Apple Partners With Accenture To Build Enterprise Apps: 5 Reasons Apple Is Winning The Developer War

Apple Partners With Accenture To Build Enterprise Apps: 5 Reasons Apple Is Winning The Developer War

Everybody knows that Google’s Android has about 80-85% smartphone market share, and Apple’s iOS has only 14-19% share (depending upon quarter.) But this week tech services giant Accenture announced it was partnering with Apple to build enterprise apps for its customers, focusing initially on financial services and retail.  Despite lower unit sales Apple maintains marketplace technology leadership by capturing the enterprise app developer community – including IBM, Cisco, Deloitte and SAP.

iPhone and Android stand out in Mobile market

For most consumers an Android-based phone from one of the various manufacturers, most likely bought through a wireless provider if in the USA, does pretty much everything the consumer wants.  Developers of most consumer apps, such as games, navigation, shopping, etc. make sure their products work on all phones.  For that reason, the bulk of consumers are happy to buy their phone for $200 or less, and most don’t even care what version of Android it runs.  As a stand-alone tool an Android phone does pretty much everything they want, and they can afford to replace it every year or two.

But the business community has different requirements.

And because iOS has superior features, Apple continues to dominate the enterprise environment:

  1. All iPhones are encrypted, giving a security advantage to iOS. Due to platform fragmentation (a fancy way of saying Android is not the same on all platforms, and some Android phones run pretty old versions) most Android phones are not encrypted.  That leads to more malware on Android phones.  And, Android updates are pushed out by the carrier, compared to Apple controlling all iOS updates regardless of carrier.  When you’re building an enterprise app, these security issues are very important.
  2. iOS is seamless with Macs, and can be pretty well linked to Windows if necessary for an apps’ purpose. Android plays well with Chromebooks, but is far less easy to connect with established PC platforms. So if you want the app to integrate across platforms, such as in a corporation, it’s easier with iOS.
  3. iPhones come exactly the same, regardless of the carrier. Not true for Android phones. Almost all Androids come with various “junkware.”  These apps can conflict with an enterprise app.  For enterprise app developers to make things work on an Android phone they really need to “wipe” the phone of all apps, make sure each phone has the same version of Android and then make sure users don’t add anything which can cause a user conflict with the enterprise app.  Much easier to just ask people to use an iPhone.
  4. iOS backs up to iCloud or via iTunes. Straightforward and simple. And if you need to restore, or change devices, it is a simple process. But in the Android world companies like Verizon and Samsung integrate their own back-up tools, which are inconsistent and can be quite hard for a developer to integrate into the app. Enterprise apps need back-ups, and making that difficult can be a huge problem for enterprise developers who have to support thousands of end users.  And the fact that Android restores are not consistent, or reliable, makes this a tough issue.
  5. Search is built-in with iOS. Simple. But Android does not have a clean and simple search feature.  And the old cross-platform inconsistencies plague the various search functions offered in the Android world.  When using an enterprise app, which may well have considerable complexity, accessing an easy search function is a great benefit.

Most of these issues are no big deal for the typical smartphone consumer who just uses their phone independently of their work.  But when someone wants to create an enterprise app, these become really important issues.  To make sure the app works well, meeting corporate and end user needs, it is much easier, and better, to build it on iOS.

This allows Apple to price well above the market average

Today Apple charges around $800 for an iPhone 7, and expectations are for the iPhone 8 to be priced around $1,000.  Because Apple’s pricing is some 4-5x higher, it allows Apple’s iOS revenue to actually exceed the revenue of all the Android phones sold!  And because Android phone manufacturers compete on price, rather than features and capabilities, Apple makes almost ALL the profit in the smartphone hardware business.  Even as iPhone unit volume has struggled of late, and some analysts have challenged Apple’s leadership given its under 20% market share, profits keep rolling in, and up, for the iPhone.

By taking the lead with enterprise app developers Apple assures itself of an ongoing market.  Three years ago I pointed out the importance of winning the developer war when IBM made its huge commitment to build enterprise apps on iOS.  This decision spelled doom for Windows phone and Blackberry — which today have inconsequential market shares of .1% and .0% (yes, Blackberry’s share is truly a rounding error in the marketplace.)  Blackberry has become irrelevant. And having missed the mobile market Microsoft is now trying to slow the decline of PC sales by promoting hybrid devices like the Surface tablet as a PC replacement.  But, lacking developers for enterprise mobile apps on Microsoft O/S it will be very tough for Microsoft to keep the mobile trend from eventually devastating Windows-based device sales.

As the world goes mobile, devices become smaller and more capable.  The need for two devices, such as a phone and a PC, is becoming smaller with each day.  Those who predicted “nobody can do real work on a smartphone” are finding out that an incredible amount of work can be done on a wirelessly connected smartphone.  As the number of enterprise apps grows, and Apple remains the preferred developer platform, it bodes well for future sales of devices and software for Apple — and creates a dark cloud over those with minimal share like Blackberry and Microsoft.

