An Attitude Of Gratitude

Thursday, November 27th is Thanksgiving in the United States. So rather than do my normal weekly column, I thought I’d take a moment to talk about some of the things I am grateful for.

There’s a tendency in technology — in all things, really — to be more than a little unappreciative for the all the wonderful things we have around us. This is not a new phenomenon.

All right, but apart from the sanitation, the medicine, education, wine, public order, irrigation, roads, a fresh water system, and public health, what have the Romans ever done for us? ~ John Cleese as Reg, in Monty Python’s Life of Brian

By almost every objective measure, things are getting better. We don’t notice because we don’t know history well so we don’t recognize how much better the now and here is than the then and yesteryear was. Further, it’s our nature to focus on the bad and accept the good as our due.

Human beings have an almost infinite capacity for taking things for granted. ~ Aldous Huxley

This is why a day of Thanksgiving — a day to remember how truly good we have it — is worth having.

Mobile And Personal Computing

In our own little corner of the world, mobile and personal computing has dramatically improved people’s lives.

(H)umans are distinguished from other species by our abilities to work miracles. We call these miracles technology. ~ Peter Thiel

In 1995 there were 16 million people connected to the internet. In 2005 that number had grown to one billion. Already in 2014, that number has surpassed three billion — 40% of the world’s population.


In 1995, there were 250 million PCs. By 2020, 90 percent of the world’s population over six years old will have a mobile phone.


Sometimes this new technology does not come in the exact form we expected or desired so we deride, dismiss or ignore its significance. Chris Dixon, below, gently chides us for our tendency to let what we forever want blind us to the wonder of what already is.

We asked for flying cars and all we got was the entire planet communicating instantly via pocket supercomputers. ~ Chris Dixon

Everyone Gets A Pocket Supercomputer

The implications of a supercomputer in every pocket will be enormous for everyone, but it will be disproportionately greater for the poor.

Mobile in emerging markets solves problems much further down Maslow’s Hierarchy. ~ Benedict Evans (@BenedictEvans) 8/24/14

Most tech innovation is attacked as ‘rich people’s toys’, but ends up giving the poor things that previously only the rich could have. ~ Benedict Evans (@BenedictEvans)

It’s still a common mistake to see smartphones (and even phones) as a luxury. In fact, their value is inversely proportionate to income. ~ Benedict Evans (@BenedictEvans) 8/15/14

I have been fortunate to have lived my life in the age of computing. But I’ve got a feeling we ain’t seen nothing yet. In the past, computing was available to those few of us who lived in developed countries and who had the wherewithal necessary to buy the devices we desired. That’s about to change and, I believe, change for the better. The impact on the world will be truly profound.

Thanksgiving in the palm of your hand

Mea Culpa

Gratitude is not only the greatest of virtues, but the parent of all the others. ~ Cicero

All too often, I am less grateful than I ought to be.

Silent gratitude isn’t very much to anyone. ~ Gertrude Stein

And all too often, even when I am grateful, I fail to express my gratitude. So let me conclude this short article by expressing my thanks to the creators of, and the contributors to, Tech.pinions, and most especially to you, the readers and commentators of Tech.pinions. I am truly grateful for you all.

First Rule Of Homebrew Drone Club Is There Are No Rules For Homebrew Drone Club

Drones are the next revolution, the next insanely great thing, the pirate, the multi-billion dollar business, the integration of the physical and the digital, the device that will fight our wars, provide web access to the poor, deliver our pizzas in way under 30 minutes, ensure the air is safe, expose dictators, and turn us all into Hollywood-style directors, even if just for some grand selfie.

I don’t make, I write. If I made, I would make drones.

If I was that guy in The Graduate, my one word would be: “Drones”.

If I were the next Steve Jobs, I would dream of drones. If I were the next Bill Gates, I would envision software empowering drones built on every kitchen table.

You know what’s going to power the DeLorean back to the future? Drones.

Not since the launch of the iPhone and possibly not since I first used Mosaic have I felt about a technology as I do about drones. The market for drones is expected to reach $91 billion by 2020. I think this radically understates their impact, even considering the current muddled legal environment.

Drones are the next ‘stack’ of the global internet, and will radically re-make our perception of location, privacy and commerce. They are as if the PC and the Internet launched together. In 1988.

Not surprisingly, everyone wants in on the action.

  • Mark Zuckerberg is funding efforts so drones can “beam internet to people from the sky.”  
  • The Defense Advanced Research Projects Agency (DARPA) wants to re-tool aircraft to serve as a “flying fortress” filled with drones able to carry out all manner of missions in any region of the planet.
  • Amazon is “doubling down” on drones for delivery.
  • Skycatch is already building a sort of Uber for drones, linking drone “pilots” and makers with those who need drone-based services.

Despite all this, it is hobbyists who are advancing drone development even more than government or business.

There is a thriving community of drone builders and enthusiasts at,which has created an open source platform for drones. The nonprofit OpenPilot hopes to make drone technology more affordable, more accessible — and optimized for improving humanity’s lot.

DIY Drones claims to be the world’s largest community for drone hobbyists. DIY Drones was also instrumental in the development of the Dronecode Project, which aims to “bring together existing open source drone projects and assets under a nonprofit structure governed by The Linux Foundation”. Drones just had their Tim Berners-Lee moment.

Yes, the rules for drone use in the US are in flux and clearly lagging the technology.

“After years of waiting, a Federal Aviation Administration (FAA) official said the agency was close to releasing a ruling that would give commercial entities greater access to fly small unmanned aerial system in the domestic airspace.”

It’s not just the FAA. The Office of Management and Budget is also involved. Then there’s the FCC and the Government Accountability Office. All are working to enact Congress’ 2012 “FAA Modernization and Reform Act,” which is meant to bring a clearer legal framework for the commercial operation of drones (unmanned vehicles weighing less than 55 pounds). In addition, several states and cities have enacted their own rules. Businesses don’t know what to do, other than do nothing or operate in secret.

For hobbyists, the rules are essentially that drones must remain within line of sight and away from airports and below 400 feet.

Don’t fear, I know a secret: This will all get taken care of — because, just as with PCs and the Internet, the spread of drones cannot be stopped.

It’s a drone world after all….and the best is yet to come.

The FAA expects more than 30,000 drones in commercial use by 2020. These will be used by law enforcement, military, logistics companies, businesses, and tech giants. The potential, however, is limitless. Witness: The nonprofit Drone Adventures sends drones to impoverished areas of the world, assessing air quality, agricultural impact, promoting conservation and archaeological efforts.


Conservation Drones uses drones to map sections of the planet and assess local environmental challenges. Matternet is using drones to deliver lifesaving medicines where they are needed most.


How is all this possible? Smartphones.

Smartphone-optimized technologies, including GPS, accelerometers, gyroscopes, mobile cameras, a litany of sensors, mobile battery power, lenses and more, have all become widely available, shockingly affordable — and are transferable to the drone industry.

Then there’s the rapid drop in price. The new Lumia 535 is available for $137 — inclusive. Only a few years ago, such a price for so much technology was unthinkable. A similar phenomenon is happening in the drone industry. Consider this is what you can get now for the price of an iPhone 6, off-contract: the Phantom can fly 22mph and reach an altitude of 1,000 feet. GoPro optional.


You were not part of the original Homebrew Computer Club. You’ve just been given a second chance. Nowhere to go but up.

Microsoft Is Doomed. Doomed!

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

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

Billions Billions Billions Billions

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


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

According to CEO Satya Nadella:

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

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

microsoft revs

Claim Chowder

The facts are clear:

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

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

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

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

How could they all have been so utterly wrong?

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

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

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

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

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

Long Slow Decline Except Not

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

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

A few other favorites:

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

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

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

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

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

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

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

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

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

If the World Was a Village – Tech Edition

Bob’s column yesterday brought back into attention some of the things I discussed in this article called Computing’s S-Curve. We are on the path to connect the planet via a pocket computer. This is so incredibly significant it is difficult to overstate.

In many of the presentations we give at Creative Strategies, we emphasize we are still early in the technology age. We point out that the first 25 years of computing was focused on bringing computers to business. The next 25 plus years will be focused on bringing computers to every person on the planet. Much of this is driven by Moore’s Law. When presenting to the more PC focused audiences, this is a favorite slide to emphasize Moore’s Law in bringing computing to the masses.

Screen Shot 2014-09-02 at 4.58.22 PM

We still have a long way to go but as Benedict Evan’s points out, this opportunity to connect the planet is hugely beneficial from a humanity standpoint.

So where are we in connecting the planet today? Using a range of statistics I gathered, I made a chart showing a few of my favorite data points from the point of view, “If the world was a village of 100 people, how many would be using what technology?”


What strikes me about these statistics is only one of them is over 50%. The mobile phone (not smartphone) is in use by 63% of the global population. Many of those mobile phone users have multiple subscriptions which is why the latest data from the ITU pegs total mobile subscriptions at nearly 7 billion.

What makes the mobile phones, with 63% percent of the global population owning one, interesting is by 2020 those will all be smartphones. To help drive that transition, we now have smartphones that cost $33 dollars and we will have $10 smartphones by 2020.

Yet, we still have a long way to go. I made this chart from some new data from the TNS Connected Life survey

Screen Shot 2014-09-03 at 5.06.16 PM

This chart shows the percentage of smartphone users and non-smartphone users in each of these large global markets. I’ve added their respective population as well in order to see the opportunity for growth and scale.

As we embrace this shift, we realize how valuable these mobile phones are, particularly to those in emerging markets. Mobile phones connected to the internet have given rise to the WeChat business, Instagram businesses, Facebook businesses, and more. People like to argue you need a PC to do work. Tens of millions of consumers, and growing, in emerging markets prove this wrong every day.

As we empower billions of new consumers with pocket computers ubiquitously connected to the Internet, it is bound to have an impact on the economies of these emerging markets. Economists’ estimate bringing connectivity to a market can increase the GDP of that region anywhere from 1-3%.

The Internet has been one of the most critical and disruptive inventions of our era. Bringing the Internet to nearly everyone on the planet may be even more disruptive when all is said and done.

Connecting the Planet, Reshaping Industries

Mobile’s impact will be widespread. Note this chart from Chetan Sharma Consulting.

Screen Shot 2014-09-02 at 6.01.49 PM

There are 14 global trillion dollar industries and mobile has the potential to invade, change, and impact them all. Chetan lays out in this white paper that we are entering a new era of connected intelligence. He is correct and it will be driven by two fundamentals: the connecting of the planet via mobile devices, and the connecting of nearly everything else to the Internet.

When we state that the technology industry’s best days are ahead, it is for the reasons I touch on above and more. While we explain the next 25+ years will be focused on bringing computing to the masses, the next 50+ years will be bringing computing to nearly everything.

The Major Industry Battle Brewing Between Samsung vs Google

Over the last five years, Samsung has become a behemoth in the tech marketplace. Their smartphones dominate the tech landscape and their profits have been relatively good until recently, considering the fact they still make most of their money on hardware. However, as we have seen in the PC market, a hardware only business model is not sustainable. Indeed, as smartphones become more and more commoditized, Samsung’s profits margins will soon be squeezed — especially by competitors like Xaomi who is eating their lunch in China.

While they are one of the most vertically integrated companies in the tech arena and can leverage this to help margins to some degree, I am convinced that, unless they take control of their entire destiny, they are just going to become like any of the PC companies who have been beholden to Microsoft and Windows and have seen their margins shrink consistently as PCs became commoditized. “Google and Android” replace “Microsoft and Windows” in this scenario and at the moment, Samsung is just a front end to deliver more and more customers to Google to get their ads, services and products via Samsung devices. Given the fact 50% of Android devices are Samsung branded, and Samsung’s cut of any related profits is the same as even tiny companies who also back Android, if I were Samsung I would be really pissed I’m making Google richer while at the same time, jeopardizing my future earnings potential if I continue to back Android.

To Android or Not to Android?

It is clear to me Samsung sees this and is rethinking their relationship with Google and their support for Android. At their recent developers conference, they showed off their own mobile OS that uses Tizen at its core and have even started paying developers to write apps for Tizen. At first glance it seems the focus on Tizen seems to be for the Asian market but don’t let that deceive you. I think there is something bigger in the works with Tizen.

Here is what Samsung is up against if they continue down an Android path as is.

First, they just make Google wealthier and continue to deliver customers to Google instead of to themselves. Yes, Android has served them well so far, but as long as Google owns the OS, Samsung is beholden to Google and is just a slave to them. Second, they drive revenue to Google, revenue that could be all theirs if they owned the customers. Third, they will continue to face margin pressure as hardware based profits shrink. As I mentioned above, our analysis suggests Samsung’s margins, even on their upper end products, could be reduced to around 10%-15% as even high end smartphones become more commoditized.

There is a reason Samsung copies and steals from Apple as the court in San Jose has already proven during the recent trials in California. They look at Apple’s ownership of their ecosystem and lust after it in a big way. Apple is mostly insulated from very low margin pressure since they not only make money from hardware but also from apps, products and services. They can do so since they own their OS and ecosystem and control their destiny across the board. Put more directly, Apple gets all of the profits from hardware, software, ads and services while, in Samsung’s case, Google gets most of the ad revenue, app sales profits and services sales.

The irony to all of this is Samsung is the one who has made Android successful — yet Google will not share the wealth with Samsung any more than they do with other Android licensees.  Samsung has to be steaming at this predicament and looking for a way out. However, they have a dilemma and are boxed into a corner in the short term. While they can and will modify Android as far as they can without losing the store certification, the apps on Android that are both legitimate and illegitimate (the later being important in China) is too vast for them to abandon. Not being able to run android.apk apps would be suicide for anyone in the short term. Their developer environment is still based on Android so it seems they are trying to create a para-platform on top of Android that still uses the store but gets custom apps created for them in their ecosystem.

However, even in this scenario, where they can add some customization, they are still pouring money into Google’s coffers, leading them down a path where a hardware only play could hurt them big time in the future. Keep in mind, all OEMs backing Android are getting the same OS and, while hardware may differ, the OS is identical. It becomes harder and harder to differentiate with Google in control of the OS and related products and services. And Google’s new Android One program basically takes the cost out of the hardware and makes it possible for small companies to enter the market and go right after Samsung’s low end business in emerging markets.

So what could Samsung do to extricate themselves from the powerful hold Google has over them? Some industry folks I talk to think that Samsung could just fork Android the same way Amazon has done with their Fire OS. But even with Amazon’s clout, there are still not as many apps available on the Fire OS as there are in the Google Play Store and staying with Android even in a forked mode could be confusing for Samsung’s customers in the long run.

I think the real thing Samsung is working towards is to get away from Android completely sometime over the next three to five years and take complete control over their future. This is where I think their backing of Tizen becomes interesting and potentially important. Although Tizen has not attracted a lot of app support to date, if Samsung got behind it and was able to prove to the market they will continue to innovate around Tizen and keep delivering hundreds of millions of smartphones and tablets annually under their brand, they could attract serious software developers to the Tizen platform. Remember, they have 50% of the Android market today. If Samsung could show they would continue to be the #1 leader in smartphones even with Tizen, software developers would be crazy not to back Samsung’s Tizen strategy.

I don’t believe Google will let Samsung dump them without a battle. In fact, the recent fights between the two are becoming more public as it is becoming clear Samsung is no longer in love with Google.

I don’t think Google will adjust the revenue share for Samsung since, in doing, so they would probably have to have similar terms for other big Android vendors and that would really impact Google’s earning abilities. But they could be creative in trying to keep Samsung in the Android fold as well as putting a lot of pressure on them in ways we can’t even imagine at the moment. What Google wants, Google mostly gets.

In the long run, Android is a dead end for Samsung. As stated above, their relationship with Google is not that much different than what other PC OEMs have with Microsoft today and look what that has done to them in the commoditized age of PCs. I have no doubt even high end smartphones will become commoditized in a similar manner. If Samsung does not find ways to gain more control and deliver their own apps and services to enhance their overall profitability, they will, excuse the pun, become marginalized.

