by Adam Hartung | Feb 3, 2016 | Current Affairs, Leadership, Lifecycle, Web/Tech
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.
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.
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.
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.
by Adam Hartung | Jul 8, 2015 | Current Affairs, Defend & Extend, In the Whirlpool, Leadership, Lock-in, Web/Tech
Microsoft announced today it was going to shut down the Nokia phone unit, take a $7.6B write-off (more than the $7.2B they paid for it,) and lay off another 7,800 employees. That makes the layoffs since CEO Nadella took the reigns almost 26,000. Finding any good news in this announcement is a very difficult task.
Unfortunately, since taking over as Microsoft’s #1 leader, Mr. Nadella has been remarkably predictable. Like his peer CEOs who take on the new role, he has slashed and burned employment, shut down at least one big business, taken massive write-offs, and undertaken at least one wildly overpriced acquisition (Minecraft) that is supposed to be a game changer for the company. He apparently picked up the “Turnaround CEO Playbook” after receiving the job and set out on the big tasks!
Yet he still has not put forward a strategy that should encourage investors, employees, customers or suppliers that the company will remain relevant long-term. Amidst all these big tactical actions, it is completely unclear what the strategy is to remain a viable company as customers move, quickly and in droves, to mobile devices using competitive products.
I predicted here in this blog the week Steve Ballmer announced the acquisition of Nokia in September, 2013 that it was “a $7.2B mistake.” I was off, because in addition to all the losses and restructuring costs Microsoft endured the last 7 quarters, the write off is $7.6B. Oops.
Why was I so sure it would be a mistake? Because between 2011 and 2013 Nokia had already lost half its market share. CEO Elop, who was previously a Microsoft senior executive, had committed Nokia completely to Windows phones, and the results were already catastrophic. Changing ownership was not going to change the trajectory of Nokia sales.
Microsoft had failed to build any sort of developer community for Windows 8 mobile. Developers need people holding devices to buy their software. Nokia had less than 5% share. Why would any developer build an app for a Windows phone, when almost the entire market was iOS or Android? In fact, it was clear that developing rev 2, 3, and 4 of an app for the major platforms was far more valuable than even bothering to port an app into Windows 8.
Nokia and Windows 8 had the worst kind of tortuous whirlpool – no users, so no developers, and without new (and actually unique) software there was nothing to attract new users. Microsoft mobile simply wasn’t even in the game – and had no hope of winning. It was already clear in June, 2012 that the new Windows tablet – Surface – was being launched with a distinct lack of apps to challenge incumbents Apple and Samsung.
By January, 2013 it was also clear that Microsoft was in a huge amount of trouble. Where just a few years before there were 50 Microsoft-based machines sold for every competitive machine, by 2013 that had shifted to 2 for 1. People were not buying new PCs, but they were buying mobile devices by the shipload – literally. And there was no doubt that Windows 8 had missed the mobile market. Trying too hard to be the old Windows while trying to be something new made the product something few wanted – and certainly not a game changer.
A year ago I wrote that Microsoft has to win the war for developers, or nothing else matters. When everyone used a PC it seemed that all developers were writing applications for PCs. But the world shifted. PC developers still existed, but they were not able to grow sales. The developers making all the money were the ones writing for iOS and Android. The growth was all in mobile, and Microsoft had nothing in the game. Meanwhile, Apple and IBM were joining forces to further displace laptops with iPads in commercial/enterprise uses.
Then we heard Windows 10 would change all of that. And flocks of people wrote me that a hybrid machine, both PC and tablet, was the tool everyone wanted. Only we continue to see that the market is wildly indifferent to Windows 10 and hybrids.
Imagine you write with a fountain pen – as most people did 70 years ago. Then one day you are given a ball point pen. This is far easier to use, and accomplishes most of what you want. No, it won’t make the florid lines and majestic sweeps of a fountain pen, but wow it is a whole lot easier and a darn site cheaper. So you keep the fountain pen for some uses, but mostly start using the ball point pen.
