microsoft

The New Era of “Good Enough” Computing

A few weeks back I was one of the first to write about Windows Blue and in this column I discussed how Windows Blue could be used on tablets in the 7” to 10” range as well as in clamshell’s up to 11.6 inches.

We are now hearing that this particular version of Windows Blue will be priced aggressively to OEMs and could go to them for about $30 compared to the $75-$125 OEMs pay for Windows 8 on mainstream PCs.

But to use this low cost version of Windows Blue, we understand there are some important caveats that go with it. For this pricing, it can only be used on Intel’s Atom or AMD’s low-voltage processors. These chips were designed especially for use in tablets and as I pointed out in the article I mentioned above, this would give Microsoft a real opportunity to get Windows 8 tablets into the market that could go head-to-head with Apple’s iPad Mini and most mid level 7”-8” Android tablets as well.

Netbook 2.0?

As for clamshells, they too need to use these processors from Intel and AMD to get this pricing for Windows 8 (Blue). What’s interesting about these clamshells is that we understand that they will be fully touched based laptops with very aggressive pricing. In some ways, these clamshells with these lower end processors could be looked at as Netbook 2.0, but for all intent and purposes, these will be full Windows 8 touch laptops only with processors that are not as powerful as the ones using Intel’s core i3, i5 or i7 chips or similar ones from AMD. They will also be thin and light and could easily be categorized as Ultrabooks as well.

Windows 8 Blue is one way to get Windows 8 into more products and make it the defacto Windows OS standard across all types of devices, especially the 7” to 8” tablet segment that we predict will be as much as 65% of all tablets sold by 2014. We also hear that Windows Blue RT version will also take aim at 7”-8” tablets, which means that the ARM camp will have a play in this market as well. However, its use in an x86 clamshell could have a dramatic impact on the laptop market and have unintended consequences for OEMs and chip companies as well.

The ramifications could come from a major trend in which tablets are becoming the primary digital tool for most users. The smaller tablets are used more for consumption but the 10” versions can handle both consumption and productivity in many cases. This translates into the fact that tablets are now handling about 80% of the tasks people use to do on a laptop or PC. That means that traditional laptops or PCs now only handle only 20% of the needs of these users, which are mostly used now for media management, handling personal finances, writing long documents or long emails.

New Price Segments

When we ask consumers that have tablets about their future laptop or PC purchases we are told that for many, if the laptop is only used for 20% of their digital needs, then they will either keep what they have longer or if they do buy a new laptop or PC, it will be a relatively cheap one. Consumers, who are not interested in Macs, tell us that the top amount they want to spend on these products is $599. This suggests two key things for the PC industry that could be quite disruptive. The first is that there would be a bifurcation of the laptop and PC market into distinct sectors. One focused on the consumer where all PC products have to be under $599. The other is what we call the premium market for laptops and PCs which are willing to pay $999-$1499 for their computing tools because of more advanced computing needs. This premium segment is mostly tied to enterprise and the upper end of the SMB market. In fact, the price for PC products in this upper premium price range has proven to be quite resilient.

The second key thing means that the mid level priced laptops and PCs could end up in a no mans’ land. PC products in the $699-$899 could take a pretty big hit while demand for products $599 and under could skyrocket. We believe that this trend would usher in an era we call “Good Enough” computing; a term we became intimately acquainted with during the first Netbook phase. To some degree, the robust sales of Chromebooks already suggest this era has already started. But it would pick up if users could get full touch-based clamshells that look like Ultrabooks and are priced well under $599. We are actually hearing that when these come out in time for back to school they will be priced from $499-$549 and the target price would be to get them around $399 by early next year.

At Creative Strategies we are in the early stages of analyzing the potential impact of these Windows Blue low-cost clamshells but our early take is that they could be huge hits and have a serious impact on demand for laptops or PCs in the mid range, which has been a very important segment for the OEMs and CPU companies in the past. If this happens, the OEMs would need to bulk up on their premium products since these have solid margins and actually bring them significant profit. It also means they need to be creative and innovative in products under $599 and find ways to squeeze profit out of these types of laptops as well.

This does not mean that OEMs will stop offering value notebooks that are bulkier and in some cases use processors more powerful then Atom or low-volt chip from AMD. However, if their Netbook 2.0 like clamshells are thin, light and touch enabled, it could even cause demand for these low end bulkier laptops to dry up too. It will be very important to watch the development of this market over the next 6 months. If our assessment is correct, we could see a rather significant bifurcation of the PC market this fall, something that could have a real impact on all the players in the PC world.

What Microsoft Needs to Do With Windows Blue

By now you probably have been hearing about a major update to Windows 8 called Windows Blue.
Various tech sites have written about it after Win8China wrote about it and suggested it would have tighter integration with Microsoft’s search engine Bing. Some news sites suggest that this version is a major upgrade to Windows 8. There is no doubt Microsoft needs something to inject life back into the ecosystem for their hardware partners. The real question is whether Windows Blue is what the doctor ordered. We think there could be two specific ways Microsoft can address needs in the market.

Low Cost Tablets

Ben wrote a column here last week titled “the invasion of cheap tablets” and pointed out that we are about to see dozens of cheap tablets hitting mature markets this year, making it possible for people to own many for use in their home and businesses. He also pointed out that low cost or cheap tablets, mostly in the 7” to 8” range, should dominate the tablet market going forward and that Microsoft has no answer for this form factor. To date all of their “tablets” are in the 10.1-inch range and the version of Windows 8 on these tablets cannot be scaled downward for use on screens below 10.1 inches–at least in current specs.

If Microsoft were smart they would allow Windows Blue to help fill this gap. To do so Microsoft would need a new pricing strategy for screens in the 7″ and 8″ size range. It should be priced low enough so these new lower cost Microsoft tablets can be priced in the $199-$349.00 range. Most Windows 8 tablets today start at $499. If Microsoft does this, they could finally have a competitive product to Google, Samsung and Amazon. Mind you, however, they would still not be competing for the ultra low end of the 7” tablet market that is now in the $89.00 to $129.00 price range. News of late suggests they will offer a $20 discount to OEMs for devices below 11.6 making these price points possible.

Low Cost PCs

If that is true and they do offer this lower price point on devices under 11.6-inches then it could also be used in some type of hybrid or clamshell offering for the lower end of the tablet and notebook market. We are hearing from OEMs that there is interest in using Windows 8, and in this case it would be Blue, in an ultra-thin Netbook like device priced well under $399 to be in the market this holiday season. For that price I doubt it would have a touch-enabled screen in a clamshell style device but if it were a tablet with detachable keyboard it would have a touch screen as part of the design. A well designed clamshell with touch screen could possibly be in the $499-$549 range.

If what I am hearing is correct, this could be a very interesting holiday season. While really cheap tablets will drive much of the tablet growth, there is still big demand for robust tablets with multiple cameras, more memory, faster processors, all priced in the $249-$349 range. At the moment Apple, Samsung, Google own this market, especially with tablets in the 7.9 “ to 8.1” range.

With Windows Blue it would give Microsoft a fighting chance in this low-end tablet space as early as this holiday. If they do make it possible for OEMs to bring out an ultrathin clamshell using Windows Blue at consumer friendly prices, it could also be a solid product for the consumer market even if it is netbook-ish in nature. This is because of the Windows 8 app ecosystem that is starting to finally grow, which would make a clamshell like this much more acceptable to the low end consumer market. And of course, it would be able to runs the tens of thousands Windows applications already on the market.

What is interesting about some of the conclusions I have made with regards to the Windows ecosystem is that we are talking about success being needed in the low end. This is not a game every OEM is positioned to succeed in, but it is unfortunately the road it looks like Microsoft needs to go down.

I suspect we should be hearing more about Windows Blue in the next coming months. If Microsoft is smart with Blue, it could boost their partners volumes, help turn around their struggles in tablets, and inject some needed life back into their ecosystem.

The Late Microsoft Windows 8

In 2008, Microsoft’s Windows OS ran on 95% of all computing devices. By the end of 2012, Forrester estimated that Microsoft’s market share had declined to 30%.

In 2012 there were more Android devices sold than Windows devices. By the end of 2013, it is probable that there will be more iOS devices sold than Windows devices too. If so, by the end of this year, Windows will be only third in terms of OS sales.

Microsoft’s Profits

By the fiscal year ending June 2009, Microsoft had made $14.5 billion in profit. By 2012, that number had grown to $21.76 billion.

That sounds pretty good until it’s compared to Apple. Apple’s net income for the fiscal year ending September 2009 was 8.2 billion. By the end of fiscal 2012, its income had risen to $41 billion. Not only had Apple made up the difference between the two companies, in 2012 it lapped Microsoft, making almost exactly twice as much in profits as Microsoft had. The iPhone, alone, makes more profit than all of Microsoft and by the end of 2013 it is expected that the iPad, alone, will make more revenue than all of Microsoft too.

Microsoft’s PC-centric Problem

The purple portion of the graphic, above, represents income from Microsoft Office. The green portion represents income from Microsoft Windows. Microsoft’s problem is that both of those cash cows are located, almost exclusively, on desktop and notebook PCs and PCs are in decline both in actual and in relative terms.

In 2012, PC shipments fell 3.7%. And IDC just slashed its 2013 PC shipment forecast from growth of 2.8% to a decline of 1.3%.

Windows 8 was supposed to reverse the downward trend in PC sales but, if anything, it has made things worse.

The new operating system launched on Oct. 26, along with heavy advertising by Microsoft and its PC hardware partners, including Hewlett-Packard (HPQ) and Lenovo. But the response to Windows 8 has been “underwhelming” and worldwide PC shipments tumbled 8.3% in Q4, the most substantial decline recorded for a holiday quarter, IDC said.

The Plan

The plan was to create a single user interface for all Windows phones, tablets and PCs. By migrating Windows’ substantial user base in desktops and notebooks to Windows 8, it was hoped that users would become familiar with the unified user interface and then naturally migrate down from Windows desktops and notebooks to Windows tablets and phones.

The Reality

The reality has been quite different.

First, Windows phone sales have been a disaster. Despite the introduction of Windows 8 phone and the Nokia Lumia, Windows phones actually LOST market share in the recent holiday quarter.

Second, support for Windows RT is rapidly drying up. Acer delayed their RT offering, HP an Toshiba opted out altogether, Samsung refused to produce an RT product for the U.S. and now Samsung is withdrawing its RT product from the European markets.

Third, despite a massive advertising campaign, there is absolutely no indication that Windows 8 tablets are capturing the imagination of consumers. In fact, all of the evidence points to the exact opposite conclusion.

Source: The Yankee Group

The Yankee Group recently surveyed consumers, asking them which brand of tablet they intended to buy. The iPad dominated the discussion but if you examine the chart carefully, you’ll see that Microsoft and its hardware partners barely registered at all.

Source: Chitika

Further, in terms of Tablet Usage Share, Microsoft tablets are barely a blip on the radar. The Microsoft Surface, for example, shows up at Zero Point Four percent, behind even the discredited Blackberry Playbook.

Fourth, it appears that the growth in Windows 8 apps is rapidly declining.

When windows 8 was first released, there were 500 apps being added to the Windows 8 market each and every day. By December 27, that number had dropped to 415. By January 28, the number had dropped much further to 156.

Fifth, in a sign of how poor sales have been, Microsoft has started to discount Windows 8 licenses in order to spur the growth in Windows 8 touchscreen notebooks and tablets.

Conclusion

Microsoft is not in any danger. But their personal computing empire is.

Microsoft is making more and more of their money from their server and tools division, which is a good thing. But their income from Windows and Office is still huge and it seems that both are tied to the declining PC sector. And as Microsoft loses its monopoly position, its dominance over even the declining PC sector is waning too.

Microsoft will continue to make money on the sales of Windows 8 licenses but the goal of Windows 8 was to transfer Microsoft’s user base from desktops and notebooks to tablets and phones. That bid has, so far, failed.

Is it too early to say that Windows 8 has failed? Or is it already too late for the late Microsoft Windows 8?

Can We Call Windows RT a Flop Yet?

Windows RT was a bold move by Microsoft to make its mark in the world of ARM-powered tablets. But five months after launch, it is looking more and more like an expensive flop.