Deconstructing Satya. Episode II. The Empire Strikes Back.

Last week before the news broke, I warned Microsoft employees, all of them, to “get to work on your resume.” Change was coming, major change, and that always always always begins with a bloodletting.

Indeed, as others were decrying the word count of Satya Nadella’s “bold ambition” manifesto — signifying nothing, given it took Steve Jobs 1700 words to tell us he wasn’t going to use Flash on the iPhone — I read each word, every sentence. Nadella’s near-term intentions were obvious.

What was not clear, however, not until now, is how deeply divisive the Nokia purchase remains within the corridors of Microsoft’s ruling elite.  

This Deal Is Getting Worse All The Time

Despite the corporate-speak, despite the strategic shift toward “productivity and platforms,” Nadella’s manifesto message last week was undeniable. Job cuts. Thus, I wrote:

“Big layoffs by Christmas.”

But Nadella kept hinting, so I followed that with…

“Big layoffs by Thanksgiving.”

But Nadella hinted further, so I followed that with…

“Big layoffs by Labor Day.” 

In fact, the big cuts came only a few days later. Points for swift action, I suppose.

Nadella’s willingness to act fast, to re-make Microsoft, hack away at the extraneous and transform the company into “the productivity and platform company for the mobile-first and cloud-first world” appears to be exactly what the company needs.

But when you gut a $7.2 billion acquisition, which the company only closed on this past April, and fire 18,000 people, then you haven’t leapt from a burning platform, you’ve set the platform ablaze. There is no going back, no do-overs for Mr. Nadella. He is about to set the company on a ten year course, possibly longer, and though Microsoft possesses a rather stunning array of assets, what’s most stunning is the company still has virtually zero response to the iPhone, the iPad and Android. In 2014.

Competing in a mobile-first, cloud-first world — with no mobile device the world actually wants — seems less like corporate bumbling at this point and more like French royalty certain the barbarians will forever remain outside the gate.

Sadly, more than 18,000 will soon join those barbarians.

That Was Never A Condition Of Our Agreement

Nadella’s follow-up email to staff announcing major cuts is mercifully shorter than his bold ambition manifesto, though similarly riddled with the kind of corporate-speak analysts with expense accounts use on marketing managers with a too large budget.

My thoughts on Nadella’s latest message are below, in bold italic.

From: Satya Nadella
To: All Employees
Date: July 17, 2014 at 5:00 a.m. PT

5am! Leading is hard. 

Subject: Starting to Evolve Our Organization and Culture

“Starting to Evolve.” Catch that? This is just the start.

Last week in my email to you I synthesized our strategic direction as a productivity and platform company.

And now I’m gonna need those TPS reports.

Having a clear focus is the start of the journey, not the end. The more difficult steps are creating the organization and culture to bring our ambitions to life. Today I’ll share more on how we’re moving forward. On July 22, during our public earnings call, I’ll share further specifics on where we are focusing our innovation investments.

This reads like a draft memo from the assistant to the regional manager. No excuses here. 

The first step to building the right organization for our ambitions is to realign our workforce. With this in mind, we will begin to reduce the size of our overall workforce by up to 18,000 jobs in the next year.

Nokia is dead. Godspeed all you Nokians. 

Of that total, our work toward synergies and strategic alignment on Nokia Devices and Services is expected to account for about 12,500 jobs, comprising both professional and factory workers.


In his “bold ambition” email to employees, only days before this, Nadella stated “first party hardware” would form part of the core Microsoft vision. He said this four times! 

    1. Our cloud OS infrastructure, device OS and first-party hardware will all build around this core focus and enable broad ecosystems.
    2. Our Windows device OS and first-party hardware will set the bar for productivity experiences.
    3. Our first-party devices will light up digital work and life.
    4. We will build first-party hardware to stimulate more demand for the entire Windows ecosystem.

[emphasis added]

Now, days later, he guts Nokia, kills off the very popular Asha hybrid phone line and halts development of the AOSP-led Nokia X.  

I suspect Mr. Nadella believes the smartphone wars are lost, despite whatever else the company may tell us. They are no longer worth fighting for. 

Prediction: Microsoft will focus its mobile hardware efforts not on Windows Phone but on Surface, on new mobile gaming devices, and new mobile “productivity” devices; anything and everything that might help them uncover that next great mobile computing inflection point. Smartphones are lost to them. 

We are moving now to start reducing the first 13,000 positions, and the vast majority of employees whose jobs will be eliminated will be notified over the next six months.

13,000 from the 18,000? 12,500 from Nokia plus 500 from elsewhere? Where does this number come from?

Nadella needs to be straightforward here. So far, he’s failed. 

It’s important to note that while we are eliminating roles in some areas, we are adding roles in certain other strategic areas.

Nowhere near 18,000, however. Thus, it would be best if not said at all.

My promise to you is that we will go through this process in the most thoughtful and transparent way possible.

Your own email appears poorly thought out and lacking transparency!

We will offer severance to all employees impacted by these changes, as well as job transition help in many locations, and everyone can expect to be treated with the respect they deserve for their contributions to this company.

Forget them. Move forward. 

Later today your Senior Leadership Team member will share more on what to expect in your organization.

How bureaucratic is this company?

Our workforce reductions are mainly driven by two outcomes: work simplification as well as Nokia Devices and Services integration synergies and strategic alignment.

That’s three, maybe four outcomes, not two. Can Nadella really not trust anyone to review and edit his emails? 

Fact: Nearly every single Nokia device over the next several years will be replaced by an Android, perhaps a few by iPhones, not Windows Phone (in any form).  

My prediction that the remaining “Nokia” employees will focus mostly on new mobile productivity devices and new mobile gaming devices, not smartphones, stands. Nadella just isn’t ready to tell us this, not yet. Perhaps, he’s not come to terms with it himself. 

First, we will simplify the way we work to drive greater accountability, become more agile and move faster.

Perhaps given your size, strengths and history, being inflexible and moving slower, and with less accountability (e.g. investor input), would be the best strategy?

Yes, I am serious. Agility and speed are never the strengths of behemoths. 

Perhaps You Think You Are Being Treated Unfairly

As part of modernizing our engineering processes the expectations we have from each of our disciplines will change. In addition, we plan to have fewer layers of management, both top down and sideways, to accelerate the flow of information and decision making. This includes flattening organizations and increasing the span of control of people managers.

Sideways layers of management? Sideways layers!  

In addition, our business processes and support models will be more lean and efficient with greater trust between teams. The overall result of these changes will be more productive, impactful teams across Microsoft.

Question: How dysfunctional is this company?

These changes will affect both the Microsoft workforce and our vendor staff. Each organization is starting at different points and moving at different paces.

Answer: Appreciably dysfunctional. 

Second, we are working to integrate the Nokia Devices and Services teams into Microsoft. We will realize the synergies to which we committed when we announced the acquisition last September. The first-party phone portfolio will align to Microsoft’s strategic direction. To win in the higher price tiers, we will focus on breakthrough innovation that expresses and enlivens Microsoft’s digital work and digital life experiences. In addition, we plan to shift select Nokia X product designs to become Lumia products running Windows. This builds on our success in the affordable smartphone space and aligns with our focus on Windows Universal Apps.

Integrate Nokia into Microsoft? Realize the synergies committed to last September? Align the first party phone portfolio to Microsoft’s strategic direction? To win the higher price tiers? Which builds on Microsoft’s success in the affordable smartphone space?

We can’t possibly divine what these words mean because Nadella does not know the way forward in mobile. That’s a problem. 

Making these decisions to change are difficult, but necessary. I want to invite you to my monthly Q&A event tomorrow. I hope you can join, and I hope you will ask any question that’s on your mind. Thank you for your support as we start to take steps forward in evolving our organization and culture.


It Is Your Destiny

Last week, I praised Nadella for his bold, borderline revolutionary statements. A few days later he morphs into a parody of his predecessor.

I give him a pass. This time.

When it comes to massive corporate downsizing, we always say there’s a right way to do these things but there’s never a right way to do these things. That said, it seems clear Nadella hasn’t yet figured out exactly what Microsoft should do in mobile and that’s a problem for which no one will give him a pass.

Deconstructing Satya

Last week, Microsoft CEO Satya Nadella laid bare his vision for the tech giant. It is borderline revolutionary.

From its early days, Microsoft has focused on using software and computing to empower people and businesses around the world. Nadella still clings to this laudable vision. However, he has now fundamentally flipped the seat of power, even as he fears to let go of all Microsoft has amassed over the decades.

Just as America’s Constitution enumerated inalienable rights all its people are endowed with, forever empowering even a single individual against the full force of the government, in a similar manner Nadella has positioned the user above all else.

This is radical. For Microsoft, it’s nearly unthinkable.

Nadella does not simply place emphasis on users instead of PCs, on productivity instead of Windows. He changes the equation of the software behemoth going forward.  This could set Microsoft apart from all others.

The most user-friendly tech company in the world, Apple, emphasizes ecosystem over device, lock-in over empowerment. Google takes from its own users when they are not looking. Amazon confounds its customers with Prime service, making it nearly impossible to ever fully know the actual price — or value — of any single item.

Nadella is positioning Microsoft on the side of the user. Security, privacy, productivity, empowerment. I believe this will have a profound and lasting impact on the company and its customers forever. This call to great and permanent and never ending change is buried inside Nadella’s 3,500 word memo to Microsoft staff. I understand if you choose not to read (any/all of) it.

My analysis of his manifesto is below, in bold italic.

Nadella word cloud


From: Satya Nadella

To: All Employees

Date: July 10, 2014 at 6:00 a.m. PT

Subject: Starting FY15 – Bold Ambition & Our Core

As we start FY15, I want to thank you for all of your contributions this past year. I’m proud of what we collectively achieved even as we drove significant changes in our business and organization. It’s energizing to feel the momentum and enthusiasm building.

This is all wrong. Platitudes, corporate management speak and 3,500 words are absolutely the wrong way to begin a discussion about “significant changes” and “enthusiasm building.” That within the first paragraph we are twice reminded FY15 has commenced, all I can think is Nadella is too steeped in the pre-existing conditions of Microsoft to achieve anything great, let alone revolutionary. 

The day I took on my new role I said that our industry does not respect tradition – it only respects innovation. I also said that in order to accelerate our innovation, we must rediscover our soul – our unique core. We must all understand and embrace what only Microsoft can contribute to the world and how we can once again change the world. I consider the job before us to be bolder and more ambitious than anything we have ever done.

“What only Microsoft” can do should be plastered across every meeting room in Redmond. Nadella mimics Tim Cook’s penchant for “change the world” pablum but to be fair, very few companies really can. Microsoft is one. Kudos to Nadella for not shying away from this. 

We’ll use the month of July to have a dialogue about this bold ambition and our core focus.

The very corporate nonsense-speak that turned me into a freelancer.

Today I want to synthesize the strategic direction and massive opportunity I’ve been discussing for the past few months and the fundamental cultural changes required to deliver on it.

Means nothing.

On July 22, we’ll announce our earnings results for the past quarter and I’ll say more then on what we are doing in FY15 to focus on our core. Over the course of July, the Senior Leadership Team and I will share more on the engineering and organization changes we believe are needed. Then, at MGX and //oneweek, we’ll come together to build on all of this, learn from each other and put our ideas into action.

Rigid, bureaucratic and enslaved to artificial dates. 

We live in a mobile-first and cloud-first world. Computing is ubiquitous and experiences span devices and exhibit ambient intelligence. Billions of sensors, screens and devices – in conference rooms, living rooms, cities, cars, phones, PCs – are forming a vast network and streams of data that simply disappear into the background of our lives. This computing power will digitize nearly everything around us and will derive insights from all of the data being generated by interactions among people and between people and machines. We are moving from a world where computing power was scarce to a place where it now is almost limitless, and where the true scarce commodity is increasingly human attention.

This is brilliant. Better, it launches the long, painful slog of fully re-positioning Microsoft away from PCs, away from Windows, away from Office, away from its past, which now binds it, and onto a future of screens, data and insight.

The only company at present that can challenge a fully engaged Microsoft in this is Google. 

In this new world, there will soon be more than 3 billion people with Internet-connected devices – from a farmer in a remote part of the world with a smartphone, to a professional power user with multiple devices powered by cloud service-based apps spanning work and life.

Microsoft will be the anti-Apple, delivering services and value to all, not just the world’s 10%. 

The combination of many devices and cloud services used for generating and consuming data creates a unique opportunity for us. Our customers and society expect us to maximize the value of technology while also preserving the values that are timeless.

Means nothing. Wasting employee’s time.

We will create more natural human-computing interfaces that empower all individuals. We will develop and deploy secure platforms and infrastructure that enable all industries. And we will strike the right balance between using data to create intelligent, personal experiences, while maintaining security and privacy. By doing all of this, we will have the broadest impact. 

Preach! Only Google can challenge Microsoft in delivering services to all. But, only Microsoft can deliver these services and effectively protect individual privacy. 

Mobile First Cloud First

Microsoft was founded on the belief that technology creates opportunities for people and organizations to express and achieve their dreams by putting a PC on every desk and in every home.

Microsoft’s business practices rightly angered many of us. But their efforts also helped deliver us directly to this future. We should be thankful for that. 

More recently, we have described ourselves as a “devices and services” company. While the devices and services description was helpful in starting our transformation, we now need to hone in on our unique strategy.

I am not Steve Ballmer.

At our core, Microsoft is the productivity and platform company for the mobile-first and cloud-first world. We will reinvent productivity to empower every person and every organization on the planet to do more and achieve more.

Wow. This is a truly revolutionary message and within Microsoft’s skill set to make happen. I will be happy if Microsoft simply comes close to this vision, as it is glorious: “empower every person and every organization on the planet to do more and achieve more.” 

We think about productivity for people, teams and the business processes of entire organizations as one interconnected digital substrate. We also think about interconnected platforms for individuals, IT and developers. This comprehensive view enables us to solve the more complex, nuanced and real-world day-to-day challenges in an increasingly digital world. It also opens the door to massive growth opportunity – technology spend as a total percentage of GDP will grow with the digitization of nearly everything in life and work.

I think this is wrong. Backwards, in fact. It’s not about an “interconnected digital substrate,” a nonsense phrase, but about building a product that truly empowers that one person. If it empowers one, it will empower millions. Apple has taught us this. Microsoft has yet to learn this. 

We have a rich heritage and a unique capability around building productivity experiences and platforms. We help people get stuff done. Stuff like term papers, recipes and budgets. Stuff like chatting with friends and family across the world. Stuff like painting, writing poetry and expressing ideas. Stuff like running a Formula 1 racing team or keeping an entire city running. Stuff like building a game with a spark of your imagination and remixing it with the world. And stuff like helping build a vaccine for HIV, and giving a voice to the voiceless. This is an incredible foundation from which to grow. 

Nice reminder for the troops and the public. 

At our core, Microsoft is the productivity and platform company for the mobile-first and cloud-first world. We will reinvent productivity to empower every person and every organization on the planet to do more and achieve more.

Repeating this is not productive.

Microsoft has a unique ability to harmonize the world’s devices, apps, docs, data and social networks in digital work and life experiences so that people are at the center and are empowered to do more and achieve more with what is becoming an increasingly scarce commodity – time!

It took far too much time to get here, but Nadella has shrewdly set in motion not only Microsoft’s mission, but its marketing message as well, which is almost as important.

Microsoft will save us time. 

Productivity for us goes well beyond documents, spreadsheets and slides. We will reinvent productivity for people who are swimming in a growing sea of devices, apps, data and social networks. We will build the solutions that address the productivity needs of groups and entire organizations as well as individuals by putting them at the center of their computing experiences. We will shift the meaning of productivity beyond solely producing something to include empowering people with new insights. We will build tools to be more predictive, personal and helpful.