Then the fountain pen manufacturer says “hey, I have a contraption that is a ball point pen, sort of, and a fountain pen, sort of, combined. It’s the best of all worlds.” You would likely look at it, but say “why would I want that. I have a fountain pen for when I need it. And for 90% of the stuff I write the ball point pen is great.”
That’s the problem with hybrids of anything – and the hybrid tablet is no different. The entrenched sellers of old technology always think a hybrid is a good idea. But once customers try the new thing, all they want are advancements to the new thing. (Just look at the interest in Tesla cars compared to the stagnant sales of hybrid autos.)
And we’re up to Surface 3 now. When I pointed out in January, 2013 that the markets were rapidly moving away from Microsoft I predicted Surface and Surface Pro would never be important products. Reader outcry at that time from Microsoft devotees was so great that Forbes editors called me on the carpet and told me I lacked the data to make such a bold prediction. But I stuck by my guns, we changed some language so it was less blunt, and the article ran.
Two and a half years later and we’re up to rev number Surface 3. And still, almost nobody is using the product. Less than 5% market share. Right again. It wasn’t a technology prediction, it was a market prediction. Lacking app developers, and a unique use, the competition was, and remains, simply too far out front.
Windows 10 is, unfortunately, a very expensive launch. And to get people to use it Microsoft is giving it away for free. The hope is then users will hook onto the cloud-based Office 365 and Microsoft’s Azure cloud services. But this is still trying to milk the same old cow. This approach relies on people being completely unwilling to give up using Windows and/or Office. And we see every day that millions of people are finding alternatives they like just fine, thank you very much.
Gamers hated me when I recommended Microsoft should give (for free) xBox to Nintendo. Unfortunately, I learned few gamers know much about P&Ls. They all assumed Microsoft made a fortune in gaming. But anyone who’s ever looked at Microsoft’s financial filings knows that the Entertainment Division, including xBox, has been a giant money-sucking hole. If they gave it away it would save money, and possibly help leadership figure out a strategy for profitable growth.
Unfortunately, Microsoft bought Minecraft, in effect “doubling down” on the bet. But regardless of how well anyone likes the products, Microsoft is not making money. Gaming is a bloody war where Sony and Microsoft keep battling, and keep losing billions of dollars. The odds of ever earning back the $2.5B spent on Minecraft is remote.
The greater likelihood is that as write offs continue to eat away at profits, and as markets continue evolving toward mobile products offered by competitors hurting “core” Microsoft sales, CEO Nadella will eventually have to give up on gaming and undertake another Nokia-like event.
All investors risk looking at current events to drive decision-making. When Ballmer was sacked and Nadella given the CEO job the stock jumped on euphoria. But the last 18 months have shown just how bad things are for Microsoft. It is a near monopolist in a market that is shrinking. And so far Mr. Nadella has failed to define a strategy that will make Microsoft into a company that does more than try to milk its heritage.
I said the giant retailer Sears Holdings would be a big loser the day Ed Lampert took control of the company. But hope sprung eternal, and investors jumped on the Sears bandwagon, believing a new CEO would magically improve a worn out, locked-in company. The stock went up for over 2 years. But, eventually, it became clear that Sears is irrelevant and the share price increase was unjustified. And the stock tanked.
Microsoft looks much the same. The actions we see are attempts to defend & extend a gloried history. But they don’t add up to a strategy to compete for the future. HoloLens will not be a product capable of replacing Windows plus Office revenues. If developers are attracted to it enough to start writing apps. Cortana is cool, but it is not first. And competitive products have so much greater usage that developer learning curve gains are wildly faster. These products are not game changers. They don’t solve large, unmet needs.
And employees see this. As I wrote in my last column, it is valuable to listen to employees. As the bloom fell off the rose, and Nadella started laying people off while freezing pay, employee support of him declined dramatically. And employee faith in leadership is far lower than at competitors Apple and Google.