The German site Heise Online reports (h/t to The Verge) that Samsung has cancelled its plans to roll out the RT-powered ATIV Tab in Germany and elsewhere in Europe, do to weak demand. This is the latest blow in what has been a steady pullback of OEMs from the RT market. In addition to Microsoft’s on Surface RT, there appear to be just three RT tablets available in the U.S.: The Asus VivoTab RT, the Dell XPS 10, and the Lenovo Yoga 11. Hewlett-Packard has announced that it is skipping the RT market and other OEMs seem to have no interest in expanding their product lines.

Tablets running full Windows 8 seem to be doing considerably better, with Microsoft still having difficulty keeping the Suface Pro in stock. The big question is whether these tablets, and the relatively slow sales of traditional Windows 8 PC, give developers enough incentive to create apps specifically for the user interface formerly known as Metro, or whether developers will prefer to try more touch-friendly versions of apps using the traditional Windows UI.

Comparing The Profits of The Five Titans Of Tech

Introduction

Today’s five Titans of personal computing are Google, Microsoft, Apple, Samsung and Amazon. Horace Dediu of ASYMCO has created a side-by-side comparison of their respective revenues and profits.

Google

Google is a money making machine, but I think that many overestimate its profitability. As the graph clearly shows, Google doesn’t make nearly as much profit as does Microsoft, Apple or Samsung.

Further, we know that the vast majority of Google’s profits are still derived from its desktop advertising business. Android, for all its success in the marketplace, has not yet proven to be profitable to Google.

In a reversal of Microsoft’s business model over the past twenty years, all of the Android profits currently reside with the hardware makers rather than the software provider. Perhaps this is why Google is moving more and more towards making their own hardware. (Google currently owns Motorola and makes Nexus phones, Nexus tablets, Chromebooks and the newly minted Google Chromebook Pixel.)

Microsoft has been making ungodly profits for almost two decades. Microsoft’s problem isn’t profitability, it’s growth. Despite making money hand over fist, Microsoft has been unable to grow its base for much of the past ten years.

And Microsoft is facing serious challenges to even maintain the profits that it now has. In the above graph, the red portion of Microsoft’s profits come from Microsoft Office and the blue portion comes from Microsoft Windows. Both currently reside primarily on desktop and notebook machines. With those devices declining in sales and with phones and tablets rapidly growing in sales, Microsoft needs to make the transition to mobile and they need to make it fast or their two cash cows are going to be isolated and start to dry up.

Apple

As you can see from looking at the graph, Apple’s profits are not just good, they’re spectacular. They far outdistance the other four titans of tech. At yesterday’s shareholder meeting, Tim Cook reputedly said that Apple grew revenue by about $48 billion, more than Google, Microsoft, Dell, HP, RIM, and Nokia combined.

Apple’s problem is the perception that they are the next Microsoft – that they will continue to make great profits but that their growth will stagnate. The graph, above, does not seem to support that view, but past performance is not a guarantee of future profitability.

Samsung

Samsung is an amazing story in oh so many ways. By all rights, Samsung shouldn’t even be on this list of Tech Titans. For the past two decades, the PC manufacturers – the Dells, HPs, Lenovos, Samsungs, etc – were at the bottom of the tech totem pole. Always trapped in a race to the bottom, Microsoft and Intel took all the profits while the hardware manufacturers were relegated to fighting for the scraps.

No more. Samsung has turned that business model on its head. Android – like all licensed operating systems – was supposed to encourage a wide variety of hardware providers. But Samsung has swallowed the Android market share and the Android profit share whole.

Amazon

What can one saying about the amazing Amazon. Their revenues go up but their profits do not. And the less profit they make, the more successful they are perceived to be.

John Gruber once described Amazon as the crazy guy at the poker game. You simply don’t know how to play your cards against Amazon because they don’t play by any of the known rules. And you sure as shooting don’t want Amazon to come after you because they will sacrifice profits in order to win your market. And they are relentless.

Summary

So long as Apple is profitable and their ecosystem healthy, they’re not going anywhere. Microsoft is in it for the long run too. They have the money to sustain their efforts and they well know that they need to be in mobile or they will be locked out of the future of computing. Amazon appears determined to be part of the mix too.

The two titans that seem the most unstable to me are Google and Samsung. Google controls the Android operating system and the ecosystem but they make little profit from either. Samsung makes almost all the profit from Android, but they have little control over the operating system and they make little to no money from the sale of advertising, apps or content sales. That seems like an unsustainable relationship to me. Something has got to give and it’s clear that each side is weighing their options. Google is moving more and more towards making their own hardware and Samsung is flirting with a variety of different operating systems. The future is always uncertain but it seems clear that the relationship between Google and Samsung is certain to change.

Google or Microsoft? That is the Question

If you are a technology company—not named Apple—then the answer to this question is vital to your future. The fact of the matter is that all technology companies, other than Apple, do not solely control their own future. Samsung, HP, Acer, Dell, Lenovo, LG, HTC, Nokia, etc., must rely on either Google or Microsoft for their operating system for the smartphones, tablets, and or PCs they choose to make. So the answer to the question, Google or Microsoft, is as strategic as it gets. Making a wrong decision could mean the end of your company.

Google

Right now Google’s platforms are the hot ticket item. But they come with a price, or a lack of a price for that matter. Google would prefer that all hardware that runs their software be virtually free. That may seem counter to the logic of them releasing a ChromeBook for $1200 but that is simply a strategy to take advantage of a particular market and get early adopters to pay them for their own market research. It is actually quite brilliant.

The long game, however, for Google is one where their services are running on every device and getting there requires the hardware be practically free. This is the world I firmly believe Google wants to see happen. So if I am one of the aforementioned brands trying to make money in the hardware game, I should be mindful of betting my future on a company who would rather me not make any money on my hardware. Also, Google gets almost all of the ad revenue that comes through Android devices. In Samsung’s case, they get 10% but the rest goes to Google. Who really makes money in this case? If you say Google, you are correct; this is part of their end game. How do others make money?

Microsoft

Microsoft on the other hand genuinely wants their hardware partners to make money. This is why they offer a healthy premium on the license of their software. The assumption is that Microsoft software adds value and is therefore valuable. That value should translate into a reasonable price willing to be paid by the mass market in order to capture that value. This was how it worked for nearly two decades in the peak of the PC era so is there reason to believe it will not work again with devices in the post-PC era?

The challenge with Microsoft is that their ecosystem, mainly in apps, is well behind that of Google. To put all your eggs, or even most your eggs, in Microsoft’s basket brings with it the assumption that they will yet again get it right someday, after many tries. Maybe they will.

The Universal Downside

There is a downside to licensing someone else’s software as the main software interface your customers will be using. Actually there are several. First the hardware manufacturer does not actually own the end consumer. This creates platform loyalty but not hardware loyalty. In this scenario, the next time a consumer needs to by a new PC, smartphone, or tablet, they may stay loyal to Microsoft or Google, but said hardware manufacturer must now compete for that customer each time they go back to buy new hardware.

Building out the downside of platform loyalty for the hardware manufacturer comes with it the other challenge of licensing someone else’s software. Your competitors may also license that software which makes standing out or differentiating much more difficult. It is this differentiation, which must go beyond hardware, that can begin to create customer loyalty. But when all your competitors, not named Apple, are running the same software as you, it makes it difficult to stand out in a crowd. I call this the sea of sameness and its getting bigger and deeper every year. Standing out in the sea of sameness is the biggest downside of licensing someone else’s software.

This is why there must be and there will be consolidation in the hardware side of this industry. The current players can not keep going the route they are going forever. Companies may make a go at building their own OS, but they risk losing time and resources to the dominant players. The platform providers like Microsoft and Google, may also start making more of their own hardware, which will complicate matters even further and cause consolidation to happen even faster.

These are certainly tricky waters to navigate and for those who have done this before they are in uncharted territory. The companies that survive the turbulent waters of the sea of sameness will either sail through or sink with the flag of Google or Microsoft mounted high on their mast.

The Mobile Train Has Left The Windows 8 Platform Behind

Yesterday, Canaccord Genuity, came out with a report on the profits taken in by the mobile phone sector and Canalys came out with a report on the market share in the tabet, notebook and desktop sectors – and all anyone could talk about was whether Apple and Samsung could take in more than 100% of a sectors’ profits or whether the tablet was truly a PC or not.

Please. These are accounting and verbal semantics that are as meaningless as asking how many angels can stand on the head of a pin. Let’s focus on the implications of these reports and ignore the bickering over irrelevant rhetorical flourishes.

Handset Profits

According to Canaccord Genuity, Apple took in 69% of the handset (all mobile phones, not just smartphones) profits in 2012. Samsung took in 34%, HTC accounted for 1%, BlackBerry and LG broke even, Motorola and Sony Ericsson both acounted for minus 1 percent and Nokia brought up the rear with a negative 2 percent of the industry profits.

No one not named Apple or Samsung is making any meaningful profits from the handset sector. Considering that both Microsoft and Google’s Android are based on a licensing model, this is more than a little shocking. Licensing is supposed to encourage variety among hardware manufacturers. Clearly, that is not happening.

Many industry observers have the handset market all wrong. They opinie that Andoid is destroying iOS. What is actually happening is:

1) With 69% of the profits, iOS is doing just fine. More than fine, actually.
2) Android destroyed every phone manufacturer not named Apple (BlackBerry, Nokia, Palm, etc.).
3) Samsung destroyed every Android phone manufacturer not named Samsung (HTC, Motorola, Sony Erricson, etc.).

Pundits like to predict the imminent demise of iOS, but those profit numbers say just the opposite. And even as Android’s market share has increased, iOS’s profit share has increased too. Market share is no guarantor of profits. This should be self-evident. But apparently, it’s not.

The big losers here are Palm, Nokia, BlackBerry and Microsoft. Palm is gone and Nokia and Blackberry’s market shares and profits have fallen off a cliff. And Microsoft? After three years of flailing, Microsoft’s Windows 7 is dead and Windows 8 phone manufacturers are all in the red.

Tablet, Notebook and Desktop Market Share

Worldwide PC shipments increased 12% year-on-year in Q4 2012 to reach 134.0 million units, with pads accounting for over a third. ~ Canalys

There are two things that we can take from this statement. First, personal computing sales are growing at a respectable rate, however all of that growth is coming from tablets, not from notebooks and desktops.

Second, tablets now make up one-third of the mix of tablets, notebooks and desktops. In fact, several groups are now predicting that tablets will outsell notebooks and desktops by the end of 2013. This is a monumental shift in form factors and not everyone is making the changes necessary to stay abreast.

Companies like HP, Lenovo and Dell missed the shift to smartphones and now they’re missing out on tablets too. But of all the companies being hurt by the rise of smartphones and tablets, I think that Microsoft has been hurt the most:

…only 3% of pads shipped in Q4 2012 used a Microsoft operating system. The software giant’s entry into the PC hardware market was something of a non-event. High pricing, poor channel strategy and a lack of clarity regarding its RT operating system led to shipments of just over 720,000 units. ‘The outlook for Windows RT appears bleak. ~ Canalys

Who Is Selling All Of The Tablets?

According to Canalys, Apple – despite being supply constrained – sold 22.9 million tablets for 49% share, Samsung shipped 7.6 million tablets, Amazon shipped 4.6 million tablets for 18% share, and Google’s Nexus 7 and 10, combined, shipped 2.6 million tablets.

Again, companies like HP, Lenovo and Dell are almost non-existant in the 10 inch tablet space and Windows 8 tablets aren’t even competing in the rapidly growing 7 inch tablet space.

As an aside, Canalys seemed impressed with the Google Nexus numbers but I’m not. If you’re selling your hardware at cost and making it up in content and advertising sales, then your sales numbers should be much, much higher. And it has to be an embarrassment to Google that the Amazon tablets – which have the same business model as Google – are far outselling Google’s tablets.

Who Will Be Selling The Tablets Of Tomorrow?

‘Those who control ecosystems, such as Amazon and Google, can obtain revenue from content sales, but pure hardware OEMs must accept decreasing margins or exit.’

Samsung made impressive growth in tablets this year, but their tablet future seems uncertain. With Amazon, Google and Apple all able to supplement their tablet incomes with App and content sales, Samsung is left out in the cold.

It’s still early days for Windows 8 tablets, but it’s not looking good. I expected there to be an explosion of Windows 8 tablet sales last quarter due to pent up demand and holiday buying. The question in my mind was whether Microsoft would be able to sustain its large initial sales momentum.

