a straw man — an exaggerated depiction of an opposing argument easily disproven. However, there is nothing unreasonable or irrational in asserting the PC will never again regain its once preeminent position in computing. In 2006, the PC dominated computing with around 95% market share. Today, the PC is but one of three branches of computing and, in terms of market share, it is rapidly becoming the lessor of the three.



Macs Resurgent

(T)his is claim chowder for those claiming death of PC form factor. ~ Oren Kaufman (@HorhayAtAMD) 10/20/14


A: No.

Mac sales are up, but they are not increasing overall desktop and notebook sales. Instead, Mac sales seem to be displacing PC sales. Despite the increased Mac sales, notebooks and desktops as a whole continue to decline.



Windows 8 launched during a time when lots of people said that tablets would kill the PC. Does anyone still think that? ~ Harry McCracken (@harrymccracken) 9/30/14

Looks like AAPL made more money on PCs than tablets. What was that about the PC being dead again? ~ Bob O’Donnell (@bobodtech)



We have to keep things in perspective. PC sales are mildly declining. Smartphone sales are rapidly growing. Tablet sales are flat, but they still easily outsell PCs.

There are now close to twice as many iPads as Macs in use. ~ Benedict Evans (@BenedictEvans) 9/22/14

Just think about that for a second. Macs have been around for 30 years. iPads have been around for 4 years. Yet already, there are twice as many iPads in use as there are Macs.

Despite the Mac’s recent surge and the iPad’s stalled growth, iPads easily outsell Macs and the iPad’s base is therefore growing much faster. Just look at the sales numbers. In the third quarter of 2014, Apple sold 39.3 million iPhones. They sold 12.3 million iPads. And, in a record breaking quarter, Apple sold 5.5 million Macs. That means the much criticized iPad is outselling Macs by more than 2-to-1 and iPhones are outselling Macs by more than 5-to-1. The surging Mac is not catching up. It’s falling further and further behind.


As the chart above shows, even though iPad sales are flat and Mac sales are surging, iPad sales are still, far, far greater than those of the Mac. The Mac is not going to help the notebook and desktop form factors reclaim their once dominant position in computing. Rather, with every passing day, the notebook and the desktop’s total share of the computing pie becomes ever smaller.

Next quarter, Apple will sell its billionth iOS device (around 950m so far) ~ Jan Dawson (@jandawson) 10/20/14

Apple will probably sell more iPhones & iPads this quarter than there are Macs in use (~80m). ~ Benedict Evans (@BenedictEvans) 10/20/14

IDC said worldwide PC shipments for the third quarter of 2014 were 78.5 million, down -1.7% year-over-year. ((IDC had an odd way of reporting this news. They said, “Global PC Shipments Exceed Forecast with Mild Improvement in Consumer Demand”. Translation? The decline wasn’t as bad as they expected it to be. But it was still a decline of 1.7%.))

Would not be surprised if 90 million iOS devices will ship next quarter. ~ Horace Dediu (@asymco) 10/20/14

Let’s try to put the above information in perspective. Last quarter, the desktop and notebook form factor sold 78.5 million units. Next quarter it is likely iOS alone — the minority platform — will outsell the entire PC industry. Add in Android and “other” and it’s no contest.

Apple will pass 1bn cumulative iOS device sold this year. Android will pass 3bn. ~ Benedict Evans (@BenedictEvans) 9/18/14


Macs But Not PCs

IMO Mac sales are increasing because Apple is great at leveraging their monopolies. iOS only works with OSX so Mac sales up. ~ Oren Kaufman (@HorhayAtAMD) 10/20/14


I’m certain the “Halo Effect” is a contributing factor to the Mac’s increased sales. The more iOS owners there are, the more likely it is some of them will choose a Mac as their next notebook or desktop computer.

I’m even more certain Apple’s “continuity” feature is going to make Macs ever more attractive to iOS users. The close integration between the iPhone, the iPad and the Mac, makes the Mac a natural choice for many iOS owners.

Having used Continuity, Handoff across MacBook, iPad and iPhone, I can say it’s awesome. I would have expected Microsoft to get there first. ~ Patrick Moorhead (@PatrickMoorhead) 10/23/14

But here is my pet theory as to why the Mac is growing while the PC continues to decline.

In 2006, almost anyone who owned a computer owned a PC. Today, we can choose between a PC and a variety of non-PC computing alternatives, including phones, tablets, Macs, etc. Many people feel little need to upgrade their existing PCs. Others feel no need to own a PC at all.

I still believe the traditional notebook and desktop form factor is overkill for most mainstream consumers. ~ Ben Bajarin

However, many people absolutely and positively need the power and flexibility provided by a notebook or desktop computer. These potential PC buyers differ from those in 2006. In 2006, the PC was (almost) the only game in town, so everybody got a PC. Power users got powerful PCs and people who needed minimal computing power purchased the cheapest PC they could find. Today, people who barely need a PC are opting for phones and tablets instead. That leaves only power PC users as a potential PC buyers.

The power user never has, and never will, buy a cheap PC. They know their computing needs will only be met by powerful computing machines. Here’s the important bit. Many power users are realizing if they’re going to be spending a thousand dollars and more for a computing device, the best PC…is a Mac.

In other words, for the budget conscious, the Mac compares poorly to the budget PC. But to the power conscious, the Mac compares very favorably to the top-of-the-line PC. Macs are a premium product and more and more, the only people buying notebooks and desktops are power users who are shopping for premium computing devices.

[pullquote]Increased Mac sales are not proof the PC form factor is becoming more popular. Rather, it is proof notebooks and desktops are becoming a premium niche[/pullquote]

In my opinion, Mac sales prove the exact opposite of what the “PC-IS-RESURGENT” crowd is contending. Increased Mac sales are not proof the PC form factor is becoming more popular. On the contrary, increased Mac sales are proof the PC form factor is becoming a premium niche.


Maybe we aren’t in a post-PC world. Maybe it’s an also-PC world. ~ Farhad Manjoo (@fmanjoo) 10/20/14



If a person as informed and as intelligent as Farhad Manjoo doesn’t know what “Post-PC” means, then I’m guessing most of us don’t understand what the term means either.

The Stone Age did not end because we stopped using stones. The PC era isn’tending because we stopped using PCs. ~ Horace Dediu (@asymco) 10/24/14

Post-PC does not mean the PC goes away. It does not mean we only use phones and tablets to do our computing. It simply means the PC is no longer the center of our computing universe.

“PCs are going to be like trucks,” Jobs said. “They are still going to be around.” However, he said, only “one out of x people will need them.” ~ AllThingsD, 2010

Emphasis added.

Apple has always emphasized the importance of the Mac in the post-PC world. Shortly after taking the reins at Apple, Tim Cook had this to say about the Mac:

[pullquote]As people walk away from the PC, it becomes clear that the Mac is what you want if you want a PC.[/pullquote]

And we haven’t given up on the Mac. A lot of people are throwing in the towel right now on the PC. We’re still spending an enormous amount on really great talent and people on the Macs of the future. And we have some really cool things coming out there. Because we believe as people walk away from the PC, it becomes clear that the Mac is what you want if you want a PC.

Two years later, that statement is looking mighty prescient.

Apple’s position is, whether it be a Mac or an iPad or an iPhone, people should use the right tool for the task at hand. In 2006, we owned one computing device. In 2015, we will own multiple computing devices. Truth be told, we already live in that reality today. Multiple computing devices are the norm not the exception.

Globally, the average connected devices per person is 2. In USA it is 2.8 ~ Ben Bajarin (@BenBajarin) 8/21/14

90% of students in the UK own both a laptop and a smartphone. A further 40% have a tablet computer ~ BBC News

Ironically, it was Bill Gates, in 2007, who predicted the multi-device computing world that we live in today:

Mossberg: What’s your device in five years that you’ll rely on the most?

Gates: I don’t think you’ll have one device.

I think you’ll have a full-screen device that you can carry around and you’ll do dramatically more reading off of that – yeah, I believe in the Tablet form factor…

…and then you’ll have the device that fits in your pocket…

…and then we’ll have the evolution of the portable machine. And the evolution of the phone will both be extremely high volume, complementary–that is, if you own one, you’re more likely to own the other.

~ AllThingsD

Now tell me, does that sound like the vision embodied by Microsoft’s 2-in-1 Surface ((If you think the Surface is doing well, you need to read this article by Mark Rogowsky and look at this chart by Jan Dawson.


Source: THOUGHTS ON MICROSOFT’S Q3 2014 EARNINGS)) computer or does that sound more like the vision embodied by Apple’s iPhone, iPad, and Mac portfolio of computing devices? (And don’t forget the upcoming Apple Watch, either.)

To be honest, I don’t much care what your opinion is. The market is the only opinion that matters and the market has emphatically expressed its opinion by overwhelmingly voting for multiple devices. If you don’t think multi-device is the direction computing should be taking, argue with the market, not me.


I believe as we move further and further into the post-PC (or multi-computing device) era, two things are going to happen.

First, the base number of notebook and desktop computers will remain at, or near, current levels. However, the form factor’s overall share of the total number of personal computing devices will continue to shrink as phones and tablets rapidly spread across the globe.

Second, those who need less computing power will eschew the notebook and desktop form factor. Those who need the form factor, but eschew the power and complexity, will gravitate toward devices like the Chromebook. And those who need both the form factor and the power it embodies, will move towards Macs.

What was unthinkable only ten years ago is happening. The traditional Windows PC is being squeezed by Chromebooks from below and by Macs from above and is rapidly moving from monopoly to minority status. The Mac on the other hand is emerging from the shadow of the Windows PC and, among power users, is taking its place as the majority player. ((26.8% of the notebooks and desktops sold in the U.S. between July 4th and September 1st were Macs.))

Lt. Uhura. Dr. Mae Jemison. Melinda Gates. Onward.

Mae Jemison turned 58 last Friday. Jemison was the first African American woman to travel into space. As a child, one of her influences was Star Trek’s Lieutenant Uhura. I hope some one, some day writes the definitive piece on all the girls inspired by this popular television character.  


Role models are vital. They help clear the path, guide our future and quite possibly change the world. But where do they come from? 

Many look toward Silicon Valley, land of the smart, home of the super-rich. This strikes me as a rather limiting vision. The next Lt. Uhura is not likely to be employed at a company with a rock-solid 401K.

Increasing the numbers of women and minorities at the already highly successful, exceedingly rich Big Tech conglomerates — Apple, Google, HP, Oracle, Facebook — may be laudable, but it’s unlikely to blaze a trail.

Silicon Valley was once about disrupting the world, not meeting its numbers. To change the world now, we must cross the valley. First stop, Washington State, home of Melinda Gates.

Melinda Gates is changing the world. One girl, one woman, one dollar at a time. 