The deconstruction of Word, Excel et al shall commence starting now. 

We will enable organizations to move from automated business processes to intelligent business processes. Every experience Microsoft builds will understand the rich context of an individual at work and in life to help them organize and accomplish things with ease.

This will be tricky. Even in a data driven, always-on world, people vigilantly maintain different lives: work, home, and those known only between the person and her browser history. Nadella wants to create a whole where I believe people want to maintain separate, if porous, fiefdoms. 

Productive people and organizations are the primary drivers of individual fulfilment and economic growth and we need to do everything to make the experiences and platforms that enable this ubiquitous.

I love how Nadella and Microsoft are the anti-Apple. Steve Jobs was famous for talking about computers and creativity whereas Microsoft is now focused on computers and productivity. Both are worthy visions: Apple is more likely to garner passionate adherents, Microsoft is more likely to lift up all boats. 

Users Not Consumers

We will think of every user as a potential “dual user” – people who will use technology for their work or school and also deeply use it in their personal digital life. They strive to get stuff done with technology, demanding new cloud-powered applications, extensively using time and calendar management, advanced expression, collaboration, meeting, search and research services, all with better security and privacy control.

Privacy, privacy, security.

Wise of Microsoft to attack Google’s Achilles Heel. Obviously, we embrace the many benefits that accrue as our data, all of it, flows between many clouds and many screens.

We will want to know, however, that some data will remain forever cordoned off to all but exactly whom we wish and when. Only Microsoft can deliver this — Google’s business model is almost in direct opposition to it and Apple refuses to embrace Microsoft scale.

Warning, Mr. Nadella: do not abdicate user privacy. Do not screw this up. 

Microsoft will push into all corners of the globe to empower every individual as a dual user – starting with the soon to be 3 billion people with Internet-connected devices. And we will do so with a platform mindset. Developers and partners will thrive by creatively extending Microsoft experiences for every individual and business on the planet.

None of this sounds even remotely appealing. Platforms empower the maker, not the user. That’s why every company in tech talks platforms.

“Microsoft experiences” sounds no better than, say, a visit to the dentist. 

Across Microsoft, we will obsess over reinventing productivity and platforms. We will relentlessly focus on and build great digital work and life experiences with specific focus on dual use.

Nadella has hitched his future to a belief in “dual use.” That is, our work and home lives meld into one interconnected digital sphere. I think this is wrong and will be his undoing.

Microsoft Everywhere

Our cloud OS infrastructure, device OS and first-party hardware will all build around this core focus and enable broad ecosystems. Microsoft will light up digital work and life experiences in the most personal, intelligent, open and empowering ways.

Key words: “first-party hardware.” Surface, Lumia, Xbox — these are only the start of Nadella’s hardware ambitions. Ballmer must be pleased. 

Developers and partners will thrive by creatively extending Microsoft experiences for every individual and business on the planet.

Requisite acknowledgement of developers and partners now out of the way… 

We will deliver digital work and life experiences that are reinvented for the mobile-first and cloud-first world. First and foremost, these experiences will shine for productivity. As a result, people will meet and collaborate more easily and effectively. They will express ideas in new ways. They will experience the magic of ambient intelligence with Delve and Cortana.

This is the future we expect and I am looking forward to Microsoft’s implementation of “ambient intelligence.”

It’s easy to believe Microsoft will be unable to match Google Now and other iterations of Google’s ambient intelligence capabilities. It’s nearly as easy to believe Microsoft won’t be able to deliver a service as simple to use as Apple’s Siri. These are legitimate concerns. That said, Bing, Yammer, Office, Exchange, Skype, Lumia, and the reach of Microsoft’s cloud infrastructure are critical resources to be tapped, and will help guide users in all facets of their digital life. 

Moreover, for the shareholders, ambient intelligence will be a business revolution, and in this, Microsoft is far ahead of the pack. 

They will ask questions naturally and have them answered with insight from Power Q&A. They will conquer language barriers and change the world with Skype translator. Apps will be designed as dual use with the intelligence to partition data between work and life and with the respect for each person’s privacy choices. All of these apps will be explicitly engineered so anybody can find, try and then buy them in friction-free ways.  They will be built for other ecosystems so as people move from device to device, so will their content and the richness of their services – it’s one way we keep people, not devices, at the center.

I hope you succeed at this. Right now, these remain mere words.

This transformation is well underway as we moved Office from the desktop to a service with Office 365 and our solutions from individual productivity to group productivity tools – both to the delight of our customers.

Please ban the use of the word ‘delight’.

We’ll push forward and evolve the world-class productivity, collaboration and business process tools people know and love today, including Skype, OneDrive, OneNote, Outlook, Word, Excel, PowerPoint, Bing and Dynamics. 

The next revolution will be in the office, not in the home. In this, new Microsoft still acts like old Microsoft. 

Increasingly, all of these experiences will become more connected to each other, more contextual and more personal. For example, today the Cortana app on my Windows Phone merges data from highway sensors and my own calendar and simply reminds me to leave work to make it to my daughter’s recital on time. In the future, it will be even more intelligent as a personal assistant who takes notes, books meetings and understands if my question about the weather is to determine my clothes for the day or is intended to start a complex task like booking a family vacation. Microsoft experiences will be unique as they will reason over information from work and life and keep a user in control of their privacy.

Dear tech bloggers: the ‘Microsoft is doomed’ stories are just stupid. 

The Cloud Everywhere

Our cloud OS represents the largest opportunity given we are working from a position of strength. With Azure, we are one of very few cloud vendors that runs at hyper-scale. The combination of Azure and Windows Server makes us the only company with a public, private and hybrid cloud platform that can power modern business. We will transform the return on IT investment by enabling enterprises to combine their existing datacenters and our public cloud into one cohesive infrastructure backplane. We will enable our customers to use our Cloud OS to accelerate their businesses and power all of their data and application needs. 

The cloud will be where nearly all our data and all the intelligence connected to that data resides. But not all. We will use our mobile devices to store and share data and content which we dare not send via the cloud.

That said, the cloud will be paramount, and Mr. Nadella is wise to focus so much attention upon Microsoft’s capabilities here.

His statement also reminds us Nadella is a techie and he understands how to fully leverage the breadth of Microsoft’s infrastructure. I wish his statement, however, wasn’t so buried underneath enterprise-speak. How will this cloud benefit me — not me at work, not me doing work. Simply, me. 

Beyond back-end cloud infrastructure, our cloud will also enable richer employee experiences. For example, with our new Enterprise Mobility Suite, we now enable IT organizations to manage and secure the Windows, iOS and Android devices that their employees use, while keeping their companies secure. We are also making it easy for organizations to securely adopt SaaS applications (both our own and third-party apps) and seamlessly integrate them with their existing security and management infrastructure. We will continue to innovate with higher level services like identity and directory services, rich data storage and analytics services, machine learning services, media services, web and mobile backend services, developer productivity services, and many more.

Nadella may talk of “dual use” and of the merging of work and home. Microsoft remains, however, a work company.  

Our cloud OS will also run all of Microsoft’s digital work and life experiences, and we will continue to grow our datacenter footprint globally. Every Microsoft digital work and life experience will also provide third-party extensibility and enable a rich developer ecosystem around our cloud OS. This will enable customers and partners to further customize and extend our solutions, achieving even more value.

Cloud “APIs,” essentially, could revolutionize how we create, manipulate and benefit from data. Microsoft should be a leader in this, and it will propel tremendous business value. 

Hardware Everywhere

Our Windows device OS and first-party hardware will set the bar for productivity experiences.

Again, that phrase “first-party hardware.”

Microsoft is (now) a hardware company. But a good one? Can an applications, services and infrastructure company also do great hardware? I have my doubts. I welcome being proven wrong. 

Windows will deliver the most rich and consistent user experience for digital work and life scenarios on screens of all sizes – from phones, tablets and laptops to TVs and giant 82 inch PPI boards.

Does anyone believe this will ever be so?

We will invest so that Windows is the most secure, manageable and capable OS for the needs of a modern workforce and IT.

Nadella will not cede one organization to Google Docs and not allow a single corporation to let iPhone, iPad or BYOD to loosen its grip on the enterprise. This will be a bloody fight. I can’t wait.  

Windows will create a broad developer opportunity by enabling Universal Windows Applications to run across all device targets. Windows will evolve to include new input/output methods like speech, pen and gesture and ultimately power more personal computing experiences. 

Multi-mode inputs will absolutely create more personal computing experiences. The burden of proof that these should — or even can — be offered by Microsoft is quite high, however.

Very, very few humans use speech, pen or gestures to interact with Microsoft products or applications. Microsoft has repeatedly failed to lead the world in this. 

Our first-party devices will light up digital work and life. Surface Pro 3 is a great example – it is the world’s best productivity tablet.


In addition, we will build first-party hardware to stimulate more demand for the entire Windows ecosystem. That means at times we’ll develop new categories like we did with Surface. It also means we will responsibly make the market for Windows Phone, which is our goal with the Nokia devices and services acquisition.

Being deliberately inexplicable is not productive, Mr. Nadella. What exactly is “responsibly make the market?” You intend to be a hardware company, in direct competition with many of your very best partners. Say so. 

I also want to share some additional thoughts on Xbox and its importance to Microsoft. As a large company, I think it’s critical to define the core, but it’s important to make smart choices on other businesses in which we can have fundamental impact and success. The single biggest digital life category, measured in both time and money spent, in a mobile-first world is gaming. We are fortunate to have Xbox in our family to go after this opportunity with unique and bold innovation. Microsoft will continue to vigorously innovate and delight gamers with Xbox. Xbox is one of the most-revered consumer brands, with a growing online community and service, and a raving fan base. We also benefit from many technologies flowing from our gaming efforts into our productivity efforts – core graphics and NUI in Windows, speech recognition in Skype, camera technology in Kinect for Windows, Azure cloud enhancements for GPU simulation and many more. Bottom line, we will continue to innovate and grow our fan base with Xbox while also creating additive business value for Microsoft.

Brilliant. Nadella has scuttled all rumors about Microsoft abandoning Xbox. He has reminded analysts gaming is a primary driver behind mobile and while Microsoft lags in mobile it is a leader in gaming. Nadella also reminds us in our new age of data, collaboration and ideas, “gaming” will become a crucial component of productivity.

While today many people define mobile by devices, Microsoft defines it by experiences. We’re really in the infant stages of the mobile-first world. In the next few years we will see many more new categories evolve and experiences emerge that span a variety of devices of all screen sizes. Microsoft will be on the forefront of this innovation with a particular focus on dual users and their needs across work and life.
 Microsoft will continue to vigorously innovate and delight gamers with Xbox.

My take: Microsoft to acquire Zynga. That’s just for starters. 

Our ambitions are bold and so must be our desire to change and evolve our culture.
I truly believe that we spend far too much time at work for it not to drive personal meaning and satisfaction. Together we have the opportunity to create technology that impacts the planet.

Good, lord, this memo is just ridiculously long. 

I’ve Seen All Good People

Nothing is off the table in how we think about shifting our culture to deliver on this core strategy. Organizations will change. Mergers and acquisitions will occur. Job responsibilities will evolve. New partnerships will be formed. Tired traditions will be questioned. Our priorities will be adjusted. New skills will be built. New ideas will be heard. New hires will be made. Processes will be simplified. And if you want to thrive at Microsoft and make a world impact, you and your team must add numerous more changes to this list that you will be enthusiastic about driving.

If you are not a star, I strongly advise you to get to work on your resume. 

I am committed to making Microsoft the best place for smart, curious, ambitious people to do their best work.

If you are a star, I strongly advise you to get to work on your resume. 

First, we will obsess over our customers. Obsessing over our customers is everybody’s job. I’m looking to the engineering teams to build the experiences our customers love. I’m looking to the sales and marketing organizations to showcase our unique value propositions and drive customer usage first and foremost.
 In order to deliver the experiences our customers need for the mobile-first and cloud-first world, we will modernize our engineering processes to be customer-obsessed, data-driven, speed-oriented and quality-focused. We will be more effective in predicting and understanding what our customers need and more nimble in adjusting to information we get from the market. We will streamline the engineering process and reduce the amount of time and energy it takes to get things done. You can expect to have fewer processes but more focused and measurable outcomes. You will see fewer people get involved in decisions and more emphasis on accountability. Further, you will see investments in two new or combined functions: Data and Applied Science and Software Engineering. Each engineering group will have Data and Applied Science resources that will focus on measurable outcomes for our products and predictive analysis of market trends, which will allow us to innovate more effectively. Software Engineering will evolve so that information can travel more quickly, with fewer breakpoints between the envisioning of a product or service and a quality delivery to customers. In making these changes we are getting closer to the customer and pushing more accountability throughout the organization.

We should not be surprised when thousands of Microsoft staff are shown the door.

Second, we know the changes above will bring on the need for new training, learning and experimentation.

That’s you, old, middle management gatekeepers.

Over the next six months you will see new investments in our workforce, such as enhanced training and development and more opportunities to test new ideas and incubate new projects.

Big layoffs by Christmas.

I have also heard from many of you that changing jobs is challenging. We will change the process and mindset so you can more seamlessly move around the company to roles where you can have the most impact and personal growth. All of this, too, comes with accountability and the need to deliver great work for customers, but it is clear that investing in future learning and growth has great benefit for everyone.  

I suspect Microsoft will soon become the GE of personal computing. Massive, always in flux, possessing an agile bureaucracy, driven less by product or business model and more by shrewdly financing initiatives which it can dominate.  

I am committed to making Microsoft the best place for smart, curious, ambitious people to do their best work.

Why hasn’t it been?



every team across Microsoft must find ways to simplify and move faster, more efficiently. We will increase the fluidity of information and ideas by taking actions to flatten the organization and develop leaner business processes.

See note above re: resumes.

Culture change means we will do things differently. Often people think that means everyone other than them. In reality, it means all of us taking a new approach and working together to make Microsoft better. To this end, I’ve asked each member of the Senior Leadership Team to evaluate opportunities to advance their innovation processes and simplify their operations and how they work. We will share more on this throughout July.

Big layoffs by Thanksgiving.

A few months ago on a call with investors I quoted Nietzsche and said that we must have “courage in the face of reality.” Even more important, we must have courage in the face of opportunity.

+1 for quoting Nietzsche. -2 for quoting Nietzsche 3,000 words in. 

We have clarity in purpose to empower every individual and organization to do more and achieve more. We have the right capabilities to reinvent productivity and platforms for the mobile-first and cloud-first world. Now, we must build the right culture to take advantage of our huge opportunity. And culture change starts with one individual at a time.

Validate why you, ye lowly programmer, should continue to be employed by Microsoft. 

Rainer Maria Rilke’s words say it best: “The future enters into us, in order to transform itself in us, long before it happens.”

Want to get on Nadella’s good side? He obviously has a penchant for early 20th century German writers.

We must each have the courage to transform as individuals. We must ask ourselves, what idea can I bring to life? What insight can I illuminate? What individual life could I change? What customer can I delight? What new skill could I learn? What team could I help build? What orthodoxy should I question?

Big layoffs by Labor Day. 

With the courage to transform individually, we will collectively transform this company and seize the great opportunity ahead.

I wish you well, Mr. Nadella, and all of you (still) at Microsoft. 

Apple Is The Disney World Of Tech

On Twitter, Ben Bajarin, and others, recently argued that the value in tech tends to inevitably shift from software to hardware and, finally, to services.

Hardware to software to services. Apple is in a unique position to capture content. ~ Ben Bajarin (@BenBajarin)

Ben, you’re essentially saying Apple is beginning a new business model around iOS. ~ eric perlberg (@eric_perlberg)

I’m not so sure.

24_44I think Apple’s business model is similar to the Disney World business model. There are boardwalks and amusement fairs aplenty, but there is only one Disney World. It it the crème de la crème of amusement parks. Similarly, there are smartphones and tablets aplenty but there is only one “Apple World.” It is the crème de la crème of mobile computing.

