Windows – Tech.pinions

What Windows 10X Can Learn from the Making of Surface

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

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

New Form Factors Are Hard

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

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

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

Making New Workflows Natural

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

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

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

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

Business Response to COVID-19 as a Catalyst

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

In this week’s blog, Panay said:

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

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

Must-Have vs. Nice to Have

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

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

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

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

Microsoft Is (Sorta) Doomed

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

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

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

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

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

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

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

Truth springs from argument amongst friends. ~ David Hume

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

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

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

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

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

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

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

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

Mobile

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

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

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

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

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

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

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

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

Microsoft launched Office for iPad in March and says it’s seen 40 million downloads of the three apps since then. But the full functionality of the apps has only been available to Office 365 subscribers, and it’s added less than three million Home and Personal subscribers since then, at roughly the same pace as it added subscribers earlier. People have been very interested in the apps, but most haven’t been willing to pay for the full functionality (or already had access to it through existing Home or Business subscriptions). ~ Jan Dawson

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

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

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

Exactly right.

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

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

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

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

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

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

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

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

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

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

Please.

Estimated share of Q3 handset industry profits: Microsoft: -4%, Motorola: -2%, HTC, BB: 0%, LG: 2%, Samsung: 18%, Apple: 86%. ~ Kontra (@counternotions) 11/4/14

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

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

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

Business Model

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

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

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

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

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

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

PCs (Notebook and Desktop Computers)

This is what Windows sales looked like in 1995:

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

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

This presents Microsoft with two problems.

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

PCs ARE FLAT OR DIMINISHING

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

GOOGLE CHROMEBOOKS

Here are four recent headlines regarding Google Chromebooks.

Chromebook sales increase 67%, Acer holds the market lead

Chromebooks may grab 5% of PC market

Chromebook sales set to nearly triple by 2017, Gartner says

Microsoft’s next big headache: The Google Chromebook

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

APPLE MACS

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

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

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

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

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

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

MICROSOFT IS LOSING EDUCATION

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

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

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

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

MICROSOFT IS LOSING THE ENTERPRISE

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

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

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

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

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

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

Transition

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

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

Wisdom consists of the anticipation of consequences. ~ Norman Cousins

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

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

And Windows is not Microsoft’s future.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

These Are The Voyages

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

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

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

And then she married Bill Gates.

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

A billion to my university. Receive honor.

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

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

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

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

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

Melinda Gates is more Silicon Valley than Silicon Valley.

Note the values of the Bill & Melinda Gates Foundation:

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

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

To Boldly Go

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

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

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

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

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

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

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

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

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

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

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

Gates’ Twitter bio is concise and revelatory:

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

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

Does Windows Stand a Chance With Enterprise Mobile Apps?

This article is exclusively for subscribers to the Think.Tank.

Mac vs. PC All Over Again

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

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

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

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

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

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

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

What We Can Learn From History

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

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

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

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

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

Google excels in services; if Apple is to succeed long term, it will need to continually meet the “good enough” threshold on services. Given that requirement, the half-baked launch of Maps was a potentially franchise-destroying disaster. Apple has recovered from the worst of the Maps debacle, but it still has work to do on the services front. Apple next big challenge is creating a response to Google Now.

Apple does not need to beat Google on services as long as Google extends most of its services to iOS. Google monetizes users, not Android. As long as Apple maintains a significant share of premium customers its advertisers want to reach, Google has to work with Apple.

Apple excels in the app ecosystem, but Google is catching up. It is too early to predict whether this will keep Apple ahead, but the need to maintain an edge in the app ecosystem explains why Apple is opening up iOS 8 and giving developers more flexibility. It is also why Apple is investing in a new development language.

Apple must continue to set the standard for design so consumers are willing to pay a premium for its hardware. Larger screen sizes and bezel-free designs are the only real holes in Apple’s approach; otherwise it’s doing a pretty good job.

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

Lessons for OEMs competing with Apple and each other

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

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

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

Steve Jobs Reveals The Only Way Forward For Windows Phone

The only way forward for Windows Phone — that is not death — is work. Real work. In the 21st century, real work is inherently collaborative.

Collaboration is the Achilles Heel of all things iPhone, iOS, and Apple.

Steve Jobs, for all his greatness, for all he achieved, did not play well with others. Evidence is legion. Jobs forced the future upon us, refusing to budge to present day concerns. His iconoclast’s vision is reflected in every Apple product and has been since the beginning.

Jobs exalted the individual, from the singular 1984 rebel through to the lone, joyful iPod listener to now, where budding creatives obsessively focus their gaze upon the shimmering, inviting iPhone screen and not upon the people, life and physical flotsam whirring about.

Apple marketing dutifully reflects both Apple products and Apple culture, a culture which reveres solitary pursuits and nourishes individual genius.

This leaves a strategic opening for Microsoft and Windows Phone. Not by creating a disingenuous demarcation between “work” (Microsoft) and “play” (Apple), but by optimizing its platform, its cloud, its tools, its services — and especially its mobile devices — for collaboration.

Steve Jobs empowered us, liberated us, heightened our creative abilities. He transformed us into digital cowboys, technological gunslingers, mad genius loners. Not collaborators. His heroes do not need others nor do they require consensus.

To quote Jobs:

Here’s to the crazy ones, the misfits, the rebels, the troublemakers, the round pegs in the square holes… the ones who see things differently — they’re not fond of rules…

Such people are the opposite of collaborative. Yet, for all but a few crazy ones, greatness may only be accomplished via continuous collaboration and teamwork, not by being that round peg in the square hole.

Out Of Many One

Make no mistake. This is not about an Apple failure. Apple products, spanning the iPhone, the iPad and the Mac, are exemplary. But, their design and intent, empowering the individual, offers a clearing for whichever company develops computing and communication hardware and services which exalt the group.

Enabling new forms of work and new forms of creativity, facilitating time-shifting, globe-spanning, multi-modal collaboration from men and women, girls and boys whose full potential is untapped when pursuing their visions in isolation is the only way forward for Windows Phone.

The pieces to make this happen may already exist:

multi-screen function (desktop, mobile)
cloud support
Yammer
Skype
Exchange
Office 365
Office Lens
OneDrive
OneNote

Each of these are capable of providing highly functioning services, synchronized sharing, and any time, any place collaboration. The problem, of course, is none of these are yet fully optimized for mobile in general, or for Windows Phone in particular.

Jobs Informs Nadella

The recent revisionist history (such as here, here and here) proclaiming Steve Jobs as a world class “collaborator” is simply unfounded. Recall the single biggest change at Apple since the passing of Jobs: Tim Cook’s executive management shakeup, which the company itself positioned thusly:

Apple Announces Changes to Increase Collaboration Across Hardware, Software & Services (emphasis added)

Apple’s pro-individual, non-collaborative, go-it-alone DNA runs deep. This has created an opening for giant Microsoft’s tiny Windows Phone: collaborative creativity, collaborative work.

It bears repeating: by “work” I do not mean those activities presently optimized for PCs inside the enterprise. Microsoft’s fading retort that Windows is the platform for “work” badly underestimates how capable, valued and productive users of Apple devices are. But Apple hardware and supporting services are purposefully created for the individual. The future demands devices — hardware — for the group, not the one.

It also bears repeating: time is quickly running out for Windows Phone.

In his “bold ambition” statement, Nadella mentioned Microsoft’s commitment to “first party hardware” four times. Yet, within his 3,500-word manifesto, he mentioned “Windows Phone” only twice, and even then withholding clear affirmation:

(1) 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.

(2) We will responsibly make the market for Windows Phone.

This and other Nadella statements led me to state several weeks ago that:

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.

I now wish to amend that prediction. Microsoft lost the smartphone wars — that much is clear. But smartphones are lost to Microsoft only in how we define such devices at the present. An entirely new or repurposed mobile device which advances creative and productive collaboration as easily as iPhone advances personalized empowerment is still within Microsoft’s reach.

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.

12,500

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!

Our cloud OS infrastructure, device OS and first-party hardware will all build around this core focus and enable broad ecosystems.
Our Windows device OS and first-party hardware will set the bar for productivity experiences.
Our first-party devices will light up digital work and life.
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.

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.

Satya

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.

Nokia Has Fallen. America Wins The Smartphone Wars.

Nokia has fallen. Not even the name will remain. America’s victory in the smartphone wars is complete — for now.

Last week’s news from the front lines of the smartphone wars illuminates the scope of America’s rapid mobile ascendency.

From Microsoft:

“Microsoft acquires Nokia’s smartphone and mobile phone businesses, its design team, most of its manufacturing and assembly facilities and operations, and sales and marketing support.”

From Facebook:

Mobile active users are 1.01 billion as of March 31, 2014, an increase of 34% year-over-year.

From Apple:

“We sold almost 44 million iPhones, setting a new March-quarter record.”

And the week before, from Google:

Q1 2014 earnings totaled $15.4 billion in revenue, a 19% increase over the previous year’s $12.95 billion. Oh, and their Android platform is on nearly 80% of every smartphone in the world.

Designed By Apple And Google And Microsoft In America

iOS, Android and Windows Phone – American designed, American-led operating platforms all – account for nearly 98% of the global smartphone market, a truly stunning statistic. There appears no line on the horizon.

As the world rushes to replace their mobile phones with smartphones, even Microsoft, now a distant third, is well positioned to fully capitalize on mobile. Their takeover of Nokia includes the company’s very popular Asha brand of hybrid smartphones/featurephones, as well as Nokia’s traditional handset business, which still ships more than 200 million devices a year. (Second only to Samsung)

Should America celebrate these results?