These Are The Voyages

Melinda Gates is not a self-made woman. Not as traditionally defined. In 1994, she married Bill Gates, founder of Microsoft and the world’s richest man for, it seems, as long as all of us have been adults. Do not let the primary source of her wealth mislead you. 

I have never met Melinda Gates but am repeatedly struck by how deeply involved she is in aiding girls, women, the poor, the sick, the marginalized, children who deserve a better education, those dying of 19th century illnesses, fixing America’s profoundly broken school system.

Perhaps I should not be surprised. Melinda Gates was her high school’s valedictorian. She earned Bachelor’s Degrees in Economics and Computer Science, and an MBA from Duke. She likewise earned her way into Microsoft, back when it possessed the very highest concentration of hard working, fast charging, manifest destiny brainpower.

And then she married Bill Gates. 

If I had Melinda Gates money, I can attest, hand to God, I would use the vast majority of it to promote education, health, opportunity. I cannot swear, however, I would do it so vigorously, so personally, expending so much effort, so much of my heart and soul.  

A billion to my university. Receive honor.

A billion to aid those in my hometown of Detroit. Receive honor.

A billion to Food for the Poor. Anonymously, in this case.

Then back to the private jet, the infinity pool, the party.

Why is Melinda Gates so different? Does having everything motivate you to do more? Is she smart enough to know she can truly change the world?

As much as I admire Bill Gates, I give a great deal of credit to Melinda Gates for harnessing Bill’s Microsoft money and brainpower — along with hers, which is well documented — to focus on not just improving life for the world’s marginalized but on laying the groundwork for ongoing, self-led improvements.

Melinda Gates is more Silicon Valley than Silicon Valley.

Note the values of the Bill & Melinda Gates Foundation:

Our foundation is teaming up with partners around the world to take on some tough challenges: extreme poverty and poor health in developing countries, and the failures of America’s education system.

We focus on only a few issues because we think that’s the best way to have great impact, and we focus on these issues in particular because we think they are the biggest barriers that prevent people from making the most of their lives.

To Boldly Go

Computing technology has progressed in our lifetime from the once unfathomable vision of a computer on every desktop to several billion smartphones, tablets, clouds and things. We possess the tools to fundamentally re-make our world.

Are we blowing this confluence of opportunities on games, hook-ups and selfies? Are we ignoring our chance to tackle the really big problems — while the call of change avails itself to us? Not if Melinda Gates has anything to do about it.

Some of the projects we fund will fail. We not only accept that, we expect it—because we think an essential role of philanthropy is to make bets on promising solutions that governments and businesses can’t afford to make. As we learn which bets pay off, we have to adjust our strategies and share the results so everyone can benefit.

Yes, everyone. Change, disruption — and new role models — are blooming all about us.


While Silicon Valley looks inward, focused as much on backwards-looking hiring targets and mimicking each other’s business model, Melinda Gates is focused on sustained improvements all around the world. As her work in Africa reveals, this most often means empowering women and girls.

“If you want to lift up an economy in Africa, you basically start with the women.”

According to Gates, a woman with a job — and her own money — is more inclined to plow it back into her family. That increases opportunities for her children and her community. As she wrote only last week:

Research tells us that women invest more of their earnings than men do in their family’s well-being—as much as ten times more. They prioritize things like healthcare, nutritious food, and education. When a mother controls her family’s budget, her children are 20 percent more likely to survive—and much more likely to thrive. Healthier, better educated children today lead to a stronger workforce and more prosperous communities tomorrow.

Frankly, this is a rather damning indictment of the men in those under-developed communities. As Mrs. Gates notes:

  • Infant and maternal mortality rates are falling, because mothers and midwives are working together to embrace new innovations to make childbirth safer and infants’ first days less risky.
  • We are within reach of eradicating polio forever, because a cadre of frontline health workers—almost all of them women—are working to bring basic healthcare services to even the poorest, most remote corners for the globe.

Brainpower, belief, vision, technology, money and a commitment to learning made these possible, as did directly empowering very poor women. As governments around the world seek to stem the spread and disruptive power of technology, they should instead consider how to accelerate this new world order Melinda Gates is helping to usher in.

Gates’ Twitter bio is concise and revelatory:

Co-chair of the Bill & Melinda Gates Foundation, businesswoman, and mother. Dedicated to helping all people lead healthy, productive lives.

I write. My Twitter bio makes that much clear. The very wealthy Melinda Gates reminds me I can do much more. I suspect you can as well. We are not surrounded by work but by opportunity.

Does Windows Stand a Chance With Enterprise Mobile Apps?

The buzz that’s built around enterprise mobility has reached nearly deafening levels with seemingly everybody and their brother working on solutions to mobilize enterprise applications. Not surprisingly, the vast majority of the attention has been focused on bringing business apps to iOS and Android, given their dominant roles on smartphones and tablets.

In the process, many organizations have glossed over Windows, assuming that there wasn’t really any interest or value in creating mobile apps for the platform. The assumption seems to be primarily based on the tiny market share that Windows has garnered in the smartphone and tablet markets. While that’s an understandable and legitimate concern, it turns out it doesn’t really reflect what many companies are doing about custom mobile applications.

According to a survey my firm, TECHnalysis Research, fielded earlier this year with over 300 US-based IT professionals split evenly across small, medium and large businesses, custom Windows applications are actually being built by a very respectable 41% of companies surveyed. As the chart below shows, the number reaches 58% for large enterprise with 1,000 or more employees.

Tablet App Development Platforms

©2014, TECHnalysis Research

While those figures may seem puzzling to some, I believe there are some very logical reasons why they are where they are. First, most organizations that have in-house programming teams have a strong bias towards Windows because that’s what they know. Custom Windows desktop applications have been the lifeblood of many companies for over two decades, so it should be no surprise to anyone that the majority of a company’s in-house programming teams are going to know Windows and want to leverage that expertise.

In a related way, most of the custom applications that a company already has in use are likely to be Windows-based. Given that many mobile applications are being written to build onto the existing custom applications and data files that an organization has, the choice of Windows for mobile applications makes sense.

In addition, Microsoft has been offering a broad range of programming tools for custom enterprise applications for a very long time. The company is widely known for the general quality and scope of their tools, so again, it makes sense to use the tools companies have available. While custom programming tools for the other mobile platforms are certainly growing at a rapid pace, it will be a while before they have the same range of choices designed specifically for in-house business application programmers that Microsoft does.

Finally, another point to consider is that given the growth of touch-based Windows notebooks and Microsoft’s move to a common set of APIs across various flavors of Windows, companies can build applications that will run both on Windows-based tablets, as well as touch-based Windows PCs or 2-in-1 devices. While Windows 8 and 2-in-1 deployments in enterprise have been modest to date, many organizations like to plan and build for the future. With the promising prospects for the new Windows 10 and the ongoing evolution of the notebook that 2-in-1s represent, again, you can make a solid argument for why the interest in building enterprise mobile applications for Windows is already as high as it is, and likely to go higher.

Technological Patriotism

Technology is breaking down barriers throughout the world. Conversely, a form of technological nationalism has taken hold, limiting tech’s rise. Expect such nationalist fervor to become more widespread, more virulent, probably more unfair. 

Technology is the new oil. It’s vital to our lives, our economy, our personal wealth, our national interests. As such, governments believe it is right to be intimately intertwined in the development, use, purchase, promotion and spread of technology.

Government inquiries, embargoes, regulatory barriers and tax disputes with technology companies will become commonplace. Fighting (and/or championing) such affairs will become a standard course of business for tech firms, much like complying with accounting standards are today. VCs, start-ups and well established high tech companies will need to fundamentally reconstruct their focus. I say this all without judgment.

That most of the world’s largest, richest tech companies are American — Apple, Microsoft, Google, Facebook, Amazon, Cisco — makes this new world order that much more combustible.

Should Five Percent Appear Too Small

Big technology companies are sitting atop sizable piles of money. Many governments believe they are owed their rightful share of these piles. The European Union (EU) alleges Apple is concealing taxes duly owed on sales and profits generated throughout Europe. Their allegations rest almost entirely upon the obvious: 

“Multinational corporations have a financial incentive when allocating profit to the different companies of the corporate group to allocate as much profit as possible to low tax jurisdictions and as little profit as possible to high tax jurisdictions.”

apple international

Examine Apple’s European org chart. What does it appear optimized for? If successful, the EU’s action could cost Apple billions. That is why, when Tim Cook told the US Senate “we pay all the taxes we owe — every single dollar,” he is no doubt being 100% accurate and equally irrelevant.

Tax battles are costly for tech firms, but just one fight of many. Regulatory barriers can similarly limit the full and beneficent spread of the world’s most liberating technologies. As famed tech investor Peter Thiel recently remarked:

“It probably would be better for Europe to find ways to be more innovative, rather than ways to regulate.”

This sentiment was echoed by uber-VC Marc Andreessen, an aggressive proponent of Bitcoin, a cryptocurrency that could, in theory, disrupt a core government function and major policy lever:

‘‘The problem with building a new product or service in the existing financial industry is that tens of thousands of pages of legislation and thousands of lobbyists are going to come down on you very quickly. We needed a new technology to have the wedge to be able to enter the market, to be able to justify all the work to rebuild the system.

With bitcoin, we now think we have that wedge.”

Neelie Kroes, the EU’s digital chief, has made it abundantly clear government is not so willing to rebuild its systems:

“I do wonder how many more Valley companies have to get slapped before the rest of them realize it’s time to start investing in better relations with the EU.”

Expect such “investments” to become commonplace. Likewise, add Amazon to that list of companies who apparently need to be “slapped”:

The European Commission is poised to launch a formal in-depth probe into its serious concerns over improper state aid, dragging Amazon into a multi-pronged clampdown on sweetheart tax deals that has already ensnared Apple in Ireland and Starbucks in the Netherlands. 

To absolutely no one’s surprise, Amazon has declared it pays “all applicable taxes in every jurisdiction that it operates within.” As with Apple, the accuracy of this statement is borderline meaningless.

Prediction: numerous governments will alter their tax rules simply to prevent other governments from getting a larger share of any Big Tech monies available. To wit: Why let Europe get a (theoretical) cut of Apple’s bounty when that money could be put to better use in America? Or Brazil? Or China?

Here, There And Everywhere

Tax disputes are certainly not the only concern for tech companies. Just this year:

The Chinese government (blocked) virtually all access to Google websites, instead of just imposing 90-second delays when banned search terms were used. Experts initially interpreted the move as a security precaution ahead of the 25th anniversary of the Tiananmen Square crackdown on June 4. But the block has largely remained in place ever since.

This latest move and previous actions by China have significantly impacted Google’s long term potential inside the world’s largest Internet market. Not surprisingly, China’s own Baidu has a 90% share of search — and not because users prefer its results to Google’s.

