Microsoft’s Crazy Windows 8 Bet – How you can invest smarter
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.