by Adam Hartung | Jun 9, 2016 | Innovation, Investing, Software, Teamwork
Last week Bloomberg broke a story about how Microsoft’s Chairman, John Thompson, was pushing company management for a faster transition to cloud products and services. He even recommended changes in spending might be in order.
Really? This is news?
Let’s see, how long has the move to mobile been around? It’s over a decade since Blackberry’s started the conversion to mobile. It was 10 years ago Amazon launched AWS. Heck, end of this month it will be 9 years since the iPhone was released – and CEO Steve Ballmer infamously laughed it would be a failure (due to lacking a keyboard.) It’s now been 2 years since Microsoft closed the Nokia acquisition, and just about a year since admitting failure on that one and writing off $7.5B And having failed to achieve even 3% market share with Windows phones, not a single analyst expects Microsoft to be a market player going forward.
So just now, after all this time, the Board is waking up to the need to change the resource allocation? That does seem a bit like looking into barn lock acquisition long after the horses are gone, doesn’t it?
The problem is that historically Boards receive almost all their information from management. Meetings are tightly scheduled affairs, and there isn’t a lot of time set aside for brainstorming new ideas. Or even for arguing with management assumptions. The work of governance has a lot of procedures related to compliance reporting, compensation, financial filings, senior executive hiring and firing – there’s a lot of rote stuff. And in many cases, surprisingly to many non-Directors, the company’s strategy may only be a topic once a year. And that is usually the result of a year long management controlled planning process, where results are reviewed and few challenges are expected. Board reviews of resource allocation are at the very, very tail end of management’s process, and commitments have often already been made – making it very, very hard for the Board to change anything.
And these planning processes are backward-oriented tools, designed to defend and extend existing products and services, not predict changes in markets. These processes originated out of financial planning, which used almost exclusively historical accounting information. In later years these programs were expanded via ERP (Enterprise Resource Planning) systems (such as SAP and Oracle) to include other information from sales, logistics, manufacturing and procurement. But, again, these numbers are almost wholly historical data. Because all the data is historical, the process is fixated on projecting, and thus defending, the old core of historical products sold to historical customers.
Copyright Adam Hartung
Efforts to enhance the process by including extensions to new products or new customers are very, very difficult to implement. The “owners” of the planning processes are inherent skeptics, inclined to base all forecasts on past performance. They have little interest in unproven ideas. Trying to plan for products not yet sold, or for sales to customers not yet in the fold, is considered far dicier – and therefore not worthy of planning. Those extensions are considered speculation – unable to be forecasted with any precision – and therefore completely ignored or deeply discounted.
And the more they are discounted, the less likely they receive any resource funding. If you can’t plan on it, you can’t forecast it, and therefore, you can’t really fund it. And heaven help some employee has a really novel idea for a new product sold to entirely new customers. This is so “white space” oriented that it is completely outside the system, and impossible to build into any future model for revenue, cost or – therefore – investing.
Take for example Microsoft’s recent deal to sell a bunch of patent rights to Xiaomi in order to have Xiaomi load Office and Skype on all their phones. It is a classic example of taking known products, and extending them to very nearby customers. Basically, a deal to sell current software to customers in new markets via a 3rd party. Rather than develop these markets on their own, Microsoft is retrenching out of phones and limiting its investments in China in order to have Xiaomi build the markets – and keeping Microsoft in its safe zone of existing products to known customers.
The result is companies consistently over-investment in their “core” business of current products to current customers. There is a wealth of information on those two groups, and the historical info is unassailable. So it is considered good practice, and prudent business, to invest in defending that core. A few small bets on extensions might be OK – but not many. And as a result the company investment portfolio becomes entirely skewed toward defending the old business rather than reaching out for future growth opportunities.
This can be disastrous if the market shifts, collapsing the old core business as customers move to different solutions. Such as, say, customers buying fewer PCs as they shift to mobile devices, and fewer servers as they shift to cloud services. These planning systems have no way to integrate trend analysis, and therefore no way to forecast major market changes – especially negative ones. And they lack any mechanism for planning on big changes to the product or customer portfolio. All future scenarios are based on business as it has been – a continuation of the status quo primarily – rather than honest scenarios based on trends.