Why Amazon Echo Is Killing It While Windows Phone Is Dead — Developers Are What Matters

Why Amazon Echo Is Killing It While Windows Phone Is Dead — Developers Are What Matters

Amazon just had another record Prime Day, with sales up 60%.  And the #1 product sold was Amazon’s Echo Dot speaker. At $34.99 it surpassed last year’s unit sales by seven-fold.  And the traditional Echo speaker, marked down 50% to $90, broke all previous sales records.

Amazon just took a commanding lead in the voice assistant platform market

These Echo sales most likely sealed Amazon’s long-term leadership in the war to be the #1 voice assistant.  Amazon already has 70% market share in voice activated speakers, nearly 3 times #2 provider Google.  And all other vendors in total barely have 5% share.

While it may seem like digital speakers are no big deal, speaker sales are analogous to iPhone sales when evaluating the emergence of smartphones and apps.  The iPhone seemed like a small segment until it became clear smartphones were the new personal technology platform. Apple’s early lead allowed iOS to dominate the growth cycle, making the company intensely profitable.

Echo and Echo Dot aren’t just speakers, but interfaces to voice activated virtual assistants.  For Echo the platform is Amazon’s Alexa.  Alexa is to voice activated devices and applications what iOS was to Smartphones.  By talking to Alexa customers are able to do many things, such as shopping, altering their thermostats, opening and closing doors, raising and lowering blinds, recording people in their homes — the list is endless.  And as that list grows customers are buying more Alexa devices to gain greater productivity and enhanced lifestyle.  Echos are entering more homes, and multiplying across rooms in these homes.

alexa skills, Felix Richter, Statista

Do you remember when early iPhone ads touted “there’s an app for that?” That tagline told customers if they changed from a standard mobile phone to a smartphone there were a lot of advantages, measured by the number of available apps.  Just like iOS apps gave an advantage to owning an iPhone, Alexa skills give an advantage to owning Echo products. In the last year the number of skills available for Alexa has exploded, growing from 135 to 15,000.   Quite obviously developers are building on Alexa much faster than any other voice assistant.

By radically cutting the price of both Echo Dot and Echo, and promoting sales, Amazon is creating an installed base of units which encourages developers to write even more skills/apps.

The more Alexa devices are installed, the more likely developers will write additional skills for Alexa. As more devices lead to more skills, skills leads to more Alexa/Echo capability, which encourages more people to buy Alexa activated devices, which further encourages even more skills development.  It’s a virtuous circle of goodness, all leading to more Amazon growth.

Google Assistant answered the most questions correctly

For marketers it is important to realize that success really doesn’t correlate with how “good” Alexa works.  Google’s Assistant and Microsoft’s Cortana perform better at voice recognition and providing appropriate responses than Alexa and Siri.  But there are relatively few (almost no) devices in the marketplace built with Assistant or Cortana as the interface.  Developers need their skills/apps to be on platforms customers use.  If customers are buying speakers, thermostats and televisions that are embedded with Alexa, then developers will write for Alexa.  Even if it has shortcomings. It’s not the product quality that determines the winner, but rather the ability to create a base of users.

It is genius for Amazon to promote Echo and Echo Dot, selling both cheaper than any other voice activated speaker.  Even if Amazon is making almost no profit on device sales.  By using their retail clout to build an Alexa base they make the decision to create skills for Alexa easy for developers.

amazon echo

 

It is genius for Amazon to promote Echo and Echo Dot, selling both cheaper than any other voice activated speaker.  Even if Amazon is making almost no profit on device sales.  By using their retail clout to build an Alexa base they make the decision to create skills for Alexa easy for developers.

This is a horrible problem for Google, #2 in this market, because Google does not have the retail clout to place millions of their speakers (and other devices) in the market.  Google is not a device company, nor a powerful retailer of Android devices.  The Android device makers need to profit from their devices, so they cannot afford to sell devices unprofitably in order to build an installed base for Google.  And because Android’s platform is not applied consistently across device manufacturers, Google Assistant skills cannot be assured of operating on every Android phone.  All of which makes the decision to build Google Assistant skills problematic for developers.

Can Apple Stop the Alexa juggernaut?

The game is not over.  Apple would like customers to use Siri on their iPhones to accomplish what Amazon and Alexa do with Echo.  Apple has an enormous iPhone base, and all have Siri embedded.  Perhaps Apple can encourage developers to create Siri-integrated apps which will beat back the Amazon onslaught?