Despite Baidu’s ubiquity, many users are finding it to be a poor replacement—especially students, academics, researchers, and technicians who need to rapidly find reliable information online. 

It’s not only Google that faces such barriers. Twitter and Facebook are both “filtered” in China. Nor is the problem confined only to American technology companies.

Two popular messaging services owned by South Korean companies, Line and Kakao Talk, were abruptly blocked this summer (by China), as were other applications like Didi, Talk Box and Vower.  

Nor is hardware spared. Despite its stellar reputation for security, China’s CCTV ran a report earlier this year suggesting Apple’s iPhone location tracking could put state secrets at risk. If true, China obviously has no choice but to take swift, decisive action.

Government entanglements can take many forms. For example, Apple was caught off guard last month when regulators did not provide the requisite approvals for the company to begin legally selling its new iPhones in China. This despite Tim Cook’s many visits to the country, Apple’s sizeable third party workforce there, and the fact Apple and its partners had readied a major advertising push, believing they had done everything necessary to satisfy the various interested parties. Not so, apparently.

Surprise! Regulators have now proffered their assent, in large part due to Apple’s latest assurances that the American government cannot “backdoor” access iPhone data and obtain any of those China state secrets as noted above. 

Rules are rules. The costs required to successfully navigate such rules may not always fall the way prices of technology always seems to fall. Nor may such rules prove as leveling. As Bloomberg recently reported, myriad new government rules in China are likely to benefit local companies, such as Xiaomi.


Moreover, now that users in China can legally purchase iPhone 6, it may cost them more than anticipated. China’s government recently decreed that China Mobile, the world’s largest carrier, must reduce phone subsidies. The effect of such actions are obvious.

“High-end flagship phones will suffer the most from the regulation due to their prohibitive prices in the China market without subsidies.”  

“Samsung and Apple, as the two major high-end flagship phone makers, have the most to lose.”

A Day In The Life

Brazil has demanded Apple delete the Secret app from iPhone. Russia recently seized Bitcoin mining equipment at its border with China. Several US states have taken legal action against Uber and Lyft. The EU wants Google, Facebook and Twitter to help it combat what they view as online extremism — and what others view as free speech. The lesson, once again: Tech company interactions with governments will become the norm. Simply put, because tech touches everything.

No matter what you think of Europol‘s veracity, when Europe’s cybercrime unit writes the following, it necessitates a reasoned, continued and very likely financial response from well-heeled technology companies eager to profit from the Internet of Things:

With more objects being connected to the Internet and the creation of new types of critical infrastructure, we can expect to see (more) targeted attacks on existing and emerging infrastructures, including new forms of blackmailing and extortion schemes (e.g. ransomware for smart cars or smart homes), data theft, physical injury and possible death, and new types of botnets.

Death and botnets are always scary. Fighting them is no doubt expensive.

Technology’s promise carries with it parallel strands of fear, always. Consider how smartphones and social media have deepened our understanding of events around the world, such as the recent protests in Hong Kong. Now consider not everyone is pleased by this.

Tim Cook has spoken publicly about civil liberties. Is it fair to ask him — and Apple Inc — to choose a side in this latest skirmish? Is it fair to ask the same of Twitter? Many will.

You Say You Want A Revolution

I suspect you want me to say these many government interventions are dubious, the product of terminally greedy tax collectors, frightened regulators, and entrenched forces hoping to kill off outland competition.

I won’t. Mostly because such sentiments are not relevant.

The many reasons for these many government actions will grow in number, kind and intensity as technology continues to destabilize and disrupt industry after industry. You must understand: There is no bigger industry than government.

Tech is money. Money is power. All three are quickly spreading around the world and most of us want, at minimum, our perceived fair share. Do understand, however, that what’s right and what’s wrong are just two sides to this proverbial Rubik’s Cube.

Freedom is not a zero sum game. Not all believe the same is true for money and power. This is true everywhere. The really big disruption won’t just be of the established order, but of human nature. 

In New Job Steve Ballmer Forces Windows on the L.A. Clippers

I was fascinated to read a recent article about Steve Ballmer and how, in his role as owner of the L.A. Clippers, he has told his entire staff to get rid of their iPads. From now on they will be a Microsoft only facility. I was especially interested in this part of the article:

 “Most of the Clippers on are Windows, some of the players and coaches are not,” Ballmer said.”And Doc (Clippers coach)  kind of knows that’s a project. It’s one of the first things he said to me: ‘We are probably going to get rid of these iPads, aren’t we?’ And I said, ‘Yeah, we probably are.’ But I promised we would do it during the off season.”

To his credit, he is trying to make the online experience at their arena work via Wifi and Bluetooth with any device. But for his staff, it is all Microsoft, all the time. Of course as owner of the Clippers he has the right to do this. But it is his total lack of understanding that we are no longer in a homogenous device world and are now in a heterogeneous world where people or users make the choice of the product they want to use and actually hire them based on personal needs and preferences that surprises me. IT has had to embrace this BYOD approach for some time and have made it work in most cases.

It was his blind loyalty to Microsoft and Windows that kept Microsoft from being a leader in smartphones and tablets. Everything had to be Windows based even though Windows was not an optimal OS for a smartphone. Instead, they spent years trying to push the round peg of a desktop OS into the square hole of a smartphone device while Apple and Samsung created mobile operating systems from scratch and left Microsoft in the dust.

This blind loyalty also caused him to miss an opportunity to make MS Office the de facto standard productivity tool outside of the Windows world and forced Microsoft to create subpar versions of Microsoft apps that worked poorly on other operating systems. This crippled any real chance for the applications group to win big in a heterogenous computing world where Microsoft no longer sits at the center and the biggest growth in personal computing has shifted to pocket computing dominated by Apple and Google.

This push to force Windows on his new company just says to me Ballmer still does not get it. I am also certain his coaches and players are not about to give up their iPads and will use them behind his back while being forced to use Windows-based products during business hours whether they like it or not. Yes, I know he is the boss and he can do anything he wants but to force them to use Windows only, I believe, will frustrate his staff.

The good news is there is a new sheriff running Microsoft and from what I have read and heard from folks inside, their new CEO Satya Nadella is not as narrow-minded as Ballmer and in fact has become more focused on creating great products around their own brand as well as make all of their apps world class on other operating systems, too. This says to me Nadella actually understands we live in a heterogenous world and will embrace it as part of his goal to make Microsoft relevant again.

To me this is a big deal. When I first went to visit Microsoft in the early 1980’s, the company had less than 100 employees. In fact, I was one of the first actual analysts invited to meet with them in their early days and was one of the first they reached out to when they formally created an analyst relations group in the early 1980’s. This means I got a ring side seat to watch Microsoft develop and grow. In fact, many times in the 1980’s, Ballmer would call me up and ask me to lunch when he was in town to run by some new project or effort they were doing in order to get my feedback and ultimately to try and get me to support it.

During those days, Microsoft was the only game in town. That is how they grew. The good news is because they were so focused on Windows and Windows apps they grew the company exponentially. The bad news is they were so focused on Windows they missed the major rise of operating systems beyond the desktop and laptops. This has left the company scrambling to even be competitive in the world of mobile where all the real growth has shifted to in the last 7 years.

Satya Nedella’s approach to the market embraces heterogeneous computing and is important but he also walks a fine line when it comes to Windows. Windows 10 hopefully buys him some much needed grace in the eyes of the consumers and IT and by making all of their apps “world class” on multiple operating systems keeps them in the game. However, with the PC market shrinking and mobile rising, Nadella really has hard task ahead thanks to Ballmer’s narrow minded strategies.

Windows will probably work well for the Clippers management and team. Although, I have a sneaky suspicion from the comment of Clippers coach Doc Rivers they would have preferred to use their iPads. As boss, Balmer has the right to push the tools he wants the team to use. But it would have been interesting if he had to deal with his IT the way most of the IT world has to today by supporting BYOD and innovating around that reality. Instead, the Clippers are a recipient of the old school thinking of Ballmer and will just have to work with what he has given them.

Windows 10 and the PC’s Tablet Complex

Yesterday, Microsoft showed the world the first glimpse of the new version of Windows. Oddly, Microsoft skipped a version number in the naming scheme. Rather than name it Windows 9, they choose the name Windows 10. While it is hard to form a fully fleshed out analysis of Windows 10 from the minor details given, there are still some key observations that can be made.

Firstly, from what I saw from Windows 10, it appears Microsoft recognizes some of the many issues that faced Windows 8. On Microsoft’s official blog post they made the following points about Windows 10:

Windows 10 will:

  1. Build on our commitment to provide a common Windows platform and give you one consistent API layer with consistent UX design surfaces and flexible tools.
  2. Enable Windows Store apps to run in a windowed environment on the desktop so that they perform better on a wider range of hardware.
  3. Deliver one Store for all devices, making it easier for you to reach customers in consistent and compelling ways no matter what type of device they’re using. We’re also planning to make the Store more useful for corporations with volume app purchasing, more flexible distribution mechanisms, and the ability to create a custom or curated Store experience (note that the Windows 10 Preview contains the existing Windows 8.1 Store).

The first point may be the most important, although all three are related. Windows 8 had a two part problem. The first was developers were not taking advantage of creating new modern applications that embraced and extended computing to touch the same way developers were on the iPad. This led to the second issue — a schizophrenic user experience between legacy desktop mode and more touch/tablet friendly use cases. Microsoft converged a PC and tablet experience when they should have separated them. What should have been converged were the tools to create Windows apps for all screens in one environment, not the PC and tablet use cases. Microsoft is looking to fix this with their consistent API layer.

This developer point is why Microsoft threw the statistic out that there are 1.5 billion people using Windows every day. That is a little generous of a statistic given it includes IT workstations, Internet cafe’s, point of service workstations, and likely even server-based solutions. There may be 1.5 billion PCs in use but there are not 1.5 billion unique PC users. That number is somewhere in the 1.3 billion range and SHRINKING. This is what Microsoft, Intel, and the entire PC ecosystem is hoping to change. To do this, Microsoft hoped bringing tablet like functionality would spur growth to the PC industry. This, however, was a failure to understand why the tablet was successful and the role it played in the advancement of computing.

The Tablet Complex

From a platform standpoint, I still maintain Microsoft needs a phone/tablet OS and a desktop/notebook OS. Perhaps there are ways Windows 10 can be a dedicated OS for all these platforms. Time will tell. However, it is my conviction Microsoft, and Intel for that matter, suffered from a premature tablet complex. Meaning, they saw the iPad and its rapid success and created a number of flawed assumptions about the product that led them to create the schizophrenic Windows 8 and 2-in-1 PC category.