Yes.

Should the rest of the world take bold, perhaps costly action to limit the continued rise of America’s mobile dominance?

Probably they should try.

The Pivot To Mobile

How did America so convincingly win the smartphone wars? First and foremost by attracting, developing, retaining, and fully incentivizing the best and brightest.

Vision and execution are also paramount. Consider:

Apple’s relentless pursuit of optimizing hardware while simultaneously improving upon and expanding the modes of interaction with that hardware.
Google encourages, captures and then attempts to make sense of (and profit from) the multiple data streams we generate.
Facebook seeks to connect the world on a fully human level.
Microsoft has spent the past four decades making computer applications more empowering and productive.

Also, and despite their vast size, these companies move with speed. Witness Facebook’s head-turning pivot to mobile. I think Mark Zuckerberg should be hailed for this accomplishment.

Weaknesses Along The Front Lines

Are there weaknesses in America’s smartphone leadership? Several, in fact.

Apple

iTunes is the center of Apple. It’s what locks us in, it’s what helps lure new customers. iTunes revenues are falling on a per-user basis. If iTunes spending falls on a per-user basis, I believe hardware margins will follow suit. Apple is optimized for hardware margins. The iTunes trend line thus appears ominous.

Google

Google still does not have an effective messaging strategy. This is confounding. There may be no more important mini-platform in the near term than messaging. Facebook, of course, battered its way into this critical market, dropping $20 billion on Instagram and WhatsApp in a single year. Google will almost certainly need to do the same. Larry Page has the wherewithal to follow suit — does he have the necessary humility? I am not convinced.

Google’s primary response to date, requiring SMS and messaging to default to Google’s Hangouts service, seems a rather anemic response.

Facebook

Though it claims over a billion mobile users, Facebook has no smartphone platform. This perpetually locks them out from critical user, usage and location data. That Facebook is now looking to buy its way into the wearables market, which potentially delivers incredible amounts of user data, should be no surprise.

That said, what will Mark Zuckerberg do when the ‘monopoly’ money runs out? Successful businesses aren’t sustained on buying up others’ creations.

Microsoft

Despite the well reviewed Windows Phone 8.1 OS, Microsoft has yet to reveal it can create a thriving mobile-first business.

Manufacturing

Microsoft’s purchase of Nokia notwithstanding, the vast majority of manufacturing of every piece of smartphone hardware is outsourced. The case has been made that regular interaction with new materials and new manufacturing processes will lead to those companies (and nations) becoming the primary source of innovation, thus trumping Apple, Google et al. This idea has not been borne out and I suspect it never will. Shedding our manufacturing abilities has no doubt damaged America’s middle class, but not its technology leadership.

Money and the Snowden factor

Smartphone platforms almost certainly contribute to a nation’s economic well-being and security. Smartphones link people, telecommunications and banking, holds our most personal information, tracks our movements, manages our identity, logs our purchases, connects us to first responders, and provides vital access to news, cultural and learning resources. We have to assume larger nations in particular are keenly incentivized to repel America’s technological reach. This is especially true in a post-Edward Snowden environment.

It’s not simply a matter of geopolitics, of course. Real money is at stake. Google and Facebook are effectively banned in China — and the in-country alternatives are now worth billions.

Over 90 million smartphones sell in China every quarter. China may decide to lock out Apple and Microsoft — or demand unreasonable ‘rents’. If China creates barriers to Apple, for example, or perhaps does all it can to promote or subsidize homegrown companies such as Xiaomi, then certainly Apple’s growth potential will be diminished.

I would also not be surprised if government sponsored firms in India or Indonesia, for example, purchase BlackBerry or commit significant resources to improving the open source version of Android (AOSP), which is free of all Google services. Success by any means necessary.

Why This Matters

Smartphones are the next great phase in computing’s decades long remaking of work, play, learning, commerce, creativity and connectivity around the planet. They connect us with nearly everything. America is in the lead now. Americans may wish to celebrate this. To remain at the top, however, will demand vigilance, daring and vision.

Each phase of the computing revolution appears to come faster than the one before. The smartphone wars will soon be the technology revolution of the past.

Say Hello To Microsoft 2.0

Last week I said goodbye to Microsoft. This week I say hello to Microsoft 2.0. But before we look at where I think Microsoft is headed, let’s take a quick look at where they’re coming from.

The further back you look, the further forward you can see. ~ Winston Churchill

Microsoft 1.0 had one of the most successful business models of all time. But no matter how successful Microsoft became, management seemingly could not abide the thought of any other technology company sharing the spotlight of success.

If a competitor was being successful with customers Microsoft wasn’t addressing, Microsoft had to have those customers as well.
If a competitor was being successful in a market where Microsoft didn’t compete, Microsoft felt compelled to compete there as well.
Most damning of all, if a competitor’s success could be attributed to its business model, Microsoft felt compelled to assimilate that business model and make it their own.

Microsoft wasn’t setting their own agenda. Instead, they were letting the successes of their competitor’s set the agenda.

Next to knowing when to seize an opportunity, the next important thing is to know when to forego an advantage. ~ Benjamin Disraeli

[pullquote]Thinking that adding another business model will make your company stronger is like thinking that adding another iceberg would have made the Titanic more seaworthy[/pullquote]

No company can satisfy every customer. No company can satisfy every market. And as for simultaneously employing different business models, thinking that adding another business model will make your company stronger is like thinking that adding another iceberg would have made the Titanic more seaworthy. ((Inspired by Chet Hurley))

iPod

As an example, look at how Microsoft responded to the success of the iPod.

In 2001, Apple introduced the iPod to mostly tepid reviews. However, approximately two years later, Apple added iTunes integration. The iPod’s popularity skyrocketed, becoming the vehicle that both saved Apple from the technology graveyard and later propelled Apple to technology greatness.

Now what does any of this have to do with Microsoft?

Absolutely nothing.

And that’s the point.

The iPod was no threat to Microsoft’s overall business strategy. In fact, when iTunes came to Windows, the iPod STRENGTHENED the Windows ecosystem.

However, the iPod’s success drove Microsoft mad with envy. Like a spiteful neighbor, Microsoft couldn’t stand to see Apple enjoying any success, even in an area where Microsoft didn’t compete and had no compelling reason to compete. Without ever clearly addressing the question of “why” they needed to respond to the iPod, Microsoft decided that it had to crush the iPod with a competing product of its own.

At first, Microsoft came out with their own MP3 software layer called “Plays-for-Sure” and licensed it to their hardware partners. When that failed to make a dent in the iPod’s success, Microsoft abandoned its traditional licensing business model (and their so-called hardware “partners”) and, with the Zune, adopted a vertical business model — the very same vertical business model that Apple had been honing and perfecting for over thirty years.

The Zune experiment was a dismal failure. Are we surprised? The goal of strategy is to make our opponents play to our strengths — to play our game on our home field. Microsoft did exactly the opposite. NO ONE does vertical technology like Apple. Apple lives and breathes vertical. Yet Microsoft — with virtually no experience in using a vertical business model — challenged Apple where Apple was strongest; where Apple had an inherent advantage; where Apple held the home field advantage.

It was a bloodbath. Not only did the Zune fail, it failed so spectacularly that it became the poster child for how NOT to compete with Apple ((The iPod remained the poster child for how not to compete with Apple until 2007, when Steve Jobs famously introduced the iPhone and Steve Ballmer famously responded by laughing at it.)).

If you can’t imitate him, don’t copy him. ~ Yogi Berra

Multiple Business Models

If you don’t know where you’re going, you might not get there. ~ Yogi Berra

Business models are not cords of wood that can be stacked up, one upon the other. You do not grow better by adding a new business model; you grow confused. You do not become bigger by adding a new business model; you become bloated. You do not become stronger by adding multiple business models, you become stranger.

FAKE CAPTION: The Simplest Known Explanation Of Microsoft 1.0’s Conflicting Business Models

A good business model — like a good argument — should be consistent, self-supporting and contain no inherent contradictions. You can tell when you have a good business model by how little internal friction it causes. You can tell when you have a bad business model by how your company always seems to be at war with itself.

To arrive at a contradiction is to confess an error in one’s thinking; to maintain a contradiction is to abdicate one’s mind and to evict oneself from the realm of reality. ~ Ayn Rand

Say Hello To Microsoft 2.0

With the changeover from Steve Ballmer to Satya Nadella, Microsoft has entered into a new era.

We can’t quite be sure yet exactly WHERE the good ship Microsoft is headed, but we can be very sure that Microsoft’s new Captain, Satya Nadella, is steering Microsoft in a radically different direction.

Microsoft is no longer pretending that its Office software suite will help it sell more Surface tablets. They have accepted the reality that Office should be untethered from their Windows operating system and from their Surface tablets so that it can be free to reside on Microsoft devices, Apple devices, Google Chrome devices…and as many other personal computing devices as possible.

It’s but little good you’ll do a-watering the last year’s crops. ~ Eliot Adam Bede

Microsoft is also no longer pretending that they can make a profit from selling mobile operating systems. They have accepted as reality the fact that Apple’s bundled hardware/operating system model and Google’s freemium operating system model have reduced the price of mobile operating systems to zero.

Face reality as it is, not as it was or as you wish it to be. ~ Jack Welch

Microsoft offering free Windows on phones and tablets is nontrivial. This is a big move, as it changes their business model entirely. ~ Aaron Levie (@levie)

Month’s back I stated Microsoft needed its “hell freezes over moment.” I wonder if giving Windows software on smaller screens for free is it. ~ Ben Bajarin (@BenBajarin)

For a company which has been too long stuck in the fog of Redmond, it’s a remarkable turnaround. ~ Kontra (@counternotions)

Microsoft is re-inventing its business model which is the same as saying Microsoft is re-inventing themselves.