How can you avoid falling into this dilemma, and avoiding the Microsoft trap? To break this cycle, reverse the inputs. Rather than basing resource allocation on financial planning and historical performance, resource allocation should be based on trend analysis, scenario planning and forecasts built from the future backward. If more time were spent on these plans, and engaging external experts like Board Directors in discussions about the future, then companies would be less likely to become so overly-invested in outdated products and tired customers. Less likely to “stay at the party too long” before finding another market to develop.
If your planning is future-oriented, rather than historically driven, you are far more likely to identify risks to your base business, and reduce investments earlier. Simultaneously you will identify new opportunities worthy of more resources, thus dramatically improving the balance in your investment portfolio. And you will be far less likely to end up like the Chairman of a huge, formerly market leading company who sounds like he slept through the last decade before recognizing that his company’s resource allocation just might need some change.
by Adam Hartung | May 8, 2015 | Current Affairs, Defend & Extend, Food and Drink, In the Swamp, In the Whirlpool, Leadership
McDonald’s just had another lousy quarter. All segments saw declining traffic, revenues fell 11%. Profits were off 33%. Pretty well expected, given its established growth stall.
A new CEO is in place, and he announced is turnaround plan to fix what ails the burger giant. Unfortunately, his plan has been panned by just about everyone. Unfortunately, its a “me too” plan that we’ve seen far too often – and know doesn’t work:
- Reorganize to cut costs. By reshuffling the line-up, and throwing out a bunch of bodies management formerly said were essential, but now don’t care about, they hope to save $300M/year (out of a $4.5B annual budget.)
- Sell off 3,500 stores McDonald’s owns and operate (about 10% of the total.) This will further help cut costs as the operating budgets shift to franchisees, and McDonald’s book unit sales creating short-term, one-time revenues into 2018.
- Keep mucking around with the menu. Cut some items, add some items, try a bunch of different stuff. Hope they find something that sells better.
- Try some service ideas in which nobody really shows any faith, like adding delivery and/or 24 hour breakfast in some markets and some stores.
Needless to say, none of this sounds like it will do much to address quarter after quarter of sales (and profit) declines in an enormously large company. We know people are still eating in restaurants, because competitors like 5 Guys, Meatheads, Burger King and Shake Shack are doing really, really well. But they are winning primarily because McDonald’s is losing. Even though CEO Easterbrook said “our business model is enduring,” there is ample reason to think McDonald’s slide will continue.
Possibly a slide into oblivion. Think it can’t happen? Then what happened to Howard Johnson’s? Bob’s Big Boy? Woolworth’s? Montgomery Wards? Size, and history, are absolutely no guarantee of a company remaining viable.
In fact, the odds are wildly against McDonald’s this time. Because this isn’t their first growth stall. And the way they saved the company last time was a “fire sale” of very valuable growth assets to raise cash that was all spent to spiffy up the company for one last hurrah – which is now over. And there isn’t really anything left for McDonald’s to build upon.
Go back to 2000 and McDonald’s had a lot of options. They bought Chipotle’s Mexican Grill in 1998, Donato’s Pizza in 1999 and Boston Market in 2000. These were all growing franchises. Growing a LOT faster, and more profitably, than McDonald’s stores. They were on modern trends for what people wanted to eat, and how they wanted to be served. These new concepts offered McDonald’s fantastic growth vehicles for all that cash the burger chain was throwing off, even as its outdated yellow stores full of playgrounds with seats bolted to the floors and products for 99cents were becoming increasingly not only outdated but irrelevant.
But in a change of leadership McDonald’s decided to sell off all these concepts. Donato’s in 2003, Chipotle went public in 2006 and Boston Market was sold to a private equity firm in 2007. All of that money was used to fund investments in McDonald’s store upgrades, additional supply chain restructuring and advertising. The “strategy” at that time was to return to “strategic focus.” Something that lots of analysts, investors and old-line franchisees love.
But look what McDonald’s leaders gave up via this decision to re-focus. McDonald’s received $1.5B for Chipotle. Today Chipotle is worth $20B and is one of the most exciting fast food chains in the marketplace (based on store growth, revenue growth and profitability – as well as customer satisfaction scores.) The value of all of the growth gains that occurred in these 3 chains has gone to other people. Not the investors, employees, suppliers or franchisees of McDonald’s.