Today, Apple customers still cannot use Siri to control their Apple TV (Though as of August, 2017, it’s been improved.), or make payments with ApplePay, for example. Nor can iPhone users tell Siri to execute commands for remote systems which are controlled by apps, like unlocking doors, turning on appliances, shooting remote security video or placing an on-line order. Apple has a lot of devices, and apps, but so far Siri is not integrated in a way that allows voice activation like can be done with Alexa.

apple tv and siri image

Additionally, as big as the iPhone installed base has become, when comparing markets the actual raw number of speakers could catch up with iPhones.  Echo Dot is $35.  The cheapest iPhone is the SE, at $399 (on the Apple site although available from Best Buy at $160.)  And an iPhone 7 starts at $650.  The huge untapped Apple markets, such as China and India, will find it a lot easier to purchase low cost speakers than iPhones, especially if their focus is to use some of those 15,000 skills.  And because of the low pricing ($35 to $90) it is easy to buy multiple devices for multiple locations in one’s home or office.

Will we look back and call Echo a Disruptive Innovation?

Innovators Dilemma chart

Innovator’s Dilemma

Recall the wisdom of Clayton Christensen‘s “Innovator’s Dilemma.” The incumbent keeps improving their product, hoping to maintain a capability lead over the competition.  But eventually the incumbent far overshoots customer needs, developing a product that is overly enhanced.  The disruptive innovator enters the market with a considerably “less good” product, but it meets customer needs at a much lower price.  People buy the cheaper product to meet their limited goal, and bypass the more capable but more expensive early market leader.

Doesn’t this sound remarkably similar to the development of iPhones (now on version 8 and expected to sell at over $1,000) compared with a $35 speaker that is far less capable, but still does 15,000 interesting things?

The biggest loser in this new market is Microsoft

This week Microsoft announced another 1,500 layoffs in what has become an annual bloodletting ritual for the PC software giant.  But even worse was the announcement that Microsoft would no longer support any version of Windows Phone OS version 8.1 or older – which is 80% of the Windows Phone market.  Given that Microsoft has less than 2% market share, and that less than .4% of the installed smartphone base operates on Windows Phone, killing support for these phones will lead to sales declines.  This action, along with gutting the internal developer team last year, clearly  indicates Microsoft has given up on the phone business for good.  This means that now Microsoft has no device platform for Cortana, Microsoft’s voice assistant, to use.

Windows 10 mobile rest in peace

Microsoft ignored smartphones, allowing Apple’s iOS to become the early standard.  Apple rapidly grew its installed base. Microsoft could not convince developers to write for Windows Phone because there weren’t enough devices in the market.  Without a phone base, with tablet and hybrid sales flat to declining, and with PC sales in the gutter Cortana enters the market DOA (Dead On Arrival.)  Even if it were the best voice assistant on the planet developers will not create skills for Cortana because there are no devices out there using Cortana as the interface.

So Microsoft completely missed yet another market. This time the market for voice activated devices in the smart phone, smart car or any other smart device in the IoT marketplace.  It missed mobile, and now it has missed voice assist.  As PC sales decline, Microsoft’s only hope is to somehow emerge a big winner in cloud storage and services (IaaS or Infrastructure as a Service) with Azure.  But, Azure was a late-comer to the cloud market and is far behind Amazon’s AWS (Amazon Web Services.)  Amazon has +40% market share, which is 40% more than the share of Microsoft, Google and IBM combined.

Build the base and developers will come…

How Traditional Planning Systems Failed Microsoft, and Its Board

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

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.

PC Sales drop >10% Q1 2016. Surprised? Do You Care?

PC Sales drop >10% Q1 2016. Surprised? Do You Care?

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?

death-of-the-pcThe 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.

How Google Stole the Show from Apple

How Google Stole the Show from Apple

The three highest valued publicly traded companies today (2/3/16) are Google/Alphabet, Apple and Microsoft.  All 3 are tech companies, and they compete – although with different business models – in multiple markets. However, investor views as to their futures are wildly different.  And that has everything to do with how the leadership teams of these 3 companies have explained their recent results, and described their futures.

Slide1

Looking at the financial performance of these companies, it is impossible to understand the price/earnings multiple assigned to each. Apple clearly had better revenue and earnings performance in all but the most recent year.  Yet, both Alphabet and Microsoft have price to earnings (P/E) multiples that are 3-4 times that of Apple.

 

Slide2

Much was made this week about Alphabet’s valuation exceeding that of Apple’s.  But the really big story is the difference in multiples. If Apple had a multiple even half that of Alphabet or Microsoft it’s value would be much, much higher.

But, as we can see, investors did the best over both 2 years and 5 years by investing in Microsoft.  And Apple investors have fared the poorest of all 3 companies regardless of time frame.  Looking at investment performance, one would think that the revenue and earnings performance of these companies would be the reverse of what’s seen in the first chart.Apple-Google-MSFT

The missing piece, of course, is future expectations.  In this column a few days ago, I pointed out that Apple has done a terrible job explaining its future.  In that column I pointed out how Facebook and Amazon both had stratospheric P/E multiples because they were able to keep investors focused on their future growth story, even more than their historical financial performance.