Say goodbye to Microsoft 1.0. Say hello to Microsoft 2.0.

Entrepreneurship is essentially identifying the path that everyone takes; and choosing a different, better way. ~ Sheldon Adelson

Horizontal

A coming together, a cloud for everyone and for every device; the first step on a journey. ~ Satya Nadella

Microsoft is going to a horizontal business model with a services layer above device platforms that isn’t dependent on any one operating system and provides Cloud services to all operating systems. Microsoft 1.0 was about Windows on every computer. Microsoft 2.0 is about MICROSOFT on every computer. It’s a subtle distinction with huge implications.

Horizontal business models thrive on cooperation and abhor confrontation with their vertical partners. Microsoft 2.0 — and its horizontal business model — wants its products to run almost everywhere, therefore it wants to be friendly with almost everyone.

Before Microsoft moved to a horizontal business model, try to imagine the following Twitter exchange taking place:

Welcome to the #iPad and @AppStore! @satyanadella and Office for iPad ~ Tim Cook (@tim_cook)

Thanks @tim_cook, excited to bring the magic of @Office to iPad customers #cloud4mobile ~ Satya Nadella (@satyanadella)

Or try to imagine John Gruber being on-screen at Microsoft’s Build conference:

This is odd/interesting. MS highlighting Apple watcher @gruber’s Vesper as an Azure developer/customer #bldwin ~ Mary Jo Foley (@maryjofoley)

In my opinion, John Gruber on screen at Microsoft’s Build Conference in 2014 is the poor man’s equivalent of when Bill Gates towered over Steve Jobs at Macworld in 1997.

Sometimes I’ve believed as many as six impossible things before breakfast. ~ Lewis Carroll

We didn’t know it then, but in 1997 Steve Jobs had just stooped to conquer — he had just conceded the PC wars to Microsoft thereby setting the table for his later post-PC triumphs. I think Microsoft — on a lesser scale — is doing the same today. They’ve conceded the post-PC wars…because they want to win the next war – the war for the Cloud.

Horizontal v. Horizontal

When you have a Horizontal business model, Verticals (like Apple) are not your enemies, they’re your friends. Your enemies are other horizontal business models competing in the same space as you. Hmm, who else do we know who has a Horizontal business model and competes in the Cloud?

Microsoft is clearly gunning for Android more than Apple now. ~ Matt Rosoff (@MattRosoff)

Legacy Business Models

Even if I’m right and Microsoft is trying to move toward a pure horizontal business model, they are still burdened with several dysfunctional legacy business models. I expect Satya Nadella to employ a two-pronged strategy to rid himself of these cancerous business models:

1) Unprofitable strategies (like Windows RT, the Surface tablet, Windows Phone 8, buying Nokia, moving to a functional organization) will be undone. This will take some doing but the process has already begun.

2) Profitable strategies (like the cash cows of Windows and Office) will be milked until they’re “udderly” dry. Then those cash cows will be put out to pasture while Microsoft moves on to the next great thing.

If I were running Apple, I would milk the Macintosh for all it’s worth and get busy on the next great thing. ~ Steve Jobs [Observation made before returning to Apple]

Part of me feels, at times, that Microsoft’s base case for mobile is to wait it out until the next disruption hits the reset button. ~ Ben Bajarin (@BenBajarin)

The End…Or Is It The Beginning?

It’s still early days for Microsoft 2.0.

Lots of good stuff at the Build keynote, but it feels like Microsoft is still in the fairly early stages of a years-long transition. ~ Harry McCracken (@harrymccracken)

Any prediction would be premature.

Never make forecasts, especially about the future. ~ Samuel Goldwyn

With Microsoft’s bankroll, there’s still time to make the transition from Windows everywhere to Microsoft everywhere.

It’s never too late to be what you might have been. ~ Mary Ann Evans (under the pen name, ‘George Eliot’)

Microsoft 2.0 is very, very late to the game. Or maybe I’ve been looking at this all wrong. Maybe Microsoft is very late to the post-PC game but very early to the Cloud game. If so, then Microsoft 2.0 may have been well worth the wait after all.

If a girl looks swell when she meets you, who gives a damn if she’s late? Nobody. ~ J. D. Salinger, The Catcher in the Rye

Say Goodbye To Microsoft

In the beginning, Microsoft’s business model was simple. They made the Windows operating system and licensed it to manufacturers, who then put it on their various computing machines. In the mid-nineties, Windows gained critical mass with businesses which, in turn, led to the adoption of the Windows operating system by consumers. The PC OS Wars were not just won by Microsoft, they were decisively won by Microsoft. Every other company that made competing PC operating systems was annihilated, save Apple, which only held on by the skin of their teeth.

Microsoft’s original audacious vision was a computer on every desk. (Importantly, that vision later became corrupted and transformed into “Windows” on every desk.) By the turn of the century, Microsoft had, for all intents and purposes, accomplished their mission. Now what?

A company that feels it has reached its goal will quickly stagnate and lose its vitality. ~ Ingvar Kamprad

When Money Is Your Guide, You Are Lost

Steve Ballmer has often said his goal was to make money. And he did. But making money is the means, not the ends.

Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver. ~ Ayn Rand

I’m a HUGE fan of companies making money. Money is the way one keeps score. But money is not the game. And the game’s the thing.

To fulfill a dream, to be allowed to sweat over lonely labor, to be given a chance to create, is the meat and potatoes of life. The money is the gravy. ~ Bette Davis

A business that makes nothing but money is a poor kind of business. ~ Henry Ford

There are people around here who start companies just to make money, but the great companies, well, that’s not what they’re about. ~ Steve Jobs

Money is a great incentive, but when it becomes your main incentive, it attracts the wrong kind of people.

You cannot motivate the best people with money. Money is just a way to keep score. The best people in any field are motivated by passion. ~ Eric S. Raymond

If a company values profits more than its vision, it will first lose its vision and then, ironically, it will lose its profits too. Money is an excellent servant but it is a terrible master.

Microsoft’s Lost Decade

Microsoft desperately tried to get into phones, tablets, watches and TVs but they missed and they missed badly. This is where their subtle shift from “a computer running a Microsoft operating system on every desk” to “a computer running Windows on every desk” came back to haunt them.

Where it is a duty to worship the sun it is pretty sure to be a crime to examine the laws of heat. ~ John Viscount Morley

At Microsoft, Windows was the Sun and anyone who espoused anything else was a heretic that had to be hunted down and eliminated.

Rather than try to create an operating system right for the various emerging form factors, Microsoft insisted — over and over and over again — on trying to shoehorn Windows onto every form factor. The results were disastrous.

The Mobile Wars Were Over Before Microsoft Even Entered The Fray

iOS and Android won the mobile OS wars as decisively as Microsoft had won the PC OS wars.

First, iOS and Android got out to a huge lead long before Microsoft was able to respond with Windows Phone 7 (then 8) and Windows RT and Windows 8.

Second, Google undercut Microsoft’s licensing model by giving their Android OS away for free.

Microsoft – like World War II Japanese soldiers stranded on deserted islands – continued to pretend the war was ongoing while everyone else went about the business of post-war reconstruction. Not only had Microsoft lost the post-PC wars, but their insistence the world was still fighting the PC wars jeopardized their possibilities in the post-post-PC world, as well.

Microsoft’s Anti-Strategy

Strategy is about choices, about making the hard decisions and about focus. Microsoft’s response to iOS and Android might be described as an anti-strategy. They chose not to choose, they decided not to decide, they focused on everything (which is to say that they focused on nothing).

Microsoft wanted to be Google so they created Bing
Microsoft wanted to be Microsoft so they licensed their OS software
Microsoft wanted to be a monopoly so they ported their desktop OS to tablets
Microsoft wanted to be iOS so they created Windows Phone 7, then 8
Microsoft wanted to be in tablets so the created Windows RT
Microsoft wanted to be the iPad so they created the Surface
Microsoft wanted to be Apple so they restructured their company along functional lines
Microsoft wanted to be the iPhone so they bought Nokia

Be yourself. The world worships the original. ~ Ingrid Bergman

The secret of change is to focus all of your energy, not on fighting the old, but on building the new.

The key to success is to focus our conscious mind on things we desire, not things we fear. ~ Brian Tracy

We believe in saying no to thousands of projects so that we can really focus on the few that are truly important and meaningful to us. ~ Tim Cook, Acting Apple CEO, January 2009 FQ1 2009 Earnings Call

Microsoft didn’t play to their strengths. Instead, they entered every game and tried to compete everywhere.

If you don’t have a competitive advantage, don’t compete. ~ Jack Welch

Microsoft didn’t want to narrow its options. Instead, they wanted to be everything to everybody. They didn’t want to be anything in particular so they produced nothing anybody particularly wanted.

CAPTION: The very epitome of a Microsoft product — chicken-flavored vegetable ham.

Conclusion

Honest criticism is hard to take, particularly from a relative, a friend, an acquaintance, or a stranger. ~ Franklin P. Jones

The recipe that made Microsoft dominant is not the recipe that will make them relevant again. Say goodbye to Microsoft…

…the new Microsoft has arrived.

Next week, I’ll look at Microsoft’s new strategy and analyze its potential and its potential pitfalls. (SPOILER ALERT: So far, I like what I’m seeing.)