As long as Microsoft keeps playing catch up, we should expect more layoffs, cost cutting and asset sales. And attempts at more “hail Mary” acquisitions intended to change the company. All of which will do nothing to grow customers, provide better jobs for employees, create value for investors or greater revenue opportunities for suppliers.
by Adam Hartung | Apr 2, 2015 | Current Affairs, Defend & Extend, In the Rapids, Innovation, Leadership, Web/Tech
Microsoft launched its new Surface 3 this week, and it has been gathering rave reviews. Many analysts think its combination of a full Windows OS (not the slimmed down RT version on previous Surface tablets,) thinness and ability to operate as both a tablet and a PC make it a great product for business. And at $499 it is cheaper than any tablet from market pioneer Apple.
Meanwhile Apple keeps promoting the new Apple Watch, which was debuted last month and is scheduled to release April 24. It is a new product in a market segment (wearables) which has had very little development, and very few competitive products. While there is a lot of hoopla, there are also a lot of skeptics who wonder why anyone would buy an Apple Watch. And these skeptics worry Apple’s Watch risks diverting the company’s focus away from profitable tablet sales as competitors hone their offerings.
Looking at these launches gives a lot of insight into how these two companies think, and the way they compete. One clearly lives in red oceans, the other focuses on blue oceans.
Blue Ocean Strategy (Chan Kim and Renee Mauborgne) was released in 2005 by Harvard Business School Press. It became a huge best-seller, and remains popular today. The thesis is that most companies focus on competing against rivals for share in existing markets. Competition intensifies, features blossom, prices decline and the marketplace loses margin as competitors rush to sell cheaper products in order to maintain share. In this competitively intense ocean segments are niched and products are commoditized turning the water red (either the red ink of losses, or the blood of flailing competitors, choose your preferred metaphor.)
On the other hand, companies can choose to avoid this margin-eroding competitive intensity by choosing to put less energy into red oceans, and instead pioneer blue oceans – markets largely untapped by competition. By focusing beyond existing market demands companies can identify unmet needs (needs beyond lower price or incremental product improvements) and then innovate new solutions which create far more profitable uncontested markets – blue oceans.
Obviously, the authors are not big fans of operational excellence and a focus on execution, but instead see more value for shareholders and employees from innovation and new market development.
If we look at the new Surface 3 we see what looks to be a very good product. Certainly a product which is competitive. The Surface 3 has great specifications, a lot of adaptability and meets many user needs – and it is available at what appears to be a favorable price when compared with iPads.
But …. it is being launched into a very, very red ocean.
The market for inexpensive personal computing devices is filled with a lot of products. Don’t forget that before we had tablets we had netbooks. Low cost, scaled back yet very useful Microsoft-based PCs which can be purchased at prices that are less than half the cost of a Surface 3. And although Surface 3 can be used as a tablet, the number of apps is a fraction of competitive iOS and Android products – and the developer community has not yet embraced creating new apps for Windows tablets. So Surface 3 is more than a netbook, but also a lot more expensive.
Additionally, the market has Chromebooks which are low-cost devices using Google Chrome which give most of the capability users need, plus extensive internet/cloud application access at prices less than a third that of Surface 3. In fact, amidst the Microsoft and Apple announcements Google announced it was releasing a new ChromeBit stick which could be plugged into any monitor, then work with any Bluetooth enabled keyboard and mouse, to turn your TV into a computer. And this is expected to sell for as little as $100 – or maybe less!
This is classic red ocean behavior. The market is being fragmented into things that work as PCs, things that work as tablets (meaning run apps instead of applications,) things that deliver the functionality of one or the other but without traditional hardware, and things that are a hybrid of both. And prices are plummeting. Intense competition, multiple suppliers and eroding margins.