That initial sales explosion didn’t happen. Windows 8 tablet sales were more than disappointing. An ill omen if ever there was one. And as I’ve stated before, regardless of how well the Surface Pro sells, it is a notebook, not a tablet, competitor. In a world where tablets are clearly the next big thing, Microsoft is still insisting that what people really want are hybrids, not pure tablets.

Conclusion

Smartphones and tablets are growing and notebooks and desktops are stagnant or declining. Only Samsung and Apple are competing in phones. Only Amazon, Google, Samsung and Apple are effectively competing in tablets. The mobile “train” has left the station and companies like HP, Lenovo, Dell and Microsoft are standing on the Windows 8 platform, watching it pull away.

A Quick Take On The Surface Pro

First, let me say that the Microsoft does not get enough credit for the hardware build on the Surface RT. Microsoft had little experience in bringing out a hardware product and they got the hardware right and they did it on the first try. An outstanding job.

Second, since the Surface Pro is not yet available for independent review, I shall assume, for the moment, that the Surface Pro works as intended.

Having said all of that, I still don’t see how the Surface Pro can be a success for Microsoft. It is clearly a notebook, not a tablet. This was true of the Surface RT and it is even truer of the Surface Pro. (Thicker, heavier, lower battery life, etc.) You can’t hope to hit the target, i.e., tablets, when you’re not even aiming at them.

Finally, I used to believe that the Surface Pro would sell a lot of machines but do nothing to advance Microsoft in the tablet wars. Now that the pricing has been revealed, I’m not even sure that Microsoft will sell a lot of machines. Microsoft lists the Surface Pro at $899 but this is disingenuous since it does not include the cost of a Type Cover keyboard ($130) or a Touch Cover Keyboard ($120). This brings the price up to $1,029, which means that you could buy a MacBook Air, instead, and SAVE $30.

Does this strategy make sense to anyone outside of Redmond?

EDIT: Over at TechCrunch, Matt Burns argues that the Surface Pro is priced just right. What’s your take?

Where’s The Windows 8 “Buzz”?

With all the news coming out of CES this week, I couldn’t help but be struck by the lack of “buzz” surrounding Microsoft’s Windows 8 tablets. Microsoft and its partners just introduced a slew of new hardware and software products, but the response at CES has been muted, at best. In fact, it seems to me that the start of 2013 has been very negative for the technology giant from Redmond.

— Apple’s falling stock prices have been getting all the attention, but while Apple’s stock ended the year up 30%, Microsoft only had a year long gain of 2%.

— Sales of Windows 8 tablets have been tepid, at best.

— According to NPD, overall Windows sales dropped 11% during the holidays.

— And next year isn’t looking any better with Sterne Agee analyst, Shaw Wu, projecting a 2% growth rate for the PC side of the industry.

— Windows 8 tablets have been criticized as being “confusing” both by analysts and some of Microsoft’s manufacturing partners.

— Windows Phone – which was already struggling — has an industry low 37% repurchase rate. (EDIT: This low number may be a reflection of discontinued Windows Phone 7 devices.)

— Microsoft even had to suffer the indignity of having thieves break into one of their offices and only steal Apple products — ‘No Microsoft products were reported stolen’

“Redmond, We Have A Problem”

Here’s Microsoft’s real problem: They shot their bolt with Windows 8 and they badly missed the mark. They looked at the wildly successful Apple iPad and decided that it was a flawed product. Instead of creating a tablet, Microsoft created a hybrid with the basic assumption that what the market really wanted was a tablet that could act as a notebook PC. It’s still early, but so far the marketplace is telling Microsoft that they got it wrong.

“Microsoft doesn’t have a credible response” to expensive tablets like the iPad, or cheap tablets like the Kindle Fire, Google Nexus, or iPad Mini, and that’s what’s hurting Windows consumer sales.” ~ Shaw Wu

While Microsoft Fiddles, Their Monopoly Burns

Nero was famed for fiddling while Rome burned. And like Nero, while Microsoft fiddles with hybrids, their business monopoly is burning. Businesses aren’t waiting around for Microsoft to get their mobile act together. They’re moving on and they’re moving away from Windows.

— Trip Chowdhry, a managing director at Global Equities Research, has put out a research note estimating that Apple sold between 3 million and 4 million iPhones to businesses over the past quarter.

— In a recent analyst survey, the percentage of CIOs who said they’d conduct “broad” tablet rollouts jumped to 15 percent for this year from just 4 percent last year.

— Companies have also found they can save money by letting staffers use their own personal smartphones and tablets at work. Combine that with the corporate trend of avoiding new PC purchases and it paints a very bleak picture for Microsoft’s personal computing efforts.

Conclusion

“Apple’s iPad…now has a starting price of $329 with the entry-level iPad mini. … Windows 8 hardware priced between $500 and $1,200 is ‘uncompetitive’ compared to lower-priced options from Apple and even Google’s Android. ~ Sterne Agee analyst, Shaw Wu

In the fall of 2012, Microsoft planted the seeds for their future in personal computing. If the early signs are any indication, they may not be pleased with what they reap.

4 Technology Trends, 5 Technology Predictions

Prediction is very difficult, especially about the future. ~ Niels Bohr, Danish physicist (1885 – 1962)

Trend #1: Two Seperate And Incompatible Types Of User Interfaces

Personal computing will be divided into two types of user interfaces:

1) Touch; and
2) Pixel-specific (surface-required)

Touch will require the use of only a finger for user input and will work best on the go. Pixel-specific will require the use of a mouse or trackpad which, in turn, will require the use of a flat surface. These two user inputs are inherently incompatible with one another – and that has consequences.

Prediction #1: There Is Little Room For A Category Between The Tablet And The Notebook

I do not think that there is room between the touch-only tablet and the mouse/trackpad-only notebook for the new category of computer that Microsoft is trying to create with Windows 8 tablets. Tablets are becoming more capable. Notebooks are becoming ever thinner and lighter. There is little room for the hybrid. Hybrids will survive as a niche – but they will not thrive as a category.

Many disagree with this opinion, including some who write for Tech.Pinions and everyone who works for Microsoft. That’s the beauty of free speech and free markets. Time – and sales numbers – will tell the tale.

Prediction #2: Tablets Are Going To Be Even Bigger Than We Thought

Tablets are the future and in a much bigger way than even I had imagined.

They are not just becoming an equal to the pixel-input, surface-only devices, they will soon be the default, go-to device of choice. We’ll use our tablets whenever we can, our phones whenever we’re traveling and our surface bound devices only when we absolutely have to.

Pixel input personal computing devices will become like land line phones. They will persevere but with an ever shrinking base and and ever decreasing significance to our lives.

Prediction #3: Apple Will Create A New iPad Mini In The Spring

This is really a sub-set of prediction number two, above.

I believe that tablets are going to be huge in education. Last year, many school districts tested the waters with tablets. This year, many are going to move from trial programs to initiating programs designed to eventually put a tablet in the hands of every single student. This is a profound computing shift which will have a profound effect on education. By 2014 and beyond, the flood gates will have opened and tablets in schools and colleges will be accepted as the new norm.

Apple knows that they currently have an in with the education market. Educational institutions make most of their buying decisions in the Spring. In my opinion, Apple is not going to let the Spring go by without refreshing the iPad Mini.

Trend #2: Two Phone Operating Systems

In the Ninties, there were only two personal computer operating systems that mattered – Windows and whatever Apple was running on the Mac. Windows dominated, but the Mac survived and, in terms of profits, thrived.

Simiarly, there are going to be two operating systems that matter to smartphones. But this will be a duopoly with a difference. Google is not a strong and domineering operating system shepard the way Microsoft was. iOS has 500 million users and is self-sustaining. This time, iOS will be the premium operating system while Android will be the majority operating system.

Prediction #4: iOS will become the premium model, Android will take the rest

iOS will appeal most to businesses, government and education. (The irony of predicting Apple as the preferred operating system for business is not lost on me.) Android will take the rest.

Both operating systems will unhappily co-exist with developers flocking to iOS and cost-concious buyers flocking to Android. The dollars will continue to flow to Apple and the market share will continute to flow to Android and both sides will continue to insist that the other side doomed.

In the meantime, RIM and Nokia will continue to fade and Microsoft’s Windows Phone 8 will stubbornly cling to third place. But a licensed operating system does not fare well as a minority player.

Trend #3: Freemium v. Premium

The chief divide between tablets will not be their size, but their business models. Amazon and Google follow the freemium model. Samsung and Apple follow the premium model. The Freemium’s give away their hardware at or near cost and seek to make money on the sale of content and services. Apple’s premium model seeks to sell their hardware at a profit and encourage those sales through the use of both content and services.

Prediction #5: Samsung Will Be Forced To Create Their Own Ecosystem

In a world where your operating system provider (Google) is undercutting you by selling hardware at cost and taking in all the content and service dollars, there is simply no other choice — Samsung needs to create their own content and services ecosystem. Samsung has been preparing for this moment for quite some time. And we’ll see the fruits of their labor in 2013.

Trend #4: Multiple Screens

I think the biggest trend that is receiving the least attention is that of multiple screens. In 2001, we had one computer screen and it sat on our desktop. In 2006, we had, at best, two computer screens – our desktop and our notebook. In 2013, we have 4 computer screens – our phones, tablets, notebooks/desktops and TVs. And the when and why we use those screens is going to help to shape the future of computing.

I’m going to cop out here and not make any predictions other than to predict that this trend is going to change everything. People are already using two screens – a television and a phone or tablet – to watch TV. And the way we rapidly switch from phone to tablet to notebook and back again is already baffling that way pundits think about categorizing and pigeonholing our computing buying and using habits. Multiple screens deserve not just a simple prediction on our part but ongoing examination and analysis. It is not an emerging trend but an existing trend. It is the consequences that we haven’t yet fully fathomed. Expect to see us talk a lot more about the effects of multiple screen computing in 2013 and beyond.

A Deep Dive Into The Morgan Stanley Holiday Quarter Survey

On December 16, 2012, Morgan Stanley issued the results of a consumer survey.

We surveyed 1,010 US adults between November 26 and December 3 2012. The sample is representative of US individuals (18+) by gender, age, income and geographic regions. Conclusions based on total sample have a maximum margin of error of +/- 2.5% at 90% confidence level.

(NOTE: All quotations are sourced from the Morgan Stanley report.)

1) TABLETS

The first and most obvious result of the survey was that tablets, as a whole, were going to be clear winners of the 2012 holiday quarter.

One-third of respondents own tablets today, compared to only 8% a year ago.

While this can come as no a surprise to anyone following the tech industry, it is important to note that, in terms of gift giving for this holiday quarter, the growth of the tablet has come at the expense of notebooks, desktops and especially e-readers.

2) E-READERS

Among consumer electronic gifts, tablets are the most popular, followed by smartphones, while e-readers experienced the largest decline.

— Tablets (50% in 2012 vs. 31% in 2011)
— Smartphones (26% in 2012 vs. 17%)
— E-readers (9% in 2012 vs. 31%)”

Tablets are the number one gift idea in consumer electronics this year, while it was a tie between tablets and e-readers last year.

iSuppli seems to concur with this sentiment, indicating that general purpose tablets are harming e-reader sales.

It appears that they e-readers may well be relegated to niche status as general purpose tablets – which also serve as e-readers – become lighter, smaller and lower-priced.

3) AMAZON KINDLE FIRE

While the Kindle Fire is not strictly an e-reader, it too seems to be suffering this holiday season.

Kindle Fire appeal seems to be waning as 16% of potential tablet buyers would pick the device vs. 21% in last year’s survey

Lower end tablets may be suffering from the effects of increased competition. While the Amazon Kindle Fire was the a hot holiday gift in the fourth quarter of 2011, it now has to compete with the Nexus 7, Windows 8 tablets and the iPad Mini. As a result, Kindle retention numbers dropped from an already low 40% to and even lower 36%.

If these numbers bear out, this has to be terribly dissapointing for Amazon. Last year, there was a burst of enthusiasm for the Kindle Fire line during the holiday quarter but that enthusiasm seemed to all but evaporate as soon as the quarter ended. This year, Amazon introduced several new lines of tablets and vastly improved the quality of their hardware offerings. Surely they anticipated increased, rather than decreased, enthusiasm for their products.