Do not go where the path may lead, go instead where there is no path and leave a trail. ~ Ralph Waldo Emerson

Market Share Metaphysics

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Silicon Valley Owes A Debt Of Gratitude To The Movie Real Genius. We All Do.

I owe much to the movie Real Genius. I think Silicon Valley also owes this great film its gratitude. Indeed, if you love Silicon Valley, its culture, its vision, its bold, disruptive ethos and hacker creed, its belief in the expansive power of technology, then you likewise should be appreciative of this funny, heart-filled film.

Real Genius premiered in 1985. Yes, ten years before Windows 95. Ten years before Amazon.com. The President was Ronald Reagan. Everyone’s music came on cassette tapes. The Mac was a year old, not 30. CompuServe was bleeding edge. Yet, to this day, Real Genius remains a damn good movie, still able to inspire the next generation of geeks.

Talent, vision, skill, brainpower — and not looks, politics or favoritism — rule in Real Genius. To tackle the big problems, to demand success at a heretofore unimagined scale, those non-meritocratic skills are not only useless, the film teaches us, but actual barriers to success. Silicon Valley has taken these lessons to heart. I honestly do believe that Silicon Valley would be a lesser place, less fun, less daring, less successful, less eager to embrace actual unique personal genius, if not for the movie Real Genius.

Real Genius assures us that we can remain fully ourself, with all our quirks, all our awkwardness, and still be welcome into its egalitarian world. The movie likewise reveals that to love what you do, love what you are good at, love working with others who feel just the same, then it’s not really work at all, its’ more a calling.

The glory, the money, those will come, and when they do, they will remain secondary. This is the creed of today’s tech entrepreneur.

What’s Real Genius about?

Well, this mean teacher recruits all the top physics and engineering students to his school then blackmails them to work on a top secret project to create a “five megawatt laser” that can vaporize a person from the sky, while he secretly uses those earmarked CIA funds to build himself an amazing new house. The smart kids succeed, naturally, only to soon discover what their work is intended for — drone-like assassinations. Now, they must destroy the device, their greatest creation, and make the bad guys pay. Since they’re all living on campus, far from home, there’s also plenty of good-natured hijinks.

But, none of that’s terribly important. What’s important about Real Genius is its message: Give us your very smart, your young, your daring, quirky, your most technically inclined, and we can achieve the impossible. This same message permeates Silicon Valley. Come one, come all — provided you are smart — and we will find a place for you here.

Real Genius taught me, taught us, that it was ok to be smart, even super-smart. It taught us that being a geek, a nerd, a egghead, we could still be cool, we could still do good, we could change the world for the better — provided we thought through the consequences of our clever-brainy actions.

For me, Real Genius is that rarest of movies, like Spaceballs, that I absolutely have to watch whenever I stumble upon it.

Real Genius taught me that if I was super smart — and didn’t try to hide it — companies would come to me. It taught me that that cute, super smart girl was the one I really should spend my time with, give my heart to, and not the girls more commonly displayed across film and television.

Real Genius is like if the kids in The Outsiders all had off-the-charts IQs, reasonably concerned parents, and then went on to create new companies, new technologies, new business models that upend everything, all while making them each fantastically and legally wealthy beyond their dreams.

I imagine Steve Jobs is Chris Knight, expertly played by Val Kilmer. Smart, fearless, too reckless for anyone’s good, a corporate slacker that has no time and less patience for the business world. Bill Gates is the slight, scared and scary-smart Mitch Taylor, played by Gabe Jarrett. You just know both will change the world profoundly — maybe even similarly — despite their differences. They are linked solely by their brains and the rising belief in their unique abilities, and that’s exactly enough.

The young Jordan, who can’t slow down for even a second, is obviously Marissa Mayer.

Lazlo? Probably Tim Berners-Lee.

The geek-and-proud, smart-and-disruptive, ready to take on the world ethos in Real Genius has long since been embraced by Silicon Valley, its hackers, programmers, builders, dreamers.

Heed and herald the Real Genius values:

Being smart makes you a badass
Change the world and have fun doing it
You can beat the system, you can invert the system, and create a world more to your liking

Admittedly, the movie also suggests that the super-smart should congregate mostly amongst themselves, in schools, in bars, away from the other. That is the only real downside to the film’s core message, the consequences of which now reverberate throughout the region.

Perhaps the profound disconnectedness of the world back then heightens my endearment to this small movie, which spoke to me in every scene and through every character. Real Genius taught me, in a way that home, high school and my neighborhood did not, not quite, that it was okay to be brainy, there are more like you out there, and soon you will connect, friend one another, and change the world.

Surprise! Apple Execs Use The Mac Anniversary To Dis Microsoft.

When Apple executives speak to the press, pay attention. They may dodge. They may fail to disclose some facts, overemphasize others. But, and this is critical, Apple executives who speak on the record always reveal what they are thinking.

Surprise. Apple executives think a great deal about Microsoft.

Mostly, they think Microsoft has got it completely wrong. In this case, however, I hope it is Apple that is proven wrong.

Last week, Macworld scored a very rare interview with key Apple executives. The men spoke on the occasion of the Mac’s 30th anniversary. That the Mac (in its many forms) is thirty is a truly laudable achievement. For so long, the Mac was marginalized. So much so, in fact, that Steve Jobs had no choice but to turn to the iPod. No more. Today, Mac survives and by the great metric of profits, even thrives.

Which is why I find it so odd that in granting their interview, the Apple executives spoke so little about the Mac’s rather inspiring tale and instead directed jab after jab toward Microsoft’s unified OS strategy.

This, dear reader, is what we call a tell.

Hardware Trumps All Else

From Macworld’s brief interview, consider the many times Apple execs suggest that the current Windows strategy is all wrong:

“It’s obvious and easy enough to slap a touchscreen on a piece of hardware, but is that a good experience? We believe, no.”

“We don’t waste time thinking, ‘But it should be one [interface]!’ How do you make these [operating systems] merge together?’ What a waste of energy that would be.”

“To say [OS X and iOS] should be the same, independent of their purpose? Let’s just converge, for the sake of convergence? [It’s] absolutely a non goal ”

“You don’t want to say the Mac became less good at being a Mac because someone tried to turn it into iOS.”

“There’s a natural form factor that drives the optimal experience for each of those things. And I think what we are focused on is delivering the tailored, optimal experience for those kinds of ways that you work, without trying to take a one-size-fits-all solution to it.”

Tim Cook appeared on ABC in large part to talk about the Mac at 30. The company created a splashy new landing page at Apple.com to celebrate thirty years of Macintosh. Apple execs spoke to the press as part of the Mac’s celebration. Yet, Apple’s conversation continues to come back to that central theme: Microsoft is doing it wrong.

What gives?

Partly, it’s because no matter how rich Apple is now, old grudges never fully heal. It’s also representative of the fact that, at least in part, Apple is smart enough to let sales direct strategy. Consider that for the last quarter, Apple will sell about 50 million iPhones, 25 million iPads, and probably less than 5 million Macs. There is simply no incentive for the company to even suggest a Mac OSX – iOS convergence.

I hope they are wrong.

Many Modes. Many Devices. One Interface.

I want my various “computers” — defined here as at least my smartphone, tablet, desktop, laptop, wearable watch, television and even car dashboard — to essentially operate as similarly as possible, preferably with a unified user interface and application set across all.

Yes, my many computers are for different tasks and will be used at different times, in different settings. I will want to use a keyboard and mouse for some activities, touch for others, my voice for still others. That said, I want all my devices to have a UI that looks and feels and functions similarly. Even more, I want a singular user experience across all devices and across all modes of interaction. Thus, Mac knows my touch and my voice exactly as iPhone. My iPad screen and Mac screen are essentially swappable.

It’s troubling to me that the world’s biggest computer company can’t seem to make this work. When I hear Apple execs mocking Microsoft’s UI strategy I think it’s an opportunity lost.

Apple Limitations

Apple has survived and prospered because of its rather profound understanding of the opportunities presented by its own limitations. Whereas Google is almost infinitely scalable, there are hard limits on what Apple can do. Thus, their relentless multi-decade focus on maximizing the potential of a fully integrated hardware-software-services ecosystem. The result is the world’s best smartphone, best tablet, best laptop.

It’s no longer enough. As data shifts to the cloud, hardware becomes increasingly de-constructed. Desktop, laptop, smartphone, tablet, an assortment of wearables, connected cars, connected homes and on and on. I want the very best of each of these. I also want each of these to operate with the same essential template.

Perhaps I can’t have that, now now, maybe not ever. But it bothers me that it is Apple which seems so determined to accept multiple OSes across multiple form factors. Here’s a case, frankly, where I hope Microsoft wins.

Microsoft Windows’ Biggest Problem

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The Next Steve Jobs Will Destroy Apple

Apple is the biggest tech company in the world, worth at least $100 billion more than either Microsoft or Google. Apple has over 350 million active users. Within a few short years, I suspect a billion people will be using Apple computers every single day.

How did this happen? Thus: Steve Jobs proved us all wrong.

In so many ways, ways we now take for granted, ways that Google and Microsoft are rapidly trying to copy, it was Jobs who showed us the way — even as we all were convinced of his wrongness. Jobs proved us wrong not just on technical matters, but on profound aspects of both technology and business.

A few examples of Steve Jobs proving us all wrong:

Building a global retail chain
Requiring customers to pay for content
Demanding high-margins for hardware
Choosing margin share over market share
Emphasizing design over commoditization
Building a touchscreen-only line of computers
Banishing pornography

All of these were business decisions that went against the accepted order. All were correct.

