by Adam Hartung | Oct 4, 2012 | Defend & Extend, In the Whirlpool, Leadership, Lifecycle, Web/Tech
If you're still an investor in Hewlett Packard you must be new to this blog. But for those who remain optimistic, it is worth reveiwing why Ms. Whitman's forecast for HP yesterday won't happen. There are sound reasons why the company has lost 35% of its value since she took over as CEO, over 75% since just 2010 – and over $90B of value from its peak.
HP was dying before Whitman arrived
I recall my father pointing to a large elm tree when I was a boy and saying "that tree will be dead in under 2 years, we might as well cut it down now." "But it's huge, and has leaves" I said. "It doesn't look dead." "It's not dead yet, but the environmental wind damage has cost it too many branches, the changing creek direction created standing water rotting its roots, and neighboring trees have grown taking away its sunshine. That tree simply won't survive. I know it's more than 3 stories tall, with a giant trunk, and you can't tell it now – but it is already dead."
To teach me the lesson, he decided not to cut the tree. And the following spring it barely leafed out. By fall, it was clearly losing bark, and well into demise. We cut it for firewood.
Such is the situation at HP. Before she became CEO (but while she was a Director – so she doesn't escape culpability for the situation) previous leaders made bad decisions that pushed HP in the wrong direction:
- Carly Fiorina, alone, probably killed HP with the single decision to buy Compaq and gut the HP R&D budget to implement a cost-based, generic strategy for competing in Windows-based PCs. She sucked most of the money out of the wildly profitable printer business to subsidize the transition, and destroy any long-term HP value.
- Mark Hurd furthered this disaster by further investing in cost-cutting to promote "scale efficiencies" and price reductions in PCs. Instead of converting software products and data centers into profitable support products for clients shifting to software-as-a-service (SAAS) or cloud services he closed them – to "focus" on the stagnating, profit-eroding PC business.
- His ill-conceived notion of buying EDS to compete in traditional IT services long after the market had demonstrated a major shift offshore, and declining margins, created an $8B write-off last year; almost 60% of the purchase price. Giving HP another big, uncompetitive business unit in a lousy market.
- His purchase of Palm for $1.2B was a ridiculous price for a business that was once an early leader, but had nothing left to offer customers (sort of like RIM today.) HP used Palm to bring out a Touchpad tablet, but it was so late and lacking apps that the product was recalled from retailers after only 49 days. Another write-off.
- Leo Apotheker bought a small Enterprise Resource Planning (ERP) software company – only more than a decade after monster competitors Oracle, SAP and IBM had encircled the market. Further, customers are now looking past ERP for alternatives to the inflexible "enterprise apps" which hinder their ability to adjust quickly in today's rapidly changing marektplace. The ERP business is sure to shrink, not grow.
Whitman's "Turnaround Plan" simply won't work
Meg is projecting a classic "hockey stick" performance. She plans for revenues and profits to decline for another year or two, then magically start growing again in 3 years. There's a reason "hockey stick" projections don't happen. They imply the company is going to get a lot better, and competitors won't. And that's not how the world works.
Let's see, what will likely happen over the next 3 years from technology advances by industry leaders Apple, Android and others? They aren't standing still, and there's no reason to believe HP will suddenly develop some fantastic mojo to become a new product innovator, leapfrogging them for new markets.
- Meg's first action is cost cutting – to "fix" HP. Cutting 29,000 additional jobs won't fix anything. It just eliminates a bunch of potentially good idea generators who would like to grow the company. When Meg says this is sure to reduce the number of products, revenues and profits in 2013 we can believe that projection fully.
- Adding features like scanning and copying to printers will make no difference to sales. The proliferation of smart devices increasingly means people don't print. Just like we don't carry newspapers or magazines, we don't want to carry memos or presentations. The world is going digital (duh) and printing demand is not going to grow as we read things on smartphones and tablets instead of paper.
- HP is not going to chase the smartphone business. Although it is growing rapidly. Given how late HP is to market, this is probably not a bad idea. But it begs the question of how HP plans to grow.
- HP is going not going to exit PCs. Too bad. Maybe Lenovo or Dell would pay up for this dying business. Holding onto it will do HP no good, costing even more money when HP tries to remain competitive as sales fall and margins evaporate due to overcapacity leading to price wars.
- HP will launch a Windows8 tablet in January targeted at "enterprises." Given the success of the iPad, Samsung Galaxy and Amazon Kindle products exactly how HP will differentiate for enterprise success is far from clear. And entering the market so late, with an unproven operating system platform is betting the market on Microsoft making it a success. That is far, far from a low-risk bet. We could well see this new tablet about as successful as the ill-fated Touchpad.