It is too early to tell for sure, but it is possible that we’re seeing a trend away from single purpose tablets and a trend towards higher quality, general purpose tablets instead.

4) SAMSUNG

Samsung phones made an impressive leap in rate of retention from 37% to 63%. (Note, however, that this still does not match the iPhone’s stellar 83% rate of retention.)

While Apple’s retention rate is by far the highest, iPhone users who plan to buy a Samsung device increased slightly from 3% to 8%, though this share came entirely from other Android vendors who saw less interest from current Apple users compared to a year ago. This reflects Samsung’s dominating position in the Android ecosystem and success in marketing itself as an iPhone alternative.

You simply have to be amazed at what Samsung has accomplished and in such a short time. But ironically, Samsung’s growth is not only coming at the expense of competitor’s like RIM and Nokia, but it is also coming at the expense of other Android manufacturer’s as well.

One of the strengths of a licensed operating system like Android is supposed to be diversity of hardware manufacturers. That simply hasn’t happened. While Microsoft distributed its software licences to thousands of hardware manufacturers, Samsung has become the one and only hardware manufacturer that matters to Android. We’ll have to save the discussion of the consequences of this unexpected development for another day.

5) MICROSOFT

The survey contains two interesting points regarding Microsoft’s recent tablet efforts.

First, Microsoft Surface is preferred by 12% of those planning to buy a tablet.

Second, while 81% of iPad users plan to stay with Apple, 8% plan to purchase Microsoft’s surface.

Additionally, a different survey indicates that Windows 8 is a very distant third, to iOS and Android, when it comes to developer’s platform preferences.

I think these results have to be terribly dissapointing to Microsoft. Some pundits were expecting a flood of defections from the iPad once Microsoft debuted its tablet offerings. That clearly is not happening.

Further, I had anticipated an initial burst of enthusiasm for Windows 8 tablets. The real question, in my mind, was whether Microsoft would maintain that initial enthusiasm. Instead, sales of Windows 8 tablets has been tepid, at best. Having 12% of consumers intending to buy your products is far better than having 0% able to buy your products, but I believe that it is far, far less than Microsoft was hoping for or expecting.

6) APPLE

It seems as though the bad press for Apple has been endless of late, but that negative view is not supported by the Morgan Stanley survey. They point to at least four reasons why Apple can be optimistic about sales this holiday quarter.

First, more survey respondents want to buy the iPhone 5 today than the iPhone 4S a year ago.

34% of consumers plan to buy an iPhone in the next 6 months, compared to 30% in last year’s survey

If I recollect, the iPhone 4S was pretty popular last year. And one would assume that even more enthusiasm for the iPhone 5 should lead to even more sales this holiday quarter.

Second, analysts keep opining that Apple needs to sell a cheaper phone but customers keep disagreeing.

More respondents plan to buy the newest iPhone model today than a year ago (86% vs, 82%), likely due to key hardware improvements in the iPhone 5: LTE, brighter screen, and lighter and thinner phone.

Third, the iPad Mini does not appear to be cannibalizing the larger iPad but it does appear to be bringing new customers into the Apple ecosystem.

We believe iPad Mini’s cannibalization risk to iPad 9.7” is manageable. 47% of iPad mini purchasers are new to Apple, according to our survey. This is only slightly lower than 56% for the larger iPad 9.7”, suggesting the smaller iPad is attracting new users to the platform in addition to some incremental or replacement purchases from the existing 9.7” iPads.

Fourth, Apple actually INCREASED its already industry leading retention rate.

Apple’s iPhone retention rate improved 10 points over the last year, and 83% of iPhone users today plan to buy another iPhone.

I find it hard to believe that Apple’s sales are going to suffer this quarter when both purchasing enthusiasm and retention rates are going up.

7) CONCLUSION

There is definitely going to be a shake-out in the mobile sector. There are just too many entrants with too little differentiation.

In phones, not only are Samsung and Apple rapidly increasing their sales numbers but their RETENTION numbers are also rapidly rising. This bodes ill for the likes of RIM and Windows 8 contenders like Nokia and HTC.

In tablets, Apple seems to be maintaining its grip on half the market while Amazon, Google, Microsoft and Samsung battle it out for the other half. Again, in the long run, retention numbers may be what matters most but it is too soon to measure retention for newly minted products like the Google Nexus 7 and the Microsoft Surface.

We’ll know far more in January when (some of) the numbers come out. But until then, the Morgan Stanley survey may give us a peek at what we should expect.

Microsoft, IBM, and AT&T: History Comes Around

In his post “Why the Wheels Are Falling Off at Microsoft,” John Kirk paints a bleak picture of the company’s future. It got me thinking about a relevant bit of history about how rich companies handle existential challenges. Around 1990, IBM and AT&T found themselves in similar, difficult positions. The iconic companies had been among the dominant forces of the 20th century, but their world was changing in very unpleasant ways. Each had been through a long and wrenching antitrust battle with the government; AT&T’s loss cost it the local phone business in a breakup, IBM’s victory cost it more than a decade of heavy distraction. Each was seeing its core business eroded by technological change: Satellites and new networking technologies were lowering the barriers to entry into AT&T’s lucrative long distance business, while minicomputers and PCs were eating away at IBM’s mainframe dominance. But each company also had a tremendous advantage–the enormous cash flow from its legacy businesses could buy the time needed for reinvention. It’s what happened next that is important for the future of Microsoft.

IBM turned to new leadership, hiring Louis Gerstner, who had earned his stripes at RJR Nabisco and American Express. He put IBM through a meat grinder that included the dumping of whole divisions and massive layoffs of employees, many of whom had been with the company for years. But the IBM that emerged was fierce and focused, ready to take advantage of a booming technology market. Today IBM is again one of the country’s most successful companies.

AT&T , by contrast, used its money for what turned out to be a calamitous series of acquisitions. The post-breakup AT&T desperately wanted to get into the computer business and in 1991, it bought NCR Corp. for $33 billion. The company launched an unsuccessful series of minicomputers and lost billions getting into, then out of, the PC business. NCR was spun out in 1997. In 1994, AT&T bought the two-thirds of McCaw Wireless it didn’t already own for $11.5 billion. This acquisition, too, withered under new ownership and AT&T ended up spinning the wireless business out as an independent company that eventually became Cingular.

In the most humiliating deal of all, AT&T in 1998 bought Tele-Communications Inc., the country’s second-largest cable operator, for $48 billion. After spending many billions to upgrade the network, AT&T sold its cable operations to Comcast for $45 billion. These failed attempts to get into new businesses left AT&T an empty husk with a proud history, a valuable brand, and an aging backbone network. In 2005, SBC, a company born of the merger of AT&T Bell System subsidiaries, bought what was left of its former corporate parent and assumed its name. The AT&T name and its T stock symbol lived on, but the company founded by Alexander Graham Bell was gone.

Like AT&T and IBM, Microsoft was battered by a long antitrust battle with the government. Like them, it is having serious problems coming up with an adequate response to technological and competitive change eating away at its core businesses. And like them, it still has a lot of money coming in that will make a transition possible.

The question is, which model will Microsoft follow, AT&T or IBM? Will it emerge as a chastened, perhaps smaller, but very competitive company? Or will it just slowly fade away? The money gives it time to fix things, but it has to make key decisions about what sort of future it wants soon, and whether the leadership the company now has can get it there.

Why The Wheels Are Falling Off Microsoft

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

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

1. iPods, iPhones, iPads

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

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

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

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

2. Android And iPhone Adoption

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

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

(Chart via AllThingsD)

3. Microsoft’s Minuscule Phone Market Share

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

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

4. Operating Systems

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

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

5. Smartphones + Tablets > Notebooks + Desktops

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

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

6. Microsoft Isn’t Even Trying

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

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

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

7. Conclusion

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

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

Microsoft’s Strongest Asset is XBOX Not Office

I’m sure if you surveyed many in the industry and asked them what Microsoft’s greatest asset to leverage going forward would be you would get a range of answers. I’m sure people would offer up Windows or Office as the most frequent responses to that question. From the looks of much of Microsoft’s marketing it seems as well that they feel their strength lies in Windows and Office. However, they are sitting on another asset that I believe may be the fundamental cornerstone of their success going forward. And that is the XBOX.

If you think about what drove the bulk of Microsoft’s success during the PCs golden age, most would agree it was Windows and Office. For the bulk of the PCs lifecycle it was productivity use cases that drove Microsoft assets into the corporate world and thus by default into the homes of many consumers. That world has changed and I don’t believe the same kind of strong sentiment exists with Windows or Office as it once did with the broader consumer market.

However the product that I do believe not only has more relevant mindshare with consumers than Windows and Office, but also has a largely positive sentiment is the XBOX. To date the XBOX has sold over 70 million units. Now, although that sounds much smaller than the 350-380 million traditional PCs we sell annually on a world wide basis, XBOXs cover more ground than PCs. PCs generally, have a higher penetration due to their tie to individual consumers. In an average consumer home there is generally more than one PC. But XBOXs are more communal and therefore generally only have one per household but chances are more than one person benefits from the XBOX regularly. But this device plays a very important role from an entertainment standpoint and one that I feel has driven higher consumer sentiment than many of the other Microsoft assets.

When it comes to all of Microsoft’s assets, I would argue that the XBOX is the one that is most commonly being woven into the core of many consumers media and entertainment experiences. XBOX is the new Office and I am not sure that Microsoft understands this at the level they need to.

Had Microsoft launched a XBOX tablet first and not a Surface tablet, my conviction is that they would have had much more success. Surface sales are not going well and our close supply chain sources indicate that its likely to not even sell 1M by the end of the year. Had their first go out the door been much more focused on leveraging XBOX assets and positioned more for gaming and entertainment, then I believe Microsoft would have had much more success.

Jim Dalrymple wrote an article today, that is worth reading, where he points out that Microsoft with Surface created a product that didn’t solve a problem. I agree at one leveld, but I’m sure many can make the case that Microsoft did solve a problem. My point is Microsoft solved the wrong problem with Surface. The problem Microsoft is looking to solve, one where productivity is the emphasis in both design and philosophy of a tablet, is not the one I believe most consumers are leading with when researching which product to buy. Thus with Surface, Microsoft has developed a product for the few rather than a product for the masses.

I fundamentally believe that pure tablet use cases carry more weight with the mass consumer market than notebook use cases. Things like an easy to hold and use form factor, a quality visual experience, heavy emphasis on best of breed media consumption and entertainment, simplicity and ease of use. These are the things the mass market values at the highest level. In my opinion if Microsoft was focusing on these use cases with Surface, they would have made a different product and I believe tied it more to their strongest asset for the mass consumer market–the XBOX.

Verizon, Nokia and the Quest for Differentiation

My first portable cellphone was the size of a brick and weighed almost 2 pounds. And it was dumb. All it did was make calls. By the mid 1990’s Verizon started creating what we now call a feature phone and created its own mini OS, which allowed Verizon to create dedicated apps of their own as well as give third party software developers the tools to also create apps for these phones. This was important since it gave Verizon a controlled eco-system of hardware and software that allowed it to significantly differentiate their cell phones over the competitors.

Of course, the apps they had back then were primitive compared to today’s smart phone applications but they did offer their customer’s games, better contact information and simple calendars, etc. But this was a pioneering move in cell phones and helped Verizon grow this business exponentially. However, in this mode, Verizon had complete control of their eco-system destiny and that made it difficult for third party software vendors to break into Verizon’s apps world in any meaningful way.

The new era of smartphones wrestled control of Verizon’s closed ecosystem away from them and other competitors doing similar things since these phones had an open OS and more importantly, an open approach to creating and selling apps directly to the customer. Some think that Apple’s ecosystem is closed but it really is a pretty open program in that third party software developers can and do create a plethora of iOS apps and Apple freely pays them directly for these apps when consumers buy them. Yes, Apple does veto some apps mostly for inappropriate content, but theirs is a very open approach compared to what Verizon had back in the heyday of feature phones.

One of the big problems with an open approach, whether it is with the Android OS or the Windows OS, is that both of these operating systems go to the vendors with identical user interfaces, thus creating what we like to call a sea of sameness. That means that an Android phone or a Windows Mobile OS phone all look the same since they use the same user interface. At the hardware level the handset vendor can try to innovate, but in most cases the OS GUI is untouched. This is especially true with Windows Mobile phones, although companies like HTC, Amazon and a few others have added their own UI layer on top of Android’s GUI to try and distinguish themselves from the competition.