Disney World does not charge per ride. Rather, they charge a single admission fee to allow admission to their parks. Similarly, Apple does not charge for its platform. The iPod Touch, iPhone or iPad is the price of admission to their ecosystem — the “ticket” to “Apple World.”

Hardware As A Ticket

Pundits often ignore the value of Apple’s ecosystem. They compare Apple’s hardware to the hardware of Apple’s competitor’s and, finding it wanting, proclaim it to be “overpriced”. But if one includes the Apple ecosystem in the cost of the hardware, then the premium charged by Apple for their hardware is more than justified.

Without a doubt, Disney World generates huge amounts of money from the sale of foods, concessions and hotels, but it is the Disney Park that draws the customers. Similarly, Apple makes huge amounts of money from the sale of apps, music, TV and movies but it is Apple’s entire ecosystem — not just their content — that draws the customers.

Strategy Bonus

Microsoft sells its software licenses to Original Equipment Manufacturers (OEMs). They, not the consumer, are Microsoft’s true customers. Google gives away its services and sells consumer eyeballs to advertisers. The advertisers, not the consumers, are Google’s true customers. Apple, on the other hand, sells their hardware — their “ticket” to their ecosystem — directly to the end user.

Microsoft, Google and Apple all want the end user to have a superior user experience. But since Apple sells their hardware directly to consumers, it is easier for them to stay focused on that task. With Apple, the customer and the end user are one and the same. Apple’s desire to help its customers is perfectly aligned with Apple’s desire to help its end users. One might call this a Strategy Bonus. Microsoft and Google, try as they might to please the end user, have a customer layer between themselves and that end user. Apple does not.

Different, Not Best

Am I saying Apple’s business model is superior? Not at all. Throughout my life, I’ve enjoyed going to my local boardwalk and I would be unable to do that if the Disney World model were the only amusement business model available. On the other hand, it took a unique man with a unique vision to create a unique place like Disney World. It’s a one of a kind, world class, amusement experience. And the world would be a lesser place without it.

Similarly, it took a unique man with a unique vision to create “Apple World”. I’m glad the world has Microsoft and Google. But the world would be a lesser place without the unique vision that created Apple. It’s the Disney World of tech.

The Mystery Of Flight 370 And Friends On The Internet I Will Never Meet

My mind continues to reflect back to those with loved ones on Malaysia Airlines Flight 370*.  Desperate, hopeful, hopeless, an inexplicable truth staring back at them. What can they do? Wait still more? Call?

I picture each of them picking up their phone, praying, miracle of miracles that their loved ones or colleagues are somehow safe, alive, and will return soon. The phone rings and rings – no answer, obviously. Or perhaps, they hear a carrier’s hollow, computerized message and then an empty silence, their turn to speak. What is there to say?

For a few, the horror and blessing of their loved one’s recorded voice, on infinite loop, tragically disconnected from all we are connected with – which, even in the 21st century, remains frightfully limited to the digital and the physical.

Would you leave a message? Where does it go?

Might an errant text arrive after the terrible truth becomes known? “Mom, Dad. We land in Beijing in just a few hours. See you soon! Much love.”

Despite the persistent limitations of our technologies and their callous lack of both awareness and emotion, I am nonetheless thankful for the many new forms of connectivity we have constructed for ourselves. For all their technical trappings and the radical new linkages between man and machine, I believe they are simultaneously enabling a more profoundly human world.

Never Too Far Away

Death remains blunt and obvious. For those of us old enough, however, born in an era of non-constant connectivity, we can still recall the powerlessness when our parents picked up stakes and moved us far away from all we knew. Dear friends we would never again see nor speak with. We might forget their names, forget what they looked like. We become ghosts to them, as they are ghosts to us.

No longer. Friendships now can easily survive great distances.

It gets even better.

There are friendships that are only now even possible, meaningful relationships with people we never actually meet and likely never will. This should be celebrated.

Yes, we now regularly interact with machines, artificial intelligences, databases, Siri and her cohorts, and it’s all amazing. But we are also interacting with more people than ever before as friends. I think this may have an even more lasting impact on humanity’s future.

I ‘speak’ regularly with people on Twitter, people I call friends, yet have never met them and know I almost certainly never will. I miss them when they are absent.

When they are offline for several days in a row I start to worry. Who can’t take time out to tweet they are busy and won’t be online for a week or so? Something must be wrong!

We share jokes, photos, advice. We listen. We recommend. We know each other’s likes and dislikes. We cheer when they get a new job or announce a new addition to their family.

Understand, this is not at all what I imagine a call on LiveLinks to be like. It’s no 90s phone sex thing, no going onto Yahoo chat and pretending to be someone you are not. We are real. These connections are our friends. We are like pen pals of old — only at infinite scalability and with far more robust communication modes at our disposal.

Is there a name for these types of friendships? Are they more or less special? It seems less, if I am forced to choose, though I admit to more than once being engaged in a discussion with good friends, friends mere feet away from me, then stopping to converse with one or more ‘friends’ on Twitter.

Of All The Souls I Have Encountered

We happily accept we have methods of maintaining contact with friends and family across any distance — via texting, FaceTime or Facebook, for example. Such methods are available to children as equally as to adults, fully accessible and without cost for most of us. That’s wonderful. What we rarely discuss, however, is these same tools have led to an entirely new reality: connecting with people on a deeply personal level, without ever meeting them in the flesh.

They are not ghosts, though we never see them. They clearly impact our lives, though we may not even know what they look like, what they sound like, their height, shape, skin color. I think this is profound.

I never want to reach out and discover a loved one no longer on the other end. But what we have today is, I believe, much better than before. Which probably makes it far more jarring when someone we know, in the flesh or not, becomes forever disconnected from us.

*At the time of writing, there were still no confirmed sightings of Malaysia Airlines Flight 370. 

Image courtesy of Bloomberg.  

Who Won The Mobile Tech Olympics?

Business is a combination of war and sport. ~ André Maurois

The Long Summer Of The Microsoft Monopoly Olympics

Computing was pretty simple for the last 15 years: PC plus a browser. Both are splintering now. ~ Benedict Evans (@BenedictEvans)

Once upon a time — long, long ago in 2006 — the Personal Computing Olympics used to be oh-so-simple. First off, you weren’t even invited to the games unless you were bosom buddies with Microsoft. And almost everybody who attended got a medal (but Microsoft took home most of the Gold, if you know what I mean). It was the long summer of Microsoft and we thought that it would never end.

Then along came Mobile. Mobile changed the game as radically as if the Olympics had switched from Summer Games to Winter Games. The world of computing was turned on its head and it would never be the same. Oh, Microsoft tried to play in the new Mobile Winter Olympics, but they were ill prepared. Surprisingly in foresight, but unsurprisingly in hindsight, the new Winter games left them cold.

One Olympics, Two Champions

So much for the old Olympics and the former Olympian. Let’s turn our attention to the New Mobile Winter Olympics and the question of who won them. The answer? Well, it depends upon the question you ask.

It is not the answer that enlightens, but the question. ~ Eugene Ionesco

You see, the Tech Olympics — just like the real Olympics — are divided into two very different types of games:

    1) Subjective Games that are judged by a panel of judges — like Ice Dancing and Half-Pipe; or

    2) Objective Games that are determined by clocks, tape measurers and other quantifiable metrics — like Speed Skating, Downhill Slalom and Ski Jumping.

So who won the Tech Olympics — just like who won the real Olympics — depends on how you score the games. Are you judging based on how the market responded or how the press responded or are you judging based upon objective measurements? Two very different ways to measure. Two very different types of winners.

The Subjective Olympics

And the medalists in the Subjective Olympics are:

Gold: The Google and Android twins walked off with the Couples’ Gold Medal. The Judges raved about their mobile acumen and no one else even came close to matching their exquisite market share.

Silver: Samsung came in a very strong second for the Silver Medal. Some argued that they should have won it all, but Samsung was all strength, no subtlety; all power, no grace. Four years ago, no one even expected that Samsung would be at the games, so they should be grateful just to be standing on the (Android) platform.

Bronze: And the Bronze goes to Amazon, of course. True, Amazon did not have a particularly productive Olympics. They over-performed in revenue, but under-performed in profits. But none of that really mattered to the Judges. Amazon’s coach was brilliant, their business model dazzling and their potential awe-inspiring. The Judges awarded the Bronze to Amazon not on merit but because it was clear to them that Amazon was destined for greatness.

Off The Podium: Apple? As if! Pushed off the podium altogether. All sorts of glitzy performances, but they only entered a few, select events, they had the smallest team at the Olympic Village and they could muster only a paltry market share, to boot. On the whole, a most disappointing performance.

Oh, it was true enough that Apple had its fanatical, cult-like following, but Apple’s fan base was oh-so-tiny in comparison to the other contestants and it was full of pretentious baristas and other obnoxious types. Apple simply didn’t fit the Judge’s image of what it takes to make a champion.

The Objective Olympics

The medalists for the Objective Olympics were a different story altogether. Let’s do them in reverse order:

Disqualified of Did Not Finish: Sony, Panasonic, Sharp, BlackBerry, Palm, Dell, and far too many others to list. Some started too soon, some failed to finish, some did both.

Shut Out: Microsoft talked a big game, but they finished with no medals. However, they vowed to win the next Olympics, for whatever that’s worth.

Bronze: The Bronze? No winner. The podium remains empty.

Silver: Samsung of course, with a strong showing. 309 million units, which represented 39.5% of total Android shipments in 2013.

Gold: In a surprise to absolutely no one who was paying any attention and to absolutely everyone who wasn’t — the Gold went to Apple. And it wasn’t even close.

Scoring The Objective Olympics

[pullquote]I like long walks, especially when they are taken by people who annoy me. ~ Fred Allen[/pullquote]

“Apple!” cried the outraged Subjective Olympic judges. “Apple, the winner? And no medal for Google and Android? Impossible. Outrageous. Unheard of! The fix is in!

“Well, you see,” the Objective Judges calmly explained to their irate brethren over and over again, “in the Objective Olympics, we judge things by objective criteria and Apple walked away with them all — save one.

1) Apple gained mobile phone share. ((Gartner: Apple gained mobile phone share as smartphones overtook feature phone sales in 2013))

2) Apple dominated mobile platforms. ((Apple’s control of the app economy stronger than you know;

The Smartphone App Wars Are Over, and Apple Won))

The Smartphone App Wars Are Over and Apple Won” Yep. If you care about have the best/newest. Ben Thompson (@monkbent)

3) Apple dominated profits. Their profits went UP from 78% to 87.4% in 2013. And just to give you an idea of how much Apple dominated, iTunes — which is their “loss leader” — grossed half as much ($17.5B) as all of Google combined. ((Mobile phone market hits ‘the great moderation’;

Including hardware, iTunes grossed about $175b in 2013))

Market share is the right metric for Android’s business model. Revenue is right for iOS’. The two aren’t mutually exclusive. ~ @mtabini ((via ArrAySee @ArrAySee))

4) Apple INCREASED their Enterprise dominance. Apple’s iPad took 91% market share of enterprise devices. iOS took 73% overall. ((Apple’s iPad takes 91.4% share of enterprise tablets; iOS takes 73% share overall

Apple maintains enterprise dominance; Windows Phone lags

iOS Dominates Enterprise Market with 73% of Mobile Device Activations))

5) Apple dominated brand loyalty. iPhone owners have “blind loyalty” and will buy anything Apple makes. 78% of UK iPhone owners ‘couldn’t imagine having a different type of phone now. ((Study: iPhone owners have ‘blind loyalty’ and will buy anything Apple makes

78% of UK iPhone owners ‘couldn’t imagine having a different type of phone now))

Two Different Ways To Judge, Two Different Types Of Olympians

“What, what, what,” sputtered the flustered Subjective Judges. “If the facts favor Apple, then the facts must be Apple Fanbois!”

Yeah, they kinda are.

[pullquote]Android’s increased market share HAS NOT come at any cost to Apple’s iOS[/pullquote]

It’s been apparent for years that Apple was taking the high end of both phones and tablets and that Android was taking almost all of the rest. What HAS NOT been apparent to many is that Android’s increased market share HAS NOT come at any cost to Apple’s iOS. As noted, above, despite Android’s massive increase in market share, Apple’s numbers in platform, profits, Enterprise and customer loyalty all went UP.

Did you hear about the guy that lost his left arm and leg in a car crash? 
He’s all right now.

Did you hear about the company that lost all the profitless market share they weren’t ever competing for? They’re all right now too.

In Olympic terms, Apple didn’t enter the most events, Apple didn’t win the most medals, Apple didn’t win any medals in any event that they didn’t enter, Apple didn’t win any bronze or silver medals, but Apple kept its eyes on the prize and they took home the Gold in every event that they participated in.

Market share is the right metric for Android’s business model. Revenue is right for iOS’s. The two aren’t mutually exclusive. Not that hard. ~ Marco Tabini (@mtabini)

Using market share alone as the one and only measure for who won and who lost the Mobile Tech Olympics borders on the delusional.

[pullquote]Life’s hard. It’s even harder when you’re stupid. ~ John Wayne[/pullquote]

  1. It’s like awarding the Gold Medal to the hockey team that had the most shots instead of the most goals;
  2. It’s like awarding the Gold Medal to the speed skating team that had the most players instead of the fastest time;
  3. It’s like awarding the Gold Medal to the curling team that threw the most stones instead of to the team with the stones closest to the center of the target.

Never underestimate our ability to ignore the obvious. ~ Po Bronson

The Next Olympics

So what happens at the next Olympics? Well, like former president George Bush, I have opinions.

I have opinions of my own, strong opinions, but I don’t always agree with them. ~ George W. Bush

I’ll save my analysis of the future of Blackberry, Apple, Chinese Android, Samsung Android, Nokia Android, Microsoft Windows Phone and Google for next time.

Post-Script: Join me on Twitter @johnkirk.

The Mobile Wave

1) We all know that sales of smartphones and tablets are are growing fast, however…

2) Those sales are growing even faster than we may realize, and…

3) The implications of this new wave of computing devices is going to be enormous; is going to impact us sooner than we anticipate, and…

4) We have to make ready or it will pass us by or, more likely, sweep our current way of conducting our businesses away.

Part 1: The Exhibits In Evidence

The iPhone & iPad Lit A Fuse Under The Rocket That Is Post-PC

— Most of the growth in mobile computing has come in just the last three years. ((This year we will sell around 300 million PCs and laptops while we will also sell just over 300 million tablets. By the end of 2015, we will be selling less than 300 million PCs and laptops and will be selling well over 350 million tablets. In fact, some market researchers think that by 2017 we could be selling 500 million tablets a year around the world. This makes tablets a serious growth market. While I state that the tablet journey has gone on for well over 20 years, its accelerated growth has come in just the last three years. ~ Tim Bajarin (@Bajarin)))

After only being in existence for 5 years, the iPhone is the second best selling product of all time – the 1st is the Rubik’s Cube. ~ UberFacts (@UberFacts)

I believe that the iPhone and iPad is to mobile computing what the Model-T was to cars.


The above chart, from Horace Dediu of Asymco, shows the growth of the car industry before and after the introduction of the Model-T. There were literally hundreds of car makers who, in the twenty years prior to the introduction of the Model-T, were all trying create THE car that would make the fledgling auto industry viable and profitable. As it turned out, it wasn’t so much the car itself, but a new method of cheaply mass manufacturing cars in quantity, that proved to be the key to unlocking the value that lay the car industry.

Similarly, while the iPhone was a brilliant achievement in itself, it wasn’t until the next year, when Apple introduced what was later to be known as iOS, along with the App Store, that the modern Smartphone was truly born. The combination of the iPhone, iOS and the App Store were the modern day equivalent to the procedure for mass producing the Model-T. The Model-T cracked the problem of production. The App Store cracked the problem of mobile software distribution. Both changed their respective worlds, forever. ((Don’t allow yourself to be distracted by parochialism. Nowadays, Apple isn’t happening to mobile. The future is happening to mobile.))


