by Adam Hartung | Apr 15, 2016 | Defend & Extend, In the Whirlpool, Lifecycle, Web/Tech
Leading tech tracking companies IDC and Gartner both announced Q1, 2016 PC sales results, and they were horrible. Sales were down 9.5%-11.5% depending on which tracker you asked. And that’s after a horrible Q4, 2015 when sales were off more than 10%. PC sales have now declined for 6 straight quarters, and sales are roughly where they were in 2007, 9 years ago.
Oh yeah, that was when the iPhone launched – June, 2007. And just a couple of years before the iPad launched. Correlation, or causation?
Amazingly, when Q4 ended the forecasters were still optimistic of a stabilization and turnaround in PC sales. Typical analyst verbage was like this from IDC, “Commercial adoption of Windows 10 is expected to accelerate, and consumer buying should also stabilize by the second half of the year. Most PC users have delayed an upgrade, but can only maintain this for so long before facing security and performance issues.” And just to prove that hope springs eternal from the analyst breast, here is IDC’s forecast for 2016 after the horrible Q1, “In the short term, the PC market must still grapple with limited consumer interest and competition from other infrastructure upgrades in the commercial market. Nevertheless….things should start picking up in terms of Windows 10 pilots turning into actual PC purchases.”
Fascinating. Once again, the upturn is just around the corner. People have always looked forward to upgrading their PCs, there has always been a “PC upgrade cycle” and one will again emerge. Someday. At least, the analysts hope so. Maybe?
Microsoft investors must hope so. The company is selling at a price/earnings multiple of 40 on hopes that Windows 10 sales will soon boom, and re-energize PC growth. Surely. Hopefully. Maybe?
The world has shifted, and far too many people don’t like to recognize the shift. When Windows 8 launched it was clear that interest in PC software was diminishing. What was once a major front page event, a Windows upgrade, was unimportant. By the time Windows 10 came along there was so little interest that its launch barely made any news at all. This market, these products, are really no longer relevant to the growth of personal technology.
Back when I predicted that Windows 8 would be a flop I was inundated with hate mail. It was clear that Ballmer was a terrible CEO, and would soon be replaced by the board. Same when I predicted that Surface tablets would not sell well, and that all Windows devices would not achieve significant share. People called me “an Apple Fanboy” or a “Microsoft hater.” Actually, neither was true. It was just clear that a major market shift was happening in computing. The world was rapidly going mobile, and cloud-based, and the PC just wasn’t going to be relevant. As the PC lost relevancy, so too would Microsoft because it completely missed the market, and its entries were far too tied to old ways of thinking about personal and corporate computing – not to mention the big lead competitors had in devices, apps and cloud services.
I’ve never said that modern PCs are bad products. I have a son half way through a PhD in Neurobiological Engineering. He builds all kinds of brain models and 3 dimensional brain images and cell structure plots — and he does all kinds of very exotic math. His world is built on incredibly powerful, fast PCs. He loves Windows 10, and he loves PCs — and he really “doesn’t get” tablets. And I truly understand why. His work requires local computational power and storage, and he loves Windows 10 over all other platforms.
But he is not a trend. His deep understanding of the benefits of Windows 10, and some of the PC manufacturers as well as those who sell upgrade componentry, is very much a niche. While he depends heavily on Microsoft and Wintel manufacturers to do his work, he is a niche user. (BTW he uses a Nexus phone and absolutely loves it, as well. And he can wax eloquently about the advantages he achieves by using an Android device.)
Today, I doubt I will receive hardly any comments to this column. Because to most people, the PC is nearly irrelevant. People don’t actually care about PC sales results, or forecasts. Not nearly as much as, say, care about whether or not the iPhone 6se advances the mobile phone market in a meaningful way.
Most people do their work, almost if not all their work, on a mobile device. They depend on cloud and SaaS (software-as-a-service) providers and get a lot done on apps. What they can’t do on a phone, they do on a tablet, by and large. They may, or may not, use a PC of some kind (Mac included in that reference) but it is not terribly important to them. PCs are now truly generic, like a refrigerator, and if they need one they don’t much care who made it or anything else – they just want it to do whatever task they have yet to migrate to their mobile world.