Ouch. The “winners” in this market will undoubtedly generate sales. But, will they make decent profits? At low initial prices, and software that is either deeply discounted or free (Google’s cloud-based MSOffice competitive products are free, and buyers of Surface 3 receive 1 year free of MS365 Office in the cloud, as well as free upgrade to Windows 10,) it is far from obvious how profitable these products will be.
Amidst this intense competition for sales of tablets and other low-end devices, Apple seems to be completely focused on selling a product that not many people seem to want. At least not yet. In one of the quirkier product launch messages that’s been used, Apple is saying it developed the Apple Watch because its other innovative product line – the iPhone – “is ruining your life.”
Apple is saying that its leaders have looked into the future, and they think today’s technology is going to move onto our bodies. Become far more personal. More interactive, more knowledgeable about its owner, and more capable of being helpful without being an interruption. They see a future where we don’t need a keyboard, mouse or other artificial interface to connect to technology that improves our productivity.
Right. That is easy to discount. Apple’s leaders are betting on a vision. Not a market. They could be right. Or they could be wrong. They want us to trust them. Meanwhile, if tablet sales falter….. if Surface 3 and ChromeBit do steal the “low end” – or some other segment – of the tablet market…..if smartphone sales slip….. if other “forward looking” products like ApplePay and iBeacon don’t catch on……
This week we see two companies fundamentally different methods of competing. Microsoft thinks in relation to its historical core markets, and engaging in bloody battles to win share. Microsoft looks at existing markets – in this case tablets – and thinks about what it has to do to win sales/share at all cost. Microsoft is a red ocean competitor.
Apple, on the other hand, pioneers new markets. Nobody needed an iPod… folks were happy enough with Sony Walkman and Discman. Everybody loved their Razr phones and Blackberries… until Apple gave them an iPhone and an armload of apps. Netbook sales were skyrocketing until iPads came along providing greater mobility and a different way of getting the job done.
Apple’s success has not been built upon defending historical markets. Rather, it has pioneered new markets that made existing markets obsolete. Its success has never looked obvious. Contrarily, many of its products looked quite underwhelming when launched. Questionable. And it has cannibalized its own products as it brought out new ones (remember when iPods were so new there was the iPod mini, iPod nano and iPod Touch? After 5 years of declining iPod sale Apple has stopped reporting them.) Apple avoids red oceans, and prefers to develop blue ones.
Which company will be more successful in 2020? Time will tell. But, since 2000 Apple has gone from nearly bankrupt to the most valuable publicly traded company in the USA. Since 1/1/2001 Microsoft has gone up 32% in value. Apple has risen 8,000%. While most of us prefer the competition in red oceans, so far Apple has demonstrated what Blue Ocean Strategy authors claimed, that it is more profitable to find blue oceans. And they’ve shown us they can do it.
by Adam Hartung | Jan 22, 2015 | Current Affairs, Defend & Extend, Games, In the Swamp, Innovation, Leadership, Software, Web/Tech
Yesterday Microsoft conducted a pre-launch of Windows 10, demonstrating its features in an effort to excite developers and create some buzz before consumer launch later in 2015.
By and large, nobody cared. Were you aware of the event? Did you try to watch the live stream, offered via the Microsoft web site? Were you eager to read what people thought of the product? Did you look for reviews in the Wall Street Journal, USA Today and other general news outlets?
Microsoft really blew it with Windows 8 – which is the second most maligned Windows product ever, exceeded only by
Vista. But that wasn’t hard to predict, in June, 2012. Even then it was clear that Windows 8, and Surface tablets, were designed to defend and extend the installed Windows base, and as such the design precluded the opportunity to change the market and pull mobile users to Microsoft.
And, unfortunately, that is how Windows 10 has been developed. At the event’s start Microsoft played a tape driving home how it interviewed dozens and dozens of loyal Windows customers, asking them what they didn’t like about 8, and what they wanted in a Windows upgrade. That set the tone for the new product.