In this same way, Jobs taught us — for we did not initially believe — that:

The big money resides at the top of the pyramid
Walled gardens and well-controlled APIs are the future of the web
Existing standards and popular features are of almost no consequence
There is more money in consumer computing than the enterprise
Set prices, clearly stated, benefit buyer and seller
The web — websites, web pages, web standards — is less important than apps
More users, more developers, more content providers directly benefit from a closed ecosystem than an open one

And here we are today, following decades of Jobs wandering the wilderness, steadfastly implementing the many and varied pieces of his mad grand vision.

Now, developers choose Apple first, others second (if at all). Apple towers above Microsoft. Apple isn’t just the biggest computing company, it may also be the world’s biggest, most popular, most profitable gaming company. Symbian, BlackBerry, Palm, Motorola and Windows Phone have been crushed by iPhone. Dell has gone private. HP remains MIA. Jobsian tremors are still being felt across multiple industries as content, data, apps and services all collapse inside the iPhone — or its copiers.

In what turned out to be one of his very last shareholder letters, Microsoft CEO Steve Ballmer spoke with language clearly influenced by Jobs:

“We will continue to work with a vast ecosystem of partners to deliver a broad spectrum of Windows PCs, tablets and phones. We do this because our customers want great choices and we believe there is no way one size suits over 1.3 billion Windows users around the world. There will be times when we build specific devices for specific purposes, as we have chosen to do with Xbox and the recently announced Microsoft Surface. In all our work with partners and on our own devices, we will focus relentlessly on delivering delightful, seamless experiences across hardware, software and services. This means as we, with our partners, develop new Windows devices we’ll build in services people want. Further, as we develop and update our consumer services, we’ll do so in ways that take full advantage of hardware advances, that complement one another and that unify all the devices people use daily. So right out of the box, a customer will get a stunning device that is connected to unique communications, productivity and entertainment services from Microsoft as well as access to great services and applications from our partners and developers around the world.”

And, breathe…

Understand, I do not come here to mock Ballmer. Nor should the Apple faithful: Tim Cook is probably more like Ballmer than Jobs, after all. Besides, Ballmer did far too much to benefit the company he so dearly loved. And yet, in that single paragraph above, where Ballmer references billions of users, seamless experiences, delight, the integration of hardware and software, sounding so much like Steve Jobs, he grounds everything in the obvious, and the near-term. Contained within that same single paragraph Ballmer specifically mentions…Windows, PCs, tablets, phones, Windows, Xbox, Surface, Windows, Microsoft, partners, partners, partners, partners, and developers.

Ballmer’s statement is the beatification of the current product set, the glorification of the existing order, and fully aligned with the rational. This is not surprising. It’s nearly impossible to not be rational. Certainly this is true if you are the CEO of a publicly traded company.

Steve Jobs was not rational. His vision of the future was not dependent upon existing products, existing form factors, partners, developers, nor the established wisdom.

I lived through the years when Microsoft absolutely controlled the direction of personal computing. I was there for the rise of Google — and its destruction of the value of content and user privacy. I would not have dared believe that the radical visions of Steve Jobs would so thoroughly flourish in this world. It’s all so profoundly non-rational.

Steve Jobs was firm in his vision, proudly revolutionary, shrewd enough to avoid the trappings of both success and failure, and fully prepared to prove all of us completely wrong, no matter how long it took.

I am sorry for ever having doubted him.

All of which is prologue to the obvious: Apple is today’s monolith. All must acknowledge, possibly fear, every move Apple makes, each market it enters. We hang on the company’s every word, spin tales from its silence, and have grown comfortable in the knowledge that, as is the new natural order of things, Apple will succeed with each new release, each blessed launch.

Which is prologue to the less obvious: The next Steve Jobs, when she or he finally arrives, will have Apple squarely in their sites. Then blow it to bits.

Where I Save Windows Phone

My name is Brian and I use Windows Phone.

Confession: I want Windows Phone to succeed. I want it to succeed because I believe users will benefit from Microsoft innovation and renewed market competition. I want Windows Phone to succeed because as Android increasingly takes over the computing world I am increasingly fearful of the success of an OS whose very existence is to track and record user behavior across the world.

I want Windows Phone to succeed because I want great, American companies to continue to dominate the global tech market.

I am not at all sure Windows Phone will succeed.

This has nothing to do with the silly, breathless rumors about a Nokia Android device. Rather, even given Microsoft’s money, brainpower and massive “Windows” install base — and 10+ years of fruitless R&D — the world continues to reveal that it is quite happy choosing between Android and iOS.

My hope, thus, is cruelly crushed by market reality. Must be doubly bad for Microsoft, I suspect. Therefore, I offer the following advice to help save Windows Phone.

1. Fewer Apps

Yes, this is counterintuitive, but absolutely necessary. You lost the app battle, Microsoft. It’s over. Accept defeat. We now live in a world where there are far more software applications for Apple products — and they are much easier to buy.

Stop pumping bad apps through the system in a futile attempt to make the actual numbers look not so awful. Instead, focus on offering the absolute best apps of any platform.

I have spent the past 4 years using iPhones as my go-to device. I have spent the past several weeks using the Lumia 1520 almost exclusively. In nearly every case, I’ve found an app equivalent for Windows Phone to match my iPhone. Unfortunately, nearly everyone is awful. Limited functionality, poor to no integration with web services (or iPhone apps), bad design. Indeed, the vast majority of apps in the Windows Phone store appear to me as little more than high school projects. End this anti-user behavior. Ensure that any app offered from your store is absolutely awesome and in no way a pale, brittle facsimile of what’s long been available for iOS and Android. Reject far more apps than you accept.

Fifty thousand great apps is better than 150,000 awful ones.

I also recommend you pledge every single of the many billions of dollars you receive from Android patent scofflaws to fund app projects with the very best app development houses. Bonus: offer huge cash windfalls for successful tie-ins with your very best mobile offerings (Skydrive, Bing, Office, Skype).

2. Fewer Devices

Windows Phone, the platform, will not be widely embraced by OEMs the way Windows was back in the 20th century. Android has won that war and its presence and pace throughout the world is accelerating. Your best hope is to focus on your own great devices. Luckily, you now own Nokia, which makes the most beautiful, best designed smartphones in the world.

Nokia’s problem is its insistence on offering as many variations of devices across every possible region, industry and demographic. This is no longer a viable strategy in a world where we are all connected. Worse, it increases manufacturing and marketing costs, generates user confusion and capitulates to self-serving carrier demands.

This is what you should offer:

Student model — for children, students, grandparents and those of lesser means. The Lumia 520 is amazing for the price. Does the target market even know this?
Business model. Your premium offering. The Lumia 920 (or equivalent) with Office, Outlook, Skydrive and Skype included is a powerful combination.
Globetrotter model. The Lumia 1020 with 41mp camera is the baseline device for artists, photographers, creative types.
Gamer model. Your “gamer” phone fully leverages Xbox and the beautiful large-display Lumia 1520. Maybe offer Xbox credits with every purchase.

Next, you must give each of these devices comprehensible names. 520, for example, means absolutely nothing to absolutely no one. 920 is (obviously) less than 925, which obviously has lesser hardware than the 1020. Right? Nobody knows. Stop such nonsense.

3. Be Mobile First – Really

From this day forward, the role of Office and Windows is not to maximize shareholder value. Rather, it is to maximize profits to fund the future. The future is mobile.

You’ve bravely taken a few baby steps in this direction, and have now evolved from believing smartphones are mere satellites revolving around the PC sun to your current belief, where you appear to grudgingly accept that smartphones and PCs can be equivalents. Still wrong. The smartphone is the center of the computing world. Until you accept this your giant company will continue to flounder.

I fear this will not be an easy fix. Your Surface ads reveal that you, dear Microsoft, can’t even conceive of a “computing” device that is solely and purely touchscreen and mobile. In the second decade of the 21st century you still promote computers and “slates,” such as your Surface, as devices that work best when there is a physical keyboard attached and the user is seated. This is a profound misunderstanding of the future of everything.

Focusing on non-mobile, non-touchscreen devices is like if Android is the Death Star, iPhone is Ben Kenobi and you are Aunt Beru. Don’t be Aunt Beru, Microsoft.

Change your strategy. Radically improve touchscreen responsiveness. Offer a movie store. Make multitasking really work. Fix the (virtual) keyboard. Mobile first — really.

It’s not all bad, of course. Your instincts are sound. Note that the much-lauded Jony Ive continues to parrot what Windows Phone and Nokia have been doing for years: “Unapologetically” plastic devices. Bright colors. Polycarbonite-like feel. Flat design. Lots of white space. He knows.

4. Start A War With Apple

Android is good enough for most of the world. For what it offers, for its price, availability and ecosystem, you aren’t going to convince many to choose Windows Phone over Android, particularly at the low-end. You must prove your worthiness by taking on Apple. Fortunately, that’s where most of the money may be found.

Focus your marketing on a Mac vs PC-like campaign.

Your live tiles versus their static icons
Skype versus FaceTime
20mp and 41mp cameras with Zeiss lenses and Nokia imaging controls versus iPhone’s 8mp camera
Office versus iWork
Outlook versus Apple Mail
Nokia Maps and real-time transit data versus Apple Maps
Xbox versus Game Center
Mock Siri. Belittle Touch ID.

Pay no attention to the Apple echo chamber. Ignore what people may say on Twitter. “In marketing, what looks new is new.”

A relentless assault against the iPhone earns you respect, customers, and helps focus your company. If possible, hire the “PC” guy to do the ads.

Reminder: not one moment of these ads, not one image, may include a keyboard or a person seated. Commercials advertising a “real keyboard” to do “real work” is my grandfather insisting that music used to be so much better. Probably, he’s wrong and if he’s right, it’s irrelevant.