The tablet was never poised to be a replacement for someone who sits at a desk, needs a big screen, and does deep work. My belief was always there are simply a smaller number of people in the world for whom a large portion of their work use cases necessitate a desktop or notebook PC. What we saw the tablet (the iPad) do is enable more rich computing for those who were either intimated by computers and were less “computer literate” than others AND it brought computing to new customers who were not computer users before either in work or play. A good example of this was what I learned by being on a panel with the CTO of Chevron. He explained Chevron deploys over 30,000 iOS devices to field workers, and 20% of those were tablets. The primary use for these tablets people who used a clipboard to do security checks and other field work documentation. They replaced those paper tasks with iPads and deployed custom software which gave these field workers better tools to do their job. These field workers were not using computers in their jobs when in the field and would only use them for small portions of the day when they go to their desk to input data. Now all of it is done in the field in real time. I hear countless stories like this from field workers in construction, public safety, etc. The point is, tablets have enabled people who did not use computers before, for a wide variety of reasons, to use a computer regularly in a meaningful way.

This same philosophy is characterized again in this incredibly well written piece thanking Mr. Jobs for the iPad that brought the writer’s 83 yr old father meaningfully into the computer age. I particularly liked this part of the article.

His big, thick fingers found just the right touch. They found a groove and slid intuitively across the screen; soaring and gliding up and down and across. It was as if someone from the other side had taken over and was guiding his old mans’ fingers.

Then he discovered Facetime. He immediately dialed his oldest daughter, my sister. And that’s when he really came to life. He entered a new generation.

‘I can’t believe this is happening.’ He exclaimed.

The desktop and notebook form factor took computing as far as it could go with those designs. Those dedicated form factors, and the software they run, have a purpose and are not going away. The tablet, however, is extending computing to places it could not go before because of its unique form factor and software. As in the story above, the elderly who are connecting with their kids and grandkids in new ways are empowered. Kids can pick a tablet up and learn and play the instant they use it with no prior education or computer literacy training. Workers around the world who spend their day on their feet now have a tool practically custom designed for them as the ideal digital tool. This understanding is what companies with a PC bias missed. This is what Microsoft must solve for them to be a relevant platform player in the future of computing. However, as I will dive into in the near future, Microsoft’s upside does not depend on them being a relevant platform player, but rather resides in them becoming a platform agnostic software and services company.

Microsoft and Google’s platform problems

Microsoft and Google appear to be moving in different directions when it comes to their platforms and first party hardware, as I’ve written about before. However, in some respects they’re fighting the very same battle when it comes to platforms — they’re struggling to set apart their services on platforms increasingly controlled by others.

Microsoft: winning on competitors’ platforms

Microsoft is moving towards a model where it provides its services without preference on third party platforms and away from its historical model of preferring its own Windows-based platforms. Just this week, Microsoft released a version of OneNote that works on Android Wear smartwatches as well as on iOS. Perhaps the most striking example of the new attitude toward third party platforms was the release of Office on the iPad a few months back.

However refreshing as this change may be, Microsoft is, in many of these areas, going to be competing head-on against the companies on whose platforms it seeks to establish itself. OneNote goes up against Google’s own Keep note taking service on Android, and Office on iPad goes up against Apple’s own iWork. Microsoft may not feel too threatened by either of these products, since its own versions are arguably much more fully featured, but there are other important considerations.

First, Microsoft’s core products and services are increasingly competing against free products which provide much of the same functionality, as the chart below shows (the business model framework may be familiar to some readers from this previous piece):

Microsoft competing against free

In short, where Microsoft seeks to charge for Office, Windows or other products, Apple and Google give them away for free (albeit for different reasons: Apple as a way to add value to the purchase of one of its devices, Google to generate data, ad revenue or a channel to sell its other products). For this reason alone, Microsoft faces an uphill battle in selling many of its third party products, especially on platforms controlled by its major competitors. OneNote is an interesting exception: arguably one of Microsoft’s most compelling products, it’s available for free outside of the classic Office bundles.

Second, Apple in particular and Google to a lesser extent favor first party products and services through deeper integration into the operating system. In other words, though OneNote may reside as an app on iOS, it will never be integrated into the core functions of an iPhone in the way that Apple’s own Reminders app is. Though Google’s Chrome is available on iOS, it can never be set as the user default browser. And so on. Apple’s and Google’s apps will always come preinstalled on their operating systems while Microsoft’s will never be, and that further disadvantages Microsoft as it seeks to compete.

Third, Google and Apple have increasingly broad ecosystems of devices running their respective platforms. Apple, with about eight hundred million devices running iOS and OS X and Google with well over a billion devices running Android (and to a much lesser extent Chrome OS), compared with about 1.25 billion Windows PCs in the world and a much smaller number of Windows Phones. Whereas Microsoft’s installed base of devices once dwarfed all others’, that’s simply no longer the case, and both Google and Apple have arguably been better at seeding users with their core products and services running on those devices than Microsoft has been. Almost all the services Microsoft offers on third party products are add-ons on its own devices too, rather than coming built-in. As such, Google and Apple are better able to create and stimulate demand for these products and services than Microsoft, especially on a cross-device basis.

In short, if Microsoft is to compete effectively on a third party basis, its services on competing platforms have to be so good they can overcome the price/business model disadvantage, the lack of integration, and its far smaller mobile device installed base. As of right now, Microsoft simply doesn’t seem to have any products or services that can do that successfully and this should be a key area of investment. In the meantime, it’s being successful largely with products it’s unable to monetize from most users, such as OneNote and Skype.

Google: regaining control over its own platform

Google’s problem is similar but different. It – nominally at least – owns a platform in the form of Android. But it’s a platform it’s increasingly lost control of, in two ways:

  • Full Android licensees such as Samsung have overlaid so much of their own stuff on top of stock Android that Google’s services and the core of the operating system are buried
  • The AOSP version of Android is so heavily used both by third party forks like Amazon’s Fire devices and by Chinese vendors in particular who have built their own service stack on top of it.

Google competes both on the platform it owns, though has lost control off, and on third party platforms (mostly iOS, to date). But it suffers to the same extent as Microsoft when it comes to its lack of integration on iOS, where its apps are popular but will never be as tightly woven into the core experience as Apple’s equivalents. At the same time, Apple has been slowly removing Google in a variety of ways from its products. This has a very public and obvious side – the removal of the YouTube and Google Maps apps from iOS – and a less public and obvious side: using Bing as the default search engine behind both Siri and the new Spotlight features.

At the same time, many of Google’s core services are duplicated by its own OEM licensees and to an extent carriers too, even on Android. It’s not uncommon to use an Android phone which features three different pre-installed apps for video, one each from Google, the OEM and the carrier, and the same goes for many other features too. Although certain core Google services like search, email and maps are already well established, it’s that much harder for Google to establish new services to the same degree when Android devices are so heavily customized by both OEMs and carriers.

For all these reasons, Google has now started to reassert its control over Android in a variety of ways. This was a major theme at its I/O developers’ conference (though it never said so explicitly). Android One is an attempt to get stock Android back in the game in emerging markets, while Android Wear, Android Auto and Android TV offer non-customizable versions of Android for three new domains. It’s as if Google has realized its mistake and is retaking control as much as it can, step by step.

Apple continues to be different

Though Google and Microsoft share some of the same challenges, Apple continues to stand out in this regard. It controls its own platform from top to bottom, and doesn’t seek to compete on third party platforms. The only software it does provide on third party platforms (these days, essentially iTunes) is intended to add value to its own devices, not compete on its own merits. As both Google and Microsoft struggle to compete on platforms they don’t control in the pursuit of massive global markets, Apple continues to pursue its target niches with a very different model.

How Microsoft and Apple’s Ads Define Their Strategy

Recently, after spending a lot of time with many of Microsoft’s OEM partners and looking at their overall strategic view of the PC and tablet markets of the future, it has become clear to me there really is a huge difference between how Microsoft and their partners view the computing market compared to the way Apple designs and markets their Macs and tablets to these same users. This divide in strategy is very pronounced.

In a sense Microsoft approaches the market from the top down, while Apple goes after the market from the bottom up.

Microsoft centralizes their strategy around their belief that everyone needs tools for a wide range of productivity tasks, regardless of who they are. Microsoft and their partners, including Intel, are designing all of their products around this focus. Of course, productivity is Microsoft’s sweet spot and a strong push to create products with an eye on productivity first makes sense. This is why they keep pushing the 2 in 1 concept. Is it a tablet or is it a laptop? As far as they are concerned, it doesn’t matter to the customer. The tagline for 2 in 1’s is “It is a PC when you need it and a tablet when you want one”. They believe that, in this product, they can push the customer to cover all of their bases and hope in the process these 2 in 1’s revive the lagging PC market and get it back on track. The problem is, since the focus of these designs really emphasize the productivity aspect of the experience, 2 in 1’s turn out to be OK laptops and, in many cases, mediocre tablets.

On the other hand, Apple approaches the market from the bottom up. When Steve Jobs introduced the iPad in 2010, he put a huge emphasis on the fact it was a “consumption” device first. In fact, he downplayed any possible productivity features although he did hedge his bet by creating a version of Pages, Numbers and Keynote apps for those who “might” want them. But when Apple created ads for the iPad they were all focused on consumption. Only in the last 18 months have they even added the focus on the iPad as a serious “creation” tool. Notice the distinct difference even in terminology. For Microsoft, the term “productivity” is key to their marketing while Apple uses “creativity” instead. Microsoft shows ads of people mostly working while Apple shows ads of people doing cool things with their iPhones and iPads. Microsoft’s ads invoke work while Apple’s ads show you how to use their products to create and play.

In a good article on TUAW written by Yoni Heisler entitled “Microsoft still doesn’t get why the iPhone succeeded,” Heisler says:

As Microsoft continues its push to remain relevant in the mobile space, it still doesn’t appreciate the factors that allowed Apple to enter a market it had no previous experience in, and turn that market on its head with the iPhone. Arguably blinded by the profits brought in by its Windows monopoly and its suite of productivity software, Microsoft still doesn’t seem to fully comprehend how the iPhone was able to push established players like RIM to the brink of irrelevancy in just a few years.

As an illustration, here is Nadella’s response to a question from Joshua Topolsky regarding Microsoft’s strategy to sell more devices to consumers.

You’re defining the market as “It’s already done, Apple and Google have won, because they won the consumer side.” And I’m going to question that. I’m going to say “No, any thinking consumer should consider Microsoft because guess what, you’re not just a consumer. You’re also going to go to work, you’re also going to be productive and we can do a better job for you in there.” And that’s what I want to appeal to.

And therein lies the problem. Consumers primarily buy mobile devices that make their lives easier and more fun, work be damned. Microsoft Office wasn’t available on the iPhone until June of 2013. An iPad version wasn’t released until four months ago! And guess what, hundreds of millions of consumers bought iPhones and iPads anyhow.