Microsoft didn’t seek out what would convert all those mobile users already on iOS or Android to throw away their devices and buy a Microsoft product. Microsoft didn’t ask its defected customers what it would take to bring them back, nor did it ask the over 50% of the market using Windows 7 or older products what it would take to get them to go to Windows mobile rather than an iPad or Galaxy tablet. Nope. Microsoft went to its installed base and asked them what they would like.
Imagine it’s 1975 and for two decades you have successfully made and sold small offset printing presses. Every single company of any size has one in their basement. But customers have started buying really simple, easy to use Xerox machines. Fewer admins are sending even fewer jobs to the print shop in the basement, as they choose to simply run off a bunch of copies on the Xerox machine. Of course these copies are more expensive than the print shop, and the quality isn’t as good, but the users find the new Xerox machines good enough, and they are simple and convenient.
What are you to do if you make printing presses? You probably need to find out how you can get into a new product that actually appeals to the users who no longer use the print shop. But, instead, those companies went to the print shop operators and asked them what they wanted in a new, small print machine. And then the companies upgraded their presses and other traditional printing products based upon what that installed base recommended. And it wasn’t long before their share of printing eroded to a niche of high-volume, and often color, jobs. And the commercial print market went to Xerox.
That’s what Microsoft did with Windows 10. It asked its installed base what it wanted in an operating system. When the problem isn’t the installed base, its the substitute product that is killing the company. Microsoft didn’t need input from its installed base of loyal users, it needed input from people who have quit using HP laptops in favor of iPads.
There are a lot of great new features in Windows 10. But it really doesn’t matter.
The well spoken presenters from Microsoft laid out how Windows 10 would be great for anyone who wants to go to an entirely committed Windows environment. To achieve Microsoft’s vision of the future every one of us will throw away our iOS and Android products and go to Windows on every single device. Really. There wasn’t one demonstration of how Windows would integrate with anything other than Windows. And there appeared on intention of making the future an interoperable environment. Microsoft’s view was we would use Windows on EVERYTHING.
Microsoft’s insular view is that all of us have been craving a way to put Windows on all our devices. We’ve been sitting around using our laptops (or desktops) and saying “I can’t wait for Microsoft to come out with a solution so I can throw away my iPhone and iPad. I can’t wait to tell everyone in my organization that now, finally, we have an operating system that IT likes so much that we want everyone in the company to get rid of all other technologies and use Windows on their tablets and phones – because then they can integrate with the laptops (that most of us don’t use hardly at all any longer.)”
Microsoft even went out of its way to demonstrate how well Win10 works on 2-in-1 devices, which are supposed to be both a tablet and a laptop. But, these “hybrid” devices really don’t make any sense. Why would you want something that is both a laptop and a tablet? Who wants a hybrid car when you can have a Tesla? Who wants a vehicle that is both a pick-up and a car (once called the El Camino?) Microsoft thinks these are good devices, because Microsoft can’t accept that most of us already quit using our laptop and are happy enough with a tablet (or smartphone) alone!
Microsoft presenters repeatedly reminded us that Windows is evolving. Which completely ignores the fact that the market has been disrupted. It has moved from laptops to mobile devices. Yes, Windows has a huge installed base on machines that we use less and less. But Windows 10 pretends that there does not exist today an equally huge, and far more relevant, installed base of mobile devices that already has millions of apps people use every single day over and over. Microsoft pretended as if there is no world other than Windows, and that a more robuts Windows is something people can’t wait to use! We all can’t wait to go back to a exclusive Microsoft world, using Windows, Office, the new Spartan browser – and creating documents, spreadsheets and even presentations using Office, with those hundreds of complex features (anyone know how to make a pivot table?) on our phones!
Just like those printing press manufacturers were sure people really wanted documents printed on presses, and couldn’t wait to unplug those Xerox machines and return to the old way of doing things. They just needed presses to have more features, more capabilities, more speed!
The best thing in Windows 10 is Cortana, which is a really cool, intelligent digital assistant. But, rather than making Cortana a tool developers can buy to integrate into their iOS or Android app the only way a developer can use Cortana is if they go into this exclusive Windows-only world. That’s a significant request.