Having spent the past month with a Nokia Lumia 1520, and having used every iPhone, several Android devices, BlackBerry, Palm, Symbian, Asha, MeeGo and others, I know that your odds are slight. Your potential remains great, however. Go forth. No excuses — you’re Microsoft. The time to line up your pawns has long since passed. These are the smartphone wars. Ball so hard.

Let’s Stop Talking About Winners and Losers

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Disruption: What Microsoft Got Wrong

Ben Thompson of Stratechery has deservedly been the talk of the tech world this week for his analysis of disruption theory, What Clayton Christensen Got Wrong. Thompson argues (and if you haven;t read his piece you should) that Christensen actually has two theories of disruption: new market disruption, in which incumbent fail to respond to basic technological change and low-end disruption, in which companies’ business models are undermined by commoditization and their inability to compete with cheaper, “good enough” offerings.

There has been a tendency to look at the struggles of Microsoft as a case of low-cost disruption. Sales of Windows PCs are suffering because customers are settling for cheaper tablets and smartphones that are good enough for their needs. Certainly, Microsoft itself seems to look at the market that way: Its ads for the Surface focus on features the iPad lacks (“I’m sorry, I don’t have a USB port,” the tablet says in a wistful Siri voice) and Surface’s lower price.

Unfortunately for Microsoft, this misses the point. Windows has been hit by new market disruption, not its low-cost cousin. Many people–certainly myself–use an iPad not because we are willing to settle for it but because we find it meets our needs better than a laptop. I have a laptop, several of them to be precise, both Mac and Windows, but whenever I am not at my desk (where I use desktops) I will almost always go for my iPad or, if the spirit moves me, a Samsung Android tablet.

The problem from Microsoft’s point of view is that I use the tablet not because it is good enough but, for most of the jobs at hand, better. It’s always there, always on, and easily kept on my lap. Dedicated apps generally perform their chores with less fuss than their desktop equivalents.

Most studies show that tablet owners also tend to own conventional PCs. They just use them less. And because they use them less. they replacement less often, which is very bad for sales. I’m ready to replace my iMac, which I use for media production, with a newer and much faster version. Waiting 20 minutes to render six minutes of video was the last straw. But my nearly four-year-old Windows desktop is likely to go on chugging along for another year or two (on Windows 7, most likely.)

Microsoft’s response to this has been to offer a tablet that is as PC-like as possible. It is telling that the Surface (or Surface Pro) is rarely shown in ads without a keyboard. It runs a PC operating system. This Twitter dialog between Ben Bajarin and Ian Betteridge gets to the point:

Surface’s greatest point of differentiation is that in can run Microsoft Office, applications that are all but useless without a keyboard and mouse. But from Microsoft’s viewpoint, it’s better, it’s cheaper–what’s not to like?

Except that customers didn’t like the Surface, to the tune of a $900 million inventory writedown on the original version. And I don’t think they’ll be much fonder of its replacement, which offers better performance but an updated version of Windows RT, rather confusingly called Windows RT 8.1, that is only a modest improvement (at least it does limit the frequency with which the mouse-dependent Windows Desktop pops up.) It is still too PC-like and too bereft of apps to appeal.

Some companies caught by new market disruption really don’t have a chance. Kodak, for example; even if it had dominated the market for digital cameras, there just wasn’t enough money in that business to to make good the losses from film, paper, chemicals, and photofinishing services. Microsoft has the money and the opportunity to get out ahead of new markets. But like so many other incumbents, it could not loosen its grip on its lucrative legacy to seize the future. And for this it will pay dearly.

Microsoft and Nokia: A Strategic Blunder

There’s an old military adage, “Reinforce success; never reinforce failure.” By purchasing Nokia’s device business for about $5 billion, Microsoft has just reinforced failure in a big way. It has been three years since Microsoft attempted to reboot its mobile business with Windows Phone 7, two and a half years since the company struck a broad partnership with Nokia, and a year since the introduction of Windows Phone 8 and the Surface tablet. Microsoft has next to nothing to show for any of these efforts.

Microsoft can easily afford the purchase price; it has the money lying around under the cushions of various couches around the world. The issue is one of strategic focus. At a time when Microsoft should be turning its attention to its successful core businesses to build for the future, it is redoubling its efforts in an area where it is struggling, at best.

At a time when it should be thinking about the strategic direction of a new CEO, Steve Ballmer in his remaining months and his now probable successor, Nokia CEO Stephen Elop, who will become a Microsoft executive vice president, will instead be devoting a lot of time and effort to integrating Nokia. The money-losing device business had about $15 billion in revenues last year, which would make it Microsoft’s fourth largest division (see chart.) But its 32,000 employees will increase Microsoft’s worldwide employment by nearly a third. A Finnish hardware unit and Microsoft, the quintessential software company have cultures that likely will resist easy integration.

The challenges for Nokiasoft are overwhelming. I thought for a long time that there was room for a third platform in mobile phones and that Windows Phone might well be it. But Microsoft, even with the Nokia partnership, has yet to rise above minuscule market share in the U.S. or worldwide. The implosion of BlackBerry was the best opportunity for Microsoft to grab share, but it has failed to do so. Microsoft must struggle to carve out a niche in what has become an iOS-Android world, or maybe an Apple-Google-Samsung world if Samsung and Google part company.

Missing apps. Furthermore, Windows Phone, now with more Nokia, still has the same old problem: The lack of an adequate app ecosystem. In software, Microsoft doesn’t get anything from Nokia that Windows phone didn’t already have (Nokia’s strongest mobile software asset, its maps business, is not part of the deal.) After three years, Windows Phone still lacks such table stakes apps as native YouTube and Instagram clients. Maybe a Herculean effort by Microsoft management could change this, but such an effort means other, probably more important things, are not going to be done.

The outlook in tablets is even bleaker. Windows RT, the version developed specifically for tablets, is a resounding flop and Windows 8 on tablets hasn’t faired much better. Nokia reportedly has a Windows RT tablet ready to launch this fall; unless it is a lot better than the Surface or the Surface’s planned successor, it would just split a tiny market.

The iPhone has turned mobile phones, even business phones, into an overwhelmingly consumer business. This means the Nokia acquisition has plunged Microsoft far deeper into an area it really should be abandoning, Microsoft simply is not very good as a consumer company. And it is hard to see what Nokia, headed by a man whose greatest managerial success came as head of the Microsoft Business division, brings.

The Xbox problem. Xbox is Microsoft’s one consumer bright spot, but the chart above shows its fundamental weakness. Even putting aside the enormous sunk cost of Xbox and the fumbled launch of the Xbox One, the Entertainment & Devices segment is too small, especially in profit share, to make much of a difference. With little prospect for explosive growth in the game console-cum-set top box market, Xbox is not going to save Microsoft.

With whatever energy Microsoft management has left after coping the the challenges of the Nokia acquisition, the company should focus on what it does well, and that is to sell business software. That is a market that has been changing, but here Microsoft has been adapting, converting its traditional sale of permanent software licenses into software-as-a-service and platform-as-a-service offering.

Windows sales will shrink with the PC market, but they aren’t going away and will remain highly profitable; a 50% operating margin for the Windows division in a crummy year is impressive. The urgent need is for Microsoft to develop a replacement for Windows 7 that businesses might want to buy–something with the under-the-hood improvements of Windows 8 but without either of its unloved user interfaces.

Reinforce success. The business software operations also deserve reinforcement. The big part of the tech commentariat that knows little or nothing about business software consistently underestimates the importance and staying power of Office (I agree that Office is finished in consumer markets, but that was never its real business anyway.) Back-office tools such as Exchange, SharePoint, and SQL Server remain mighty money-makers and the Microsoft Dynamics suite of resource planning, customer relationship management, and accounting tools is growing nicely.

Web services, particularly those that serve business rather than those that are directly consumer-facing, are another area of strength. While behind Google in many areas, Microsoft is well ahead of Apple, which often seems as clueless about Web services as it is savvy about devices. Azure, another service little-known to those who do not follow enterprise software, has made impressive gains the the platform-as-a-service business, though Microsoft should stop hurting itself by branding the product as Windows Azure. Windows has had a great run as a brand, but it is time to move on.

In the constantly mutating tech world, Microsoft cannot afford for its top management to take its eyes off these successful operations. But I fear that it will be hard to give these operations, which I think represent Microsoft’s best chances for future success, the attention they deserve while management is deeply distracted by the enormous challenges of Nokia. The $7 billion investment (including a patent licensing deal) was not a huge amount of money, but its ultimate cost to Microsoft could be a lot higher.

Why Windows RT Will Survive $900M Later

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Beating The Dead Horse That Is Microsoft Windows (Part 1)

Few people enjoy beating a dead horse more than I do, but man, beating up on Microsoft Windows is simply no fun anymore…because everybody’s doing it.

The defining company of the PC era — which for the purposes of this discussion we’ll consider the 25 years from 1981 to 2006 — has not articulated a unique and compelling vision for the future of computing since the iPhone rocked it to its core in 2007. ~ Tom Krazit, Gigaom

Yup, that about sums it up.

The first part of this two-part series will focus on what’s gone wrong with Microsoft Windows. Next week, I’ll conclude the series by focusing on why Microsoft is in this position and what, if anything, they can do to resuscitate the dead horse that is Windows.