We have to recognize that in the mid-2000s McDonald’s had the option of doing 180degrees opposite what it did. It could have put its resources into the newer, more exciting concepts and continued to fidget with McDonald’s to defend and extend its life even as trends went the other direction. This would have allowed investors to reap the gains of new store growth, and McDonald’s franchisees would have had the option to slowly convert McDonald’s stores into Donato’s, Chipotle’s or Boston Market. Employees would have been able to work on growing the new brands, creating more revenue, more jobs, more promotions and higher pay. And suppliers would have been able to continue growing their McDonald’s corporate business via new chains. Customers would have the benefit of both McDonald’s and a well run transition to new concepts in their markets. This would have been a win/win/win/win/win solution for everyone.
But it was the lure of “focus” and “core” markets that led McDonald’s leadership to make what will likely be seen historically as the decision which sent it on the track of self-destruction. When leaders focus on their core markets, and pull out all the stops to try defending and extending a business in a growth stall, they take their eyes off market trends. Rather than accepting what people want, and changing in all ways to meet customer needs, leaders keep fiddling with this and that, and hoping that cost cutting and a raft of operational activities will save the business as they keep focusing ever more intently on that old core business. But, problems keep mounting because customers, quite simply, are going elsewhere. To competitors who are implementing on trends.
The current CEO likes to describe himself as an “internal activist” who will challenge the status quo. But he then proves this is untrue when he describes the future of McDonald’s as a “modern, progressive burger company.” Sorry dude, that ship sailed years ago when competitors built the market for higher-end burgers, served fast in trendier locations. Just like McDonald’s 5-years too late effort to catch Starbucks with McCafe which was too little and poorly done – you can’t catch those better quality burger guys now. They are well on their way, and you’re still in port asking for directions.
McDonald’s is big, but when a big ship starts taking on water it’s no less likely to sink than a small ship (i.e. Titanic.) And when a big ship is badly steered by its captain it flounders, and sinks (i.e. Costa Concordia.) Those who would like to think that McDonald’s size is a benefit should recognize that it is this very size which now keeps McDonald’s from doing anything effective to really change the company. Its efforts (detailed above) are hemmed in by all those stores, franchisees, commitment to old processes, ingrained products hard to change due to installed equipment base, and billions spent on brand advertising that has remained a constant even as McDonald’s lost relevancy. It is now sooooooooo hard to make even small changes that the idea of doing more radical things that analysts are requesting simply becomes impossible for existing management.
And these leaders, frankly, aren’t even going to try. They are deeply wedded, committed, to trying to succeed by making McDonald’s more McDonald’s. They are of the company and its history. Not the CEO, or anyone on his team, reached their position by introducing a revolutionary new product, much less a new concept – or for that matter anything new. They are people who “execute” and work to slowly improve what already exists. That’s why they are giving even more decision-making control to franchisees via selling company stores in order to raise cash and cut costs – rather than using those stores to introduce radical change.
These are not “outside thinkers” that will consider the kinds of radical changes Louis V. Gerstner, a total outsider, implemented at IBM – changing the company from a failing mainframe supplier into an IT services and software company. Yet that is the only thing that will turn around McDonald’s. The Board blew it once before when it sold Chipotle, et.al. and put in place a core-focused CEO. Now McDonald’s has fewer resources, a lot fewer options, and the gap between what it offers and what the marketplace wants is a lot larger.
by Adam Hartung | Aug 6, 2013 | Current Affairs, Defend & Extend, In the Swamp, Innovation, Leadership
Jeff Bezos, founder of Amazon worth $25.2B just paid $250 million to become sole owner of The Washington Post.
Some think the recent rash of of billionaires buying newspapers is simply rich folks buying themselves trophies. Probably true in some instances – and that benefits no one. Just look at how Sam Zell ruined The Chicago Tribune and Los Angeles Times. Or Rupert Murdoch's less than stellar performance owning The Wall Street Journal. It's hard to be excited about a financially astute commodities manager, like John Henry, buying The Boston Globe – as it has all the earmarks of someone simply jumping in where angels fear to tread.