Not to be undone by this turn of events, Verizon is working hard with some of their handset partners to make their phones more unique and add more value to the users. A good example is the way they have worked with Nokia on the new Lumia 822. Verizon went to Nokia and asked them specifically to do a special version of the Lumia that could be sold for $149 and had features only available on this phone.

Nokia worked hard with Verizon to accommodate this request and has added three key features that help this low cost smartphone stand out. The first is something called Nokia Drive. This is a turn-by-turn voice navigation service that uses their stellar Navteq maps to deliver a rich navigation solution to Lumia 822 owners. It will work in 89 countries and while in beta now, it will be released officially soon. This service also has something called My Commute that, over time, learns the directions to your office or workplace or any other heavily trafficked route and automatically gives directions to these places with its voice navigation feature as needed.

The second special thing Nokia brings to Verizon with this phone that is not available to others is something they call City Lens. This is an augmented reality application that works with the mapping program that overlays specific information about a place, restaurant or landmark to give users a richer mapping experience. Verizon sources say that this is first step in their augmented reality software and will make it even better over time to give users all types of data or information about locations they are visiting.

And the third thing that is specifically for the Lumia 822 is a new Nokia streaming music service called Nokia Music. It is subscription free and has 16 million tracks or 10 times more tracks then Pandora. Also no account is needed and works right out of the box. You can listen up to 12 hours of music free. You can also just tap and scroll in something called the gig finder, which seeks out the gigs or details of a your favorite band’s concerts schedule and locations.

I have been testing the Nokia Lumia 822 for a while now and am pretty impressed how much is packed into a $149.00 smart phone. The core of the OS is Windows Phone 8 with all of its new features such as live tiles and the special protected area for family’s and kids. But these new special features from Nokia add a richer dimension that gives customers a great experience that comes close to equaling what is available on more expensive smartphones.

What Verizon is doing with Nokia is significant. In a world of smartphones where the OS and UI are identical, doing things that help differentiate the phones and services over the networks will be an important key for success.

Banking On The iPad

Barclays Bank has ordered 8,500 iPads in what is believed to be one of the largest corporate deployments of the device in the UK. ~ via TUAW

This kind of thing has got to be terrifying to Microsoft. Microsoft is losing the battle for tablet’s in the Enterprise and they know it.

And if that wasn’t bad enough, the following has to make their blood run cold:

Barclays told The Channel that they went with the iPad because of staff demand.

However, Microsoft is in it for the long run and Windows 8 tablets have barely even come to bat yet. But if this was a baseball game, It would be like Microsoft coming to bat for the very first time in the bottom of the eighth inning already down 8-0.

It’s Going To Be A Very Apple-y Holiday Quarter

Tightwads, Value Buyers and Spendthrifts

Oscar Wilde once said that cynics know the price of everything and the value of nothing. Similarly, tech pundits are often obsessed with price to the detriment of value. Despite all evidence to the contrary, pundits think that price is the number one consideration of consumers. In fact, some pundits seem to think that price is the ONLY consideration of consumers. But for most consumers, value is what matters most and price is only one component of that value.

There are three types of consumers: Tightwads, Value Buyers and Spendthrifts. There are two things you should know about these three types of consumers.

First, there are far more value buyers than there are of any other type.

Second, you not only want to ignore the tightwad customers, you want to actively avoid them. They’re a plague on your house.

Pundits seem to think that all consumers are tightwads and all of their analysis reflects that conviction. Smart companies know better.

Reality matters

Remember, reality matters. It doesn’t matter what the pundits think. It doesn’t matter what I think. It doesn’t matter what you think. What matters is what the market thinks. If our thoughts don’t reflect market realities, then we, not the market, are in the wrong.

Naysayers v. Reality

For the past month I’ve read and listened to every imaginable reason why Apple is going to fail. Well, Apple may fail eventually, but not this holiday quarter they won’t. Not by a long shot.

Here are a couple of miscellaneous reasons why I think Apple is just going to crush it this upcoming quarter

1) Mac Sales Continue to Grow

Sales of Mac hardware to U.S. businesses grew by 49.4 percent year over year in the September quarter, posting continued growth while PC sales shrank.

Charlie Wolf of Needham & Company highlighted Apple’s success in the enterprise as the “big story” regarding Mac sales in the September quarter. With PC sales to U.S. businesses declining 13.3 percent year over year, Apple had a 62.7 percentage point difference.

Yeah, yeah, yeah, I know. No one thinks that Macs are important because they’re still such a minority player. But they’re not so niche as you think.

Overall, the Mac’s unit share of the U.S. business market was 9.3 percent in the September quarter. That was up from 5.9 percent of total sales in June, and 5.4 percent in September of 2011.

Apple had an even bigger share of revenue of PC sales to U.S. businesses, accounting for 17.4 percent. That was also up from an 11.5 percent share in June, and 10.7 percent share a year prior. ~ AppleInsider

Overall Mac sales may even shrink this quarter, but their overall importance in the Enterprise will grow. Remember, phones are already outselling Windows machines and tablets are rapidly headed that way too. (EDIT: NPD: Tablets to Outsell Laptops in Q4, Beyond.) Windows is not nearly as monolithic as people think. And Macs are not so nearly as unimportant or niche as people think either.

2) China

Apple’s iPad shipments for China nearly doubled in the third quarter after Apple settled a lengthy dispute over the iPad trademark name.

People forget that over 60% of Apple’s sales come from overseas and that Apple’s overseas sales numbers are rapidly growing. Yes, it will be a big holiday quarter for Apple in the Western world. But it will be a big quarter for Apple in the rest of the world too.

3) Nielson’s Most Wanted Gift Survey

Have you seen the Nielson most-wanted gifts survey? I mean seriously, it is out of sight. What do American kids aged 6 to 12 want this holiday season? Four out of the top five items on the list are made by Apple.

Let’s take a quick look at the top six items on the list:

48% want iPads
39% want Nintendo Wii U’s
36% want iPod Touches
36% want iPad Minis
33% want iPhones
31% want computers

Now there’s a couple of observations that I take from that list.

First, Apple continues to maintain high consumer mindshare. People think Apple first.

Second, Apple’s popularity is growing. Despite a plethora of competing tablet, smartphone and gaming devices, kid’s attraction to the Apple brand in general and iOS in particular has grown steadily over the past three years.

Third, the iPad Mini is fourth on the list. Yet I strongly suspect that an awful lot of parents are going to walk into an Apple store looking for iPads and iPod Touches and they’re going to end up walking out of that store with an iPad Mini.

Fourth, as an aside, that list ain’t good for Microsoft. Microsoft has lost an entire generation of users – kids who will be growing up using Apple products, not Microsoft products.

It’s Going To Be A Long Harsh Winter For Some Of Apple’s Competitors

Why PC manufacturers Should Fear Apple

The tipping point for tablets has come and gone.

It seems like just yesterday that I was writing articles arguing that tablets were the next big thing. It seems like just yesterday because it WAS just yesterday.

But suddenly, it feels like that battle is over and and done with. If you look through the Nielson survey for whatever age, you see that tablets dominate. Not only are Apple tablets popular, non-Apple devices are on the rise too. Yesterday I was arguing with people who insisted that the tablet was a toy or a fad. As is usual with new ideas, we’ve suddenly moved from the “that will never happen” phase to the “of course that happened and I knew it would all along” phase. True, not everyone is convinced but for the most part the naysayers have learned to remain silent lest they be thought of as quaint, at best, or out-of-touch with reality, at worst.

The age of the tablets is upon us – (just as we all knew it would be, all along.)

Why Microsoft Should Fear Apple

Yesterday, Ben Bajarin wrote an excellent article entitled: “Why Competitors Should Fear the iPad Mini“. A couple of his key takeaways were that families expected to own more than one iPad Mini, that with an iPad Mini consumers feel they pay more but they get more and that “the tablet is taking the place in the hearts of many consumers as the new personal computer.” He couldn’t be more right.

The final word on Microsoft’s tablet efforts has not yet been written, but the preliminary reports do not look good. Not only has Microsoft missed a generation of phone users but now they are missing a generation of tablet users too.

PC sales continue to decline and there are reports that a staggering 42% of Windows users say that they plan to buy an Apple product – either a Mac or an iPad – rather than a Window’s 8 device. I take such claims with a huge grain of salt, but as I said in my article: “Windows 8′s Greatest Sin“, consumer’s now have choices that they didn’t have before. Microsoft is making their long-standing customers choose between Windows 8 and other options. And many are choosing to opt out.

Why Google and Amazon Should Fear Apple

Apple may dominate tablet sales, but there are going to be a ton of Google Nexus 7’s, Amazon Kindle Fire’s and even Barnes & Noble Nook tablets sold this holiday quarter. But the people buying those tablets are buying media tablets that run stretched phone apps. The people who are buying the iPad and the iPad Mini are buying a tablet that runs tablet apps and that can also act as a Media tablet. That’s my opinion. But I think that’s also the opinion of the market and I think we’re going to see that opinion expressed in hard sales numbers come this January.

Remember, there are three types of consumers: tightwads, value buyers and spendthrifts. Tightwads are going to be drawn to the Amazon Kindle and the Nexus 7 because of their subsidized prices. The Nook, at least, is trying to make money on the sale of its hardware. Kindle Fire’s and Nexus 7’s sales are empty sales. Neither Amazon nor Google makes a penny of profit until they sell additional goods, services or advertising. And their chances of doing that when selling to tightwads is not good. Not good at all.

You Can Hang Your Hat On It

I actually think Apple’s margins may be lower this quarter. They’ve introduced, re-newed or refreshed almost their entire line and some of their products – the iPad Mini in particular – will make them less than normal margins. But Apple’s margins are absurdly high to begin with. And since many of Apple’s products are supply constrained, the high margins truly reflect the high value that consumer’s place in Apple’s products.

The last time I paid attention to such things, Apple – a hardware seller – had higher margins than Microsoft – a software seller. That just shouldn’t happen. And in any case, I can guarantee you that Apple’s less than usual hardware margins are going to be far, far, greater than the virtually non-existant hardware margins of either Google or Amazon.

The future is uncertain and predictions are always perilous. But if Apple doesn’t have a banner quarter, I’ll eat my hat. Then I’ll go out, buy another hat, and eat that one too.

It’s going to be a very Apple-y holiday quarter. You can hang your hat on it.

Microsoft’s Retail Gamble

Over the weekend, I went to Microsoft’s large store that is in the Westfield Shopping Center in San Jose. Like a few similar Microsoft stores, it is across from an Apple store and I suspect that Microsoft is hoping to lure some potential Apple product buyers away from Apple with this strategy.

Luckily, there are seats right outside Microsoft’s store, so as I waited for my wife, who was off shopping, I planted myself in these cushy chairs the mall has and just watched people come and go through Microsoft’s doors. The first time I did this was mid week, three days after the store opened to much fanfare. I watched the store for 45 minutes that day and in that time frame, Apple hosted about 130 customers while the Microsoft store had only about 12 visitors. Even more troubling at the time, the 12 that did go in, came out empty handed, while well over 20 people left Apple’s stores with iPads, Macbooks, and even two iMacs were sold.

This was before the launch of Windows 8 and Microsoft’s Surface tablet. So this time I assumed that the Microsoft store would have a lot more customers, and they did. I counted about 40 in the store this time. However, during the 45 minutes I sat out front of the store, I saw nobody leaving the store with any Microsoft product at all. But across the way at Apple’s store they had about 120 people inside and a line of 30 outside waiting to pick up preordered iPad Mini’s and the new iPad 4. And I counted at least 35 people carrying Apple products out the door while sitting there.

The good news for Microsoft is that people who were in the store were checking out the Surface, Windows 8 and many of the laptops and touch based ultrabooks that were on display. But the bad news is that most of them were Looky-Lou’s, drawn in mostly to see the new Windows 8 touch OS and the much advertised Surface. Also, while every salesperson in Apple’s store was engaged with a customer, I counted 6 Microsoft store employees standing around trying to look busy.