Let Me Count The Ways

So, exactly how badly is Microsoft losing in the personal computing space? Let me count the ways:

1) PCs are in decline;
2) Mobile is ascendant;
3) Windows Phone 8 sales have been disappointing;
4) Windows RT sales have been disappointing;
5) Microsoft Surface sales have been disappointing;
6) Third-party Windows 8 tablet sales have been disappointing;
7) Ultrabook sales have been disappointing;
8) Windows 8 adoption has been disappointing;
9) Microsoft App Store growth has been disappointing;
10) Business and Enterprise is moving on without Microsoft’s products or services;
11) Microsoft has lost its monopoly and its monopoly powers; and
12) Microsoft is dependent upon legacy products – Windows and Office – for the bulk of its profits.

No reasonable person is arguing that Microsoft is going away. What rational people ARE contending is that Microsoft is becoming irrelevant in the front end – the consumer facing portion – of the personal computing space.

How did it come to this?

1) PCs Are In Decline

If you don’t cannibalize yourself, someone else will. ~ Steve Jobs

Evidence of the PCs decline is indisputable and, frankly, no one is trying to dispute it.

— Dropoff in PC Sales Is Accelerating and Tablets Are the Culprit, Says IDC

— In mature markets, the PC is saturated. And that’s where tablets are secondary devices. Shim says in emerging markets tablets are going to be primary devices. If the tablet takes off there, that kills the traditional PC’s chances of ever growing again.

— …for the 4th quarter PC sales declined by almost 5% according to Gartner research, and by almost 6.5% according to IDC. Both groups no longer expect a rebound in PC shipments, as they believe homes will no longer have more than 1 PC due to mobile device penetration, a market where Surface and Win8 phones have failed to make a significant impact or move beyond a tiny market share.

— In the model IDC used to forecast the 7.8% decline, the second quarter — which ended June 30 — was to be down 11.7%, a smaller drop than the first quarter’s historic 13.9% plunge. Shipments in the third and fourth quarters, meanwhile, would decline 4.7% and 1.6%, respectively, from the same periods in 2012.

2) Mobile is ascendant

“The best way to predict the future is to invent it.” ~ Alan Kay

— Half of U.S. adults now own a tablet or smartphone, Pew study finds

— …mobile devices — in particular iOS and Android — will continue to cannibalize PC sales throughout the year. Put simply, consumers and enterprise buyers prefer to spend their money on post-PC devices rather than on PCs.

— Next year, tablet sales will beat notebook sales for the first time ever, says NPD’s DisplaySearch. It is projecting tablet shipments of 240 million units versus notebook shipments of 203 million units. That’s 64 percent growth for tablet versus a 5 percent decline for notebooks.

— IDC: Tablets to outsell notebooks in 2013, all PCs in 2015

— The latest prediction from NPD DisplaySearch shows just how quickly the market has changed. It was six months ago, in July 2012, that the same organization predicted that it would take until 2016 for tablets to surpass notebook shipments.

3) Windows Phone 8 sales have been disappointing

I wish developing great products was as easy as writing a check. If that was the case, Microsoft would have great products. ~ Steve Jobs

Source: Ben Evans

— iOS and Android comprised 92.3% of Q1 2013 smartphone shipments

— According to Murtazin, Microsoft’s royalty fees from licensing the Windows Phone OS to manufacturers like Nokia, HTC (2498) and Samsung (005930) are being given back to these companies in the form of marketing dollars. In Nokia’s case, an arrangement similar to the one Murtazin describes is a matter of public record, as per the company’s 2011 annual report

— Windows Phone gets no traction despite the Nokia deal and RIM’s collapse

— Manufacturers reportedly ignoring Windows Phone due to OS fees… and Nokia

— Rumor: Microsoft paying $100,000 to some Windows Phone app makers?

You won’t help shoots grow by pulling them up higher. ~ Chinese proverb

4) Windows RT sales have been disappointing

It is perfectly monstrous the way people go about nowadays saying things against one behind one’s back that are absolutely and entirely true. ~ Oscar Wilde

— …Gottheil dubbed the RT tablets a “meta-tweener,” a “tweener between a tweener (Windows 8 x86) and a pure tablet like iPad,” he said. … “I don’t think Windows 8 RT can be successful unless and until its price is much lower.”

— Microsoft slashes Surface RT prices by $150 as it flounders against Apple’s iPad

— Lenovo released one of the few PCs that ran Microsoft’s ARM-based Windows RT operating system last fall with the 11 inch Yoga 11 notebook-tablet hybrid. Now it looks like Lenovo is phasing out its lone Windows RT product, as it no longer sells the Yoga 11 on its own website.

5) Microsoft Surface sales have been disappointing

To change and to improve are two different things. – German proverb

— Microsoft’s Surface Experiment Has Fallen Flat

“Perfection is the goal we’re going for, and that perfection comes with trade-offs,” said Panos Panay, general manager of Surface.

The above statement is “perfectly” ridiculous.

Someone at Microsoft needs to invest in a dictionary.

6) Third-party Windows 8 tablet sales have been disappointing

Bad engineering is solving a problem that you didn’t have in a way that you don’t understand.

— …(A)t a time when buyers seems price-sensitive, Wu finds the $500 to $1200 price tags slapped on Windows 8 hardware to be “uncompetitive” when compared to Android with prices as low as $99, and the iPad mini which starts at $329.

— Windows 8 tablet sales have been almost non-existent, with unit sales representing less than 1% of all Windows 8 device sales to date, NPD said, excluding sales of the Windows Surface tablet.

— Windows 8 device sales have not met Redmond’s internal projections, and the company is blaming it on lackluster hardware from OEMs.

7) Ultrabook sales have been disappointing

Imitation is a good servant, but a bad master.

— In October, IHS iSuppli downgraded its estimate of 2012’s ultrabook sales, cutting its projections by more than half from 22 million to 10.3 million, citing too-high prices. iSuppli argued that sales won’t take off until prices fall toward the $600 bar, perhaps in 2013. … The problem for Microsoft is that the outlook for ultrabooks, which the Surface Pro emulates, is dim. Windows ultrabook sales have been disappointing this year, and show little sign of improving sans dramatic price cuts.

— NPD: Apple’s MacBook Air dominates with 56% of U.S. thin-and-light notebook market

8) Windows 8 adoption has been disappointing

I heard that if you play a Windows 8 CD backwards, you’ll get a satanic message. But the most frightening thing is that if you play it forward, it installs Windows 8.

— The Windows 8 Sales Data Is In, And It’s Bad News For Microsoft

— Windows 8 continues to fail

— Windows 8 Is Failing to Beat Windows 7… And XP… And Even Vista!

— Worse still, Windows 8’s month-over-month growth rate is lagging further and further behind Vista’s dreadful 2007 adoption numbers. When comparing the operating systems when they were first launched, Windows 8’s adoption rate in its first month trailed Vista by just over half-a-percent among PC buyers. Now, in their 8th month out, Vista’s market-share numbers now lead Windows 8 by 3.64 percent. Needless to say, both lag far behind XP and Windows 7’s numbers at similar points in their product life-cycle.

— How bad are Windows 8 sales? In April 2013’s Net Applications numbers, Windows 8 barely crept up to 3.82-percent. That still leaves Windows 8 behind Microsoft’s last operating system flop, Vista, after seven months in the market. Windows on tablets fared even worse with touch-screen-based Windows 8 devices and Windows RT devices coming in at 0.02-percent and 0.00-percent each. The last was not a typo. The Surface RT is now in the running for worst Microsoft launch ever.

— StatCounter’s findings follow a similarly worrying report from NPD this week, which found that Windows 8 had captured just 58% of all Windows device sales since its launch, while Windows 7 captured 83% during the same period.

9) Microsoft App Store growth has been disappointing

“There comes a time in the affairs of man when he’s got to take the bull by the tail and face the situation.” – W.C. Fields

— In a classic chicken-and-the-egg conundrum, the Windows Store needs more Windows 8 customers and Windows 8 customers need more worthwhile apps from the store. Microsoft has failed miserably at attracting compelling content, a painful fact for any developer — or software company — thinking about committing the resources to bring a Metro app to market. How bad is it? … In short, it’s a wasteland.

— Microsoft expected 100,000 Windows 8 apps in 90 days. It took 248

— Sources: Microsoft Is Paying Developers Up To $100,000 To Write Windows Phone 8 Apps

Source

— Windows 8 users are turning to apps, on average, 1.52 times a day. Breaking this down by type indicates that tablet users are the heaviest app users, launching them 2.71 times per day, while touch-screen notebook users launch 47 percent more apps than those on a standard notebook. … Desktop users make the least use of Modern apps. … Soluto crunched the data further, and took a closer look at those who launch fewer than one Modern app a day. Here, the company noticed that a staggering 60 percent of users launch an app less than once a day. Even when it comes to tablet users, the heaviest users of Windows 8 apps according to Soluto, 44 percent of those sometimes go a day without launching an app.

10) Business and Enterprise are moving on without Microsoft’s products or services

If you’re in a card game and you don’t know who the sucker is, you’re it. ~ Anonymous

— Gartner: By 2014, Apple will be as accepted by enterprise IT as Microsoft is today

— Thanks To BYOD, Apple Invades The Enterprise

— More Data Showing iOS, Especially The iPhone, Still Killing It In The Enterprise

— Why companies are still deploying iOS apps first

— Fortune 500 Companies Moving to iPad Hits 94%

— Apple’s iOS still dominated the enterprise mobile circuit with 75 percent of total device activations last quarter.

11) Microsoft has lost its monopoly and its monopoly powers

That which has been believed by everyone, always and everywhere, has every chance of being false. ~ Paul Valery

— Forrester Report: Microsoft’s Windows Dominance Is Over

— …and Windows is no longer the dominant end-user operating system when PCs, smartphones and tablets are considered.

