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.
How can anyone doubt that Microsoft will do well in the future? Have you looked at which of the two companies actually creates more ‘profits’ despite Apple’s larger revenues?! I am glad to see Microsoft enter the tablet market with full force as I have been extremely happy with the Windows 7 phone and their cloud service. It has been a far better experience vs. my iPad. For my part, I celebrate having them both competing for our business and will base my future purchases on best product, not brand.
It’s not just about “profits” it’s about what percentage of the “profits” need to be reinvested to ensure future profits for technology enhancements.
Microsoft’s need for reinvestment as a percentage of profits is much, much higher – as the majority of it’s products are in more mature markets.
Sorry this:
“need to be reinvested to ensure future profits for technology enhancements.”
should read:
need to be reinvested to ensure future profits from technology enhancements.
Yes he’s right. People still like there DesktopsLaptops but just like to be able to maintaint them and receive notices on the go. I think the Win 8 is built for retards, it looks like a try hard update. As where Apple have achieved, by developing mobility inocourdance with its desktop. Not trying to bring mobility to a desktop..???? MS needs to stick to what they know and just build in alignment with mobility,, To remain competive MS should focus on a dual CPU systems to heighten security and reduce virus threats ( 2x cpu’s one to monitor sercurity and the other to carry out traditional programsapps) and increase Stability and defiantly enhance on security, this is what they should be focusing on for future achievements.
While the facts are properly laid out in this blog, the conclusion are really short sighted and almost stupid.
The author is clearly unfamiliar of the innovation MS is bringing in its WP7 and Windows 8 products. I own a PC and an iPad myself and love it, but come windows 8 I won’t need to carry two devices.
WP7 is the best smartphone out there, the only thing It needs to catch up on is the app marketplace and MS is already working on it feverishly.
Things are changing….slowly but surely. Just look at the recent IDC and gartner research on WP7…according to both it will take over iPhone by 2015.
This blog will look even more stupid to read by then.
Yikes – apparently nobody at Microsoft read The Innovators Dilemma yet?
@John Emerson: And what were IDC’s and Gartner’s ‘researched’ forecasts for 2009’s smartphone market? Where did they see Apple’s share? Oh, wait…
@Steady Eddie: When reading your comment, I first thought you simply had no idea what you were talking about. Frankly, I had a higher opinion of you when I just thought you were mouthing off without any knowledge of the subject than when I read your name and realised that you were both doing that and taking the piss out of the handicapped. The real Steady Eddie knows it’s not cool to pretend to know more than you do.
Steady Eddie: Why would MS waste their time doing that when Intel have bought McAfee and will have security onboard as an integrated feature. As Alan Kay once said “People who are really serious about software should make their own hardware.”
I’m typing this on my Android tablet, I have an Android phone I love, and will concede all the facts and estimates about the rise of mobile technology. I’ll also ungrudgingly concede that – from all outward appearances at least – Steve Ballmer should have been removed years ago. And I’ll even admit that the Skype purchase is a bit bewildering to me (although there may have been some logic behind that – we’ll have to wait and see). But there are still a number of issues the author doesn’t seem to understand, and his tales of Microsoft’s death are extremely exaggerated.
First off, Apple primarily makes toys for personal use. Yes they are spreading into business, but are really only good for email and reading documents currently. And maybe the author can explain to me what all the software running on these gadgets is developed on?
Microsoft also has cloud platforms, and Office runs in the cloud now as well. And since when is Windows the only game in Microsoft Town? They have the leading game platform, which they built from scratch and took the market lead
with, for starters. They have successful game software businesses as well.
On the business side they have Dynamics, Sharepoint, and other business apps. They offer business services. They have Visual Studio, one of – if not the – most popular software and web development platforms in the world. They have Exchange, far and away the most popular email server in the world. (So popular that there is no other major player now – Lotus Notes died a painful death long ago and just hasn’t realized it yet, because IBM refuses to pull the plug.)
And then there’s SQL Server, which is slowly but surely taking over the database market. They own the small DB market, have virtually pushed Oracle out of the mid-range market, and are incrementally increasing their share of the high-end market. Fortunately for Larry and his shareholders, this is an ever-growing market and there is enough business for everyone to continue getting richer.
Oh, and if PC’s die off to the point that MS goes under, that would have to include servers as well, which are just high-end PC’s when you get down to it. So if that occurs, what happens to, say, Oracle? Are they going to rewrite all their high-end systems to run on iPhones and iPads, or will they just die off too? If not, then MS will continue to make money hand-over-fist on Windows Server, which owns the server OS market. (And don’t bother with the Linux argument – ain’t ever gonna be enough to hurt ’em.)
Back to Windows 8: the whole point of that OS – and something it’s getting glowing reviews for – is that it successfully blends the PC and mobile technology together, making them much more seamless than they currently are. They are definitely jumping in very late to the game, but instead of playing catch-up technologically, they are jumping in at a point ahead of everyone else. Granted they’ll still have a major task on their hands to gain real traction, but it’s not going to break them if they don’t succeed gloriously.