- Ms. Whitman is betting HP's future (remember, 3 years from now) on "cloud" computing. Oh boy. That is sort of like when WalMart told us their future growth would be "China." She did not describe what HP was going to do differently, or far superior, to unseat companies already providing a raft of successful, growing, profitable cloud services. "Cloud" is not an untapped market, with companies like Oracle, IBM, VMWare, Salesforce.com, NetApp and EMC (not to mention Apple and Amazon) already well entrenched, investing heavily, launching new products and gathering customers.
HPs problems are far deeper than who is CEO
Ms. Whitman said that the biggest problem at HP has been executive turnover. That is not quite right. The problem is HP has had a string of really TERRIBLE CEOs that have moved the company in the wrong direction, invested horribly in outdated strategies, ignored market shifts and assumed that size alone would keep HP successful. In a bygone era all of them – from Carly Fiorina to Mark Hurd to Leo Apotheker – would have been flogged in the Palo Alto public center then placed in stocks so employees (former and current) could hurl fruit and vegetables, or shout obscenities, at them!
Unfortately, Ms. Whitman is sure to join this ignominious list. Her hockey stick projection will not occur; cannot given her strategy.
HP's only hope is to sell the PC business, radically de-invest in printers and move rapidly into entirely new markets. Like Steve Jobs did a dozen years ago when he cut Mac spending to invest in mobile technologies and transform Apple. Meg's faith in operational improvement, commitment to existing "enterprise" markets and Microsoft technology assures HP, and its investors, a decidedly unpleasant future.
by Adam Hartung | Sep 10, 2012 | Current Affairs, In the Rapids, Innovation, Leadership, Web/Tech
It's been two very different stories for Amazon and Facebook this summer. Amazon's market cap has risen about 20%, while Facebook lost about 50% of its market value.
Chart source: Yahoo Finance
Why this has happened was somewhat encapsulated in each company's headlines last week.
Amazon announced it was releasing 2 new eReaders under the Paperwhite name requiring no external light source starting at $119. Additionally, Kindles for $69 will be available this week. These actions expand the market for eReaders, already dominated by Amazon, providing for additional growth and lowering a kaboom on the Barnes & Noble Nook which is partnered with Microsoft.
Offering more functionality and lower prices gives Amazon an even larger lead in the ereader market while simultaneously expanding demand for digital reading giving Amazon more strength versus traditional publishers and the printed book market. Despite a "nosebleed" high historical price/earnings multiple close to 300, investors, like customers, were charged up to see the opportunities for ongoing growth from new products.
On the other hand, Facebook spent last week explaining to investors a set of decisions being made to prop up the stock price. The CEO promised not to sell any stock for several months, and explained that the company would not sell more stock to cover taxes on stock-based compensation – even though that was the original plan. He even tried to promote the avoided transaction as some kind of stock buyback, although there was no stock buyback.
Facebook was focused on financial machinations – which have nothing to do with growing the company's revenues or profits. That the company avoided selling more stock at its deflated prices does help earnings per share, but what's more important is the fact that now $2B will be taken out of cash reserves to pay those taxes. $2B which won't be spent on new product development, or other activities oriented toward growth.
Although I am very bullish on Facebook, last week was not a good sign. A young CEO is clearly feeling heat over the stock value, even though he has control of the company regardless of share price. It gave the indication that he wanted to mollify investors rather than focus on producing better results – which is what Facebook has to do if it really wants to make investors happy. Rather than doing what he always promised to do, which was make the world's best network offering users the best experience, his attention was diverted to issues that have absolutely no long-term value, and in the short term reduce resources for fulfilling the long-term mission.
Given the choice between
- a company talking about how it plans to grow revenues and profits, and maintain market domination while outflanking the introduction of new Microsoft products, or
- a company apologetic about its IPO, fixated on its declining stock price and apparently diverting focus away from markets and solutions toward financial machinations
which would you choose? Both may have gone up in value last week – but clearly Mr. Bezos showed he was leading his company, while Mr. Zuckerberg came off looking like he was floundering.
As you look at the announcements from your company, over the last year and anticipate going forward, what do you see? Are there lots of announcements about new technology applications and product advancements that open new markets for growing revenue while warding off (and making outdated) competitors? Or is more time spent talking about layoffs, cost cutting efforts, price adjustments to maintain market share, stock buybacks intended to prop up the value, stock (or company) splits, asset (or division) sales, expense reductions, reorganizations or adjustments intended to improve earnings per share?