Microsoft made this mistake before. Kinect was a great tool. But the only way to use it, initially, was on an xBox – and still is limited to Windows. Despite its many superb features, Kinect didn’t develop anywhere near its potential. Cortana now suffers from the same problem. Rather than offering the tool so it can find its best use and markets, Microsoft requires developers and consumers buy into the Windows-exclusive world if you want to use Cortana.
Microsoft hasn’t yet figured out that it lost relevance years ago when it missed the move to mobile, and then launched Windows 8 and Surface to markets that didn’t really want those products. Now the market has gone mobile, and the leader isn’t Microsoft. Microsoft has to find a way to be relevant to the millions of people using alternative products, and the Windows 10 vision, which excludes all those competing devices, simply isn’t it.
There was lots of neat geeky stuff shown. Surface tablets using Windows 10 with an xBox app can now do real gaming, which looks pretty cool and helps move Microsoft forward in mobile gaming. That may be a product that sets Sony’s Playstation and Nintendo’s Wii on their heels. But that’s gaming, and historically not where Microsoft makes any money (nor for that matter does Sony or Nintendo.)
There is a new interactive whiteboard that integrates Skype and Windows tablets for digital enhancement of brainstorming meetings. But it is unclear how a company uses it when most employees already have iPhones or Samsung S5s or Notes. And for the totally geeky there was a demo of a holographic headset. But when it comes to disruptive products like this success requires finding really interesting applications that otherwise cannot be completed, and then the initial customers who have a really desperate need for that application who will become devoted users.
Launching such disruptive products has long been the bane of Microsoft’s existence. Microsoft thinks in mass market terms, and selling to its base. Not developing breakthrough applications and finding niche markets to launch new uses. Nor has Microsoft created a developer community aligned with that kind of work. They have long been taught to simply continue to do things that defend and extend the traditional base of product uses and customers.
The really big miss for this meeting was understanding developer needs. Today developers have an enormous base of iOS and Android users to whom they can sell their products. Windows has less than 3% share in mobile devices. What developer would commit their resources to developing products for Windows 10, which has an installed base only in laptops and desktops? In other words, yesterday’s technology base? Especially when to obtain the biggest benefits of Windows 10 that developer has to find end use customers (companies or consumers) willing to commit 100% to Windows everywhere – even including their televisions, thermostats and other devices in our ever smarter buildings?
Windows 10 has a lot of cool features. But Microsoft made a big miss by listening to the wrong people. By assuming its installed base couldn’t wait for a Microsoft-exclusive solution, and by behaving as if the installed base of mobile devices either didn’t exist or didn’t matter, the company showed its hubris (once again.) If all it took to succeed were great products, the market would never have shifted from Macintosh computers to Windows machines in the 1990s. Microsoft simply doesn’t realize that it lacks the relevance to pull of its grand vision, and as such Windows 10 has almost no chance of stopping the Apple/Google/Samsung juggernaut.
by Adam Hartung | Sep 25, 2014 | Current Affairs, In the Swamp, In the Whirlpool, Innovation, Sports, Web/Tech
Few businesses fail in a fiery, quick downfall. Most linger along for years, not really mattering to anyone – including customers, suppliers or even investors. They exist, but they aren’t relevant.
When a company is relevant customers are eager for new product releases, and excited to talk to salespeople. Media want to report on the company, its products and its leaders. Investors want to hear about what the company will do next to drive revenues and increase profits.
But when a company loses relevancy, that all disappears. Customers quit paying attention to new products, and salespeople are not given the time of day. The company begs for coverage of its press releases, but few media outlets pay attention because writing about that company produces few readers, or advertisers. Investors lose hope for big gains, and start looking for ways to sell the stock or debt without taking too big a loss, or further depressing valuations.
