Sell Microsoft NOW – Game over, Ballmer loses

by | Jan 20, 2013 | Current Affairs, Defend & Extend, In the Swamp, In the Whirlpool, Leadership, Lifecycle, Lock-in, Web/Tech

Microsoft needed a great Christmas season.  After years of product stagnation, and a big market shift toward mobile devices from PCs, Microsoft's future relied on the company seeing customers demonstrate they were ready to jump in heavily for Windows8 products – including the new Surface tablet.

But that did not happen. 

With the data now coming it, it is clear the market movement away from Microsoft products, toward Apple and Android products, has not changed.  On Christmas eve, as people turned on their new devices and launched their first tweet, Surface came in dead last – a mere 2% compared to the number of people tweeting from iPads (Kindle was second, Android third.)  Looking at more traditional units shipped information, UBS analysts reported Surface sales were 5% of iPads shipped.  And the usability reviews continue to run highly negative for Surface and Win8.

This inability to make a big splash, and mount a serious attack on Apple/Android domination, is horrific for Microsoft primarily because we now know that traditional PC sales are well into decline.  Despite the big Win8 launch and promotion, holiday PC sales declined over 3% compared to 2011 as journalists reported customers found "no compelling reason to upgrade."  Ouch!

Looking deeper, 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 the mobile device penetration  – the market where Surface and Win8 phones have failed to make any significant impact or move beyond a tiny market share.  Users increasingly see the complexity of shifting to Win8 as not worth the effort; and if a switch is to be made consumer and businesses now favor iOS and Android.

Microsoft's monopoly over personal computing has evaporated.  From 95% market domination in 2005 share has fallen to just 20% in 2012 (IDC, Goldman Sachs.)  Comparing devices, in 2005 there were 55 Windows devices sold for every Apple device; today explosive Apple sales has lowered that multiple to a mere 2! (Asymco).  Universally the desire to upgrade Microsoft products has simply disappeared, as XP still has 40% of the Windows market – and even Vista at 5.7% has more users than Win8 which has only achieved a 1.75% Windows market share despite the long wait and launch hoopla. And with all future market growth coming in tablets, which are expected to more than double unit volume sales by 2016, Microsoft is simply not in the game.

These trends mean nothing short of the ruin of Microsoft.  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 on-line (negative $350M-$750M/quarter).  No matter how much anyone likes the non-Windows Microsoft products, without the historical Windows/Office sales and profits Microsoft is not sustainable.

So what can we expect at Microsoft:

  1. Ballmer has committed to fight to the death in his effort to defend & extend Windows.  So expect death as resources are poured into the unwinnable battle to convert users from iOS and Android.
  2. As resources are poured out of the company in the Quixotic effort to prolong Windows/Office, any hope of future dividends falls to zero.
  3. Expect enormous layoffs over the next 3 years.  Something like 50-60%, or more, of employees will go away.
  4. Expect closure of the long-suffering on-line division in order to conserve resources.
  5. The entertainment division will be spun off, sold to someone like Sony or even Barnes & Noble, or dramatically reduced in size.  Unable to make a profit it will increasingly be seen as a distraction to the battle for saving Windows – and Microsoft leadership has long shown they have no idea how to profitably grow this business unit.
  6. As more and more of the market shifts to competitive cloud businesses Apple, Amazon and others will grow significantly.  Microsoft, losing its user base, will demonstrate its inability to build a new business in the cloud, mimicking its historical experiences with Zune (mobile music) and Microsoft mobile phones.  Microsoft server and tool sales will suffer, creating a much more difficult profit environment for the sole remaining profitable division.

Missing the market shift to mobile has already forever tarnished the Microsoft brand.  No longer is Microsoft seen as a leader, and instead it is rapidly losing market relevancy as people look to Apple, Google, Amazon, Samsung, Facebook and others for leadership.   The declining sales, and lack of customer interest will lead to a tailspin at Microsoft not unlike what happened to RIM.  Cash will be burned in what Microsoft will consider an "epic" struggle to save the "core of the company." 

But failure is already inevitable.  At this stage, not even a new CEO can save Microsoft.  Steve Ballmer played "Bet the Company" on the long-delayed release of Win8, losing the chance to refocus Microsoft on other growing divisions with greater chance of success.  Unfortunately, the other players already had enough chips to simply bid Microsoft out of the mobile game – and Microsoft's ante is now long gone – without holding a hand even remotely able to turn around the product situation.