If its the former, congratulations! You're acting like Amazon. You're talking about how you are whupping competitors and creating growth for investors, employees and suppliers. But if it's the latter perhaps you understand why your equity value isn't rising, employees are disgruntled and suppliers are worried.
by Adam Hartung | Jun 18, 2012 | Current Affairs, Defend & Extend, In the Whirlpool, Innovation, Leadership, Web/Tech
While there is an appropriately high interest in the Win8 Tablet announcement from Microsoft today, there is no way it is going to be a game changer. Simply because it was never intended to be.
Game changers meet newly emerging, unmet needs, in new ways. People are usually happy enough, until they see the new product/solution and realize "hey, this helps me do something I couldn't do before" or "this helps me solve my problem a lot better." Game changers aren't a simple improvement, they allow customers to do something radically different. And although at first they may well appear to not work too well, or appear too expensive, they meet needs so uniquely, and better, that they cause people to change their behavior.
Motorola invented the smart phone. But Motorola thought it was too expensive to be a cell phone, and not powerful enough to be a PC. Believing it didn't fit existing markets well, Motorola shelved the product.
Apple realized people wanted to be mobile. Cell phones did talk and text OK – and RIM had pretty good email. But it was limited use. Laptops had great use, but were too big, heavy and cumbersome to be really mobile. So Apple figured out how to add apps to the phone, and use cloud services support, in order to make the smart phone fill some pretty useful needs – like navigation, being a flashlight, picking up tweets – and a few hundred thousand other things – like doctors checking x-rays or MRI results. Not as good as a PC, and somewhat on the expensive side for the device and the AT&T connection, but a whole lot more convenient. And that was a game changer.
From the beginning, Windows 8 has been – by design – intended to defend and extend the Windows product line. Rather than designed to resolve unmet needs, or do things nobody else could do, or dramatically improve productivity over all other possible solutions, Windows 8 was designed to simply extend Windows so (hopefully) people would not shift to the game changer technology offered by Apple and later Google.
The problem with trying to extend old products into new markets is it rarely works. Take for example Windows 7. It was designed to replace Windows Vista, which was quite unpopular as an upgrade from Windows XP. By most accounts, Windows 7 is a lot better. But, it didn't offer users anything that that made them excited to buy Windows 7. It didn't solve any unmet needs, or offer any radically better solutions. It was just Windows better and faster (some just said "fixed.")
Nothing wrong with that, except Windows 7 did not address the most critical issue in the personal technology marketplace. Windows 7 did not stop the transition from using PCs to using mobile devices. As a result, while sales of app-enabled smartphones and tablets exploded, sales of PCs stalled:
Chart reproduced with permission of Business Insider Intelligence 6/12/12 courtesy of Alex Cocotas
People are moving to the mobility provided by apps, cloud services and the really easy to use interface on modern mobile devices. Market leading cell phone maker, Nokia, decided it needed to enter smartphones, and did so by wholesale committing to Windows7. But now the CEO, Mr. Elop (formerly a Microsoft executive,) is admitting Windows phones simply don't sell well. Nobody cares about Microsoft, or Windows, now that the game has changed to mobility – and Windows 7 simply doesn't offer the solutions that Apple and Android does. Not even Nokia's massive brand image, distribution or ad spending can help when a product is late, and doesn't greatly exceed the market leader's performance. Just last week Nokia announced it was laying off another 10,000 employees.
Reviews of Win8 have been mixed. And that should not be surprising. Microsoft has made the mistake of trying to make Win8 something nobody really wants. On the one hand it has a new interface called Metro that is supposed to be more iOS/Android "like" by using tiles, touch screen, etc. But it's not a breakthrough, just an effort to be like the existing competition. Maybe a little better, but everyone believes the leaders will be better still with new updates soon. By definition, that is not game changing.
Simultaneously, with Win8 users can find their way into a more historical Windows inteface. But this is not obvious, or intuitive. And it has some pretty "clunky" features for those who like Windows. So it's not a "great" Windows solution that would attract developers today focused on other platforms.
Win8 tries to be the old, and the new, without being great at either, and without offering anything that solves new problems, or creates breakthroughs in simplicity or performance.
Do you know the story about the Ford Edsel?
By focusing on playing catch up, and trying to defend & extend the Windows history, Microsoft missed what was most important about mobility – and that is the thousands of apps. The product line is years late to market, short on apps, short on app developers and short on giving anyone a reason to really create apps for Win8.
Some think it is good if Microsoft makes its own tablet – like it has done with xBox. But that really doesn't matter. What matters is whether Microsoft gives users and developers something that causes them to really, really want a new platform that is late and doesn't have the app base, or the app store, or the interfaces to social media or all the other great thinks they already have come to expect and like about their tablet (or smartphone.)