The Changing Retail Frontier

Now, I realize that Microsoft is new to the retail game, while Apple has been perfecting their store concepts for over 10 years. And my “research” was not scientific in any way and was just observations by me, a pretty seasoned market researcher trained to observe consumer buying patterns and usage models. I am sure that Microsoft sold many products of various sorts during the day, but by comparison with the Apple store across the way, I doubt it was even close to the daily sales Apple had in that store or any other store Apple has around the world.

Regardless of what Microsoft made that day in products sold, having their own retail stores is critical to them given the competitive landscape. I understand they will open at least a dozen new stores world wide in 2013 and more in the future. Of course, the competitive reason for doing so is because of Apple’s extreme success with their stores and how it has affected Microsoft’s fortunes. More importantly, Apple’s stores have reprogrammed how consumers think about buying tech products and getting personal service once they buy an Apple product.

In fact, I don’t think we can underestimate how the Apple stores have impacted retail in general. The idea of having a sales person standing there with an iPhone payment device and instantly checking a person out is revolutionary. And if you have the new Apple Store software app on your IOS device, you can even check yourself out now.
The man behind Apple’s stores, Ron Johnson, is now CEO at JC Penny’s and is trying to apply this same kind of store experience to a very old retail model. While he is having trouble getting this company to move quickly to be more user friendly, I have no doubt that he will eventually be successful in changing JC Penny’s retail model with new store designs as well as how people are eventually serviced.

Microsoft’s retail stores are important for them and the industry for another reason. All of their partners, except Sony, don’t have the money and the wherewithal to do their own stores and need to rely on Microsoft to become not only a dedicated retail outlet for their products, but to also serve as trained sales people who know the products and can intelligently sell them.

This will always be a problem for Microsoft retail since they carry dozens of different laptops, tablets and smartphones making it more difficult for their salespeople to know the products they sell intimately. This in fact has proven difficult in many big box retailing organizations as well with a highly diversified and fragmented product offering. In Apple’s case, they have key products with iOS and key products with the OS X and while they have many products in their mix, that mix is 10 times smaller than what Microsoft can sell through their stores. Consequently, Apple’s staff knows their products in and out and I am often surprised that even the non-genius staff can answer tough questions when I have gone into their stores and needed an answer about a problem I might be having at any given time.

When it comes to retail, Microsoft has no choice but to keep these stores going and expand their potential reach. And for most of their partners, they need Microsoft to serve as the only Windows focused retail outlet that can represent them properly. I have no clue when these stores will break even and be profitable, but Microsoft’s retail gamble is in full swing and they can not turn back if they plan to gain any ground on Apple and Google.

When is a Tablet not a Tablet? When It’s a Surface

Let me start this column out with some context on Windows 8. My mind has changed to a degree about Windows 8 and in particular touch based notebooks and UltraBooks. Several of the Windows 8 PCs I have been using are pure notebook form factors with solid touch-screens. I was never as negative on the addition of touch screens on notebooks as others in the industry, primarily because for over a year now, I have been using my iPad heavily in many work contexts with a keyboard accessory. So the idea of having a keyboard in front of me and touching a screen rather than using a mouse is an everyday way of life. I genuinely believe that many will welcome and enjoy the addition of touch in Windows 8 on many notebook form factors.

I’ll also add this point, Windows 8 may be one of the better Windows releases, if not the best I have seen in some time. I’ll write more on that later and I realize I may be in the minority with that statement.

But now I want to turn my attention to Surface, and more than just Surface, Windows 8 on devices that look and feel more like a tablet.

Just Because You Touch a Screen Doesn’t Make it a Tablet

Simply because a piece of hardware has the ability to touch it, does not make it a tablet. The traditional metaphor of a PC is the desktop / notebook mode. In this mode the screen sits on a desk, or a lap, and is used at arms length. Tablets on the other hand blow that paradigm wide open because they are built to be used while being held—mostly one handed— and operated solely by touch. Tablets are designed, and their experience is designed, to be more intimate and more personal. This does not mean the addition of a keyboard to a tablet is not useful, only that it is not required for most common tasks.

Steve Ballmer made a specific statement about Surface that I want to point out. He said:

Windows 8 is the greatest example of the PC meets the tablet – Steve Ballmer

This quote is a prime example of the way Microsoft thinks about Windows and computing. It highlights that they are still using the old school PC metaphor of computing being done on a desk or lap, at arms length, while stationary. And the Windows 8 platform, as well as the Surface, and many other tablet centric Windows 8 PCs fully conform to this metaphor.

Just look at how Surface was designed and where its value is being positioned. With a kickstand (to prop it up), and a keyboard, AND in landscape mode. All the same features of a notebook. In reality the Surface is a unique new form factor, but it is still largely dependent on the traditional PC computing paradigm. It is designed to converge these two experiences rather than innovate on their differences.

It is important to add here that I am a mature tablet user. I have been using the iPad since the beginning and have it fully melded into all areas of my life in key ways. I also heavily used many tablet PC devices well before Surface. Many writing about Surface rightly point out that it should not be compared to the iPad. I agree, for many of the reasons I point out above, and more to the point that I am not convinced Windows 8 is actually a tablet OS—yet. But to the extend comparing is necessary, it is because the iPad is the gold standard of a tablet experience on the market today.

Ballmer said that Windows 8 is the PC meets a tablet. My response to him is that the iPad is the re-invention of the PC.

That Tablets Advantage is Portrait Mode

I firmly say, and stand on my conviction that the iPad has not only re-invented the PC but changed the computing paradigm for a few reasons — Portrait mode and touch computing (accomplishing complex computing tasks that once required a mouse and keyboard via touch).

I wrote a long analysis on computing in Portrait mode, where I highlight the many advantages of this mode of computing for things like writing, reading, browsing the web, etc. I use portrait mode primarily on my iPad. Only some things like games and a few other apps use landscape exclusively. The iPad, and nearly all of the 275,000 tablet apps and growing not only support both portrait and landscape but they are built uniquely to take advantage of both modes.

Conversely, Windows 8 and Surface, appear to be built primarily for one mode—landscape. Given that Windows 8 is built for a 16:9 format this is not surprising. The software was architected for landscape. Although, the screen can be used in portrait mode, doing so presents a far less enjoyable experience than in landscape. For some this may not be a problem but for me it was a fundamentally counter experience to what I consider a pure tablet experience. Many popular apps, including MSFTs own app store, are built only for landscape mode. A mode that while leaning back in bed, or a couch, etc., is just not comfortable to hold for long periods of time.

I’ve been adamant that browsing the web in portrait mode if far better than in landscape. As is reading books, magazines, etc,. Take a look at the side by side screen shot of the NY Times on Surface and on iPad. Both in portrait mode.

What happens when you orient Surface to portrait mode, due to the 16:9 aspect ratio, is that everything gets smaller. Where when you flip the iPad, and even Android tablets, the text size stays the same in some cases, or shrinks slightly in others. What you get in portrait mode is more text on a screen, that even when smaller is not crunched or impossible to read. You are able to see more of the web page on the Surface because of 16:9, only the text was much harder to read. Of course you could zoom in or tap in, but that required some time to get the web page consumable. Not a deal breaker, but also not ideal.

Oddly enough two experiences I had were not horrible in portrait mode and you will be baffled by one of them. The first was the Kindle app, which just as I described about the iPad never changed the text size when flipping from portrait to landscape. Which being able to view significantly more text on the screen than the iPad in portrait was a welcome addition. The other experience was with the desktop version of Internet explorer on the Surface. I pointed out a few weeks ago the odd solution of having two different versions of Internet Explorer. In that article I complained that the desktop version of Internet Explorer was not as touch friendly as its Windows 8 app brother. However, it turns out that desktop Internet Explorer is more portrait mode friendly than its Windows 8 app brother. When using Internet Explorer on the desktop, the web operates more like the iPad. When you flip the screen between portrait and landscape the text stays the same size and you simply see more on the screen. Go figure.

Landscape obviously has its advantages in many scenarios like movies, some games, etc. But, in a broad set of tablet use cases portrait is equally and sometimes more important. A true tablet in my opinion provides an excellent experience in both landscape and portrait modes.

All of that to say that there may some hope for Windows 8 from a pure tablet standpoint. Some apps gave me hope while others caused me to shake my head. Portrait mode in Windows 8 will require some specific software approaches from companies and developers who understand portrait and landscape mode and the key tablet use cases for both. It is simply not there yet holistically.

Conclusions

There are more things I like about Surface, and Windows 8, as PCs but not as tablets. I believe that those consumers in the market for a tablet, are not in the market for a PC. Therefore for the tablet market, I am not convinced Surface, or either flavor of Windows 8 is a solution. We will see if this changes or not.

I know many happy Surface customers and many of them have never really used an iPad and are fully in Microsoft’s ecosystem. This may be the recipe of success for Windows 8 PCs.

For Apple, it means they still have no true tablet competition, particularly with the iPad.

Don’t consider this column a review of Surface. That is coming, as their are many things I like about it as a touch based PC, gestures in particular. The main point I am trying to get across is that we need to think about PCs and tablets differently.

When it comes to the tablet discussion, we will need to dive deeper into the 7” form factor role. A form factor Microsoft is avoiding. If Microsoft wants to be serious about tablets, they will need to think long and hard about how to approach the 7” form factor.

I’m sure there is a market for these type of converged devices, but the question is how big? I can see people buying the best pure breed tablet and a very low cost notebook as an equally compelling solution. A solution which actually may be the best of both worlds not a compromise of both worlds.

There is still more to be said in this discussion. Things like how does the iPad stack up to the Surface as a PC? Especially if one does not care about Office. Some may say you can’t compare the Surface to the iPad in terms of a tablet and I may not totally agree but I see their point. However, some may also say you can’t compare the iPad to the Surface in terms of a PC. For that I say we will see.

Windows 8’s Greatest Sin

Anyone who is in business knows that once you have made a sale, you want the next sale to become as seamless and as automatic as possible. This is why newspapers and magazines push subscriptions so heavily and why so many services, like cable, phone, electricity, etc, rely so heavily upon monthly billing. They know that customers are far more likely to continue buying their goods or services from their existing provider if the purchase of those goods or services becomes routine and automatic. When the customer is given no chance to re-think or re-evaluate their decision, there is far less liklihood that they will change that decision.

Perhaps Windows 8’s greatest sin is that it is going to force Microsoft’s current customers to have to re-decide; to re-evaluate; to re-think their current purchasing decision. And if you’re the incumbant, that’s never a good thing.

Netflix

Netflix started a website that rented videos and delivered those videos to its customers by mail. Netflix introduced the monthly subscription concept to their service in September 1999 and dropped the single-rental model in early 2000. Since that time, the company has built its reputation on the business model of flat-fee, unlimited rentals without due dates, late fees, shipping or handling fees, or per title rental fees. ~ via Wikipedia

Netflix continued to expand their services by offering streaming video rentals. At the base level, Netflix was charging its customers a flat $10 for both its mail and streaming videos. Then Netflix committed a cardinal sin.

In the fall of 2011, Netflix dramatically changed its pricing. Customers could no longer continue to pay $10 and get both the mail and streaming services. Customers had to choose between paying $8 for the mail service or $8 for the streaming service or $16 for both. This forced Netflix’ customers to re-evaluate their subscription plans. And when they chose, many of them chose to cancel their subscriptions altogether.

On October 24, 2011, Netflix announced it had lost 800,000 US subscribers in the third quarter of 2011 and that more subscriber losses were expected.

Netflix’ decision hardly killed the company but it unnecessarily cost them approximately a million subscribers. By forcing their customers to re-evaluate and re-think their previously automatic decisions, they gave their customers the worst option of all – the option to opt out of their Netflix subscription altogether.

Windows Upgrades Were the Surest of Sure Things

Microsoft’s Windows has had a virtual monopoly on personal computing since the mid-ninties. Windows software comes bundled with most new PCs, so the vast majority of operating system upgrades were invisible, automatic and virtually painless.

There were fewer sure bets than that those who owned a Windows PC were going to buy another Windows PC. The only question was “when”. For most, seeking an alternative to Windows simply didn’t even enter into their minds.

Windows 8 Will Cause Hesitation

A new study by Forrester Research — as reported by Social Barrel — shows that only 33% of companies who responded to their new survey have plans to move to Windows 8, Microsoft’s latest upgrade of its operating system.

Ten percent of the respondents have no intention at all to upgrade. The remaining 40% of the survey respondents stated that they have no plans of upgrading to Windows 8 yet.