The amazing thing is not that PC sales have fallen for 6 quarters. That was easy to predict back in 2013. The amazing thing is that some people still don’t want to accept that this trend will never reverse. And many people, even though they haven’t carried around a laptop for months (years?) and don’t use a Windows mobile device, still think Microsoft is a market leader, and has a great future. PCs, and for the most part Microsoft, are simply no more relevant than Sears, Blackberry, or the Encyclopedia Britannica. Yet it is somewhat startling that some people have failed to think about the impact this has on their company, companies that make PC software and hardware – and the impact this will have on their lives – and likely their portfolios.
by Adam Hartung | Jun 17, 2010 | Current Affairs, Defend & Extend, In the Swamp, In the Whirlpool, Leadership, Web/Tech
"Google Bans Use of Microsoft Company-Wide" is the headline on HuffingtonPost.com. The reason given is that Microsoft had too many security issues. This could be easily dismissed as a competitive trick. Except for a couple of facts:
- Microsoft does have a number of security issues. It's not just Google that's worried about the problems encountered when relying on Microsoft products. While Microsoft is the gorilla, it does have problems.
- Today their are very reasonable alternatives. Fifteen years ago Scott McNeely at Sun Microsystems tried to enforce the same discipline as Google. Only there ware no good alternatives to Windows and Office. That has now changed. Significantly.
As Microsoft has lost share in all its products, it is worth noting that a leading-edge tech company is able to enforce, successfully, a ban on their products. Aided by the fact that they can offer alternatives which are easy to use and better meet many user requirements today. This is not good news for investors, employees, suppliers and customers of Microsoft. A serious shift to alternative solutions has emerged, and Microsoft has given no indication it is participating in the shift.
The impact is amplified by SeekingAlpha.com's article "Apple's Growing Corporate Market Share." Like many businesses in a leading market share position, Microsoft has simply accepted that customers will keep buying their products. But their near-monopoly is increasingly threatened as organizations realize there are very real alternatives. Not just from Google, but from Apple as well as others. As companies recognize that PCs are failing faster, and as managers are displeased by Microsoft requirements that they upgrade software with new purchases, corporate customers are looking for alternatives. This can be easily dismissed as the behavior of a few "odd-balls." But increasingly such behavior is becoming mainstream. While Microsoft is busy forcing customers to upgrade, many companies are looking for greater stability and satisfaction with their information technology suppliers – including Microsoft replacements.
While Microsoft keeps struggling to maintain its customers, sales and share in its old business, Apple keeps moving forward. This week SeekingAlpha.com also reports "Apple Hits 10,000 iPad Apps, Doubling in the Past Six Weeks." Again, this might be easy to ignore for Microsoft (or status quo) fans. But as the app library keeps building Apple keeps building a bigger advantage over everyone – including Microsoft. What do we think the future holds – a world full of laptops (as we know it today) or a lot more tablets and similar smart devices? Increasingly, Microsoft is Defending its past position in the face of a tsunami of innovation for new solutions gaining adoption, and growing, very, very rapidly.
When you're the market leader it is easy to ignore competitors. To dismiss them as "fringe" with "small share" and "not important." But that is very risky. Markets can shift really fast. New competitors offer new solutions, and they allow customers to do new things. They give customers new choices, and often customers who are less than thrilled with current solutions will switch. As competitors make it easy to do new things, the customers switch even faster. Before long the unexpected can happen, and leadership can switch very quickly. Like Apple's market share in mobile devices exceeding that of Microsoft's – or Apple's cash hoard exceeding the market value of Dell (a supply chain partner of Microsoft).
Microsoft is offering a real-time lesson to business leaders. Planning your future based upon your past strengths is dangerous. Smart competitors can offer alternatives faster than you think – and create market shifts that leave you in the lurch quickly. It's a high-risk strategy to think you can succeed by Defending you past position when alternatives are on the horizon.