— In the greater end-user market, as Mary Meeker, the well-regarded analyst and venture capitalist, pointed out in her May 2013 Kleiner Perkins Caufield & Byers’ 2013 Internet Trends report, Windows is on the decline no matter how you measure it. Apple iOS and Android now have the lion’s share of computing devices, including PCs, smartphones and tablets, with 65-percent share over Windows’ 35-percent.

Source

— Microsoft’s mobile operating system share is actually worse than it appears. None of its most recent smartphone/tablet operating systems, Windows 8, Windows Phone 8 or RT. even breaks the 0.01-percent mark on NetMarketShare’s mobile/tablet operating system market share chart. How bad it is that? Android 1.6, with 0.01-percent, does make the chart.

— While Microsoft apologists focus on Windows continuing to be the dominant desktop operating system, they keep missing the two elephants in the room: Windows 8 continues to fall behind Microsoft’s previous top operating system failure, Vista, and Windows is no longer the dominant end-user operating system when PCs, smartphones and tablets are considered.

Men occasionally stumble over the truth, but most of them pick themselves up and hurry on as if nothing had happened. ~ Sir Winston Churchill

— “We had a little bit different expectations for Windows 8 than previous OS launches,” Jeff Barney, VP and general manager of Toshiba America’s PC and TV business, said. “In the past Windows was the only game in town, when it was Windows 7 or Vista it was the big event of the year. These days it’s a different environment.”

— The erstwhile truism You Won’t Get Fired For Buying From Microsoft has lost its luster.

— In the consumer market, we expect to Apple to gain share as the younger generation has grown up on Apples at school. … Pretty soon it could be that the ‘rebels’ will be the Windows users rather than the Mac users.

12) Microsoft is dependent upon legacy products – Windows and Office – for the bulk of its profits

There is only one boss: the customer. And he can fire everybody in the company, from the chairman on down, simply by spending his money somewhere else. ~ Sam Walton

— Microsoft makes more than 75% of its profits from Windows and Office. Less than 25% comes from its vaunted servers and tools. And Microsoft makes nothing from its xBox/Kinect entertainment division, while losing vast sums in its on-line division (negative $350M-$750M/quarter).

Microsoft uses a licensing model. A licensing model only takes a portion of the total profits from a sale. In a licensing model, volume matters.

If Microsoft can’t move its Windows and Office products and services onto mobile phones and tablets, well…

Next Week

The first part of this two-part series focused on what’s gone wrong with Microsoft Windows. Next week, I’ll conclude the series by focusing on why Microsoft is in this position and what, if anything, they can do to resuscitate the dead horse that is Windows.

Is Apple Making A Play For the PC Market Too?

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Windows vs. Mac In Schools: All the Wrong Reasons

The Maine Department of Education announced earlier this week that it was switching from Apple Macintoshes to Hewlett-Packard Windows PCs as the technology behind the Maine Learning Technology Initiative. Macs had been used exclusively since the program was started by then-Governor and now Senator Angus King in 2002.

I don’t think it makes a lot of difference whether Maine uses Macs or PCs in its schools. My guess is the state will pay a little less up-front and spending a bit more over the life of the machines because Windows software tends to be somewhat more expensive to maintain. But Maine made its decision for the worst possible reason, one that leads me to wonder if they have any idea of why information technology should be in schools in the first place.

Said Gov. Paul LePage (R):

It is important that our students are using technology that they will see and use in the workplace. The laptops use an operating system that is commonly used in the workplace in Maine. These laptops will provide students with the opportunity to enhance their learning and give them experience on the same technology and software they will see in their future careers.*

As the physicist Wolfgang Pauli said, that’s not even wrong. This argument didn’t make sense 15 years ago, when the differences between Windows and Mac OS was much greater than it is today and Macs’ market share was much lower. It makes even less at a time a user proficient in one OS can master the the with maybe an hour of training.

But it is much worse if Maine thinks the reason to have computers in schools (and, yes, they really should be thinking about tablets, too) is to teach students how to use specific pieces of hardware and software. Students’ computers should be windows into a boundless sea of information. They should be tools in science class. And students should be learning the principles of programming, not so they can all grow up to be software developers but so that they learn something of what makes today;s most important technology tick–and perhaps learn a bit about the importance of the precise, logical thinking that programming demands.

Gov. LePage seem to see PCs as little more than the modern equivalent of the rows of typewriters in classrooms for vocational typing and the purpose of computers in schools as training students to get jobs typing in word or scheduling appointments in Outlook. The four-year contract is a nice win for HP, but it may be a tragedy for Maine students.

—

*–The HP Probook 4400s will ship with Windows 8, making LePage’s argument even more lame ,since the new OS has been largely shunned (so far) by business and is far more different from the Windows XP and Windows 7 versions used in business than is Mac OS X. But an HP spokesman notes that Maine schools have the option of downgrading to Windows 7.

The New Era of “Good Enough” Computing

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

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

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

Netbook 2.0?

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

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

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

New Price Segments

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

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

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

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

The Shape of 2013: Predictions for the Year Ahead

After 15 years of making predictions, with a track record that would have made you rich if you’d bet on them, I’ve been away from the practice for a couple of years. But as the regulars at Tech.pinions have agreed to end the year with a set of predictions each, I’m back at the game. My best guesses for 2013:

A Modest Rebound for BlackBerry. Like many others, I was prepared to write off BlackBerry during the last year as its market share cratered. And if Windows Phone 8 had really taken off or if Android had made a serious play for the enterprise, it would be very hard to see where there might be room in the market for Research In Motion, no matter how promising BlackBerry 10 looks. But I think there is room for at least three players in the business, and right now the competition for #3 is still wide-open. BlackBerry still enjoys a lot of residual support in the enterprise IT community, and some key federal agencies that had been planning to move away from the platform, such as Homeland Security’s Immigration & Customs Enforcement, have indicated they are open to a second look. The challenge Research In Motion faces is that BlackBerry 10, which will be leased on Jan. 30, needs to be appealing enough to users, not just IT managers, that it can at least slow the tide of bring-you-own devices into the enterprise.

A Windows Overhaul, Sooner Rather Than Later. Even before Windows 8 launched to distinctly mixed reviews, there were rumors about that Microsoft was moving toward a more Apple-like scheme of more frequent, less sweeping OS revisions. Microsoft sometimes has a tendency to become doctrinaire in the defense of its products; for example, it took many months for officials to accept that User Access Control in Vista was an awful mess that drove users crazy. But Microsoft has had some lessons in humility lately and the company knows that it is in a fight that will determine its relevance to personal computing over the next few years. I expect that, at a minimum, Windows 8.1 (whatever it is really called) will give users of conventional PCs the ability to boot directly into Desktop mode, less need to ever used the Metro interface, and the return of some version of the Start button. On the new UI side, for both Windows 8 and RT, look for a considerable expansion of Metrofied control panels and administrative tools, lessening the need to work in Desktop. In other words, Microsoft will move closer to what it should have done in the first place: Offer different UIs for different kinds of uses. The real prize, truly touch-ready versions of Office, though, are probably at least a year and a half away.

Success for touch notebooks. When Windows 8 was first unveiled, I was extremely dubious about the prospects for touch-enable conventional laptops. The ergonomics seemed all wrong. And certainly the few touchscreen laptops that ran Windows 7 weren’t every good. Maybe its my own experience using an iPad with a keyboard, but the keyboard-and-touch combination no longer seems anywhere near as weird as it once did. And OEMs such as Lenovo, Dell, HP, and Acer are coming up with some very nice touch laptops, both conventional and hybrid. Even with a premium of $150 to $200 over similarly equipped non-touch models, I expect the touch products to pick up some significant market share.

Significant wireless service improvements. We’ll all grow old waiting for the government’s efforts to free more spectrum for wireless data to break fruit. The incentive auctions of underused TV spectrum are not going to be held until 2014, and it will be some time before that spectrum actually becomes available. The same is true for a new FCC plan to allow sharing of government-held spectrum in the 3.5 GHz band. But the good news is we don’t have to wait. Technology will allow significant expansion of both the capacity and coverage of existing spectrum. Probably the two most important technologies are Wi-Fi offload, which will allow carrier traffic to move over hotspots set up in high-traffic areas, and femtocells and small cells, which can greatly increase the reuse of of the spectrum we already have. Unlicensed white space–unused free space between TV channels–should begin to make a contribution, especially in rural areas where TV channels are more sparse. And the huge block of mostly idle spectrum the Sprint is acquiring with its proposed purchase of Clearwire will also ease the congestion, probably starting next year. (Stay tuned for a Tech.pinions series on spectrum issues in January.)

Intel Will Make a Major ARM Play. It’s hard to believe today, but Intel was once a major player in the ARM chip business. In 1997, it bought the StrongARM business from a foundering Digital Equipment. Renamed XScale, the Intel ARM chips enjoyed considerable success with numerous design wins as early smartphone applications processors. But XScale was always tiny compared to Intel’s x86 business and in 2006, Intel sold its XScale operations to Marvell. A year later, Apple introduced the ARM-based iPhone. Today, ARM-based tablets are in the ascendancy, x86-based PCs are in decline, and Intel is struggling to convince the world that a new generation of very low power Atom systems-on-chips are competitive. Maybe the Clover Trail SOCs and their successors will gain a significant share of the mobile market, but Intel can’t afford to wait very long to find out. With its deep engineering and manufacturing skills, Intel could become a major ARM player quickly, either through acquisition or internal development.