Game over. Ballmer loses. And if you keep your money invested in Microsoft it will disappear along with the company.   

Related articles
Mobile Overtakes Desktops in 2013: Microsoft Be Warned
The iPad and the Surface: a tale of two tablets
Microsoft Sold 1 Million Surface Tablets During 2012's Q4

“Another one bites the dust” (or 2) – Blockbuster, Nokia, Movie Gallery/Hollywood video

by | Sep 22, 2010 | Current Affairs, Defend & Extend, Film, In the Whirlpool, Leadership, Lifecycle, Lock-in, Music, Web/Tech


Summary:

  • Video retailer Blockbuster (and competitor Hollywood Video) are now bankrupt
  • Video rentals/sales are at an all time high – but via digital downloads not DVDs
  • Nokia, once the cell phone industry leader, is in deep trouble and risk of failure
  • Yet mobile use (calls, texts, internet access, email) is at an all time high
  • These companies are victims of locking-in to old business models, and missing a market shift
  • Commitment to defending your old business can cause failure, even when participating in high growth markets, if you don’t anticipate, embrace and participate in market shifts
  • Lock-in is deadly.  It can cause you to ignore a market shift. 

According to YahooNews, “Blockbuster Video to File Chapter 11.”  In February, Movie Gallery – the owner of primary in-kind competitor Hollywood Video – filed for bankruptcy.  It’s now decided to liquidate.

The cause is market shift.  Netflix made it possible to rent DVDs without the cost of a store – as has the kiosk competitor Red Box.  But everyone knows that is just a stopgap, because Netflix and Hulu are leading us all toward a future where there is no physical product at all.  We’ll download the things we want to watch.  The market is shifting from physical items – video cassettes then DVDs – to downloads.  And both Blockbuster and Hollywood Video missed the shift. 

Blockbuster (or Hollywood) could have gotten into on-line renting, or kiosks, like its competition.  It even could have used profits to be an early developer of downloadable movies.  Nothing stopped Blockbuster from investing in YouTube.  Except it’s commitment to its Success Formula – as a brick-and-mortar retailer that rented or sold physically reproduced entertainment. Lock-in.  And for that commitment to its historical Success Formula the investors now will get a great big goose egg – and employees will get to be laid off – and the thousands of landlords will be left in the lurch, unprepared. 

As predictable as Blockbuster was, we can be equally sure about the future of former powerhouse Nokia.  Details are provided in the BusinessWeek.com article “How Nokia Fell from Grace.” As the cell phone business exploded in the 1990s Nokia was a big winner.  Revenues grew fivefold between 1996 and 2001 as people around the globe gobbled up the new devices.  Another example of the fact that when you enter a high growth market you don’t have to be good – just in the right market at the right time.

But the cell phone business has become the mobile device business.  And Nokia didn’t anticipate, prepare for or participate in the market shift.  From market dominance, it has become an also-ran.  The article author blames the failure, and decline, on complacent management.  Weak explanation.  You can be sure the leadership and management at Nokia was doing all it possibly could to Defend & Extend its cell phone business.  The problem is that D&E management doesn’t work when customers simply walk away to a new technology.  It may take a few years, and government subsidies may extend Nokia’s life even longer, but Nokia has about as much chance of surviving its market shift as Blockbuster did.

When companies stumble management sees the problems.  They know results are faltering.  But for decades management has been trained to think that the proper response is to “knuckle down, cut costs, defend the current business at all cost.”  Yet, there are more movies rented now than ever – and Blockbuster is failing despite enormous market growth.  There are more mobile telephony minutes, text messages, remote emails and mobile internet searches than ever in history – yet Nokia is doing remarkably poorly.  It’s not a market problem, it’s a problem of Lock-in to a solution that is now outdated.  When the old supplier didn’t give the market what it wanted, the customers went elsewhere.  And unwillingness to go with them has left these companies in tatters.

These markets are growing, yet the purveyors of old solutions are failing primarily because they stuck to defending their old business too long. They did not embrace the market shift, and cannibalize historical product sales to enter the new, higher growth markets.  Because they chose to protect their “core,” they failed.  New victims of Lock-in.