PS – ChannelInsider.com today published "Spotlight: 10 Things Tablet Computer Makers Must Do To Take On iPad." Item 5 is "Windows Won't Make Much Sense" Item 4 is "Chrome O/S Does Make Sense" Item 3 is "Give Android O/S Consideration". For Microsoft this is a set of recommendations that cannot sit well. The market for laptops is predicted to peak and begin declining as users shift to smaller, easier products like tablets. The market pundits, as they recommend new products, are moving away from Microsoft products. How long can Microsoft continue its focus on Defending Windows and Office?
by Adam Hartung | Apr 13, 2010 | Defend & Extend, In the Swamp, Leadership, Lock-in, Music, Web/Tech
"Microsoft's Dismal Future" is the title of my most recent column on Forbes.com. In it I compare Microsoft with such formerly great, but now struggling, companies as Xerox and Kodak. Looking at all the Lock-in at Microsoft, Balmer's complete unwillingness to Disrupt traditional Lock-ins, and the total lack of White Space for new market projects – Microsoft is a very likely candidate to follow Silicon Graphics. Sun Microsystems, DEC and a host of other formerly great technology companies into the history books. And it could well happen in less than a decade. Don't forget, in 2000 Sun was worth $200billion – and now the company no longer exists!
If I gave you $1,000 and told you keeping it required you invest it all in Microsoft or Apple, which would you pick? For followers of this blog, there can be only one answer – it has to be Apple. While Microsoft has a great past, it has not been using White Space to exploit technology developments in new markets. All go-to-market projects have been around Defending & Extending the traditional PC market. With products like Vista, OS 7 and now Office 10. But reality is that all of us are using PCs a lot less these days. Increasingly we use smart mobile devices to get out work done – eschewing even the laptop – much less the desktop machine. Increasingly we are happy with PDF files and HTML text – not needing elaborate Excel Spreadsheets, or Word documents or flashy Powerpoint files.
Meanwhile Apple is a major participant in the new markets being developed! It's iPhone is a leader in smartphones, where its mere 5% market share has allowed the company to sell 2 billion downloaded applications in the first 18 months! And although digital music is becoming the norm as CDs disappear, iTunes maintains a very healthy 70% market share of digital music downloads. And Apple is moving forward into digital publishing with the iPad launch, as well as hundreds of new applications for low-cost but highly functional tablets (a market Microsoft pioneered but exited.)
Many people invest by looking in the rear view mirror. But Microsoft increasingly looks like a "has been" story. Looking out the windshield, it's hard to place Microsoft on the future horizon. Give the Forbes article a read and let me know what you think!
by Adam Hartung | Mar 8, 2010 | Defend & Extend, In the Rapids, In the Swamp, Leadership, Web/Tech
Two tech giants are Microsoft and Google. The former has been around for over 30 years. The latter about a decade. Which is the company you should work for, or invest in? The one that has demonstrated a long history and great record of earnings, or the newer one participating in new markets still not well understood with a slew of new – but largely unproven – products? You might think the older one is less risky, and feel more comfortable backing.
But we know that Microsoft is losing market share, especially in growing markets. Although its products have been dominant, the market for those products (personal computers used as servers, desktop machines and laptops) has seen substantial slowing. New solutions are emerging that compete directly with Microsoft (new operating systems like Linux and others) and compete indirectly (cloud computing and thin applications on mobile devices.)
Source: Silicon Alley Insider
In just 18 months Microsoft Internet Explorer has lost 13 market share points – dropping from 68% of the market to 55%. Almost all of that has gone to Safari (Macintosh) and Google Chrome. Chrome has risen from nothing to 7% of the market. And since internet usage is growing, while desktop usage is shrinking, this is the "leading edge" of the market.
Also, the Chrome operating system will be launching later in 2010. It also will go directly after the "Windows" franchise which had a very unexciting launch of System 7 in 2009.
Let's look at valuation: First Microsoft – which has gone basically sideways. Huge peak to trough, but overall not much gain for investors despite launching two major upgrades during the period (Vista and System 7 as well as Office 2007). Obviously, upgrade products have produced very little growth for Microsoft, or its valuation.
Now we can look at Google. Google investors have doubled their money, while employment has grown. All those new products have helped Google to grow, and investors have an optimistic view of future growth.
Do you make decisions looking in the rear view mirror, or out the windshield? It can be tempting to be influenced by a great past. But that really isn't relevant. What's important is the future. And we can see that Microsoft, which keeps trying to Defend & Extend what it knows is rapidly falling behind the market changer, Google, which is rapidly moving toward where markets are heading.