— As you read the follow data concerning mobile, keep in mind that Black Friday sales were DOWN this year.

— However, online shopping was UP.

— And sales of electronics were up; sales of mobile devices were up, Up, UP; and sales of tablets, in particular, were out-of-sight.


— Apple has 500,000 iPhone 5Ss being made every day, its highest ever output.

1.7bn mobile phones (feature phones and smartphones) were sold in 2012 alone
– 3.2bn people use a mobile phone worldwide
– Smartphones gain quickly as phones are replaced every 18 to 24 months. ~ Jean-Louis Gassée



— eBay reported selling one iPad per SECOND as of midnight on Black Friday.

— iPad Mini the top seller at Walmart.

— Apple products were 22% of Target’s sales on Black Friday.


Source: Mobile Is Eating The World, Benedict Evans


— Estimating tablet sales increase of 38% from Q4 2012. ~ Ben Bajarin (@BenBajarin)

— Worldwide sales of tablets and PCs are going to be very close this Q4. ~ Ben Bajarin (@BenBajarin)

To chart how quickly the market is shifting to tablets, consider that in February 2013, Canalys noted that tablets accounted for only one-third of all personal computers shipped. For all of 2013, Canalys had predicting originally predicted that tablets will account for 37% of all PCs shipped, with some 182.5 million tablets out of a total 493.1 million units, although today it is revising that up to 40%. ~ Techcrunch


(Author’s Note: Ben Bajarin did all the research and hard work necessary to create the above chart, yet was kind enough to allow me “steal” the fruits of his labor. Thank you, Ben.)

Tablet sales will probably overtake TV sales in the next few quarters. Getting internet video onto the TV itself might not matter. ~ Benedict Evans (@BenedictEvans)

Stop! You might want to re-read the above. Tablet sales might overtake TELEVISION sales in the next few quarters!



From talking with many friends and family over the holidays there was one tech product I heard no one say they were buying – a PC. ~ Ben Bajarin (@BenBajarin)


(Author’s Pet Peeve: Tablets are not “cannabalizing” PC’s. Sharks don’t “cannabalize” fish, they devour them. Tablets are not “cannabalizing” PC’s, they’re eating them up.)

Interesting to hear more and more consumers tell us they are self aware of the fact that the PC is overkill for their main use cases. ~ Ben Bajarin (@BenBajarin)


I think there’s effectively going to be a consumer strike for q4 for PCs. Only if you completely need one would you buy. ~ Charles Arthur (@charlesarthur)


Source: Mobile Is Eating The World, Benedict Evans

The global iOS & Android install base is about to pass PCs ~ Benedict Evans (@BenedictEvans)

— Some say that PC sales are going to decline by 10%

— Some say more than 10%

— Some are predicting that PCs are going to decline further than projected, and…

— Some say that as ugly as those forecasts look, reality is going to be worse.

Part 2: The near-term — not the far-term — implications of Mobile Computing are enormous


In 2013 the Tech CEO Bodycount ((Courtesy of Horace Dediu (@asymco))) included Microsoft, BlackBerry, Acer, Nokia with HTC teetering on the brink. And that’s just in 2013.



Rule of thumb: iTunes accounts are growing at the rate of 100 million every six months. ~ Horace Dediu (@asymco)


Mobile Is The Only Media That Is Growing – TV, Print, Radio Are All Shrinking ~ Aravind S (@aravinds)


Source: Horace Dediu of Asymco


Take a good hard look at the mobile broadband is growing and wired broadband is tapering off.


Source: Horace Dediu of Asymco


The online shopping “Pie” is getting bigger.

Online holiday shopping (desktop and mobile) in the U.S. was up 14.5% from last year.

You spent $1.2 billion shopping online on Black Friday. ~ Arik Hesseldahl



Mobile is becoming a bigger portion of the bigger pie.

— “As of 9AM mobile accounted for 40.9% of online sales and iOS for 83% of those mobile sales.” ~ Horace Dediu (@asymco)

— iOS Devices Drive more than $543 Million, Android $148 Million in Online Sales on Dual-Billion Dollar Days ~ Adobe

It’s entirely possible and even probable that next year less than half of the online holiday shopping traffic in the US will come from PCs. Put another way, next year less than half of users will hire a PC for the job of online shopping. ~ Horace Dediu (@asymco)


Per 100 people there are 96 mobile subscriptions and 42 households with a PC. ~ Ben Bajarin (@BenBajarin)

How is that possible?

Well, mobile devices are personal. Each person uses their own phone, they don’t share it with family members. A family, for example, may share a single PC at home, but each family member may own their own phone and even their own tablet, too.

(M)ost homes in developed markets have one PC or laptop. By 2016, these same homes will have about three tablets each… ~ Tim Bajarin


(I)t’s pretty clear that the tablet is on track to become the most pervasive personal computer the market has ever seen. The tablet has literally redefined what a personal computer is to people all over the world. ~ Tim Bajarin

Part 3: The Sea Change

Just two more points. And if you remember nothing else from this article, remember these two things:

1) The SCALE of the mobile computing revolution is larger than we think; and

2) Mobile computing is our PREFERRED way of computing.

This represents a true sea change in computing.





Source: Mobile Is Eating The World, Benedict Evans

I spend half my time trying to get people to grasp the scale of mobile and the other half trying to grasp it myself. ~ Benedict Evans (@BenedictEvans)


IBM Digital Analytics Benchmark has published, for the fourth year in a row, US online shopping traffic data with a split between mobile and fixed online traffic. It reveals a pattern of consumer behavior which is quite startling: people seem to prefer to shop using mobile devices. ~ Horace Dediu, Asymco

(Emphasis added)

When people are away from home or office, they choose the phone. When people have a choice between a phone, a tablet and a PC, they choose the tablet. The traditional PC has become the last choice, not the preferred choice, for the majority of computer users.

Part 4: It’s Not Enough To Predict The Rain; We Have To Build The Ark

To see what is in front of one’s nose needs a constant struggle. – George Orwell


The entire understanding of a PC has changed and the term needs to be re-defined. ~ Ben Bajarin (@BenBajarin)


Constantly impressed by how much iPads have helped simplify computing for those previously overwhelmed by it. ~ Lessien (@Lessien)


Getting computing devices in the hands of the masses is the goal of the next 20 years. ~ Ben Bajarin (@BenBajarin)


There were these two cows, chatting over the fence between their fields.The first cow said, “I tell you, this mad-cow-disease is really pretty scary. They say it is spreading fast; I heard it hit some cows down on the Johnson Farm.”

The other cow replies, “I ain’t worried, it don’t affect us ducks.”

If you don’t think that mobile computing is coming for you and your business, you’re either mad or you’re a dumb duck. Either way, you’re in big trouble.

“Change is not made without inconvenience, even from worse to better.” ~ Richard Hooker

One of the things that happens in organizations as well as with people is that they settle into ways of looking at the world and become satisfied with things and the world changes and keeps evolving and new potential arises but these people who are settled in don’t see it. That’s what gives start-up companies their greatest advantage. The sedentary point of view is that of most large companies. ~ Steve Jobs

“People don’t resist change.  They resist being changed.” ~ Peter M. Senge

Change is coming and it’s coming a lot faster than we think. We can ride the wave, or we can get swept away. The choice is ours.

On the Impact of Paul Otellini’s CEO Years at Intel

Intel’s CEO Paul Otellini is retiring in May 2013. His 40-year career at Intel now ending, it’s a timely opportunity to look at his impact on Intel.

Intel As Otellini Took Over

In September 2004 when it was announced that Paul Otellini would take over as CEO, Intel was #46 on the Fortune 100 list, and had ramped production to 1 million Pentium 4’s a week (today over a million processors a day). The year ended with revenues of $34.2 billion. Otellini, who joined Intel with a new MBA in 1974, had 30 years of experience at Intel.

The immediate challenges the company faced fell into four areas: technology, growth, competition, and finance:

Technology: Intel processor architecture had pushed more transistors clocking faster, generating more heat. The solution was to use the benefits of Moore’s Law to put more cores on each chip and run them at controllable — and eventually much reduced — voltages.

Growth: The PC market was 80% desktops and 20% notebooks in 2004 with the North America and Europe markets already mature. Intel had chip-making plants (aka fabs) coming online that were scaled to a continuing 20%-plus volume growth rate. Intel needed new markets.

Competition: AMD was ascendant, and a growing menace.  As Otellini was taking over, a market research firm reported AMD had over 52% market share at U.S. retail, and Intel had fallen to #2. Clearly, Intel needed to win with better products.

Finance: Revenue in 2004 recovered to beat 2000, the Internet bubble peak. Margins were in the low 50% range — good but inadequate to fund both robust growth and high returns to shareholders.

Where Intel Evolved Under Paul Otellini

Addressing these challenges, Otellini changed the Intel culture, setting higher expectations, and moving in many new directions to take the company and the industry forward. Let’s look at major changes at Intel in the past eight years in the four areas: technology, growth, competition, and finance:


Design for Manufacturing: Intel’s process technology in 2004 was at 90nm. To reliably achieve a new process node and architecture every two years, Intel introduced the Tick-Tock model, where odd years deliver a new architecture and even years deliver a new, smaller process node. The engineering and manufacturing fab teams work together to design microprocessors that can be manufactured in high volume with few defects. Other key accomplishments include High-K Metal Gate transistors at 45nm, 32nm products, 3D tri-gate transistors at 22nm, and a 50% reduction in wafer production time.

Multi-core technology: The multi-core Intel PC was born in 2006 in the Core 2 Duo. Now, Intel uses Intel Architecture (IA) as a technology lever for computing across small and tiny (Atom), average (Core and Xeon), and massive (Phi) workloads. There is a deliberate continuum across computing needs, all supported by a common IA and an industry of IA-compatible software tools and applications.

Performance per Watt: Otellini led Intel’s transformational technology initiative to deliver 10X more power-efficient processors. Lower processor power requirements allow innovative form factors in tablets and notebooks and are a home run in the data center. The power-efficiency initiative comes to maturity with the launch of the fourth generation of Core processors, codename Haswell, later this quarter. Power efficiency is critical to growth in mobile, discussed below.


When Otellini took over, the company focused on the chips it made, leaving the rest of the PC business to its ecosystem partners. Recent unit growth in these mature markets comes from greater focus on a broader range of customer’s computing needs, and in bringing leading technology to market rapidly and consistently. In so doing, the company gained market share in all the PC and data center product categories.

The company shifted marketing emphasis from the mature North America and Europe to emerging geographies, notably the BRIC countries — Brazil, Russia, India, and China. That formula accounted for a significant fraction of revenue growth over the past five years.

Intel’s future growth requires developing new opportunities for microprocessors:

Mobile: The early Atom processors introduced in late 2008 were designed for low-cost netbooks and nettops, not phones and tablets. Mobile was a market where the company had to reorganize, dig in, and catch up. The energy-efficiency that benefits Haswell, the communications silicon from the 2010 Infineon acquisition, and the forthcoming 14nm process in 2014 will finally allow the company to stand toe-to-toe with competitors Qualcomm, nVidia, and Samsung using the Atom brand. Mobile is a huge growth opportunity.

Software: The company acquired Wind River Systems, a specialist in real-time software in 2009, and McAfee in 2010. These added to Intel’s own developer tools business. Software services business accelerates customer time to market with new, Intel-based products. The company stepped up efforts in consumer device software, optimizing the operating systems for Google (Android), Microsoft (Windows), and Samsung (Tizen). Why? Consumer devices sell best when an integrated hardware/software/ecosystem like Apple’s iPhone exists.

Intelligent Systems: Specialized Atom systems on a chip (SoCs) with Wind River software and Infineon mobile communications radios are increasingly being designed into medical devices, factory machines, automobiles, and new product categories such as digital signage. While the global “embedded systems” market lacks the pizzazz of mobile, it is well north of $20 billion in size.


AMD today is a considerably reduced competitive threat, and Intel has gained back #1 market share in PCs, notebooks, and data center.

Growth into the mobile markets is opening a new set of competitors which all use the ARM chip architecture. Intel’s first hero products for mobile arrive later this year, and the battle will be on.


Intel has delivered solid, improved financial results to stakeholders under Otellini. With ever more efficient fabs, the company has improved gross margins. Free cash flow supports a dividend above 4%, a $5B stock buyback program, and a multi-year capital expense program targeted at building industry-leading fabs.

The changes in financial results are summarized in the table below, showing the year before Otellini took over as CEO through the end of 2012.

GAAP 2004 2012 Change
Revenue 34.2B 53.3B 55.8%
Operating Income 10.1B 14.6B 44.6%
Net Income 7.5B 11B 46.7%
EPS $1.16 $2.13 83.6%


The Paul Otellini Legacy

There will be books written about Paul Otellini and his eight years at the helm of Intel. A leader should be measured by the institution he or she leaves behind. I conclude those books will describe Intel in 2013 as excelling in managed innovation, systematic growth, and shrewd risk-taking:

Managed Innovation: Intel and other tech companies always are innovative. But Intel manages innovation among the best, on a repeatable schedule and with very high quality. That’s uncommon and exceedingly difficult to do with consistency. For example, the Tick-Tock model is a business school case study: churning out ground-breaking transistor technology, processors, and high-quality leading-edge manufacturing at a predictable, steady pace of engineering to volume manufacturing. This repeatable process is Intel’s crown jewel, and is a national asset.

Systematic Growth: Under Otellini, Intel made multi-billion dollar investments in each of the mobile, software, and intelligent systems markets. Most of the payback growth will come in the future, and will be worth tens of billions in ROI.

The company looks at the Total Addressable Market (TAM) for digital processors, decides what segments are most profitable now and in the near future, and develops capacity and go-to-market plans to capture top-three market share. TAM models are very common in the tech industry. But Intel is the only company constantly looking at the entire global TAM for processors and related silicon. With an IA computing continuum of products in place, plans to achieve more growth in all segments are realistic.

Shrewd Risk-Taking: The company is investing $35 billion in capital expenses for new chip-making plants and equipment, creating manufacturing flexibility, foundry opportunities, and demonstrating a commitment to keep at the forefront of chip-making technology. By winning the battle for cheaper and faster transistors, Intel ensures itself a large share of a growing pie while keeping competitors playing catch-up.

History and not analysts will grade the legacy of Paul Otellini as CEO at Intel. I am comfortable in predicting he will be well regarded.

The Challenge for Smartphone Makers in 2013

Finding the solution of mazeI believe we are in new territory for smartphone manufacturers. Although its true that there are still many people on the planet who do not yet have a smartphone, the reality is that the most mature markets are reaching the saturation point where most consumers–who want and value smartphones–have one. Which means that the battle for the bulk of mature market consumers are now for up-graders and no longer intenders. This changes things quite a bit.

This would explain the concerns over smartphone growth slowing in 2013. For several years the smartphone market was growing at over 50% a year. This year the growth is estimated to be around 30%. I think a better way to look at the growth is to look at the rate specific smartphone price ranges will grow. I think parts of the market may grow more than 30% this year. However, I am not convinced it will be the flagship top-tier devices that grow at faster paces this year but the more second tier devices. Of course this would seem logical given the growth in emerging market but I think this will even be the case in markets like the US and Europe.

If true this brings up an important observation about devices like the Galaxy S4, the next iPhone, and any other flagship device. And that observation leads me to the title of this column.

Good Enough

I think we are getting extremely close to a good enough sentiment by mass market consumers toward their current devices. The quality of most flagship phones and even many tier two phones has been continually raising to the point where they are lasting longer and meeting the simple needs for the mass market.

We have been living in a good enough paradigm in the PC industry for years now and consumers are consistently holding onto PCs longer because they meet their needs and they do not feel an urgency to upgrade their notebooks. I think the smartphone market may be in a similar situation.