These companies lost their way long ago. For decades they defined themselves as newspaper companies. They linked everything about what they did to printing a daily paper. The service they provided, which was a mix of hard news and entertainment reporting, was lost in the productization of that service into a print deliverable.
So when people started to look for news and entertainment on-line, these companies chose to ignore the trend. They continued to believe that readers would always want the product – the paper – rather than the service. And they allowed themselves to remain fixated on old processes and outdated business models long after the market shifted.
The leaders ignored the fact that advertisers could obtain much more directed placement at targets, at far lower cost, on-line than through the broad-based, general ads placed in newspapers. And that consumers could get a much faster, and cheaper, sale via eBay, CraigsList or Vehix.com than via overpriced classified ads.
Newspaper leadership kept trying to defend their "core" business of collecting news for daily publication in a paper format. They kept trying to defend their local advertising base. Even though every month more people abandoned them for an on-line format. Not one major newspaper headmast made a strong commitment to go on-line. None tried to be #1 in news dissemination via the web, or take a leadership role in associating ad placement with news and entertainment.
They could have addressed the market shift, and changed their approach and delivery. But they did not.
Money manager Mr. Henry has done a good job of turning the Boston Red Sox into a profitable institution. But there is nothing in common between the Red Sox, for which you can grow the fan base, bring people to the ballpark and sell viewing rights, and The Boston Globe. The former is unique. The latter is obsolete. Yes, the New York Times company paid $1.1B for the Globe in 1993, but that doesn't mean it's worth $70M today. Given its revenue and cost structure, as a newspaper it is probably worth nothing.
But, we all still want news. Nobody wants the information infrastructure collecting what we need to know to crumble. Nobody wants journalism to die. But it is unreasonable to expect business people to keep investing in newspapers just to fulfill a public good. Even Mr. Zell abandoned that idea.
Thus, we need the news, as a service, to be transformed into a new, profitable enterprise. Somehow these organizations have to abandon the old ways of doing things, including print and paper distribution, and transform to meet modern needs. The 6 year revenue slide at Washington Post has to stop, and instead of thinking about survival company leadership needs to focus on how to thrive with a new, profitable business model.
And that's why we all should be glad Jeff Bezos bought The Washington Post. As head of Amazon.com The Harvard Business Review ranked him the second best performing CEO of the last decade. CNNMoney.com named him Business Person of the Year 2012, and called him "the ultimate disruptor."
By not doing what everyone else did, breaking all the rules of traditional retail, Mr. Bezos built Amazon.com into a $61B general merchandise retailer in 20 years. When publishers refused to create electronic books he led Amazon into competing with its suppliers by becoming a publisher. When Microsoft wouldn't produce an e-reader, retailer and publisher Amazon.com jumped into the intensely competitive world of personal electroncs creating and launching Kindle. And then upped the stakes against competitors by enhancing that into Kindle Fire. And when traditional IT suppliers like HP and Dell were slow to help small (or any) business move toward cloud computing Amazon launched its own network services to help the market shift.
Mr. Bezos' language regarding his intentions post acquisition are quite telling, "change… is essential… with or without new ownership….need to invent…need to experiment."
And that is exactly what the news industry needs today. Today's leaders are HuffingtonPost.com, Marketwatch.com and other web sites with wildly different business models than traditional paper media. WaPo success will require transforming a dying company, tied to an old success formula, into a trend-aligned organization that give people what they want, when they want it, at a profit.
And it's hard to think of someone better experienced, or skilled, than Jeff Bezos to provide that kind of leadership. With just a little imagination we can imagine some rapid moves:
- distribution of all content via Kindle style eReaders, rather than print. Along with dramatically increasing the cost of paper subscriptions and daily paper delivery
- Instead of a "one size fits all" general purpose daily paper, packaging news into more fitting targeted products. Sports stories on sports sites. Business stories on business sites. Deeper, longer stories into ebooks available for $.99 purchase. And repackaging of stories that cover longer time spans into electronic short-books for purchase.
- Packaging content into Facebook locations for targeted readers. Tying ads into these social media sites, and promoting ad sales for small, local businesses to the Facebook sites.