I see the will of MS to have a common tablet-phone-pc OS as a great idea !
I see Kinect making a hit !
I see the entreprise server side rock solid with w2008 R2…
I see unified communication with “free” lync for phones…
I see…
Now they have made mistakes, but it is not looking as bad as the article want to suggest !
I come to this after reading a few forbes articles prevewing the death of the Microsoft as we know and I agree with the author that Redmond is in back on the all mobile game, but I believe that they still have the chops to keep growing. They are not Game-Changers in the tablet and phone business but they are consistent developers for the PC world, as imChevyYoureNOt (really?) said Microsoft has plenty of areas were it can still expand its business, specially with Kinect and the games industry. But they definitly need to change their corporate mission if they want to keep in the lead, mobile is growing and will grow the only game changer in the future exists in home entertainemnt/interface with mobile.
For an average user tablets/ IPADs are easy and provide for their needs, email, messaging reading sharing, but for data handling and developing we need pcs and we need powerhouses, I believe we will see a future were the home pc becomes a server for other mobile devices to acess and download/upload data to and have other interfaces reducing the need to invest in a new pc every 2/3 years which will leed to a lot of comapanies to loose their business. Lets see how well this new tablet surface is goign to sell this xmas, there will be the moment!
And Microsfot needs a urgent hip cool makeover it does not appeal to the future customer, the young generations…
your an idiot and more clueless the ballmer. win8 is horrible but thats another rant. tablets arent the future. ever actually try doing anything remotely close to work on one? i thought so. tablet growth will slow to a crawl once everyone buys their first tablet. remember people already own computers and it isnt necessary to buy a computer every year.
This article is focused in the consumer market, but not in the core market of microsoft, which is servers operating systems. But in this case things are even worse. The new trend from 2000 was virtualization, and there vmware has taken a very large advantage, that now microsoft is triying to cut with hyper-v. But most of virtual systems are yet mounted in vmware and is very difficult to change to the microsoft technology if they don’t do a technological incredibly jump forward to allow CIOS justify this change to a new virtualization platform. And with this investemnt policy, it looks almost impossible.
The problem with Microsoft is they haven’t invested in the core. The real advantage for Microsoft is based on its developer tools, PC network, and server infrastructure.
There hasn’t been enough software innovation primarily base of a few reasons:
1. Intel hasn’t been able to keep up pace with producing more powerful hardware
2. Microsoft is controlled by corporate interest. They are like the 500 pound gorilla. They have to be in Tablet because its so big. Microsoft has to be in search because Google. I see Microsoft as a company ruined by institutional demands.
Historically this has worked well for Microsoft because they were able to use their vast resources to do things better.
Windows 8 is not a bad idea. The idea of redoing a 30 year old product to make it modern. The problem is that Microsoft shifted away from its strengths in doing so.
What must happen for Microsoft to thrive
1. Intel must step up the pace and produce faster PCs
2. Microsoft must commit to its developer community like never before.
3. Microsoft must rebuild Windows from the ground up — somewhat like the idea in Windows 8 but without the “store” and with an interface that supports desktops. It must integrate the internet into the desktop and not vice versa.
Let me add the reason people aren’t upgrading PC’s is because a top line PC from 2 years ago is almost as fast as a brand new PC.
Each new Intel chip is only about 12%-15% faster so it takes 4 cycles before there is even a reason to upgrade.
If Intel would 2x the speed on the chips I can guarantee you that people would upgrade the PC.
What users want is simply XP with all the updates and fixes built in already, so it’s a simple, fast install.
It did not need a new OS for TouchScreen – just a new driver.
“Microsoft chose to invest in what it new, and hoped it could control the trend. ”
Well…it attempted to do tablets (which it didn’t know), and failed miserably.
And it attempted to change ‘what it knew’, with Windows 8 – it thought everything was going to be touchscreen and tablets, and ended up messing up the experience for the PC user.
The majority of people using Windows 8, are doing it on a device that is not touchscreen, yet Windows 8 users suffer from having an OS that is designed for it.
Regarding PCs, yes,, even one a few years old, is good enough for many people now, so that creates a problem for companies that want to keep churning them out…and that’s why it would have helped Microsoft if they’d managed to get it right with the Surface.
Yes tablet sales had been growing against declining PC sales, but I still see no evidence that tablets will completely replace PCs, at least not in the foreseeable future. Tablets are fun, but one can’t do proper work on them, and they simply can’t be a ‘main’ computer. Theoretically, the hybrid could be done, a light workable tablet, that can connect to a keyboard, and it has been attempted, but there hasn’t been a killer hybrid yet, one that everyone says ‘I need that’.
If the Surface had been better, if it had apps worth having the tablet for, if Windows 8 for PC didn’t have touchscreen nonsense and wasn’t confusing overall for previous Windows users…..if all these things had happened, Microsoft would have been in a better position, instead of surviving on past glories.