Heisler captures the essence of the difference between Microsoft and Apple well. Microsoft is all about productivity while Apple wants to give people a break from work and let technology do cool things for their customers. While this may seem like semantics, it actually drives a very different mental picture to consumers about how they view their devices. As Apple has proven, this approach is highly successful and brings into real question whether Microsoft’s productivity push will help them get customers outside of the enterprise to buy their products in the future.

In fact, Apple drives a solid line between productivity and content creation vs creativity and content consumption. Tim Cook and team are adamant that, when it comes to productivity, they believe that Macs are at the center of this activity. They have created innovative laptops, especially the MacBook Air and these products continue to defy the downward market trend in PCs and every quarter Apple sells at least 4 million Macs worldwide. They then focus iPads and iPhones on the more fun activities one can use technology for and again, have sold massive amounts of these products to very satisfied customers.

Of course, there is an actual dichotomy in the ultimate use of iPads in many people’s lives. Although Apple designs their iPads as pure tablets, people and companies have found their own ways to use them for actual work and productivity. But ironically, it was never at the center of Steve Jobs’ design and its role as a productivity tool has come mostly from third party products like external keyboards and companies and individuals creating apps and tools that allow them to adapt iPads and even iPhones for work when needed.

Satya Natella’s heavy focus on productivity is an interesting one and using 2 in 1’s to bridge the gap between a laptop and tablet will be driving their strategy forward. With the goal of creating a single OS that runs on laptops, tablets and smartphones, Microsoft is at least creating an OS environment less confusing than in the past. However, Apple has shown there is success in making great laptops, tablets and smartphones each with different goals in mind. However, if Microsoft continues down this heavy productivity road I suspect they will be challenged in their quest to gain any serious ground against Apple and even Google, who at the moment have the lion’s share of the mobile market. Apple with the Mac and Google with the Chromebooks are seriously eating into the Windows market share and have changed the dynamics of the personal computing marketplace forever.

Who Apple, Google and Microsoft Should Acquire Next

On Tuesday night, TechCrunch’s Alex Wilhelm asked on Twitter:

It was late and I fired off a quick response but I thought it was a question interesting enough to be worth thinking and writing about here in more depth. So, for today’s column, I’m going to spend some time asking which companies Apple, Google and Microsoft should consider acquiring. As a bonus, I’m also going to include Amazon, which of course has just announced a major acquisition. I’ve deliberately been mutually exclusive in my recommendations, but the fact is a number of these companies would be a reasonable fit for several of the potential acquirers, since they’re all to some extent targeting the same opportunities, albeit in different ways.


Until the Beats purchase, Apple’s acquisition strategy was so predictable, you already knew the official comment the company would put out as a result: “Apple buys smaller technology companies from time to time, and we generally do not discuss our purpose or plans.” Apple has focused almost entirely on acquiring smaller technology companies and typically shuts down the products while building some of the functionality into future Apple products. But the Beats acquisition either changed all that or was a one-off anomaly. I suspect most of Apple’s acquisitions going forward will be more along the lines of its past acquisition than the Beats acquisition, but it might still make sense for Apple to buy something bigger “from time to time” as the company might put it.


This is a bit of a cheat because it’s so similar to Beats, but it’s also different in important ways. Bose is the headphone brand many people thought Apple should have bought because it’s a much better fit with Apple’s core product values: a premium, high end, high quality product that’s well respected and has a brand cachet among the same sort of people likely to buy Apple products. I think it’s possible Apple may use Beats and the technology it licenses to build premium headphones under its own brand and, as such, it may not be necessary to buy Bose to achieve this. But with Bose, it would acquire an existing known brand which would nicely complement the Beats brand.

Broadcom’s baseband business

This is also a bit of a cheat, because it’s not apparently for sale anymore, as the company is planning to wind it down. But it seemed an obvious fit at the time when it was for sale, because it’s well aligned with Apple’s strategy of steadily owning more and more of the components in its devices, and it would provide useful leverage against existing suppliers. It appears Apple is investing in this area organically already, and acquiring this business would have given that effort a big boost. For now, though, it appears as though Apple will continue to pursue this strategy internally rather than through an acquisition.


Apple Maps has come a very long way since the early awful reviews. I use it regularly to get from point A to point B and it’s absolutely fine for navigation purposes. But where Apple Maps falls short is its point of information (PoI) database – i.e. the set of information it has about stores, restaurants, and other businesses in any given area. I regularly find Apple Maps is unable to find the nearest location for a particular franchise or company when Google Maps finds it without any problems. This is Apple Maps’ single biggest weakness today, at least in the US, and it should invest in fixing it. Apple currently buys this data from third parties like Yelp, but it has little control over the quality of that data as a mere licensee. Acquiring Yelp would allow Apple to control the data and use it as the foundation for a more aggressive effort to build an extensive, up-to-date PoI database to help power Apple Maps.


Google’s acquisitions have been much less predictable than Apple’s, both in their scale and scope. It’s acquired companies as diverse as YouTube, Picasa, Dodgeball, Keyhole, Android, DoubleClick, GrandCentral, Motorola Mobility, Nest, Skybox and Zync Render. There is almost nothing all these companies have in common and some of its acquisitions have been pretty sizable. But given its current focus areas and the domains Google is likely to invest in next, it’s still possible to identify some possible opportunities.


This was the one company I listed in my response to Alex Wilhelm’s tweet, and it’s an obvious one. To the extent Google is serious about getting into the music subscription business, it could acquire a lot of market share and a strong existing brand in the form of Spotify. Some people questioned why Apple pursued Beats instead of Spotify, but I think the reality is Apple didn’t want the baggage of millions of users across iOS, Android, Windows Phone and the web to support, and it was partly attracted by Beats’ relatively small base. Google, on the other hand, works on a massive scale, and already operates one of the other most popular music streaming services in the form of YouTube. While Google Play Music has been somewhat successful, it’s limited in terms of the countries where it’s available and is far from a leading brand. Spotify would quickly leapfrog it into a top two position in digital music.

Jawbone, Fitbit or Withings

Google has already shown that it’s willing to acquire to establish a position in one of the three key new domains in consumer technology: home automation. But in the other two (the connected car and wearables) its efforts have largely focused, so far, on extending Android. However, there are a number of companies which have established a strong position in wearables from a fitness and health tracking perspective and which Google could potentially snap up. Jawbone, Fitbit and Withings are three obvious examples (and Withings in particular is doing interesting things in the smartwatch space). Any of these companies could give Google the sort of jump start in wearables Nest has given it in the smart home market and could be a core to wrap around other acquisitions, as Nest has become a vehicle for purchases such as Dropcam.


As Google and Amazon increasingly square off against each other across a number of areas, Google has been investing in various retail and commerce-related initiatives. But almost all of these so far have been organic and tied to existing Google properties. Pinterest would fill an interesting gap in two different parts of Google’s business: a channel for commerce and a social network. Google+ has largely failed as a social network on a grand scale (though it’s arguably succeeded in various niches), but Pinterest has massive appeal among a segment of the population. It sits quite a long way down on ComScore’s list of top mobile apps by unique visitors (number 20, just above eBay and below Snapchat and Netflix), but comes in the top 10 by time spent among users over 24. Pinterest also has enormous potential to drive commerce activity, which could help reinforce some of Google’s other commerce-related activities.


Square is, depending on who you believe, either expanding rapidly or struggling mightily. But it’s establishing itself as one of only two or three players that’s starting to build a presence in the local retail space. Amazon’s now entered that space organically with Local Register, but Google’s various efforts in mobile payments have so far failed, largely due to lack of carrier support. Acquiring Square would tackle the market from a different perspective but also potentially give Google a local footprint which could be used to re-launch Google Wallet in future.


Microsoft has made one big acquisition recently, in the form of Nokia’s devices business, but it’s clear Satya Nadella thinks less of that business than Steve Ballmer did (and may well have opposed the acquisition at the time). Other larger acquisitions in the past have included Danger, aQuantive, Skype and Visio. But Microsoft is in transition, both culturally and strategically, and it’s not yet clear what the new focus areas for acquisitions might be. However, there are a few areas where Microsoft could use some help.


I’m not going to focus on the wisdom or otherwise of acquiring Nokia’s devices business, but where I think the board made its biggest mistake was not acquiring the Here location and mapping business from Nokia when it bought the mobile phone arm. There are only three meaningful mapping businesses in the world today, and they’re owned by Google, Apple and Nokia. Only two of these companies own major computing platforms, and the third major computing platform company is conspicuous by its absence. Having licensed maps content from Here for several years for use in Windows Phone, and since Nokia devices have used it for much longer, it was perfectly logical for Microsoft to acquire this business. But the board balked at the time and so Microsoft is left licensing one of the core elements of its platforms instead of owning it outright. It could still fix this.


Along similar lines, Foursquare has begun providing PoI data to Microsoft for use in Bing Maps and Cortana but, as with Apple’s relationship with Yelp, there’s a lack of control and ownership. Unfortunately, Here’s mapping data suffers from the same PoI weakness as Apple’s Maps product, especially in the US, and Foursquare would be helpful both in filling gaps and as a foundation for building a much better, more comprehensive database. Given Microsoft’s existing relationship with Foursquare both as a licensee and an investor, an acquisition would be straightforward and a good fit.

Everpix assets or Picturelife

One of the main selling points on Microsoft’s Lumia devices is the cameras, and yet neither Nokia nor Microsoft has ever provided a great way to store, manage and share these pictures. OneDrive is a storage option which should be increasingly integrated into the process of capturing and storing photos, but it suffers from the same fundamental limitations as other storage services: once you put pictures in, it’s almost impossible to find, manage and organize the pictures afterwards without heavy manual intervention. Everpix, before its demise, was one of a handful of services which promised to help with this task, and I always thought Nokia should have snapped it up. Picturelife is a similar service, though not as good, and there are others out there with similar capabilities. Such an acquisition could help set Microsoft’s photo management capabilities apart and would be a great strategic fit with the Lumia devices’ emphasis on photography.


Amazon has obviously just announced a major acquisition in the form of Twitch, and perhaps its appetite for other big purchases might be limited at present. But as I’ve written elsewhere, there are several possible motivations for the Twitch acquisition, among them an extension into new categories within Media and a pursuit of the broader advertising opportunity. There are a number of other acquisitions which might fit into this strategy, as well as Amazon’s broader e-commerce ambitions.


Hulu has been on the block and then off again, and at present is theoretically not for sale. But it would be a great complement to Amazon’s existing position in digital video, which is mostly focused on catalog content rather than new shows. Hulu is the only service that brings fresh content from several of the biggest US broadcasters on both an ad-funded and subscription basis, and both models are a good fit with Amazon’s new approach to media. Video advertising is an important area of expansion for Amazon and subscription content services are a business model Amazon appears to be pursuing too. It would also make Amazon a stronger competitor to Netflix, which currently dominates the US video streaming business.