- Or creating an ala carte approach to buying various news and entertainment in an iTunes or Netflix style environment (or on those sites)
- Robustly attracting readers via connecting content with social media, including Twitter, to meet modern needs for immediacy, headline knowledge and links to deeper stories — with sales of ads onto social media
- Tying electronic coupons, and buy-it-now capabilities to ads linked to appropriate content
- Retargeting advertising sales from general purpose to targeted delivery at specific readers, with robust packages of on-line coupons, links to specials and fast, impulse purchase capability
- Increased use of bloggers and ad hoc writers to supplement staff in order to offer opinions and insights quickly, but at lower cost.
- Changes in compensation linked to page views and readership, just as revenue is linked to same.
We've watched a raft of newspapers and magazines disappear. This has not been a failure of journalism, but rather a failure of business leaders to address shifting markets and transform old organizations to meet modern needs. It's not a quality problem, but rather a failure of strategy to adapt to shifting markets. And that's a lesson every business leaders needs to note, because today, as I wrote in April, 2012, every company has to behave like a tech company!
Doing more of the same, cutting costs and rich egos won't fix a newspaper. Only the willingness to experiment and find new solutions which transform these organizations into something very different, well beyond print, will work. Let's hope Mr. Bezos brings the same zest for addressing these challenges and aligning with market needs he brought to Amazon. To a large extent, the future of news and "freedom of the press" may well depend upon it.
by Adam Hartung | Jun 28, 2013 | Current Affairs, Defend & Extend, In the Rapids, In the Whirlpool, Innovation, Leadership, Web/Tech
The last 12 months Tesla Motors stock has been on a tear. From $25 it has more than quadrupled to over $100. And most analysts still recommend owning the stock, even though the company has never made a net profit.
There is no doubt that each of the major car companies has more money, engineers, other resources and industry experience than Tesla. Yet, Tesla has been able to capture the attention of more buyers. Through May of 2013 the Tesla Model S has outsold every other electric car – even though at $70,000 it is over twice the price of competitors!
During the Bush administration the Department of Energy awarded loans via the Advanced Technology Vehicle Manufacturing Program to Ford ($5.9B), Nissan ($1.4B), Fiskar ($529M) and Tesla ($465M.) And even though the most recent Republican Presidential candidate, Mitt Romney, called Tesla a "loser," it is the only auto company to have repaid its loan. And did so some 9 years early! Even paying a $26M early payment penalty!
How could a start-up company do so well competing against companies with much greater resources?
Firstly, never underestimate the ability of a large, entrenched competitor to ignore a profitable new opportunity. Especially when that opportunity is outside its "core."
A year ago when auto companies were giving huge discounts to sell cars in a weak market I pointed out that Tesla had a significant backlog and was changing the industry. Long-time, outspoken industry executive Bob Lutz – who personally shepharded the Chevy Volt electric into the market – was so incensed that he wrote his own blog saying that it was nonsense to consider Tesla an industry changer. He predicted Tesla would make little difference, and eventually fail.
For the big car companies electric cars, at 32,700 units January thru May, represent less than 2% of the market. To them these cars are simply not seen as important. So what if the Tesla Model S (8.8k units) outsold the Nissan Leaf (7.6k units) and Chevy Volt (7.1k units)? These bigger companies are focusing on their core petroleum powered car business. Electric cars are an unimportant "niche" that doesn't even make any money for the leading company with cars that are very expensive!
This is the kind of thinking that drove Kodak. Early digital cameras had lots of limitations. They were expensive. They didn't have the resolution of film. Very few people wanted them. And the early manufacturers didn't make any money. For Kodak it was obvious that the company needed to remain focused on its core film and camera business, as digital cameras just weren't important.
Of course we know how that story ended. With Kodak filing bankruptcy in 2012. Because what initially looked like a limited market, with problematic products, eventually shifted. The products became better, and other technologies came along making digital cameras a better fit for user needs.
Tesla, smartly, has not tried to make a gasoline car into an electric car – like, say, the Ford Focus Electric. Instead Tesla set out to make the best car possible. And the company used electricity as the power source. By starting early, and putting its resources into the best possible solution, in 2013 Consumer Reports gave the Model S 99 out of 100 points. That made it not just the highest rated electric car, but the highest rated car EVER REVIEWED!