“Social Barrel” says the percentage decline is “massive” in comparison with companies that intended to shift to Windows 7 when it launched in 2009. At that time, 67% of the companies that participated in a Forrester survey intended to shift to Windows 7, with 28% either not considering the update or are totally skipping it. ~ MacNews

Windows Users Have Other Options

It’s a whole new computing world out there. In 2006, there were only PCs and a smattering of smartphones and tablets. In 2012, we have:

— Mobile devices outselling PCs
— The Mac and the iPad seen as perfectly mainstream
— Bring Your Own Device and computer decision making moving from the home to the workplace rather than from the workplace to the home
— iPad’s viewed as all the computer that some people need

Last week – two days before Windows 8 was announced – Apple introduced a new iPad Mini. But, in a surprise move, Apple also updated their third generation iPad to a fourth generation, and refreshed almost their entire Mac line.

Do you think that was coincidental? Or do you think that Apple was offering Windows’ existing users a clear alternative to Windows 8?

If I’m Going To Have To Learn A New User Interface Anyway…

Windows 8 is remarkable, daring, and innovative. But it’s also a departure from nearly everything that Windows’ customers have known Windows to be. Windows 8 is a radical makeover. It forces people to relearn how to use their computers.

And if customers have to re-learn how to user their computers anyway, then they might as well consider learning a new operating system. Like a Mac or an iPad.

If I’m Going To Have To Buy New Computer Hardware Anyway…

Windows 8 is designed for a touchscreen.

And if customers have to buy new computer hardware anyway, then they might as well consider buying a new type of computer. Or tablet. Like a Mac or an iPad.

If I’m Going To Have To Decide Which Type Of Computer To Buy Anyway…

Microsoft thinks it is giving its customer’s choice, but what it is really doing is foisting decisions upon its user base.

— Windows RT or Windows 8 Tablet?
— Surface or one of a plethora of thrid party hardeware options?

In the abstract, choice is always good. But when you’re trying to get an existing customer to re-buy from you, extensive decision making is the last thing you want.

If the customer has to decide between this Surface and that, between Arm and x86, between phablets and laplets, then the customer might just decide to exit the Windows ecosystem altogether. Because once you start to think about your options, you start to think about ALL your options, not just the options made available by Microsoft.

Conclusion

When you have an existing customer, the worst sin you can commit is to force that customer re-evaluate their past buying decisions. I’m quite sure that Windows 8 is going to sell a LOT of computers. However, many of those computer purchases may end up being Macs or iPads.

Microsoft Pulls it Together (Almost) for Windows 8 Launch

I attended Microsoft’s launch last week for Windows 8, Windows RT, and Surface. While launch day is only one milestone in a string of milestones, launch day is the one day that everything must come together, the day where some make their final judgment. So how did Microsoft do?

Importance of Launch Day

Launch days is one day in many important days that a product or service goes through in its lifecycle. I believe it is one of the most important days, though, as it pulls together all the hard work of the previous years into just a few hours. The value of launches differ between consumer and commercial products, too. In the commercial world, buyers like IT managers don’t expect and quite frankly don’t believe that everything would be together on day one. They’re a skeptical bunch, due in part to just how many times they have seen products and services not live up to their promises in the past. Maybe they even lost their job or got reprimanded for making what ended up being a tech mistake that cost their company time or money.

Consumer product launches are different, in that those product and services get measured by press and reviewers based upon what it can do on launch day, not at some point in the future. There are some exceptions that consumers make, where if they trust a brand and they make a future promises the company is believed, but for the most part, what is launched on that one day sticks for a very long time.

One final important piece about launch day is “permanence”. What gets written by press and analysts on launch day is rarely updated if something changes. With most consumers checking out the internet before they buy, this is vitally important. So how did Microsoft do?

Windows 8 Launch Day Plusses

Looking holistically at the day, I have to give credit where it is due. Microsoft did a very good job pulling everything together on game day. Microsoft made a good case that Windows 8 was the best Windows yet, good for older and the newest systems. On almost every metric, Microsoft showed that Windows 8 is better than Windows 7. They didn’t address the lack of a Start button or the potential confusion, but I don’t think this was the right place to do that. That is best demonstrated in the marketplace.

The demos were some of the best I’ve ever seen from Microsoft as Mike Angiulo and Julie Larson-Green did their magic. They made a pretty good case for why consumers would want Windows 8, particularly on touch-based devices. I particularly thought they did a good job showing and talking about how Windows 8 works with other Microsoft-based properties. Angiulo and Larsen-Green also did a very good job in showing the absolute breadth of designs supporting Windows 8 and Windows RT. The device onslaught was impressive, from notebooks, to hybrids, tablets, convertible flippers, convertible swivelers, to all in ones. They showed devices from all the big brands at prices ranging from $499 to $2,499.

Steve Ballmer was in rare form too, with a good balance of his famous passion and facts. He was there to put the final stamp on the event by showing just how committed Microsoft is to the Windows 8 ecosystem and experience by outlining just how many Microsoft apps and services have been developed to support a seamless Windows experience.

The launch wasn’t perfect, though.

What I Wanted to Hear More About

Microsoft demonstrated their best launch I have ever seen, but it could have been better, had they made a stronger case on a few items.

I have been a bit critical previously on how Microsoft has handled the rollout of Metro-based apps in the store. Without having enough high-quality apps, Windows 8 could have been compared to the webOS Touchpad or 10” Android tablet ecosystem, which would have been disastrous. Microsoft definitely came through on video streaming services by adding Netflix and Hulu within weeks of launch. They also showed up with many key new site apps, even though CNN is still MIA. What Microsoft missed at launch were key social media apps. While I understand that the People app has some good connections to services, it does not replace a native social media app for Facebook, Twitter, LinkedIn, Pinterest, or Google+. One example is Twitter. I, like many, have Twitter lists they want on their primary start screen. Not a single Metro Twitter app supports this. I would have at least liked for Microsoft to address this head-on and give a date when some of these apps are committed. In Surface reviews, the number of high quality apps was on key criticism in every single one of them. It didn’t have to be like that and was avoidable.

I would have also liked for Microsoft to address any hardware incompatibilities with Windows RT as opposed for users to find out on their own. Microsoft stated that Windows RT “works with 420,000,000 devices” but how do I know if that one Neat scanner or HP scanner that is so important to me works well? Microsoft has done a ton of work testing, but I would have at least liked to see accessible resources for consumers to check if their special peripheral works well. By not disclosing this, it made them appear to be hiding something.

Finally, there is the commercial PC and tablet market. Enterprises are currently shifting from Windows XP to Windows 7 on standard form factors like notebooks and desktops and therefore Windows 8 for the most part is irrelevant to them. Tablets are another matter altogether. Tim Cook routinely announces the extremely high per cent of enterprises rolling out or evaluating iPads, the latest figure pegged at 92%. Given Microsoft makes 75% of their profit from the commercial market, this seemed like an oversight. Given the competitiveness of the Windows 8 and Windows 8 Pro tablets, many enterprise IT people would be hard pressed to justify an iPad purchase, Microsoft should have at least given a tip of the hat to Windows 8’s applicability to the commercial market.

Where We Go From Here

Many consumer reviews have been written and there will be many, many more in the future for Windows 8 and Windows RT. For the most part, the die has been cast and the Microsoft marketing and ad machine are in full swing, all which will make a difference on perception. The Windows 8 launch was the best Microsoft launch I have ever seen or attended, and I have personally attended many. While Microsoft didn’t address everything they needed to in order to seal the deal, they absolutely got Windows 8 and RT off to a solid start. Now it’s time to see if that translates to sales.

The Windows 8 Ecosystem, For Experimental Purposes

[dc]I[/dc]n the coming weeks I will do something for experimental purposes that I have not done for over 10 years. I will be immersing myself in the Windows 8 ecosystem entirely. I converted from the Windows ecosystem to the Apple ecosystem in 2002 and I have never been happier. Apple products work the best for my computing needs and workflow, and as the saying goes, the best product is the product that works best for you.

However, I used to be fully in the Microsoft ecosystem. I started my career in this industry in IT for a semiconductor company and I could troubleshoot, diagnose, and keep Windows working with the best of them. In fact, back in those days, even after converting to Apple’s ecosystem, I was extremely loyal to Pocket PC, then Windows Mobile as my PDA and my smartphone choosing Microsoft’s mobile products over the popular Palm products. I have fond memories of those devices.

What I personally use for my computing ecosystem is irrelevant to the way I do industry analysis. To effectively understand the trends and long term market opportunities we need to understand the strengths and weaknesses of every platform and ecosystem holistically. This is why I did the 4 month test with Android by embedding myself in Google’s ecosystem as much as possible. I will be doing the same thing with Microsoft’s latest offering, Windows 8, in order to fully perform a platform analysis. And I am actually kind of excited about it.

Although, I have committed to Apple’s ecosystem, I am a fan of technology and innovation and I appreciate it no matter where it comes from. Just because I know what products work best for me does not mean I can’t appreciate innovative things about other products of ecosystems. And as mentioned before, this is key for us to assess the short and long term opportunities for those in the technology industry.

So for experimental purposes, for periods of time over the coming months, I will be using the latest HTC Windows 8 smartphone as my primary smartphone, The Acer S7 UltraBook with Touch as my notebook, Surface and the Asus Vivo Tab RT as my tablets, and a few X86 Windows 8 hybrids.

Besides my goal of an exhaustive platform analysis of pros and cons and short and long term opportunities within the Microsoft ecosystem for our clients, I hope to find specific things that I like or appreciate about Microsoft’s latest effort.

I’ve always believed that the most enjoyable computing experience will come when you commit to a platform or ecosystem and stick with it. Each platform and ecosystem looks for unique ways to make their products work better together. I believe that philosophy will yield the most valuable experiences in personal computing.

In my view Apple and Microsoft have the strongest platform and ecosystem stories to day. I say this because they have platforms that span every screen in personal computing. Apple’s is more mature in my opinion but Microsoft is not going anywhere.

Regardless of whose ecosystem you commit to, the future for personal computing is extremely bright.

Windows 8: Back To The Future

[dc]D[/dc]ue to scheduling conflicts I could not be in NYC yesterday for the Windows 8 launch but watched it intently as it was streamed around the world from Microsoft’s Web site. But what I saw was both impressive as well as confounding for many reasons.

Let me start with the confounding issue first. Once Microsoft CEO Steve Ballmer took the stage with his bubbly personality, he expressed “excitement” about Windows 8 and he was right to do that. Windows 8 will always be known as the version of Windows that ushered in the age of the touch UI to the Windows world. And just as Windows 95 solidified the GUI in PC users mind, Windows 8 will burn into people’s conscience the fact that touch should be a key addition to the Windows User Interface. And before he spoke, other Microsoft executives showed off a plethora of laptops, all-in-one touch PCs as well as tablets that are already touch enabled so they can take full advantage of Windows 8 touch features.

But as I listened to Steve Ballmer speak, I could not help but think that his message was one of “welcome to the past” instead of “welcome to the future.” We all pretty much know that we are well into the post PC era and demand for traditional PCs are stable, stalled, or even in decline in many areas of the world. In fact, while we still expect to see between 300-350 million P’s sold WW annually for a few more years, the hard fact is that traditional PC vendors are having a tough time making any money on PCs anymore and some of them may get out of the consumer PC business completely in the next 12-24 months.

Smartphones and tablets are quickly supplanting a need for a full-fledged PC. User surveys show that tablets especially can handle as much as 80% of the tasks they used to do on a PC and that consumers are spending less time on their PC than before. This is not good news for the PC vendors as well as Microsoft and Intel. As more customers are ushered into the world of tablets by cheaper models from Amazon and Google, as well as Apple’s new entry into smaller tablets with the iPad mini, tablet unit shipments will outnumber the amount of PCs sold annually WW by 2015.

We also sell 1.4 billion cell phones a year and by 2013, 65% of the cell phones sold in the US will be smartphones. And by 2015, 60% of all cell phones sold WW will be smartphones. In fact, instead of the post PC era being used to describe where we are today, a more accurate terminology could be that we are finally entering the age of truly personal mobile computing, with smartphones and tablets leading the way.