The Burning Question

At an absolute fundamental level the biggest challenge smartphone makers face in 2013 is convincing consumers they need to upgrade their smartphones this year. The biggest part of the consumer market is not the early adopters but the early and late majority. These groups think very different about technology and what percentage of this market will routinely upgrade every year or even every two years is a big question mark.

When we talk with consumers and gather our market insights into this specific question, we continually get a sense that consumers are happy with even their later generation devices and don’t necessarily feel the need to rush out and upgrade their devices even if they are eligible. It appears that a growing majority believes their current devices are good enough. It doesn’t mean they won’t upgrade, just that there is no sense of urgency.

This brings up interesting implications for companies like Samsung and Apple. Both companies have garnered a large install base for their devices over the past few years. There will certainly be a significant number of customers who will be eligible in 2013 for upgrades but will they be compelled to upgrade at all? This, I think, is an interesting question.

With regards to the S4 I have my doubts. Samsung will no doubt sell a ton of these devices but will it sell better than the S3? I’m not convinced, and I am not convinced for one primary reason. The S4 runs the dangerous risk of over serving the market needs with the key innovations and features they added.

Horace Dediu tweeted out something I thought was very interesting last week.

Market over-service is a far more dangerous mistake than under-serving it.

Overserving the market means adding features and functions the mass market does not have a perceived need for or is not ready for. Often times when an offering is complex, it is hard to understand. This goes back to the point of what is good enough in today’s market and what is overkill. These are questions to wrestle with.

The S4 has some cool features. Once people get their hands on them we will see if they are just cool or actually useful. Cool and useful are often two very different things. What Samsung doesn’t need with the S4 is consumers hearing the pitch and wondering “why do I need that?” What if the S3 is good enough?

The S4’s biggest challenge will be to address the question in the minds of consumers as to “why should I upgrade?”

Of course Apple will face this question as well. We have seen Samsung’s flagship device and we are yet to see Apple’s. I think this is an interesting year for Apple. I’m not sure Apple has ever found themselves in a position in the past decade with such a strong competitor as Samsung, who is willing to spend more money than them on marketing to convince the world to buy into the Samsung brand.

This is perhaps the first year where I think Apple needs to do more with the next iPhone than the traditional strategy. For the primary reason that the iPhone 5 in its current form is good enough for the masses. If the next iteration of the iPhone does not offer either some entirely new innovation or feature not found on the iPhone 5 that provides an answer to the upgrade question, then I fear consumers who are in the market and eligible for the upgrade may just end up buying the iPhone 5 at a discounted price. Even if that happens it still means healthy sales for Apple but it begs the question about the necessity of a new flagship device it isn’t going to make a compelling upgrade case.

The question will be what features are worth a $100 premium in the good enough market that we find ourselves in. There are fascinating dynamics at play in the market right now from my viewpoint. I do believe that every smartphone maker is now entering uncharted waters due to the saturation and maturity of the smartphone market. It will be exciting to see how these new waters are navigated. I’m glad I have a seat to watch the show.

Does The Rise Of Android’s Market Share Mean The End of Apple’s Profits?


It’s an article of faith in the Church of Market Share that Android is nearing a tipping point where its market share lead will inevitably turn into a developer share lead, too. ~ John Gruber

Matt Asay, writing for Readwrite Mobile, puts this argument into words in his article entitled: “As iPad’s Market Share Falls, Must Profits Follow?

For those who say market share doesn’t matter, that Apple still commands most of the industry’s tablet profits, they clearly haven’t been paying attention to the smartphone market. Profit share follows market share…

Only, here’s the thing. I HAVE been paying attention to the smartphone market. Perhaps more importantly, Horace Dediu has been too. And as his chart, above, demonstrates, the facts belie the argument that profit share follows market share. Even as Android’s market share has grown by leaps and bounds, Apple’s iPhone profit share has grown too. How can this be?

What’s Really Happening

Here’s what the facts are telling us. First, Android’s growth has not hurt Apple’s profit share. Instead, Android gobbled up all of the profits from the other smart phone manufacturers. Second, Samsung subsequently gobbled up all of the profits from the other Android manufacturers. Samsung now makes as much profit share as the entire mobile industry did five years ago. Third, the iPhone has not only survived the growth of Android’s market share, it has thrived, growing its profit share from 21% in 2008, to 50% in 2010, to 57% at the start of 2011, 73% at the start of 2012, and 72% at the end of 2012. And since the pool of profits has grown dramatically over the past five years, Apple’s profits have too.

What will it take to get Apple’s critics to acknowledge that Apple’s iPhone strategy is actually a raging success rather than the raging failure they constantly portray it to be? Does Apple need to take in 100% of the profits in perpetuity for them to be convinced?

Faulty Analysis

The problem with our obsession with market share is that it rests on two faulty foundations. First, it assumes that every product sold within a category is always just as valuable as another. Second, it assumes that every customer who buys a product is of equal value. These two premises are laughably wrong.

It’s A Mistake To “Pool” all sales together

Are all smartphones or all tablets of equal quality or used in the same way? Hardly. No knowledgable person would argue that they were. Yet when we use market share as our metric, we assume exactly that.

Kiddie pools and above-ground pools and in-ground pools are all considered to be “pools”. But does the sale of one necessarily impact on the sale of another? Sandals and dress shoes and winter boots are all considered to be “shoes”. But does the sale of one necessarily impact the sale of another? Similarly, when we lump all types and makes of phones or tablets together, we create a false basis of comparison. Is the iPhone or the iPad really competing with the gray market phones and tablets being sold in China anymore than in-ground pools are competing with kiddie pools or dress shoes are competing with sandals? Just because two products fall within the same category, does not necessarily mean that they are in competition with one another.

Not All Customers Are Equal

“(T)he fundamental flaw in the Church of Market Share doctrine is the assumption that users are users. That one platform with, say, 40 percent market share, must be in a stronger position than another platform with, say, 20 percent market share, simply because a larger number of users is better, period. What Apple has shown with the Mac, and now with the iPhone and iPad, is that all users are not equivalent. Counting only the Mac, Apple is not the biggest PC maker by unit share. But it is by far the most profitable, quarter after quarter, year after year. What’s more important than a company’s share of the overall market is the company’s share of the profitable side of the overall market.” ~ John Gruber

The fact that customers are not of equal value is so fundamental that I shouldn’t even have to say it. There are whole industries and entire fields of learning devoted to the art of finding the right customer for the right company or product. Not only do companies target preferred customers, but they actively shun customers who are counter-productive too. Yet when we use market share as our metric, we assume that a customer is a customer is a customer. Nothing could be further from the truth.

For example, I might be an ideal customer for Krispy Kreme Donuts. But I might be a lousy customer for Victoria’s Secret. (This is because I stopped wearing frilly lady’s underwear years and years ago. You can confirm this with my parole officer who will totally back me up on this.)

Being a bad customer is not the same thing as being a bad person. Good people can be bad customers. But being a customer is not the same thing as being a good customer either.

Does Market Share Matter To Apple?

Absolutely. Take a gander at this critique of Apple from Steve Jobs:

“At the critical juncture […], when (Apple) should have gone for market share, they went for profits.” ~ Steve Jobs

Steve Jobs wanted, and Apple wants, market share. But they want the RIGHT market share. Apple wants customers who are willing to pay for their products. And Apple wants customers who are good for their platform. In other words, Apple wants market share in their target demographic. Based on the fact that Apple is taking in 72% of the mobile phone profits with only 8% or 9% of the market share, it sure sounds like they’ve aquired the right market share to me.

Does the rise of Android’s market share mean the end of Apple’s profits? Hardly. You can argue as loudly as you like that developers and profit share must necessarily follow market share. But the facts will shout you down.

Android, China, and the Wild Wild West

Last week, I talked about the importance for us industry observers, analysts, media, etc., to have a more informed discussion when it comes to Android. I think it is important when we analyze, from an industry and market viewpoint, that we do so with a holistic viewpoint.

My key point in last weeks column was to address the issue of Android platform forking. Android in its purist definition only refers to the AOSP or Android open source platform. Something anyone on the planet can take for their own and fork it, thus differentiating their Android platform and in many cases using the core Android source and making their own platform. Therefore, as it currently stands we have Google with a platform based on Android, we have Amazon with a platform based on Android and we have Barnes and Noble with a platform based on Android. Each of these platforms is their own unique ecosystem.

I make this point because when we say Android has X% market share we are talking about the total including all the forks. This is a key point, because when many make the claim that Android is winning the market share game, they often make the mistake of assuming that Android equals Google, therefore assuming that Google’s version of Android has the total Android market share. This is of course false, as Google’s version of Android, the one that benefits Google in a monetary or data gathering way (a.k.a a business model), has only a fraction of the overall Android market share numbers being referred to. Exactly how much we are not sure because even Google refers to Android falsely making it sound like the total installed base of Android devices on the market have some business benefit to Google and of course that is not true. My gut tells me that if Google did release the numbers of the global install base of Android devices tied to their services, thus qualifying as a Google Android device, the picture would not be as rosy as many make it out to be. No where is that more the case than in China.

The Wild Wild West

As I have been studying the Chinese Android market, the only way I can describe it is the wild wild West. Android is fragmented, un-unified, inconsistent, and otherwise fundamentally fractured in as many ways a platform can possibly be. In fact it is hard to even call Android a platform in China, and there is certainly no Android ecosystem there. There are dozens of app stores, tightly controlled ISP and heavily differentiated experiences and services bundled on the vast majority of Android devices, half a dozen different payment mechanisms, and a general lack of standardization.

The top app stores come from the likes of Tencent, 360, 91, UCWeb (which is a browser) app store and a number of other tier two heavily localized app stores. If I was an Android developer focused on China, I would have my work cut out for me making sure I was present in all the various app stores, or try to go direct to consumers (as many are trying to do), or working as close as possible with the ISP and carriers themselves. This model is somewhat feasible by the larger developers but very difficult for the upstarts and other smaller developers.

What is also very interesting about the Chinese market for Android devices is that the vast majority of the 38 million Android devices sold in China last quarter were extremely low-cost entry level devices. Now, in most cases, this is exactly the kind of scenario that Google would hope for. Google’s mobile business model depends on install base and the best way to do that is to have a plethora of cheap devices so hundreds of millions of people can jump on your platform and you can make some mobile search and ad revenue. The only problem is Google is not benefitting from Android’s success in China in even the slightest way.

The challenges of Google with China are well documented. Over the past few years Google has continually been closing offices in China and largely abandoning the region. Android has not helped relations or Google’s strategy–or lack of strategy–in that region and it doesn’t appear that it will anytime soon. The vast majority of Android devices sold in China have been stripped of all services tied to Google in any way. Here are some key points.

– Local browsers dominate the web browsing landscape
Google search engine market share is less than 5%
– 90% of new Android devices sold in China do not have the Google Play store on them.
– Many developers are choosing local in app advertising solutions over Google’s

China, and in particular the low-end Android segment, is one of the fastest growing segments in mobile. Every day China is accounting for more and more of the Android activations. Android in China has simply become such a customized and regionalized OS that I’d argue the point that Android in China should be considered its own fork. And due to the extremely fragmented and lack of standards around app distribution, I’m not that confident that Android has a sustainable position in the region outside that the devices are cheap. The vast majority of low-end Android consumers in that region are not investing into any specific ecosystem other than the likes of someone like Baidu, for example, which offers their services on a range of platforms, Apple’s included.

Other than Android devices being extremely low-cost, I’m not convinced, based on the data I have on the region, that Chinese consumers are loyal to the regional Android fork. A point, that offers more hope for standardized and unified platforms from competitors like Apple and Microsoft or even some platform not yet released.

The bottom line is, for now, Android is alive and well in China. It represents one of the fastest and the largest growth sectors for not just Android but the mobile market at large growing at about 300% year-over-year. Android is being taken by the natives and customized / implemented to benefit themselves and their heavily regional services. The vast majority of these devices have little to no benefit to Google. Android is doing well in China, Google is not. Something I find fascinating.

I paint this broad picture of Android in China for the hopes that we can have a more informed discussion when we discuss Android. Too many people associate Android’s holistic global success with Google and that is a disingenuous analysis. I’d love to be able to break out the individual Android fork market share, including the regional forks like China, India, and now Africa, but when the handset OEMs–and Google–are not sharing specifics. A situation I find entirely suspect. Although, the more I learn the truths about Android holistically across the forks and the regions, I am getting a sense of why the details are not being shared with us.

Why Android Is Winning The Battles But Google Is Losing The War: Part 1

A Pyrrhic victory (/ˈpɪrɪk/) is a victory with such a devastating cost that it carries the implication that another such victory will ultimately lead to defeat. The phrase “Pyrrhic Victory” is named after King Pyrrhus of Epirus, whose army suffered irreplaceable casualties in defeating the Romans at Heraclea in 280 BC and Asculum in 279 BC during the Pyrrhic War. Someone who wins a Pyrrhic victory has been victorious in some way; however, the heavy toll negates any sense of achievement or profit. The term “Pyrrhic victory” is used as an analogy in fields such as business, politics, and sports to describe struggles that end up ruining the victor. ~ via Wikipedia

Series Schedule:

  • Mon: The Battle for the PC
  • Tue: The Battle for Mobile Phones Won
  • Wed: The War for Mobile Phones Lost
  • Thu: The Battle for Tablets
  • Fri: Picking Your Battles Is As Important as Winning Them
  • 1) The Battle For The PC

    A Glorious Victory

    Google began in January 1996 as a research project by Larry Page and Sergey Brin. While conventional search engines ranked results by counting how many times the search terms appeared on the page, they theorized about a better system that analyzed the relationships between websites. They called this new technology PageRank, where a website’s relevance was determined by the number of pages, and the importance of those pages, that linked back to the original site. via Wikipedia

    The Battle for search on the PC (notebooks and desktops) was a glorious victory for Google. Seldom has a company come so far, so fast, made so much money and so utterly anihilated their competition. By 2006, Google dominated search and was one of the largest, fastest growing companies on the planet. Their PC search strategy had proven to be brilliant and they were virtually printing money.

    I can give Google no greater compliment than this: They make their money by distributing ADVERTISING, yet they are liked by most and even loved by many. The words “amazing” and “awe-inspiring” don’t even begin to cover that achievment.

    All Glory Is Fleeting

    Sic transit gloria mundi

    But Google had two problems, which were really one and the same problem: “peak” and “mobile”.

    Many of us are familiar with the concept of “peak oil”. It’s a term used to describe the fact that oil production had to, at some point in time, peak because there was only a finite amount of oil in the ground and once that peak was reached there must inevitably be a steady, albeit gradual, decline in oil production.

    An equivelent peak is occuring in computing. In fact, two peaks: “peak PC” and “peak search”, both of which raise serious issues for Google.

    For eight straight quarters, search was growing. Then for three straight quarters, that growth deaccelerated. Then last quarter, something happened that had never happened before. People searched less. We have reached peak search.

    Ben Schachter of Macquarie Securities noted this in a research note:

    Notably, total core organic searches declined 4 percent y/y, representing the first decline in total search volume since we began tracking the data in 2006. While this month marks the first y/y decline in total search volume, growth rates have been decelerating since February’s recent peak at 14 percent y/y growth (for the prior two years, growth rates were largely stable in the high single-digit to low double-digit range).

    Not only is search declining, the proft from search is declining too. “Cost-per-click” – how much advertisers pay on average when someone clicks on an ad – is down. Way down. In its third quarter 2012 earnings, Google reported that its cost per click was down 15 percent.

    Cost-per-click” – how much advertisers pay on average when someone clicks on an ad – has been dropping for the past four quarters, after rising for eight previous quarters. Surrounding circumstances make it clear that there is no reason to expect it to rise again.

    Why is peak search happening and why now?