As the big car companies point out limits to electric vehicles, Tesla keeps making them better and addresses market limitations. Worries about how far an owner can drive on a charge creates "range anxiety." To cope with this Tesla not only works on battery technology, but has launched a program to build charging stations across the USA and Canada. Initially focused on the Los-Angeles to San Franciso and Boston to Washington corridors, Tesla is opening supercharger stations so owners are never less than 200 miles from a 30 minute fast charge. And for those who can't wait Tesla is creating a 90 second battery swap program to put drivers back on the road quickly.
This is how the classic "Innovator's Dilemma" develops. The existing competitors focus on their core business, even though big sales produce ever declining profits. An upstart takes on a small segment, which the big companies don't care about. The big companies say the upstart products are pretty much irrelevant, and the sales are immaterial. The big companies choose to keep focusing on defending and extending their "core" even as competition drives down results and customer satisfaction wanes.
Meanwhile, the upstart keeps plugging away at solving problems. Each month, quarter and year the new entrant learns how to make its products better. It learns from the initial customers – who were easy for big companies to deride as oddballs – and identifies early limits to market growth. It then invests in product improvements, and market enhancements, which enlarge the market.
Eventually these improvements lead to a market shift. Customers move from one solution to the other. Not gradually, but instead quite quickly. In what's called a "punctuated equilibrium" demand for one solution tapers off quickly, killing many competitors, while the new market suppliers flourish. The "old guard" companies are simply too late, lack product knowledge and market savvy, and cannot catch up.
- The integrated steel companies were killed by upstart mini-mill manufacturers like Nucor Steel.
- Healthier snacks and baked goods killed the market for Hostess Twinkies and Wonder Bread.
- Minolta and Canon digital cameras destroyed sales of Kodak film – even though Kodak created the technology and licensed it to them.
- Cell phones are destroying demand for land line phones.
- Digital movie downloads from Netflix killed the DVD business and Blockbuster Video.
- CraigsList plus Google stole the ad revenue from newspapers and magazines.
- Amazon killed bookstore profits, and Borders, and now has its sites set on WalMart.
- IBM mainframes and DEC mini-computers were made obsolete by PCs from companies like Dell.
- And now Android and iOS mobile devices are killing the market for PCs.
There is no doubt that GM, Ford, Nissan, et. al., with their vast resources and well educated leadership, could do what Tesla is doing. Probably better. All they need is to set up white space companies (like GM did once with Saturn to compete with small Japanese cars) that have resources and free reign to be disruptive and aggressively grow the emerging new marketplace. But they won't, because they are busy focusing on their core business, trying to defend & extend it as long as possible. Even though returns are highly problematic.
Tesla is a very, very good car. That's why it has a long backlog. And it is innovating the market for charging stations. Tesla leadership, with Elon Musk thought to be the next Steve Jobs by some, is demonstrating it can listen to customers and create solutions that meet their needs, wants and wishes. By focusing on developing the new marketplace Tesla has taken the lead in the new marketplace. And smart investors can see that long-term the odds are better to buy into the lead horse before the market shifts, rather than ride the old horse until it drops.
by Adam Hartung | Feb 29, 2012 | Current Affairs, Defend & Extend, In the Swamp, In the Whirlpool, Innovation, Leadership, Web/Tech
This week people are having their first look at Windows 8 via the Barcelona, Spain Mobile World Congress. This better be the most exciting Microsoft product since Windows was created, or Microsoft is going to fail.
Why? Because Microsoft made the fatal mistake of "focusing on its core" and "investing in what it knew" – time worn "best practices" that are proving disastrous!
Everyone knows that Microsoft has returned almost nothing to shareholders the last decade. Simultaneously, all the "partner" companies that were in the "PC" (the Windows + Intel, or Wintel, platform) "ecosystem" have done poorly. Look beyond Microsoft at returns to shareholders for Intel, Dell (which recently blew its earings) and Hewlett Packard (HP – which says it will need 5 years to turn around the company.) All have been forced to trim headcount and undertake deep cost cutting as revenues have stagnated since 2000, at times falling, and margins have been decimated.