D&E Management never creates growth. By trying to recapture the past, new market moves are missed and growth opportunities lost. Companies have to move forward, with new products, into new markets. And if you have any doubt, just compare the results of Defend & Extend Management at Microsoft the last 5 years with Phoenix Principle management using White Space at Google.
by Adam Hartung | Aug 4, 2009 | Innovation, Investing, Leadership, Software
A typical headline from last week read "Microsoft, Yahoo to Begin Joint Assault on Google". After a year of negotiating, the behemoth Microsoft finally came up with an accord to get some Yahoo technology in order to be more effective with its search engine product. "Microsoft to Tap 400 Yahoo Workers in Partnership" is the Marketwatch headline today trumpeting the plan to bring Yahoo engineers to Microsoft.
Will it make a difference? If we look at the trend, it looks doubtful (slide courtesy Silicon Alley Insider):
Of course, lots of folks think this isn't a very good idea. (Cartoon Courtesy DenverPost.com):
As John Dvorak pointed out in his column: "Microsoft and Yahoo Bring Google Good News." After all, the Google's competitors just went from 2 to 1 – a 50% reduction. What's more, the remaining player is not known for expertise in internet technology – merely its money hoard. Moreover, when it used its money hoard in the past it has rarely (never?) resulted in a success. No wonder BusinessWeek headlined "Microsoft and Yahoo: Too Little, Too Late, Too Hyped."
What's more intriguing to me is what this deal says about Microsoft. The company has already missed the market shift in search and ad placement. Search is "yesterday's news". Microsoft is still trying to fight the last war, not the next one. As it has done far too often, Microsoft remained Locked-in to its old Success Formula — all about the desktop and personal computing. It has not been part of the market shift to new applications and new ways of personal automation. That has been going to RIM, Apple, Oracle and other players. Microsoft has sat on its market share in the old market, piled up cash, but not taken the actions to be a winner in the next market – the next battle for growth. Now it's joint venture with Yahoo will strip out engineers, attempt to convert them to Microsoft ways of thinking, and put them into battle with not only the largest player in search and on-line ad placement – but the only one making money. And the one introducing new technologies and products on a regular basis.
Someone asked me last week "Who's the next GM?" I think they meant "who's the next big bankruptcy." But the better question here is "Who's the giant company that everyone thinks is competitively insurmountable, but at great risk of falling from market leadership into the Whirlpool – and eventual bankruptcy?" To that I say keep your eyes on Microsoft.
The comparisons between Microsoft and GM are striking:
- Early market leaders
- Developed near monopolies
- Challenged by the trust busters
- Created very high growth rates and huge cash hoards
- Considered a great place to work, with great longevity
- Bought up competitors
- Bought up technologies, and often never took them to market
- Became arrogant to customers
- Implemented a strong Success Formula that everyone was expected to follow
- Strong leaders that kept the companies "focused"
- Dominated their local geography as employers
- Tended to talk a lot about their past, and how what they've previously accomplished
- Tended to ignore competitors
- Avoided Disruptions – late to market with every product. Tried using marketing and money to succeed rather than being first with great products and solutions
- Never allowed White Space to develop anything new
This joint venture is not White Space. Microsoft may want to be in Search and ad sales, but the company is still relying on its old business to "carry it through." They have ignored Google and other competitors, and are trying to use the old Success Formula to compete with a much nimbler and more market-attuned competitor. They have ignored Disruptive innovations, and not developed any new solutions themselves. They have refused to allow White Space to develop new solutions for shifting market needs – instead trying to push the market to buy their solutions based on old ways of doing business. Don't forget that MSN and it's search engine have been in the market since the beginning – it's not like they just woke up to discover the market existed. Rather, they just started hinting that maybe, after 15 years of failing, they aren't doing the right things.
If you still own Microsoft stock, I predict a really bumpy ride. They won't go bankrupt soon. But GM spent 30 years going sideways for investors before finally going bankrupt. That looks like the future at Microsoft. If you're a vendor, expect poor returns to create a procurement environment intending to suck all profits out of your business. If you're a customer, expect "me too" products that are late, expensive and at best "lowest common denominator" in appearance and performance. If you're an employee, expect increased turnover, lot of infighting, increased internal politics, promotions based on reinforcing the status quo rather than results, and few opportunities for personal growth.
Employees, vendors and investors of Microsoft should read the free ebook "The Fall of GM: What Went Wrong and How To Avoid Its Mistakes." Everyone who has to deal with shifting markets needs to.