    First, there are fewer and fewer PCs. Like peak oil, we’ve reached peak PC. The PC market is in permanent decline. In fact, the PC market is not only declining, it may be headed for a cliff. (See Tim Bajarin’s fine article on “How the iPad Mini Could Impact Future PC Sales.”)

    Second, the search market is maturing. The places where people are going online just don’t pay as much as they used to.

    Third, less and less people are doing their searches on their desktops and more and more peole are doing them on their mobile devices. When it comes to search, the portability of the mobile device trumps the power of the PC.

    Smartphones have been outselling PCs (notebooks and desktops) since the end of 2010 and by the end of 2012, tablets will make up over 25% of all PC sales. Further, well respected mobile analyst, Mary Meeker believes the global smartphone plus tablet install base will surpass the install base of the PC by the end of Q2 2013.

    Fourth, and finally, try this thought experiment. You’re standing by your PC. You want to know the weather, the score of the big game, where a movie is playing or a local place to eat and how to get there (GPS). Do you perform the search on your PC or on your phone? For more and more people, this is an activity that you do on your mobile device, even when your PC is readily available.

    AUTHOR’S ASIDE: Ya gotta love Microsoft’s play in the desktop search industry. They are losing BILLIONS on Bing, buying into the desktop search market just as it has peaked and started its decline. What a company.

    Now it’s not such a bad thing to be dominating a market that is just past its peak. It means that you’ll be getting great income – nearly as much as you’re getting today – for a long while yet to come. But it also means that your’ve got no longterm future. Unless you plan for one. Which Google did.


    Tomorrow: “The Battle for Mobile Phones Won.”

    Upside Down Analysis

    These thoughts via Business Insider:

    According to estimates from Canaccord Genuity, Samsung has shot further ahead of the pack as the world’s largest smartphone manufacturer, shipping 56.3 million units in the third quarter.

    Apple’s consolation is that it still takes a larger share of industry profits, despite shipping approximately half as many units as Samsung.

    Today’s analysis of the mobile industry makes my head hurt because it is analysis turned on its head. In business, profits are not the consolation prize. Profits are the ONLY prize.


    Why a SoftBank Investment in Sprint Could be Disruptive

    There were multiple stories over the last few days about a potential investment from SoftBank in Sprint. The idea would be that Softbank could leverage some of Sprint’s technology, especially the Clearwire architecture, for use in Japan as well as bringing Softbank’s mobile payment system to the US market via Sprint. Also, a cash infusion from Softbank would allow Sprint to build out their LTE network faster than planned.

    However, none of the articles I have read convinced me that these writers actually know what SoftBank’s real intention is and why they would really want to invest in Sprint, a company that has seen declining subscribers and a slowing of revenue. However, SoftBank is the kind of company that could surprise people in the end with why and what they want from Sprint.

    SoftBank is known as a maverick company in Japan and their colorful founder and CEO, Masayoshi Son, often called the Steve Jobs of Japan, is just about as eccentric as Steve Jobs was. I served on the Comdex board of advisors for 18 years and in the late 1990’s when Comdex was sold to SoftBank for over $600 million dollars, I got to meet Mr. Son and get to know a little about how he thinks and operates.

    I happened to be overseeing a conference for Phoenix Technologies back then and Mr. Son, who had a tight relationship with Phoenix, was asked to come and present at this event at Spanish Bay around the time he bought Comdex. One of the things he said that got a lot of media at the time is that his vision for SoftBank was a 300-year vision, and he was planning all projects, and acquisitions, with this in mind.

    But he also shared a story that kind of gives you a feel for how he really operates too. He told us that when he was planning to enter the Japanese telecom market, he had been lobbying with the government to open up what is a stringently controlled market highly influenced by the government backed telecom provider NTT. He told us that after four or five meetings with government officials, he was getting nowhere with them.

    So, one day he went back to the top government official’s office and barged in with a can of gas and locked the door behind him. According to my notes from this event, he showed the can of gas to the government official and told him he would pour it on himself and light it if he did not listen to him and promise to take action. We all had a good laugh at this story and thought he just made it up to illustrate a point. But it turned out this is exactly what he did and to his credit, he got the complete attention of the top telecom official and other government executives and within a year they allowed SoftBank into what was their closed telecom service industry.

    Over the last decade, SoftBank has become one of the most powerful companies in Japan’s telecommunications market and has investments in all types of businesses and ventures around the world. It turns out that Mr. Son really is serious about a 300-year vision and is putting the pieces in place to make SoftBank a mover and shaker in a lot of industries for a long time to come.

    While some question SoftBank’s ability to make such a huge investment given the leveraged debt it already has, if anyone can do it, it would be Masayoshi Son. And if he did so, the technology direction and transfer of technologies most likely would benefit both and, more importantly, would make Sprint more competitive with AT&T and Verizon. In fact, the CEO’s of Verizon and AT&T have to be looking at a potential deal between SoftBank and Sprint with concern. They are acutely aware of Mr. Son’s track record as one who shakes up industries and has a way of moving companies he has bought or put money into in new directions that many cannot predict.

    While the technology and business reasons we can ascertain from both companies strong points make sense, I have a sneaky suspicion that Mr. Son has another motivation behind this move. Sources tell me that Mr. Son and SoftBank have been very interested in the US telecom market and been amazed at the slow development of extremely high-speed Internet connections available for business users and consumer users alike.

    In Japan, SoftBank has made ultra high speed Internet connectivity of at least 75 megs per second, the cornerstone of Mr. Son’s telecom push and has plans to give consumers consistent speeds of well over 100 megs per second in the works today. Now these are wired connections but even so, this is huge compared to the measly 12-15 mgs I get from Comcast in my home if all conditions are right.

    Given the extremely slow moves of the cable and telecom companies of getting ultra-high speed connectivity to their customers, if SoftBank and Sprint began moving the needle so to speak, quickly in this direction, it would put huge pressure on the competitors to follow suit. I for one would love to see this happen and not only see Sprint become a more solid competitor to AT&T and Verizon but with SoftBank, perhaps become the catalyst to get all of us Internet connectivity speeds at least equal to what they have in Japan now.

    Of course, there are still regulatory hurdles to overcome as well as scrutiny by anti-trust organizations for this SoftBank/Sprint deal to happen. And then there are the banking issues to deal with too. However, if the heads FCC, FTC and other regulatory agencies see a Japanese man in their lobby with a can of gas, it is not a terrorist. It’s just a maverick Japanese business man who is frustrated with the slow movements of the FCC and telecom companies to provide really high speed bandwidth to the US and I suggest they be ready to talk to him seriously and be prepared to move faster on these key issues than they are today.

    Android v. iOS Part 2: Profits


    Yesterday we looked at Android and iOS mobile operating system market share. Today we look at mobile operating system profit and profit share.


    On the strength of market share alone, TechCrunch has (and many others have) declared Android the inevitable victor of the mobile operating system wars.

    “The latest numbers are in: Android is on top, followed by iOS in a distant second. There is no denying Android’s dominance anymore. There is no way even the most rabid Apple fanboy can deny that iOS is in second place now. Android is winning.” – Android Is Winning

    However, a funny thing happened on the way to the Android victory parade — they forgot to bring along the industry’s profits.


    “However beautiful the strategy, you should occasionally look at the results.” – Winston Churchill

    — Apple made 77% of the entire mobile industry’s profits in the second quarter of 2012. (Source) The Android operating system may be outselling the iPhone 4 to 1, but Apple’s iOS operating system is out profiting not just Android but the entire mobile industry 3 to 1.

    — iOS second quarter 2012 revenue was approximately $28 billion.

    — iPhone revenue in it’s five years of existence is over $150 billion. (Source)

    — iPhone, by itself, is worth more than all of Microsoft. (Source)

    — Apple’s stock has soared in comparison with Google’s stock since the launch of the iPhone. (Source) In fact, Apple is now worth one Exxon more than Google. (Source)

    — Not only has iOS made Apple the most valuable publicly traded company in the world, (Source) but if the iPhone were split off as its own company, it is probable that it would be, all by itself, the most profitable public company in the world. (Source)


    — If Android has won, then why does Apple have all of the profits?

    — If Android has won, then what exactly have they won?

    — Which is more important, market share or profit share?

    — Isn’t profit literally the bottom line in business?


    Market share is a means, not an end. Profit is the end for which market share was meant. Without profit, market share is meaningless.

    Honestly, what is up with our fixation on market share? This simply isn’t that hard. Ask any business person whether they’d rather have market share or profit share – whether they’d rather sell more product or make more money – and they would, without hesitation, take the latter every single time.

    Every CEO knows this. Every business owner knows this. Every entrepreneur knows this. Every mom working out of her home knows this. Every guy working out of his garage knows this. Every teen working out of his mom’s basement knows this. Heck, even the kid down at the corner selling Kool-Aid off of a folding table knows this. Ask that kid if they would rather sell more Kool-Aid or make more money and, “duh”, they’d say “make more money.”

    But hire that kid to work for Google or write for TechCrunch or provide analysis of the tech industry and boom! They lose their minds. They reverse themselves and declare market share all important and profit share a mere side show. It’s as if these pundits were metaphorically drinking the market share Kool-Aid.


    If this were any other industry, the analysis end here. In no other industry does anyone seriously contend that market share is more important than profit share. However, this isn’t any other industry. This is computing and this isn’t just the sales of goods and services. Android and iOS are platforms and this is a platform war.

    Clearly iOS is winning – in the short run. But in a platform war, is market share more important than profit share? Does market share lead to platform dominance, which eventually leads to industry wide dominance, which eventually leads to profits? Tomorrow, we’ll take a look at those questions and more.

    Coming Tomorrow: Android v. iOS Part 3: Network Effect

    Android v. iOS Part 1: Market Share
    Android v. iOS Part 3: Network Effect

    Android v. iOS Part 1: Market Share


    This is the first article in a multi-part look at the Android and iOS operating Systems. An operating system (OS) is the software that manages computer hardware resources and provides common services for computer programs. Applications (or Apps) require an operating system in order to function. The most famous and prevalent operating system in the world is Microsoft Windows. However, Google’s Android and Apple’s iOS operating systems are the two prevailing operating systems in the world of mobile devices, and since mobile appears to the future of computing, one or both of these two operating systems may well be the future of computing too.

    There has been much confusion and even more debate surrounding the Android and iOS operating systems. Some see Android v. iOS as a repeat of the Windows v. Mac wars in the nineties with Google’s Android playing the role of Windows and Apple’s iOS playing the role of the Mac. Others think that, this time, Apple’s iOS is the operating system destined to rise to the top. Still others think that the entire debate is moot – that the new OS wars are already over and that Android should be declared the de facto winner. Their argument rests on Android’s staggeringly rapid growth and massive market share numbers:

    “According to research firm IDC, Android devices made up a whopping 68.1% of all smartphone shipments in Q2 2012. That calculates to 104.8 million of the 154 million smartphones that left manufacturers plants in the quarter. By comparison, Apple shipped 26 million iPhones in the quarter, good for 16.9% of the market. – As reported in ReadWriteWeb

    TechCrunch takes these numbers and sums up the thoughts of many:

    “The latest numbers are in: Android is on top, followed by iOS in a distant second. There is no denying Android’s dominance anymore. There is no way even the most rabid Apple fanboy can deny that iOS is in second place now. Android is winning.” – Android Is Winning


    When making comparisons, we should always be careful to compare like with like. Android is an operating system. The iPhone is a single device within an operating system. Comparing Android to the iPhone is an unfair and incomplete analysis. A better comparison – in fact the only accurate comparison – is to compare the Android operating system to the iOS operating system. When you do that, the market share numbers take on a whole new look.


    The iOS operating system includes not only iPhones but iPod Touches and iPads as well.

    We know that over half of the iPod’s sold are iPod Touches and we know that Apple sold 6.8 million iPods last quarter. That means there were at least 3.4. million iPod Touches sold last quarter and perhaps many more as well. While it’s true that Samsung has an iPod Touch-like device on the market, their sales numbers for this device appear to be nominal.

    Turning from the iPod Touch to tablets, we know that Apple sold 17 million iPads last quarter or about 70% of the total tablets shipped. That number includes all tablets, including those by Amazon and others, but just to be conservative, let’s assume the the entire remaining 30% of tablet shipments can be attributed to Android devices.

    Add the iPod Touch, the iPad, and the additional Android tablet numbers back into IDC’s figures and Android’s market share numbers, while still impressive, don’t look nearly so intimidating.


    We also know that if one combines iPod Touch, iPhone and iPad sales numbers all together, that Apple surpassed 410 million cumulative iOS devices by the end of June 2012. It’s almost certain that total Android sales now exceed those of iOS (it’s hard to know for sure since virtually no Android manufacturer announces numbers) but even if they do, they exceed iOS’ numbers by a couple of percentage points, at most.


    Experts often possess more data than judgment. – Colin Powell

    If market share is the measure by which one determines who is “winning”, then we need to measure again. And while we’re at it, maybe we should be asking ourselves whether market share is the be all and end all of metrics. Tomorrow, we do exactly that – we explore whether market share is the only way, just one of many ways, or just a component of the way to measure who’s really “winning” the mobile OS wars.

    Coming Tomorrow: Android v. iOS Part 2: Profits

    Android v. iOS Part 2: Profits
    Android v. iOS Part 3: Network Effect

    How RIM Changed My Life

    During the summer of 1997, I was contacted by the folks at RIM and asked if I would like to be a beta tester of their first Blackberry pager/email device. Up to then, pagers were the darlings of the mobile world but their key function was to send a phone number to the user if needed and then the user would have to find a phone to call them back. Although cellular phones were already on the market, they were still pretty pricey back then and most people who got paged had to find a land line to make any call backs.

    However, there was one technology that had already gained a major foothold in business by then and that was email. But the only way people could get their email was to go to their desktop or laptop and log on to see what messages they had. And while consumers were also discovering email via AOL, Compuserve, MCI and a few other consumer services, email had started to become the lingua franca of business. In fact, as an analyst working strictly within the tech industry, all of our clients were heavy email users and by then we were doing most of our communications via email instead of the plain old telephone system. (POTS)

    However, for a lot of business professionals, email was a two edged sword. While it was a very productive tool if people were at their desktops or laptops and plugged into the corporate network or connected to their email via dial-up services, it was worthless to any one that was away from their offices or homes. And even if they had their laptops with them on the road, back then we were not assured that we could get a connection to our email from our hotel phones given the sorry state of hotel phone systems then. In fact, I carried with me an acoustic coupler that had alligator clips on them and in more then one hotel around the world I would have to take the cap off the telephone’s wall connection and use the alligator clips to tie into the hotel phones systems to get a dial tone to make a connection since most phones did not have an RJ 11 phone plug on their phones in those days.

    So when RIM showed me their first Blackberry and told me that I could have a wireless connection to my email, I jumped at the chance to be a very early tester of their services. And from that day on, my personal world of communications took a major leap forward and to be very honest, my life changed significantly. No longer was I tied to my desktop or laptop to get or respond to email and this was a very liberating experience. More importantly to me was the fact that email had become the lifeline to my clients and it now meant that I could get their messages to me anytime and respond to them in real time very quickly. And from an economic standpoint, this one thing helped my business increase as I became known for my personalized service to the clients and the fact that I was extremely responsive to their needs.

    Opening up the world to mobile email was what put RIM on the map and their forethought and innovative thinking has had a dramatic impact on our business world. They pioneered wireless email for broad commercial use and it literally became one of the most important tools any business professional had in their bag of tricks. And because their back-end servers were so secure, it became the standard wireless mobile email device for most government agencies and those in the financial markets and as a result, the fortunes of RIM skyrocketed. Apple and any of the smartphone players today should be very grateful to RIM for this major contribution they made in blazing the trail for what is now smartphones and the many advanced services that have many of their roots in things that RIM did with their original Blackberry.