Alphabet stole the show, and at least briefly the #1 valuation spot, from Apple by convincing investors they will see significant, profitable growth.  Starting even before earnings announcements the company was making sure investors knew that revenues and profits would be up.  But even more they touted the notion that Alphabet has a lot of growth in non-monetized assets.  For example, vastly greater ad sales should be expected from YouTube and Google Maps, as well as app sales for Android phones through Google Play.  And someday on the short horizon profits will emerge from Fiber transmission revenues, smart home revenues via Nest, and even auto market sales now that the company has logged over 1million driverless miles.

This messaging clearly worked, as Alphabet’s value shot up.  Even though 99% of the company’s growth was in “core” products that have been around for a decade!  Yes, ad revenue was up 15%, but most of that was actually on the company’s own web sites.  And most was driven by further price erosion.  The number of paid clicks were up 30%, but price/click was actually down yet another 15% – a negative price trend that has been happening for years. Eventually prices will erode enough that volume will not make up the difference – and what will investors do then?  Rely on the “moonshot” projects which still have almost no revenue, and no proven market performance!

But, the best performer has been Microsoft.  Investors know that PC sales have been eroding for years, that PC sales will continue eroding as users go mobile, and that PC’s are the core of Microsoft’s revenue.  Investors also knows that Microsoft missed the move to mobile, and has practically no market share in the war between Apple’s iOS and Google’s Android.  Further, investors have known forever that gaming (xBox,) search and entertainment products have always been a money-loser for Microsoft.  Yet, Microsoft investors have done far better than Apple investors, and long-term better than Google investors!

Microsoft has done an absolutely terrific job of constantly trumpeting itself as a company with a huge installed base of users that it can leverage into the future.  Even when investors don’t know how that eroding base will be leveraged, Microsoft continually makes the case that the base is there, that Microsoft is the “enterprise” brand and that those users will stay loyal to Microsoft products.

Forget that Windows 8 was a failure, that despite the billions spent on development Win8 never reached even 10% of the installed base and the company is even dropping support for the product.  Forget that Windows 10 is a free upgrade (meaning no revenue.)  Just believe in that installed base.

Microsoft trumpeted that its Surface tablet sales rose 22% in the last quarter!  Yay! Of course there was no mention that in just the last 6 weeks of the quarter Apple’s newly released iPad Pro actually sold more units than all Surface tablets did for the entire quarter!  Or that Microsoft’s tablet market share is barely registerable, not even close to a top 5 player, while Apple still maintains 25% share.  And investors are so used to the Microsoft failure in mobile phones that the 49% further decline in sales was considered acceptable.

Instead Microsoft kept investors focused on improvements to Windows 10 (that’s the one you can upgrade to for free.)  And they made sure investors knew that Office 365 revenue was up 70%, as 20million consumers now use the product.  Of course, that is a cumulative 20million – compared to the 75million iPhones Apple sold in just one quarter.  And Azure revenue was up 140% – to something that is almost a drop in the bucket that is AWS which is over 10 times the size of all its competitors combined.

To many, this author included, the “growth story” at Microsoft is more than a little implausible.  Sales of its core products are declining, and the company has missed the wave to mobile.  Developers are writing for iOS first and foremost, because it has the really important installed base for today and tomorrow.  And they are working secondarily on Android, because it is in some flavor the rest of the market.  Windows 10 is a very, very distant third and largely overlooked.  xBox still loses money, and the new businesses are all relatively quite small.  Yet, investors in Microsoft have been richly rewarded the last 5 years.

Meanwhile, investors remain fearful of Apple.  Too many recall the 1980s when Apple Macs were in a share war with Wintel (Microsoft Windows on Intel processors) PCs.  Apple lost that war as business customers traded off the Macs ease of use for the lower purchase cost of Windows-based machines.  Will Apple make the same mistake?  Will iPad sales keep declining, as they have for 2 years now?  Will the market shift to mobile favor lower-priced Android-based products?  Will app purchases swing from iTunes to Google Play as people buy lower cost Android-based tablets?  Have iPhone sales really peaked, and are they preparing to fall?  What’s going to happen with Apple now?  Will the huge Apple mobile share be eroded to nothing, causing Apple’s revenues, profits and share price to collapse?

This would be an interesting academic discussion were the stakes not so incredibly high.  As I said in the opening paragraph, these are the 3 highest valued public companies in America.  Small share price changes have huge impacts on the wealth of individual and institutional investors.  It is rather quite important that companies tell their stories as good as possible (which Apple clearly has not, and Microsoft has done extremely well.)  And likewise it is crucial that investors do their homework, to understand not only what companies say, but what they don’t say.