In short, when a company loses relevancy it is on the downward slope to failure. It may take a long time, but lacking market relevancy the company has practically no hope of increasing revenues or profits, or of creating many new and exciting jobs, or of being a great customer for suppliers. Losing relevancy means the company is headed out of business, it’s just a matter of time. Think Howard Johnson’s, ToysRUs, Sears, Radio Shack, Palm, Hostess, Samsonite, Pierre Cardin, Woolworth’s, International Harvester, Zenith, Sony, Rand McNally, Encyclopedia Britannica, DEC — you get the point.
Many people may not be aware that Microsoft made an exclusive deal with the NFL to provide Surface tablets for coaches and players to use during games, replacing photographs, paper and clipboards for reviewing on-field activities and developing plays. The goal was to up the prestige of Surface, improve its “cool” factor, while showing capabilities that might encourage more developers to write apps for the product and more businesses to buy it.
But things could not have gone worse during the NFL’s launch. Because over and again, announcers kept calling the Surface tablets iPads. Announcers saw the tablet format and simply assumed these were iPads. Or, worse, they did not realize there was any tablet other than the iPad. As more and more announcers made this blunder it became increasingly clear that Apple not only invented the modern tablet marketplace, but that it’s brand completely dominates the mindset of users and potential buyers. iPad has become synonymous with tablet for most people.
In a powerful way, this demonstrates the lack of relevancy Microsoft now has in the personal technology marketplace. Fewer and fewer people are buying PCs as they rely increasingly on mobile devices. Practically nobody cares any more about new releases of Windows or Office. In fact, the American Customer Satisfaction Index reported people think Apple is now considered the best PC maker (the Macintosh.) HP was near the bottom of the list, with Dell, Acer and Toshiba not faring much better.
And in mobile devices, Apple is clearly the king. In its first weekend of sales the new iPhone 6 and 6Plus sold 10million units, blasting past any previous iPhone model launch – and that was without any sales in China and several other markets. The iPhone 4 was considered a smashing success, but iPhone 4 sales of 1.7million units was only 17% of the newest iPhone – and the 9million iPhone 5 sales included China and the lower-priced 5C. In fact, more units could have been sold but Apple ran out of supply, forcing customers to wait. People clearly still want Apple mobile devices, as sales of each successive version brings in more customers and higher sales.
There are many people who cannot imagine a world without Microsoft. And the vast majority of people would think that predicting Microsoft’s demise is considerably premature given its size and cash hoard. But, that looks backward at what Microsoft was, and the assets it previously created, rather than looking forward.
Just how fast can lost relevancy impact a company? Look no further than Blackberry (formerly Research in Motion.) Blackberry was once totally dominant in smartphones. But in the second quarter of last year Apple sold 32.5million units, while Blackberry sold only 1.5million (which was still more than Microsoft sold.)
The complete lack of relevancy was exposed last week when Blackberry launched its new Passport phone alongside Apple’s iPhone 6 actions. While the press was full of articles about the new iPhone, were you even aware of Blackberry’s most recent effort? Did you recall seeing press coverage? Did you read any product reviews? And while Apple was selling record numbers, Blackberry analysts were wondering if the Passport could find a niche with “nostalgic customers” that would sell enough units to keep the company’s hardware unit alive. Reviewers now compare Passport to the market standard, which is the iPhone – and still complain that its use of apps is “confusing.” In a world where most people use their own smartphone, the only reason most people could think of to use a Passport was if their employer told them they were forced to.
Like with Radio Shack, most people have to be reminded that Blackberry still exists. In just a few years Blackberry’s loss of relevancy has made the company and its products a backwater. Now it is quite clear that Microsoft is entering a similar situation. Windows 8 was a weak launch and did nothing to slow the shift to mobile. Microsoft missed the mobile market, and its mobile products are achieving no traction. Even where it has an exclusive use, such as this NFL application, people don’t recognize its products and assume they are the products of the market leader. Microsoft really has become irrelevant in its historical “core” personal technology market – and that should scare its employees and investors a lot.