But I also viewed the Windows 8 event as impressive and important due to the demand for new traditional PCs will stay stable or decline, there are well over 700 million PCs still in use today and Windows 8 represents an important step or bridge to the future of PC UIs and the role touch will play in these devices. Also, millions of PC customers are already familiar with touch through their purchases of tablets and smartphones, Windows 8 has to be considered an important evolution of the graphical user interface for existing and new PCs and laptops.

While I view Windows 8 as important, the one area that I think it will have its greatest impact in will be with devices that are truly touch enabled. This includes new hybrids or combo laptops and tablets that can take full advantage of Windows 8’s new touch interface. However, I am less confident it will be a huge success with existing PCs where the only input is a mouse or a touchpad. Current input devices were not designed with touch in mind and therefore do a rather poor job with navigating through a rich touch based user experience. The exception to this may be when Synaptics’ new ForcePad is installed in new laptops. This is a trackpad that maps the touch UI interface and mirrors some of the touch UI features through this innovative new trackpad optimized for Windows 8. Apple does this already with their Magic Trackpad. Interestingly, Apple does not believe their laptops or desktops should be touch enabled as they view the use of the hand or finger having to move from keyboard to screen as an unnatural way to navigate these types of devices.

There is also another key issue that may keep Windows 8 from being adopted faster and that is the added cost of laptops that sport touchscreens. At the moment, putting a touch screen on a laptop adds about $150-$200 to the cost of the laptop. That is why we still see most of the laptops sold at least through 2014 having non-touch based screens as consumers are inclined to buy on price instead of features in most cases.

While I see Windows 8 working well with touch based devices and see it having a harder time being adopted by users whose laptop or desktop is not touch enabled, Still, Windows 8 will be important to the collective PC market today. And it represents the next major evolution of the user interface for PCs, even if the market for PCs will not be a major growth market in the future.

Windows 8, Windows RT, and Surface: A Strategy Emerges

Microsoft has begun the tough job of answering three questions vital to its future: Why Windows? Why Windows RT? And why Surface? The arguments given at the Windows 8 launch event in New York on Oct. 25 won’t close the deal, but they mark the emergence of a strategy out of what has sometimes seemed a muddle

Why Windows

Microsoft has clearly been watching Apple and learning. It understands that when customers buy iPhones, iPads, or Macs, they aren’t just purchasing hardware; they’re buying into an ecosystem of products, services, apps, and content where everything works together.

Microsoft has long had the pieces, but lacked the integration. Now it is putting them together. Content moves seamlessly from your Xbox to your PC to your tablet to your Windows Phone. The new Xbox Music brings a Spotify-like music service to all devices. SkyDrive lets you share your files easily and all the devices have access to some form of Office. Clever Windows 8 apps connect to Bing services. Windows users will be able to “plug into the largest ecosystem anywhere,” says Windows chief Steven Sinofsky.

How well this all works in practice remains to be seen. Microsoft, with its deep experience in enterprise back-end operations, has a considerable advantage over Apple, which has stumbled often with network-based services. For once, it is Apple that is stuck with the legacy of iTunes, which Microsoft is starting clean. And the Microsoft offering leaves Google, which has tons of stuff but none of it very well integrated, in the dust. Neither Apple nor Google was mentioned by name in the lengthy presentations, but I got the sense that Google, which has left an opening by failing to exploit its early advantage in cloud services, may be the primary target.

Microsoft isn’t forgetting the enterprise, but for the moment, at least, it seems to be taking it for granted; the messaging at the Windows launch was nearly 100% consumer. Except for tablets (Microsoft seems to have given up on the idea of calling them “slates”), the company has no illusions of large-scale enterprise adoption of Win 8 any time soon. But corporations remain wedded to Microsoft and these days, the company makes more enterprise revenue from servers and tools than from desktops and laptops, or even Office.

Why Windows RT

Windows RT, the version designed for tablets based on ARM processors, is a tougher proposition. At the launch, Microsoft started the hard job of differentiating between the two new versions of Windows. The selling point for Windows 8 is fairly simple: Although the new user interface will require a fair amount of learning by users, the operating system remains compatible with the vast array of existing Windows software. If you want to run Autocad or Photoshop or even Microsoft Outlook, you need the legacy support of Windows 8.

But that legacy also brings a lot of cruft with it, and if you don’t need to run these desktop programs, you may be better off with the lean, clean Windows RT. Windows has made great leaps in security since XP, but a traditional operating system that gives programs full access to system resources is always going to be vulnerable

Windows RT is much more locked down and only allows installation of apps through the Windows Store. This should provide an environment that is resistant to both malware and the complex problems caused by software interactions that plague tradition Windows and, yes, Mac OS X

The troubling question is whether users pf RT-based tablets will be able to get the apps they need. As of today, the answer is no. I had hoped that launch day would see a sudden profusion of apps on the barren shelves of the Windows Store, but it hasn’t happened. There have been some very welcome additions, such as a client for the SugarSync cloud synchronization service and a Kindle reader, and a Twitter client is sad to be coming soon. But the Windows Store remains deeply impoverished compared to the iTunes App Store or even Google Play

The preloaded Microsoft apps are a mixed bag. The biggest issue is the awful mail client, which lacks such basic features as a consolidated inbox and support for POP mail services. Microsoft has promised improvements, and I hope that either they come soon or that someone steps up with a third-party offering. Having major components of Office–Word, Excel, PowerPoint, and One Note–certainly distinguishes RT from other tablet OSes, but the allegedly touch-optimized applications still aren’t very touch-friendly. Their use pretty much demands a keyboard and a touchpad or mouse.

Why Surface

It’s clear that Microsoft regards Surface, its first plug into computer hardware, as an entirely new type of device, neither a tablet nor a PC or, more accurately both. Microsoft offers it without either of its two keyboards–either the flat $100 Touch Cover, which looks unusable but actually works quite nicely, or the $129 Type Cover, with keys that actually move a little–both to hit a $499 price point and to avoid a profusion of SKUs. But if you are buying a Surface, don’t even think about getting it without one of these keyboard-plus-touchpad covers.

Apple considers the iPad a post-PC device. Microsoft considers the Surface a kind of PC. Thee difference was summed up, in hyperbolic language, by the respective chieftains. Sinofsky describes the Surface as “not just a tablet but the best tablet I’ve ever used. Not just a laptop, but the best laptop I’ve ever used.” But Apple CEO Tim Cook, who hasn’t actually seen it yet, dismissed it as “aa fairly compromised, confusing product…. I suppose you could design a car that flies and floats, but I don;t think it would do any of those things well.”

Surface is in many ways a more ambitious device than the iPad because it can do everything most consumers want from a PC. Sinofsky even makes a big deal of its ability to work with printers and other peripheral devices through a USB cable (personally, I don’t want to think of connecting a tablet to anything except over a wireless link.

It will be interesting to see how the market shakes out between the ARM-powered Surface and the Surface Pro, which uses an Intel Clover Trail processor and standard Windows 8. The Pro version will be heavier and considerably more expensive. It will truly be a PC in a new design: lighter than an Ultrabook and less capable, though probably capable enough for most uses

To the extent to which enterprises go for the Surface, they are going to choose the Pro (expected to ship some time in Novmber), both for software compatibility and because it, unlike the regular Surface, can be centrally managed like a PC. IT managers may see the Surface Pro as an way to stop the creeping invasion of iPads, giving executives the tablets they want while retaining the manageability IT desires.

Microsoft still has a lot of work to do to sell Windows 8. It’s biggest immediate challenge ia to set customer expectations for Windows RT correctly to avoid a wave of returns of Surfaces (and RT tablets from Lenovo, Dell, and Asus) by consumers who did not understand the software limitations. But Microsoft is off to a good start. It’s good to see the tablet battle finally fully joined.

Microsoft’s Surface: Less Than A Tablet, Less Than A Notebook PC, Less Than Ideal

Introduction

I hadn’t planned on writing a review of the Surface today. But after reading over a dozen reviews, a pattern has clearly emerged:

— Excellent hardware
— Not as good a tablet as the iPad
— Not as good a PC as a notebook PC

The Promise

But perhaps none of that matters. The Surface, after all, wasn’t designed to be only a tablet or only a notebook PC. It was designed to be a hybrid – the best of both worlds. Perhaps it succeeds in that role?

As Josh Topolsky of The Verge put it:

The promise of the Surface was that it could deliver a best-in-class tablet experience, but then transform into the PC you needed when heavier lifting was required. Instead of putting down my tablet and picking up my laptop, I would just snap on my keyboard and get my work done.

The Surface won’t satisfy the tablet user

The Good

It’s clear that Microsoft has really thought through the Windows RT tablet software.

It’s a new paradigm, and people are uncomforable with new, but new isn’t necessarily bad. And the Windows RT “new” appears to be very, very good indeed.

It’s not as discoverable as iOS and Android, and it will receive criticism for that but discoverability isn’t everything. Some of the gestures in Windows 8 are brilliantly implemented. Many of the reviewers found it to be more engaging, more immersive, more delightful than either iOS or Android.

In that way, I believe that Windows RT for the tablet will be like Android on the phone – it will appeal to the more advanced users who will love it for the power that it unlocks.

The Bad

There is absolutely no reason to have a desktop OS on the Surface RT tablet. The Surface RT doesn’t even run desktop applications, so why bother?

Almost all of the reviewer’s complaints stemmed from the schizoid nature of the dual operating systems. Sometimes you were in tablet mode. Then suddenly you were in desktop mode. There were two control panels and two Internet Explorers. In short, there were two too many operating systems in one device, especally when that one device didn’t even run Windows desktop software.

The Ugly

The Windows RT store is barren. Could this change? Possibly. But until it does, you’ve bought a tablet that doesn’t have any available tablet apps. And that’s going to make you very un-app-y.

The Surface won’t satisfy the notebook PC user

The only Windows desktop software that the Surface RT runs is Windows Office. That’s it.

There are over 4,000,000 applications that run on Windows. The Surface RT falls 3,999,999 applications short of being an adequate notebook PC. And that’s really short of ideal.

The Surface won’t satisfy its ideal user

Ed Bott, of ZDnet, describes the ideal Surface RT user:

On a busy Sunday evening a few weeks ago, I was sitting in Terminal 4 of the Phoenix Sky Harbor airport waiting for a connecting flight. The guy sitting next to me was clearly an experienced business traveler.

I watched out of the corner of my eye as he pulled an iPad from his briefcase, checked some football scores, and played Words with Friends for a few minutes.

Then he put the iPad away and pulled out a well-worn Dell notebook (I swear it had duct tape on one corner). He waited (more patiently than I would have) for Windows XP to load, and then he worked on an Excel spreadsheet for 30 minutes until our flight was called.

That guy. The one who has to carry around two devices because neither one by itself can do everything that needs to be done. That’s who Microsoft’s new Surface with Windows RT was designed for.

First let me say this: There aren’t as many of those guys out there as we think. There are a whole lot of people who only need a notebook. And, as I tried to explain in my article entitled: “The PC is the Titanic and the Tablet is the Iceberg. Any Questions?“, there are even more people who only need a tablet.

But even if they are only a niche, there are still a sizable minority of people who fall into the above description of the Surface’s ideal user. And the most damning thing that I can say about the Surface is that it won’t satisfy it’s own ideal user.

— He’ll go to check on some football scores and then be frustrated that he doesn’t have access to one of a dozen available alternatives to the official ESPN app.

— He’ll go to play a game and then be frustrated that he can’t play any one of the 300,000 games available on Android or the game that everyone’s been talking about and that’s been available on iOS for over a year.

— He’ll go to run a Windows application and then remember that the Office suite are the only Windows applications that run on his device.

That guy. The one who has to carry around two devices because neither one by itself can do everything that needs to be done. The ideal customer for the Windows RT. That’s the guy who will be totally unsatisfied with the Windows RT.

Less than a tablet, less than a PC, less than ideal

Microsoft calls the Windows 8 operating system and the Surface RT a “no compromise” computing solution. But this tablet is such a compromise that it will satisfy no one – not even it’s intended target audience.

Ironically, it is the software, not the hardware, that is letting Microsoft – the software company – down. And that’s too bad because it would have been much better for Microsoft if it had been the other way around. It’s possible that another hardware partner would have fixed any deficienies in the Surface’s hardware. But no matter how good the hardware, it will still be running the Windows RT operating system. And that’s far from ideal.