    But it is these roots that should have been their guide when trying to drive the company and the Blackberry devices forward. While they owned the corporate market, their decision to try and make the Blackberry all-things-to-all- people is what really has caused them to be in a most difficult position today. That, and not keeping up with the technology consumers really wanted in a smartphone. By branching out and trying to bring the same features to consumers in the basic form factor that business users loved, they missed the major move to touch based smartphones. Instead they are now playing catch up with the more consumer-focused vendors like Apple and Samsung who understand consumer mentality and designed their products with this as their primary goal.

    Even worse for RIM is the fact that while expanding their consumer range of products and putting so much emphasis on marketing to this user segment, they took their eyes off the corporate market they owned. And as a result, thanks to the major bring-your-own-device (BYOD) programs being implemented by their corporate customers, consumer centric smartphones like Apple’s iPhone and Samsung’s Android smartphones have encroached dramatically on their business territory and in the end, RIM is now losing in both market segments.

    RIM’s new CEO pretty much admitted this mistake when he announced last week that they would shift their focus from the consumer market and concentrate on their corporate business. Of course, this is the right thing to do, but it should have been done years ago and at this point in time, I am not really sure this will bring the company back to health. And it is real shame to sit and watch what has been such an important company decline and struggle to even stay afloat given the competitive landscape today.

    But for me, RIM will always be one of the most important companies in my own personal technology history. For over a decade, my Blackberry and I were attached at the hip, so-to-speak, and it was my lifeline to my family, friends and clients. And I did not give it up easily. It took a radical new design and approach to make me give up my Blackberry and had not the iPhone come along and completely revolutionized the smartphone market, it would probably still be my sidekick today.

    I am not sure what will happen to RIM in the long run, but for many of us techies, RIM will always represent innovation and foresight and the one that introduced us to a new age of mobile and wireless technology. And for that, everyone working in the mobile and wireless world owes them a great deal of gratitude.

    Why Microsoft Should Make an XBOX Mobile Gaming Console

    Yesterday I shared a column on why casual gaming, or even more immersive gaming on smart phones is not going to threaten dedicated mobile gaming consoles any time soon. To come to this conclusion I had been using the Sony PS Vita for a few weeks. Using that device also led me to the conclusion that Microsoft needs a device like the PS Vita for their gaming ecosystem. There are a number of good reasons for this.

    Strategy for Windows and Windows Phone
    Microsoft includes on their Windows Phone platform an XBOX Live hub. This is simply an application that lets you interact with your XBOX Live friends and view your own profile information and achievments. Given the success of the XBOX 360 it makes sense for Microsoft to branch the service out to mobile devices. They even have an iOS app for XBOX Live as well.

    What would be interesting for Microsoft strategically would be if they built this device and had some of the main dashboard UI be much closer to the Metro UI they are orienting around. The new XBOX Live dashboard is getting closer but is not the fully Metro UI yet.

    I would expect a device like this from Microsft to be quite successful given the passion of the XBOX 360 audience and the number of live users gaming online. If that were true then a large number of consumers who purchased the XBOX mobile device would get immersed in the Metro UI and become familiar with it. Thus making them partial, perhaps, to Windows 8 and Windows Phone products in the future. One could make a strong case a dedicated XBOX Live mobile gaming console could be more successful than Windows Phone in the short term.

    Gaming as a Service
    Another key element of strategic interest in this thinking is the role of the XBOX Live service as a part of such a device. I can imagine that if Microsoft demonstrated with such a device how groups could play Modern Warfare with their friends online from both the XBOX 360 and the mobile console, that it would generate quite a bit of excitement. The PS Vita and new software that will be rolling out will support this feature as well. However, XBOX Live is such a good gaming service for hard core gamers that a mobile device tied to XBOX Live gaming could be a big hit.

    This would further the revenue model for XBOX and perhaps even generate more XBOX Live Gold customres. Gold is the package where you pay $50 a year for special online features. Perhaps using XBOX Live on the mobile platform could even cost slightly more as a package. Either way it makes for an interesting extension of a core servce Microsoft is invested in.

    Game Software Developers
    Lastly a move like this would attract game developers for the Windows Platform much more rapidly than I believe is currently happening. Games are a rapidly growing category on mobile devices and even casual games on notebook and desktop PCs are gaining steam.

    Microsoft could include in many of the same development toolkits the ability to easily also make games for the mobile XBOX console on top of their other Windows products. The byproduct would be more key apps, and in this case games, for the Windows ecosystem. Something they desparately need.

    Microsoft could make it easy to buy these games for the mobile device through their own digital store, similar on Windows phone and Windows 8, which in turn would bring more consumers to their stores doorstep.

    There is actually quite a bit strategically I like about this idea for Microsoft. I know the push back on this concept is around how big the market would be for a device like this. Especially since a piece of hardware like this has a longer product cycle life of more than 2 years conservatively. But I will again default to this market being similar to the console market at large. A market where the value has never been in hardware but is always in software and services. Although the hardware may have a long life the annual revenue opportunities come from soft are and services.

    The thought of being able to play a game like Modern Warfare, Battlefield, or Gears of War from a mobile console while I travel and my friends are playing as well from their consoles is just exciting.

    The key in all of this thinking is the hardware touch points that Microsoft can use to get consumers into their ecosystem. XBOX has been one of those key peices of hardware. So naturally with the world going mobile and Microsoft wanting a peice of that pie, my opinion is that a dedicted XBOX mobile gaming console is a good business strategy for Microsoft. It is also a product I think they would sell very well.

    2012: The Year Google Fixes Android or Loses the War

    The end of 2011 brought about some interesting market developments. Both Nielsen and NPD shared data that the once so dominant Android actually declined in market share over the holiday quarter of 2011. Both Nielsen and NPD also shared that during the same quarter iOS, mostly due to the iPhone, closed the gap on overall Android market share.

    Now, with all of these quarterly market share reports, we have to keep in mind that this data only reflects the current quarters data and not the annual or overall installed base. Still, it is important to note that during the holiday quarter (perhaps the most important quarter) Android market share declined and iOS jumped dramatically. This reality should concern Android partners and Google.

    We sensed this trend early on and shared with our clients last fall the fact that Android could be headed for a decline in market share. In my TIME column in October of last year I outlined many of the ways that Google was mis-handling Android and unfortunately further straining their already strained relationship with their partners. If Google does not get a handle on not only the fragmentation issues but also their relationship with their partners (by being more transparent and trusting with them) then I anticipate the decline in Android market share to continue. Not solely based on more consumers choosing iOS but by Android’s partners vesting more resources and upping their commitment to Windows Phone.

    I don’t expect any Android vendors to completely dump Android but I could see them shipping fewer Android devices overall as a part of their product mix in favor of Windows Phone, which inevitably would lead to fewer Android devices on shelves at any given time, which would lead to even further Android market share decline. I firmly believe that Android device volume is its strongest competitive advantage. Right now Android currently has the bigger share of OEM resources and overall device mix per OEM. However, that could all change very quickly and in 2013 Microsoft will have a compelling story around Windows Phone and Windows 8 for their partners. If Google does not adjust their strategy with Android quickly they run the risk of OEMs shifting the balance of their resources more toward Windows Phone (or something else) and away from the Android platform.

    If you line up all of these underlying trends it could spell real trouble for Android. My biggest concern for Android overall is that the platform itself creates no significant hardware loyalty. That is a dangerous truth for any of Google’s hardware partners. The same can be said of Windows Phone, or any other horizontal platform for that matter. If you are going to be in the hardware game you have to differentiate and more importantly create a partner ecosystem that creates customer stickiness.

    Lastly, on my point that Android’s competitive advantage is volume of devices in channel at any given time. NPD shared their data on the top devices sold over the Oct/Nov time period. If you look at the chart you see that the top three are iOS devices. Note these are three different phones. If Apple does continue to diversify their products on the market and leave legacy devices in channel at lower price points, they will themselves be creating their own iPhone army of devices that could further hurt Android’s market share over the long haul.

    Is There Room for A New Mobile OS?

    A couple of years ago, when various handset makers were looking for a mobile OS to back for their devices, they were given a proposition from Google that was hard to refuse. Google would provide an open source version of Android and with it allow the vendors to customize and add their own features so that they could differentiate their products from other Android licensees.

    At first this worked well and Google got dozens of device makers to hop on the Android bandwagon. And for the most part, Android took off, especially in smart phones. But over time, many Android licensees found Google difficult to work with because of their design approach to Android, which was always a moving target. And while Google called it an open mobile OS, as time went on, it became much more controlled by Google and licensees have had less room to do things to help differentiate their devices. Even worse, they have found it more challenging to control their own destiny when it comes to many key services tied around their own offerings.

    Now that Google has bought Motorola, many Android licensees believe Google will be exercise tighter control over Android and with Motorola develop a more vertically integrated approach to the market. This is similar to what Apple does through owning the hardware, software and services; integrating them tightly together to provide customers a seamless user experience. While Google has said that they will continue to develop Android as an open source product and work with licensees equally, none of the licensees I have talked to actually believe this. At the very least, they expect Motorola to get early code. Many believe tighter integration between Android and Motorola hardware is inevitable and doubt they will get a similar deal in any way. The various lawsuits against Android as well as the potential of having to pay extra royalties to Oracle and Microsoft should they win their legal cases against Android does not make them happy either.

    Not long after the news that Google would buy Motorola, and that HP was going to ditch webOS, Microsoft started courting Android and webOS developers even harder. In fact Microsoft is offering free Windows phones to webOS developers and more hand holding if they jump ship and start developing for Windows Mobile 7and 8.

    But what I am hearing from vendors and carriers is that the original need for a completely open mobile OS is what still they really want. Supporting Microsoft is equal to just supporting Android. Indeed, Microsoft would still control the OS and dictate the terms of use and development and give licensees very little room to innovate at either the hardware or software level.

    It is also not clear where webOS is going. We don’t know who its owner will be yet. Does it stay with HP or go with the spinoff? We also don’t know if it will ever be an open OS that licensees of the future can freely customize for their own markets and customers. One thing that needs to be kept in mind is that in developed markets, complete ecosystems of hardware, software and services define the user experience. But that may not be the case in emerging markets.

    In emerging markets, the need to have a truly open source mobile OS is very important since they need to be able to customize their offerings around a specific language and localized services. This is especially true for emerging market carriers. The fact that mature markets demand hundreds of thousands of mobile apps does not necessarily translate to the actual needs of smart phone users in emerging markets. There they need the dozens or hundreds of apps that are customized for their regions, customs and traditions.

    Everyone knows Apple’s approach to their OS is proprietary. Even though Microsoft’s Windows Mobile 7 OS is freely licensable, it is fully controlled by Microsoft. And now that Google has bought Motorola, Android is looking more and more like it could become more tightly controlled as part of a vertically integrated offering. Unless HP quickly states that webOS will not only be licensable but also truly open (which I don’t think they will ever do), then I believe that there is serious room for a completely new mobile OS to emerge and especially give handset vendors targeting emerging markets an OS of their own to work with.

    We are already hearing that even the big handset vendors who are backing Android are seriously looking for an alternative OS to back to hedge their bets and to help them go after emerging markets where giant app stores are less important for success. This leads me to believe that there is not only room for another mobile OS but a need for one that is truly open that will never be encumbered by big company agendas that drive the designs of their mobile OS.

    Microsoft’s “Can’t Lose” Mobile Strategy


    Microsoft has been trying to recapture momentum in mobile after ceding the early market leadership it had 5-6 years ago due to its lack of adequate investment and resultant inability to stay competitive. And its renewed focus and execution over the past 1-2 years is indeed enabling it to make progress. But behind the scenes Microsoft has a strategy to become a driving force in the market and will likely produce more profits than many of the handset manufactures. And this is regardless of whether Windows Phone is successful.

    Microsoft makes no mobile hardware, and licenses its OS software to several handset manufacturers (e.g., HTC, HP, Samsung). Its latest version of Windows Phone 7 (Mango) is refreshingly competitive and shows a lot of promise. And its distribution partnership with Nokia could propel it into a leadership position (although we remain skeptical that it will happen as quickly as some predict). Many observers focus on Microsoft’s attempt to gain ground on the competition by increasing its anemic smartphone OS market share. But the number of smartphones now being sold with windows mobile or the newer Windows Phone 7 is pretty small (various estimates are less than 5% of the market). Even at an estimated $10-$15 license fee per phone, the stakes are pretty small for a company the size of Microsoft.

    But licensing the OS should actually be Microsoft’s back-up position. Frankly, there is far more money to be made other places. First, Microsoft is now putting a squeeze on all of the Android handset makers by enforcing its patent portfolio and claiming all such manufactures must license Microsoft IP to prevent infringement. And the handset makers are coming on board. Deals have been struck with HTC to start, and negotiations continue with others (e.g., Samsung). It is quite likely that Microsoft will be able to extract licensing fees (eventually) from all the manufacturers. And at $5 per handset produced, that is a staggering sum.

    Adding to this revenue stream is yet another lucrative deal for Microsoft. Virtually every smartphone made (including Apple and Google Android, but with the exception of BlackBerry) licenses ActiveSync as the way to both connect to email (via Exchange) and to control the device (e.g., kill, provision). Microsoft controls 80%-85% of the enterprise email market. Without ActiveSync capability, the devices are unable to work in the business world, and what high end smartphone maker wants to be excluded from the corporate world? So licensing fees of $3-$5 per smartphone device for ActiveSync licenses has huge potential.

    So what does this mean for Microsoft’s revenue streams?
    Currently, all versions of Microsoft powered phones sell about 12M units per year (based on smartphone sales of approximately 400M worldwide estimated in 2011*, and 3% market share for Microsoft). That amounts to $180M best case (at $15 per device). There will be an estimated 140M Android phones (based on 35% market share) and 80M iPhones (based on 20% market share) sold this year worldwide. That amounts to $660M – $1.1B for ActiveSync licensing. And it’s likely that Microsoft will get many (if not all) of the Android vendors to pay royalties, so that’s another potential $700M (at $5 per device). This is not guaranteed, given it has not yet signed licenses with many of the vendors and some vendors in emerging markets may not care if they are infringing. But even if Microsoft only generates half of this amount, it’s a substantial sum. The OS revenues look paltry by comparison to potential IP revenues. And IP doesn’t require the substantial investment in updates and improvements that the OS does, making it even more lucrative.

    Further, the smartphone market is likely to at least double over the next 3 years when we expect Microsoft to capture 15% of the smartphone market (primarily with Nokia). So 15% of an 800M device smartphone market = 120M devices and at $15 per device for licensing the OS = $1.8B in revenue. But the number of devices to be sold on Android = 45% of the total or 360M and on Apple = 15% or 120M. And at $8-$10 license fee per Android device and $3-$5 per Apple device, that’s $3.2B – $4.2B in revenue.

    And moreover, even though Bing is currently way behind Google search in market share, it is now the favored platform for phone manufacturers distancing themselves from Google’s dominance. We expect Bing to capture 25% of mobile search in 3 years. This represents a huge revenue opportunity for Microsoft, although it’s hard to quantify at this point.

    Bottom Line:
    Microsoft can generate a lot of revenue from its deal with Nokia. But even if it doesn’t, the number of licensees of its IP will guarantee Microsoft a sizeable chunk of the mobile revenue stream. And that doesn’t even include the potential for revenues generated by cloud-based and Bing centered services. So Microsoft stands to gain handsomely from mobile, whether it succeeds with its own OS or not. It really can’t lose.

    *Market Statistics and Projections (compiled and adapted from various estimates):

  • Current Smartphones shipped worldwide 1Q 11 = 100M units. Estimated 400M total units in 2011.
    Approx Shares: Android = 35%, Apple = 20%, RIM = 15%, Symbian (Primarily Nokia) = 25%, Windows Mobile = 3%, Other = 2%
  • Future Smartphone estimates for 2014 = 800M units
    Shares: Android = 45%, Apple = 15%, RIM = 15%, Windows Phone (Primarily Nokia) = 15%, Other = 10%