This happened despite deep investments in their "core" PC business. In 2009 Microsoft spent almost $9B on PC R&D; over 14% of revenues. In the last few years Microsoft has launched Vista, Windows 7, Office 2009 and Office 2010 all in its effort to defend and extend PC sales. Likewise all the PC manufacturers have spent considerably on new, smaller, more powerful and even cheaper PC laptop and desktop models.
Unfortunately, these investments in their core expertise and markets have not excited users, nor created much growth.
On the other hand, Apple spent all of the last decade investing in what it didn't know much about in 2000. Rather than investing in its "core" Macintosh business, Apple invested in the trend toward mobility, being an early leader with 3 platforms – the iPod, iPhone and iPad. All product categories far removed from its "core" and what it new well. But, all targeted at the trend toward enhanced mobility.
Don't forget, Microsoft launched the Zune and the Windows CE phones in the last decade. But, because these were not "core" products in "core" markets Microsoft, and its partners, did not invest much in these markets. Microsoft even brought to market tablets, but leadership felt they were inferior to the PC, so investments were maintained in traditional PC products. The Zune, Windows phone and early Windows tablets all died because Microsoft and its partner companies stuck to investing their most important, and best known, PC business.
Where are we now? Sales of PC's are stagnating, and going to decline. While sales of mobile devices are skyrocketing.
Source: Business Insider 2/14/12
Today tablet sales are about 50% of the ~300M unit PC sales. But they are growing so fast they will catch up by 2014, and be larger by 2015. And, that depends on PC sales maintaining. Look around your next meeting, commuter flight or coffee shop experience and see how many tablets are being used compared to laptops. Think about that ratio a year ago, and then make your own assessment as to how many new PCs people will buy, versus tablets. Can you imagine the PC market actually shrinking? Like, say, the traditional cell phone business is doing?
By focusing on Windows, and specifically each generation leading to Windows 8, Microsoft took a crazy bet. It bet it could improve windows to keep the PC relevant, in the face of the evident trend toward mobility and ease of use. Instead of investing in new technologies, new products and new markets – things it didn't know much about – Microsoft chose to invest in what it new, and hoped it could control the trend.
People didn't want a PC to be mobile, they wanted mobility. Apple invested in the trend, making the MP3 player a winner with its iPod ease of use and iTunes market. Then it made smartphones, which were largely an email device, incredibly popular by innovating the app marketplace which gave people the mobility they really desired. Recognizing that people didn't really want a PC, they wanted mobility, Apple pioneered the tablet marketplace with its iPad and large app market. The result was an explosion in revenue by investing outside its core, in technologies and markets about which it initially knew nothing.
Apple would not have grown had it focused its investment on its "core" Mac business. In the last year alone Apple sold more iOS devices than it sold Macs in its entire 28 year history!
Source: Business Insider 2/17/2012
Today, the iPhone business itself is bigger than all of Microsoft. The iPad business is bigger than the desktop PC business, and if included in the larger market for personal computing represents 17% of the PC market. And, of course, Apple is now worth almost twice the value of Microsoft.
We hear, all the time, to invest in what we know. But it turns out that is NOT the best strategy. Trends develop, and markets shift. By constantly investing in what we know we become farther and farther removed from trends. In the end, like Microsoft, we make massive investments trying to defend and extend our past products when we would be much, much smarter to invest in new technologies and markets that are on the trend, even if we don't know much, if anything, about them.
The odds are now stacked against Microsoft. Apple has a huge lead in product sales, market position and apps. It's closest challenger is Google's Android, which is attracting many of the former Microsoft partners (such as LG's recent defection) as they strive to catch up. Company's such as Nokia are struggling as the technology leadership, and market position, has shifted away from Microsoft as mobility changed the market.
Microsoft's technology sales used to be based upon convincing IT departments to use its platform. But today users largely buy mobile devices with their own money, and eschew the recommendations of the IT department. Just look at how users drove the demise of Research In Motion's Blackberry. IT needs to provide users with tools they like, and use platforms which are easy and low-cost to leverage with big app bases. That favors Apple and Android, not Microsoft with its far, far too late entry.
You can be smarter than Microsoft. Don't take the crazy bet of always doubling down on what you know. Put your focus on the marketplace, and identify shifts. It's cheaper, and smarter, to bet early on trends than constantly trying to fight the trend by investing – usually at an ever higher amount – in what you know.