When iOS came out it was new, unique and had people flocking to buy it. Developers could only be mobile by joining with Apple, and users could only be mobile by buying Apple. That made it a game changer by leading the trend toward mobility.
Google soon joined the competition, built a very large, respectable following by chasing Apple and offering manufacturers an option for competing with Apple.
But Microsoft's new entry gives nobody a reason to develop for, or buy, a Win8 tablet – regardless of who manufactures it. Microsoft does not deliver a huge, untapped market. Microsoft doesn't solve some large, unmet need. Microsoft doesn't promise to change the game to some new, major trend that would drive early adopters to change platforms and bring along the rest of the market.
And making a deal so a dying company, on the edge of bankruptcy – Barnes & Noble – uses your technology is not a "big win." Amazon is killing Barnes & Noble, and Microsoft Windows 8 won't change that. No more than the Nook is going to take out Kindle, Kindle Fire, Galaxy Tab or the iPad. Microsoft can throw away $300million trying to convince people Win8 has value, but spending investor money on a dying businesses as a PR ploy is just stupid.
Microsoft is playing catch up. Catch up with the user interface. Catch up with the format. Catch up with the device size and portability. Catch up with the usability (apps). Just catch up.
Microsoft's problem is that it did not accept the PC market was going to stall back in 2008 or 2009. When it should have seen that mobility was a game changing trend, and required retooling the Microsoft solution suite. Microsoft dabbled with music mobility with Zune, but quickly dropped the effort as it refocused on its "core" Windows. Microsoft dabbled with mobile phones across different solutions including Kin – which it dropped along with Microsoft Mobility. Back again to focusing on operating systems. By maintaining its focus on Windows Microsoft hoped it could stop the trend, and refused to accept the market shift that was destined to stall its sales.
Microsoft stock has been flat for a decade. It's recent value improvement as Win8 approaches launch indicates that hope beats eternally in some investors' breasts for a return of Microsoft software dominance. But those days are long past. PC sales have stalled, and Windows is a product headed toward obsolescence as competitors make ever better, more powerful mobile platforms and ecosystems. If you haven't sold Microsoft yet, this may well be your last chance above $30. Ever.
by Adam Hartung | Mar 20, 2012 | Current Affairs, Defend & Extend, In the Rapids, In the Swamp, In the Whirlpool, Innovation, Leadership, Lock-in, Web/Tech
The Good – Apple
Apple's latest news to start paying a big dividend, and buying back shares, is a boon for investors. And it signals the company's future strength. Often dividends and share buybacks indicate a company has run out of growth projects, so it desires to manipulate the stock price as it slowly pays out the company's assets. But, in Apple's (rare) case the company is making so much profit from existing businesses that they are running out of places to invest it – thus returning to shareholders!
With a $100B cash hoard, Apple anticipates generating at least another $150B of free cash flow, over and above needs for ongoing operations and future growth projects, the next 3 years. With so much cash flowing the company is going to return money to investors so they can invest in other growth projects beyond those Apple is developing. Exactly what investors want!
I've called Apple the lowest risk, highest return stock for investors (the stock to own if you can only own one stock) for several years. And Apple has not disappointed. At $600/share the stock is up some 75% over the last year (from about $350,) and up 600% over the last 5 years (from about $100.) And now the company is going to return investors $10.60/year, currently 1.8% – or about 4 times your money market yield, or about 75% of what you'd get for a 10 year Treasury bond. Yet investors still have a tremendous growth in capital opportunity, because Apple is still priced at only 14x this year's projected earnings, and 12 times next year's projected earnings!
Apple keeps winning. It's leadership in smart phones continues, as the market converts from traditional cell phones to smart phones. And its lead in tablets remains secure as it sells 3 million units of the iPad 3 over the weekend. In every area, for several years, Apple has outperformed expectations as it leads the market shift away from traditional PCs and servers to mobile devices and using the "cloud."
The Bad – Google
Google was once THE company to emulate. At the end of 2008 its stock peaked at nearly $750/share, as everyone thought Google would accomplish nothing short of world domination (OK, a bit extreme) via its clear leadership in search and the way it dominated internet usage. But that is no longer the case, as Google is being eclipsed by upstarts such as Facebook and Groupon.
What happened? Even though it had a vaunted policy of allowing employees to spend 20% of their time on anything they desired, Google never capitalized on the great innovations created. Products like Google Wave and Google Powermeter were created, launched – and then subsequently left without sponsors, management attention, resources or even much interest. Just as recently happened with GoogleTV.