Pandora is by far the top online music service by usage in the US, second only to Facebook’s apps among all age groups in the ComScore data by usage, and in the top five by unique users, with only Facebook and Google products ahead of it. And yet it’s perennially unprofitable, because of the high content costs. With revenues and costs under a billion dollars a year, Pandora is the kind of business Amazon could swallow relatively easily, while turning it into an important part of its growing digital media offerings. And it would do for Amazon what a Spotify acquisition would do for Google: immediately vault it from an also-ran proposition to a market leader in digital music, at least in the US, which is still by far Amazon’s most important market.

Etsy or Shopify

Amazon dominates the traditional e-commerce space in the US and certain other markets, but there’s a lot more to online buying than traditional retail. Etsy and Shopify are two companies which target adjacent spaces in a way that would be a good complement to Amazon’s current business. The obvious risk here is these companies have sprung up in part as an alternative to Amazon, and their users may not be all that happy about an Amazon acquisition. But either would help Amazon to expand into new areas within e-commerce (and m-commerce).

Mac vs. PC All Over Again

The latest round of company quarterly financial results illuminate three trends in the device market:

  1. Apple continues to generate record profits largely due to growing iPhone sales (iPad sales are slowly declining, Macs are growing, iPod sales are mostly gone, and Apple’s services revenues are growing)
  2. Samsung’s profits are steadily declining (though from such a high level they remain quite high)
  3. Nobody else is making money at all ((Not consistently, or in the case of some Chinese companies who don’t break out device profitability, not verifiably))

Jan Dawson from JackDaw Research has a terrific chart illustrating the difference in margins that has made its way around Twitter (and here on Tech.pinions) a few times. To my eye, this looks like the PC market, all over again.

Screenshot 2014-08-07 09.46.57

I’m certainly not the first to point out the mobile market looks a lot like the PC market of 30 years ago; some financial analysts have been using this as part of an argument predicting Apple’s imminent collapse. Just as Apple lost the PC wars to a horizontal solution, Apple will lose the smartphone wars the same way. Apple apologists have responded the phone market is different: there are carrier subsidies, lock-in effects, or what have you.

Financial analysts aren’t dumb. The parallels are real. The phone market is turning into the PC market, only with Google taking Microsoft’s place as the OS provider. The similarities are striking. Apple redefined the market with a proprietary OS, innovative UI, and vertically integrated hardware. While it took a few years to catch up, the competition responded with a similar UI on an OS widely licensed to OEMs. In both PCs and phones, Apple targeted a narrow high end customer and lost the market share battle, while the competition aims wider and controls significantly higher market share. Apple monetizes its software by selling high margin hardware; OEM competitors fight each other to provide low margin commodities.

Screen Shot 2014-08-26 at 6.40.39 PM

There are also two interesting differences in the PC and smartphone eras: due to the way the smartphone market evolved, Google chose not to monetize the OS the way Microsoft did, instead monetizing services through advertising. The phone market is also different in size – it’s a lot larger than the PC market ever was.

The problem with analysts using these comparisons to predict Apple’s decline is they ignore the fact Apple won the PC wars. During the 1980s, Apple grew both revenues and profits. After a near death experience in the 1990s – more on this later – Apple reemerged as the most profitable PC vendor. If you count iPads along with Macs, it is now the largest PC vendor by unit sales, too. That is not to say there were no other winners in the PC market. Steve Jobs was correct when he said, “For Apple to win, Microsoft does not have to lose”. Microsoft also won the PC wars. As did Intel. At various points, IBM, Compaq, Dell, HP, and Lenovo have won battles, too (though some of them clearly lost the war).

What We Can Learn From History

The most crucial lessons from the parallels between the PC and smartphone markets are how 1) Apple should behave to successfully compete with Google, 2) the lessons Apple needs to learn from its near death experience during the PC era, and 3) the lessons today’s hardware OEMs – including Samsung – should take from PC OEMs.

1. Apple vs. Google
This one is really simple:

  1. Google does not have to lose for Apple to win. Steve Jobs’ anger towards Google was counterproductive. For that matter, Samsung does not have to lose for Apple to win. ((I think we’re seeing the application of this principle in Tim Cook’s détente with Samsung. Ironically, Jobs was able to get past his feud with Microsoft, but Samsung’s IP infringement was personal. For its part, Samsung is finally willing to compromise because it is realizing it cannot maintain its margins, and an expensive legal fight it can’t win is not worth pursuing.))

2. Lessons for Apple from the 1990’s
Apple lost its way in the 1990s when Microsoft caught up in user interface and Apple stopped innovating in both software and design. That impacted the Mac’s software ecosystem, ruined its premium value proposition, and forced Apple down market (which it tried to attack with a licensing strategy). Once Apple invested in a narrow range of high-design, premium products with regular software updates, sales and profits returned.

To win the smartphone market, Apple must continually refresh its software so its overall value proposition remains differentiated at the high end. However, software for smartphones goes well beyond the device capabilities and UI. It encompasses services and apps.

    1. Google excels in services; if Apple is to succeed long term, it will need to continually meet the “good enough” threshold on services. Given that requirement, the half-baked launch of Maps was a potentially franchise-destroying disaster. Apple has recovered from the worst of the Maps debacle, but it still has work to do on the services front. Apple next big challenge is creating a response to Google Now.
    1. Apple does not need to beat Google on services as long as Google extends most of its services to iOS. Google monetizes users, not Android. As long as Apple maintains a significant share of premium customers its advertisers want to reach, Google has to work with Apple.
    1. Apple excels in the app ecosystem, but Google is catching up. It is too early to predict whether this will keep Apple ahead, but the need to maintain an edge in the app ecosystem explains why Apple is opening up iOS 8 and giving developers more flexibility. It is also why Apple is investing in a new development language.
  1. Apple must continue to set the standard for design so consumers are willing to pay a premium for its hardware. Larger screen sizes and bezel-free designs are the only real holes in Apple’s approach; otherwise it’s doing a pretty good job.

Even if Apple pulls off this balancing act, it does not guarantee explosive growth, which is what Wall Street is looking for. However, if Apple does follow this path, it will maintain a stable, growing base of customers, apps, and assets it can use to attack new areas. The iPod and iTunes led to the iPhone which led to the iPad.

Lessons for OEMs competing with Apple and each other

There should be a market for premium Android phones, but with lots of OEMs targeting it, even vendors who can differentiate on design and hardware components will have lower margins than Apple. Margins don’t have to decline to zero, provided there is still enough value in differentiated component technologies or design. This is why Samsung’s insistence on sticking with durable, easy to manufacture, cheap plastic construction is so maddening. As the unique value of Samsung’s components has declined over time, Samsung should have been putting more emphasis on premium design and construction.

It may be possible to differentiate on software above Android, but few provide enough positive differentiation that consumers recognize and are willing to pay a premium for. Motorola, Meizu, and Xiaomi are the only ones who come close; LG is adding value by stripping out much of the excess it once had. It is worth noting carrier meddling can mess up even the best laid software plans; it requires a direct-to-consumer channel or extremely strong brand clout to build a singular software experience and get it on carrier shelves.

Below the premium tier, margins trend towards zero. Lenovo makes money in PCs in this environment by managing the supply chain and manufacturing. PC vendors were making money by preloading crapware; some smartphone vendors (and some carriers) are following suit. Another approach is to sell hardware at cost, and make money on ancillary products or services. Digital stickers work for messaging vendors, advertising supports television, and in-app purchases drive mobile game developers. Watch for variants on these approaches from hardware manufacturers. Amazon is trying to do this with its tablets, but not its phones where it tries to have its profits and sell you some cake, too. Xiaomi’s business model seems to be predicated on giving you a phone at cost, then selling you a stuffed animal.

Analyzing the Surface Pro 3

I’ve spent the past week with a Surface Pro 3. I’ve used every previous version of Surface and given what the promise of a 2-in-1 PC was supposed to be, the Surface Pro 3 is the closest yet to fulfilling that promise. I was very harsh on the original Surface and, while my overall thesis (which we will get to) on the 2-in-1 PC form factor has not changed, my stance on the Surface itself has softened. Don’t consider this a review of the Surface Pro 3. There are many good reviews of the Surface Pro 3 and serious buyers should read those as well. I’d like to do a more analytical take on the form factor.

Comparing to a Tablet or a Laptop?

The first point we need to address is which computing form factor, laptop or tablet, must we use to create a comparison for the Surface Pro 3. Which type of buyer is the Surface attempting to appeal to? The potential laptop buyer or the potential tablet buyer? Microsoft’s own marketing gives us a clue. They are clearly targeting a customer looking to buy a laptop in the near future.

Screen Shot 2014-08-19 at 8.56.49 PM

On that basis how does it compare to a laptop? Overall, it is a decent notebook. Many features are exceptional, like the extremely high screen resolution of 2160 x 1440. This should literally be the standard resolution on all medium to premium priced Windows PCs. While I appreciated the screen compared to other Windows PCs I tested, I am spoiled by the 15″ Retina MacBook Pro, my primary notebook, with a resolution of 2880 x 1800. As I used the Surface Pro 3, I had to leave my Mac experience behind and just think of the Surface as a competitor to other similarly priced premium Windows PCs. Two of my favorite premium Windows PCs are the Lenovo Carbon X1 and the Dell XPS 13. Despite what many may believe about the Surface Pro 3, I would consider it to be in a class of premium Windows PC products. Given that a traditional clamshell notebook is the Surface’s competition, we have to again evaluate it as a viable notebook competitor.

Overall, I was pleased and impressed with the Surface Pro 3 as a notebook. The size and weight certainly put it into the class of ultra-portables. The Touch Cover keyboard case has been dramatically improved. But there was one area that was a rub for me. What I call “time to on.” Time to on is the time it takes to open my laptop and start working. Every busy person who walks from meeting to meeting knows how valuable it is to sit down, open your notebook, and quickly be ready to start a meeting. Since Microsoft wants to compare the Surface Pro 3 to a MacBook Air, I compared the “time to on” of both machines. For this test, I only looked at the time it took for me to open my notebook and get to a point where my computer was on and usable. For both tests, the MacBook Air and Surface Pro 3 were placed in the exact same position on the desk in front of me. I simply tested how long it took for each machine to be usable from a “sleep state”.

The average “time to on” in five tests with a MacBook Air was 1.63 seconds. That’s the time it took to flip the lid up, wake up, and let me move the mouse and start using the notebook. The average “time to on” of the Surface Pro 3 in five tests was 6.68 seconds. That was the time it took to tilt it up off the desk, set it back down, flip the keyboard down, flip out the kickstand, swipe the log-in screen (no passcode set), and actively be using the mouse and the notebook. Now, a 5.05 second difference may not seem like a lot, but when you compare the difference in “experience” to having a near instant on notebook to a somewhat clunky process to get the Surface up and running, the two seem like worlds apart.

The Surface as a Tablet

I’m not going to spend a ton of time on this part, since consensus seems to be that comparing the Surface to a tablet (iPad) is a losing battle. I actually think Windows 8 is becoming a better large screen tablet platform than Android, but that is because Microsoft is getting some decent larger screen dedicated tablet apps where Android is not. However, very few are buying an Android tablet as a PC replacement, and even fewer are buying Android tablets with screen sizes above 9″. One other positive improvement was Microsoft’s adding of a better portrait mode experience with Windows 8.1. Previously Windows 8, running on tablet form factors, was terrible in portrait mode. Some discount this mode but our observational research shows extremely high amounts of use in portrait mode for many tablet use cases. I’ve argued portrait mode is an important experience with any product attempting to be a tablet. Microsoft finally got portrait mode usable.

Another plus for the Surface was the stylus. Not a feature I see being attractive in pure consumer markets but in vertical enterprise environments like in medical, construction, legal, etc., where notes and pen/paper are still heavily used, I can see the appeal. The stylus was not perfect, but still worked better than any stylus solution I’ve used to date.

The Surface Pro 3 is a bit too large for me in pure slate mode. Most of the time I use my iPad I am laying down in bed, or reclining on the couch or a chair. Most often, I’m also holding the iPad up and not resting it on my body or chest. While the Surface Pro 3 is the thinnest and lightest Surface yet, it still caused discomfort while holding it for long periods of time. In all honesty, the Surface Pro 3 would be an outstanding tablet, if the iPad and iOS tablet ecosystem was not in existence.

Who is the Surface Pro 3 for?

This is the main question. I have no doubt there is a market for the Surface. As I point out, the Surface Pro 3, while competitive, will be bested experientially by the pure notebook clamshell form factor. However, as I pointed out earlier, in the Microsoft ecosystem, given the touch landscape for devices and Windows 8 in general, the Surface Pro 3 is a competitive product with other premium Windows notebooks.

While, I struggle to see the opportunity for the Surface in pure consumer markets, I do feel Microsoft has improved the hardware so that, for key vertical segments, the Surface Pro 3 is a viable solution that will suffice as a laptop but can add perks of tablet mode for those in specific fields where those features are useful.

In this week’s Tech.pinions Podcast we discussed the 2-in-1 PC at length. I still believe the demand or market pull for this product is limited. That being said, there are plenty of things Microsoft, Intel, and partners can do to extend this category. Given the trends in tablets we are seeing, where new quarterly data is showing up signaling usage declining in key areas by tablet users, I fear the tablet was not the potentially disruptive force Microsoft and Intel believed it to be. Which means it is reasonable the entire touch based desktop/notebook/2-1 solutions were built out of a reaction to a concern that didn’t really exist.

Each product has its role, its context, and its value. For some, a pure slate will be a form of entertainment. For some, a laptop/notebook replacement. Still, for others, it is a luxury. And in some enterprise markets it will be a necessity. Intel and Microsoft would love to believe the 2-in-1 form factor is the future of the notebook. This may be the case, and those two companies can certainly force their will on the ecosystem. Intel hopes that this form factor will make up over 70% of the notebook shipments in 2018. But my contention is if that happens, it won’t be because the market demands it.

Windows 9 “Threshold” Could Pose a Real Problem for Microsoft’s Partners

For the last 30 or so years, Microsoft has created new versions of their OS, usually in four or five year increments and each new major iteration has driven strong growth in PC sales. Their hardware partners count on this to help them deliver more PCs to customers since demand for PCs rise when a new version of Windows comes to market and a company or individual may finally upgrade or refresh their PCs.

The last major upgrade that drove PC growth was Windows 7. Microsoft and their partners had expected Windows 8 to move the refresh needle again when it came out. Unfortunately, Windows 8 was a disaster and clearly did not help any PC OEM grow their PC business. Even Windows 8.1 has not helped drive new PC sales even though its iteration is clearly better than Windows 8.0.

What is important to any upgrade cycle in the past is, as with all new versions of an OS, Microsoft charges both the OEMs a licensing fee as well as charges new users a fee for upgrading. The OEMs in most cases add a fee for the new OS and, for them, it is a source of revenue. But the big thing is a new full version of an OS historically has driven PC sales as well as helped deliver new profits to the OEM partners who sell these PCs.

But for the first time in Microsoft’s history, we are hearing Windows 9, code named Threshold, will actually be a free upgrade to OEMs and any Windows PC machines that can run it. While Windows 9 does emphasize touch, like Windows 8.0 and Windows 8.1, it is designed to be backward compatible with most existing PCs. From a big picture viewpoint, this is good news for consumers as well as software developers. Indeed, the reason Microsoft would be making this upgrade free is to try and populate as many PCs still in use with a new OS and UI and show developers the amount of PCs that could use this new OS will be huge. By expanding the market for this new OS, Microsoft believes it will finally entice software vendors to write new and innovative apps for the Metro UI and Windows 9.

But there is a downside to giving this new OS away for free. The ODMs and OEMs are concerned this move could actually keep people from upgrading their PCs. Indeed, their fear is a new, free OS would actually encourage people to keep their present PC longer and, unless it was very old, they would not see a reason to upgrade. I don’t think this is a misguided fear. People are already keeping PCs longer than in years past and while Windows 9 is a major upgrade, there is a real possibility it would not cause any real growth in PCs for the next two years at the very least.

To be clear, demands for PCs have been down for the last two years, thanks to tablets taking some of the workload for business and consumer users. But surprisingly so far in 2014, we have actually seen an uptick in PC demand and, while we were off about -10% in 2013, researchers say we may be only off -3 to -4% in 2014 and could see even better demand in 2015 — since people now know where tablets fit in their lives and more and more are turning back to desktops and laptops to meet computing needs that are starting to expand.

But a free version of a major new OS could actually harm any new growth potential and, in the end, might help Microsoft but keep demand for new PCs from growing. If this plays out as I suspect it might, I expect the demand for PCs to contract in the new year and perhaps be stalled of any possible new growth for at least the next two years.

Microsoft’s Surface Ads: The Good, The Bad, The Ugly

Microsoft has introduced three new ads for its Surface Pro 3 tablets called “Power,” “Head to Head,” and “Crowded.” You can view them HERE.

The Good

The ads are well done. Clever, funny, short and to the point.

I’ve seen some griping that the ads are entirely negative:

      “I don’t know why they would compare themselves to someone else, instead of saying just why people should be buying yours,” said Joe Balsarotti, president of St. Peters, Mo.-based Microsoft partner Software To Go. “By doing that, it’s admitting that Apple is the standard. Way back when I took marketing classes, that would have been a big no-no.” ~ via CRN

I disagree. Negative ads work. Further, I see these ads as differentiating and defining Microsoft’s products. That’s a good thing.

      (O)ne Apple partner told CRN the ad campaign is “smart.”

      “It positions the surface as a hybrid touch-laptop device, which I think is very smart,” said Michael Oh, CEO of Boston-based Apple partner Tech Superpowers. “The advertising is more of a positioning move. A brand awareness tool. It would be obvious to compare [the Surface Pro 3] to the iPad, but the MacBook air is smarter to go after, because the Surface is a bridge device to get people over to the Windows 8 side of things.” ~ via CRN

I like that Microsoft is defining its product and I think the ads do a good job of explaining the advantages of a 2-in-1 product. However, as we’ll see below, I don’t think 2-in-1s are where Microsoft wants to be.

Finally, these ads are SO much more tasteful than many of the older Microsoft ads.

The only problem with Microsoft is that they have no taste. ~ Steve Jobs


All the money in the world can’t buy you taste. ~ Horace Dediu (@asymco)

Many of Microsoft past ads were awkward, puerile and embarrassing. Compared to those, these ads are like a breath of fresh air. I attribute the change to Satya Nadella. He strikes me as a class act. It gives me hope that future Microsoft advertising will be a cut above their previous efforts.

The Bad

Criticizing another’s garden doesn’t keep the weeds out of your own.

Question: Why does Microsoft continue to rely upon Speeds and Feeds?

Answer: I don’t think they can help themselves.

People don`t ask for facts in making up their minds.They would rather have one good, soul-satisfying emotion than a dozen facts. ~ Leavitt

Question: Is pen input as attractive to customers as Microsoft thinks it is?

Answer: I doubt it.

      “This is my favorite thing. I can write with a pen.” ~ Narrator

That’s your favorite thing about the Surface? Seriously?

New Surface ads pushing pen input are how you know that, unfortunately, Gates is still running the tablet show at Microsoft. ~ Tom Reestman (@treestman)

The iPhone has been around for seven years. People have gotten very used to the fact that — when it comes to tablet computers (including smartphones) — the finger is mightier than the pen. Pen input is great for niche markets but Microsoft doesn’t want its products to be niche.

Question: Is “full Adobe Photoshop” as attractive to customers as Microsoft thinks it is?

Answer: I doubt it.

“Full” Adobe Photoshop is available on the MacBook Air. And the absence of “full” Adobe Photoshop didn’t stop the tablet from becoming the fastest adopted product in history. So what, exactly, is Microsoft’s point?

Question: Can the Surface really go head-to-head with the MacBook Air?

Answer: No. Microsoft paired the new advertising with a promotion that offers $650 in store credit to customers who buy a Surface Pro 3 and trade in their MacBook Air. This is a tacit admission the Surface is simply not price competitive.

It’s incredibly tough to imagine anyone would leave a MacBook Air for a Surface Pro 3. More specifically, that they’d leave the ability to run OS X on hardware of that caliber for Windows 8 on anything. Especially because the MacBook Air can run OS X and Windows 8. ~ Rene Ritchie

Question: Why is the Surface going head-to-head with the MacBook Air?

In The Art of War, one of Sun Tzu’s most profound principles was “to avoid what is strong and strike what is weak.”

As water seeks the easiest path to the sea, so armies should avoid obstacles and seek avenues of least resistance. ~ Sun Tzu

Why then is Microsoft going after the MacBook Air? There are so many easier targets. Why doesn’t Microsoft target Dell, HP, Lenovo, and other PC vendors instead? As Rene Ritchie put it:

People who buy PC laptops and hybrids are already Windows-only customers. All the things Microsoft is actually showing off in their ads — great specs, capacitive touch, pen input, etc. are probably something Windows-only customers would be really interested in. ~ Rene Ritchie

So why is Microsoft picking on the MacBook Air instead of other PC vendors?

Answer: Because it has too.

Other PC vendors are Microsoft’s so-called OEM partners. Microsoft doesn’t want to (literally) advertise the fact that they’re competing directly against their own partners — but they still are.

Question: Why isn’t Microsoft competing in the tablet category?

Answer: There is no good answer.

      “(I)t’s not just a tablet it’s really a laptop” ~ Narrator

“JUST” a tablet, eh? Clearly Microsoft either still doesn’t get tablets or they’re in denial.

According to the Pew Research Center, tablets are now the fastest adopted tech ever:


In 2015, more tablets will ship than PCs.


And tablets have pushed Apple into first place in computer sales:

Q2 2014 PC vendor share: Apple (including iPads) 26%, Lenovo 22%, HP 20%, Dell 15%, Acer 9%. ~ Ben Bajarin (@BenBajarin)

Yet Microsoft has virtually NOTHING to offer in this area.

Question: Why is Microsoft targeting PCs — a diminishing market segment?

Answer: I don’t know.

Each Microsoft ad ends with the tagline:

      “The tablet that can replace your laptop.”

Clearly, Microsoft is positioning the Surface as a laptop alternative rather than an iPad alternative.

If being more PC-like is what tablets need to increase sales, then PC sales wouldn’t be declining in the first place. ~ Tom Reestman (@treestman)

PCs are still very important but 1) they are not a growth sector and 2) Microsoft already owns the PC sector. Microsoft’s number one problem is their Windows and Office cash cows are trapped on PCs. They should be trying to move OUT of PCs, not doubling down on winning the PC marketplace.


Steve Jobs favored the quote: “Skate where the puck is going to be.” With the Surface, Microsoft seeks to do the very opposite — to metaphorically skate backwards to a place where the puck will never be again.

Further, as tablets take over the low end of the PC market, only those who really need the full power of the PC will continue to use PCs. This means most PC buyers will be power users who will want MORE powerful computers, not hybrids. ((As PCs become the choice of power users, there WILL be a place for the 2-in-1. Road warriors will love it. However, Microsoft needs to appeal to a much broader section of the market than that.)) That is one of the reasons why the Mac has increased sales by 18% while overall PC sales decreased by 2%. ((Mac is up 18% in a PC market that is shrinking at 2% (according to IDC). ~ Horace Dediu (@asymco) 7/22/14))

And we haven’t given up on the Mac. … Because we believe as people walk away from the PC, it becomes clear that the Mac is what you want if you want a PC. ~ Tim Cook

Question: Why does Microsoft think that 2-in-1s are the future?

Answer: Because they have to. It’s the only way they can justify the use of Windows 8 on a tablet.

There is no evidence — NONE — to support the proposition that 2-in-1s are a mass market product.

Microsoft has lost $1.7 billion on the Surface…so far…which reminds me of a joke:

I remember the time I was kidnapped and they sent a piece of my finger to my father. He said he wanted more proof. ~ Rodney Dangerfield

Apparently, Microsoft is like Rodney Dangerfield’s father. Losing $1.7 billion isn’t enough for them. They want more proof. So here it is.

Opportunity cost & damage to OEM relations far greater [than 1.7 billion]. ~ Ben Thompson (@monkbent)

Microsoft’s OEM partners have had so little success in selling 2-in-1s that many of them have abandoned the market altogether.

To know the road ahead, ask those coming back. ~ Chinese proverb

If you look at the Canalys chart comparing Notebook PCs, Worldwide, units by form-factor, Q1 2013 – Q2 2014, you’ll see 2-in-1s have both figuratively and literally flat-lined.

If you’re ridin’ ahead of the herd, take a look back every now and then to make sure it’s still there. ~Cowboy wisdom

Question: If 2-in-1s are so important, than why aren’t either Apple or Google making one?

The wise learn many things from their enemies. ~ Aristophanes

Answer: The most likely answer is Apple and Google know something Microsoft doesn’t. Which reminds me of another joke:

“Pat: Mike, I’m calling you from the freeway on my new cell phone.

Mike: Be careful, Pat. They just said on the radio that there’s a nut driving the wrong way on the freeway.

Pat: One nut? Hell, there are hundreds of them! ((Excerpt From: Thomas Cathcart. “Plato and a Platypus Walk Into a Bar.” iBooks.

By their actions, both the marketplace and Microsoft’s competitors are trying to show Microsoft the way. But Microsoft is stubbornly refusing to acknowledge the direction that the market has taken.

The Ugly

Question: What is the glaring omission in the Microsoft ads?

[pullquote]Nature abhors a vacuum; and a vacuum abhors cats; and cats abhor mice; and mice abhor tablets; and tablets abhor Windows 8[/pullquote]

Answer: Window 8.

It’s telling that “run Windows instead of OS X” wasn’t even suggested as a benefit in any of these three new ads. ~ Rene Ritchie

Telling indeed. A Surface 2-in-1 with a Windows 8 operating system is like a gold mine without any gold. The Surface and the mine may be in fabulous condition — but in the end, you’re only going to get the shaft.

A user interface is like a joke. If you have to explain it, it’s not that good. ~ Startup Vitamins (@startupvitamins)

In “The Windows 8 Mistake“, Jan Dawson succinctly explains where Microsoft went wrong:

      Instead of taking a consumer-led approach and unifying two fundamentally similar products, smartphones and tablets, with a single OS, Microsoft tried to bridge the gap between two fundamentally dissimilar products, the desktop and tablet. And all of this was in the service of establishing the PC operating system licensing model and not the smartphone OS licensing model on tablets.

      – – – – –

      A PC model applied to tablets would allow (Microsoft) to continue charging high licensing fees for Windows, make Office applications easily available on the devices, and make them compatible with existing Windows applications from third parties. But it’s important to note that (the Windows 8 operating system) was a decision driven entirely by what was perceived to be best for Microsoft, not by what would be best for the actual users of the products.

[Emphasis added.]

The real distinction is between those who adapt their purposes to reality and those who seek to mold reality in the light of their purposes. ~ Henry Kissinger


Question: Should Microsoft be doing hardware?

I answer in the affirmative with an emphatic “No.” ~ Sir Boyle Roche

Microsoft’s Surface ads are good. However, the best ads in the world won’t help a bad strategy. The worst thing about the Surface ads is they show that Nadella has not gotten his priorities in order — he’s still rushing headlong down the wrong path.

[pullquote]Microsoft has forgotten the purpose for which the Surface was made[/pullquote]

PREMISE #1: Windows 8 was designed to make Windows relevant on tablets as well as desktops.

PREMISE #2: The Surface 2-in-1 was designed to assist the transition of Windows 8 from notebooks to tablets.

FACT: The current ad campaign targets the Surface at notebooks, not tablets.

QUESTION: So what purpose does the Surface serve?


By losing your goal, you have lost your way. ~ Friedrich Nietzsche

Satya Nadella said Microsoft will show ‘courage in the face of reality’. Now is the time to display some of that courage.

Some of us think holding on makes us strong; but sometimes it is letting go. ~ Hermann Hesse

Ironically, Microsoft’s Surface ads fully demonstrate the futility of Microsoft’s Surface strategy. If the Surface ever had any purpose, the new ads make it abundantly clear that the Surface is no longer serving that purpose.

We are a software company at the end of the day. ~ Satya Nadella

It’s time for Microsoft to re-remember their purpose, to re-remember who they are, and to acknowledge that sometimes it’s more courageous to let go of what you’ve got than to hold on to what you’re not.

Microsoft’s Business Model Ménage à Trois

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.

  1. Iteration is incremental improvements in an existing product or service.
  1. 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

Broken nesting doll

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.

Russian Nesting (Matryoshka) Dolls

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

Matryoshka doll


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.

Microsoft Removed Chesterton’s Fence

On Saturday, I explained why The Smartphone Is Not Merging With the PC. Apple and Google are moving in almost opposite directions from one another. But Microsoft? Their personal computing design philosophy is taking them nowhere fast. And one of the reasons for this failure in design is Microsoft is guilty of removing Chesterton’s Fence.

Chesterton’s fence is the principle that you should never take a fence down until you know the reason why it was put up.

The paraphrased quotation, was ascribed to Gilbert Keith Chesterton by John F. Kennedy in a 1945 notebook. The correct quotation is from Chesterton’s 1929 book, The Thing, in the chapter entitled, “The Drift from Domesticity”

      In the matter of reforming things, as distinct from deforming them, there is one plain and simple principle; a principle which will probably be called a paradox. There exists in such a case a certain institution or law; let us say, for the sake of simplicity, a fence or gate erected across a road. The more modern type of reformer goes gaily up to it and says, “I don’t see the use of this; let us clear it away.” To which the more intelligent type of reformer will do well to answer: “If you don’t see the use of it, I certainly won’t let you clear it away. Go away and think. Then, when you can come back and tell me that you do see the use of it, I may allow you to destroy it. ~


For a decade, Microsoft tried, and failed, to master the tablet form factor. In April 2010, Apple introduced the iPad. In less than six months, Apple had sold more tablets than Microsoft had sold in the previous ten years. How could this be?


Apple built a Chesterton’s fence between the desktop and the tablet. The desktop used a mouse to enter pixel specific input. The tablet used a finger to enter touch input. Each form of input was separate, one from the other.

Remember, the iPad — especially in comparison to the Windows’ tablets that had preceded it — was wildly successful. However, Microsoft treated that success with utter disdain. They gaily came upon Apple’s method of using separate inputs for separate form factors and said: “I don’t see the use of this; let us clear it away.” They did not “go away and think”, they simply took the fence down without knowing the reason why it was put up in the first place.

Bill Gates’ Interview

The truth is actually a little more ominous than this. Listen to what Bill Gates had to say in this 2007 AllThingsD interview conducted by Walt Mossberg:

      MOSSBERG: What’s your device in five years that you’ll rely on the most.

GATES: I don’t think you’ll have one device…

I think you’ll have a full-screen device that you can carry around and you’ll do dramatically more reading off of that – yeah, I believe in the tablet form factor…

…and then you’ll have the device that fits in your pocket…

…and then we’ll have the evolution of the portable machine. And the evolution of the phone will both be extremely high volume, complementary–that is, if you own one, you’re more likely to own the other.

Sounds a lot like the iPad and the iPhone, right? And it doesn’t sound at all like the 2-in-1 Frankenstein’s monster Microsoft is trying to foist upon its unsuspecting customers.


The truth is, Microsoft didn’t take down Chesterton’s fence because they didn’t know any better. They took it down DESPITE knowing better. They took it down because they had to — because Apple’s separation of desktop and tablet inputs conflicted with Microsoft’s Windows business model. And having now removed the fence, Microsoft is seeing why it was put there in the first place. And so, in closing, the principle of Chesterton’s fence remains:

Never take a fence down until you know the reason why it was put up.