They floundered, despite identifying very good solutions for pretty impressive market needs, largely because management chose to spend almost all its attention, and resources, defending and extending its on-line ad sales created around search.
- YouTube is a big user environment, and one of the most popular sites on the web. But Google still hasn't really figured out how to generate revenue, or profit, from the site. Despite all the user activity it produces a meager $1.6B annual revenue – and nearly no profit.
- Android may have share rivaling Apple in smartphones, but it is nowhere in tablets and thus lags significantly in the ovarall market with share only about half iOS. Worse, Android smartphones are not nearly as profitable as iPhones, and now Google has made an enormous, multi-billion investment in Motorola to enter this business – and compete with its existing smartphone manufacturers (customers.) To date Android has been a product designed to defend Google's historical search business as people go mobile – and it has produced practically no revenue, or profit.
- Chrome browsers came on the scene and quickly grew share beyond Firefox. But, again, Google has not really developed the product to reach a dominant position. While it has good reviews, there has been no major effort to make it a profitable product. Possibly Google fears fighting IE will create a "money pit" like Bing has become for Microsoft in search?
- Chromebooks were a flop as Google failed to invest in robust solutions allowing users to link printers, MP3 players, etc. – or utilize a wide suite of thin cloud-based apps. Great idea, that works well, they are a potential alternative to PCs, and some tablet applications, but Google has not invested to make the product commercially viable.
- Google tried to buy GroupOn to enter the "local" ad marketplace, but backed out as the price accelerated. While investors may be happy Google didn't overpay, the company missed a significant opportunity as it then faltered on creating a desirable competitive product. Now Google is losing the race to capture local market ads that once went to newspapers.
While Google chose to innovate, but not invest in market development, it missed several market opportunities. And in the meantime Google allowed Facebook to sneak up and overtake its "domination" position.
Facebook has led people to switch from using the internet as a giant library, navigated by search, to a social medium where referrals, discussions and links are driving more behavior. The result has advertisers shifting their money toward where "eyeballs" are spending most of their time, and placing a big threat on Google's ability to maintain its historical growth.
Thus Google is now dumping billions into Google+, which is a very risky proposition. Late to market, and with no clear advantage, it is extremely unclear if Google+ has any hope of catching Facebook. Or even creating a platform with enough use to bring in a solid, and growing, advertiser base.
The result is that today, despite the innovation, the well-known (and often good) products, and even all the users to its sites Google has the most concentrated revenue base among large technology companies. 95% of its revenues still come from ad dollars – mostly search. And with that base under attack on all fronts, it's little wonder analysts and investors have become skeptical. Google WAS a great company – but it's decisions since 2008 to lock-in on defending and extending its "core" search business has made the company extremely vulnerable to market shifts. A bad thing in fast moving tech markets.
Google investors haven't fared well either. The company has never paid a dividend, and with its big investments (past and future planned) in search and handsets it won't for many years (if ever.) At $635/share the stock is still down over 15% from its 2008 high. Albeit the stock is up about 8.5% the last 12 months, it has been extremely volatile, and long term investors that bought 5 years ago, before the high, have made only about 7%/year (compounded.)
Google looks very much like a company that has fallen victim to its old success formula, and is far too late adjusting to market shifts. Worse, its investments appear to be a company spending huge sums to defend its historical business, taking on massive gladiator battles against Apple and Facebook – two companies far ahead in their markets and with enormous leads and war chests.
The Ugly – Dell
Go back to the 1990s and Dell looked like the company that could do no wrong. It went head-to-head with competitors to be the leader in selling, assembling and delivering WinTel (Windows + Intel) PCs. Michael Dell was a modern day hero to other leaders hoping to match the company's ability to focus on core markets, minimize investments in anything else, and be a world-class supply chain manager. Dell had no technology or market innovation, but it was the best at beating down cost – and lowering prices for customers. Dell clearly won the race to the bottom.
But the market for PCs matured. And Dell has found itself one of the last bachelors at the dance, with few prospects. Dell has no products in leading growth markets, like smartphones or tablets. Nor even other mobile products like music or video. And it has no software products, or technology innovation. Today, Dell is locked in gladiator battles with companies that can match its cost, and price, and make similarly slim (to nonexistent) margins in the generic business called PCs (like HP and Lenovo.)
Dell has announced it intends to challenge Apple with a tablet launch later in 2012. This is dependent upon Microsoft having Windows 8 ready to go by October, in time for the holidays. And dependent upon the hope that a swarm of developers will emerge to build the app base for things that already exist on the iPad and Android tablets. The advantage of this product is as yet undefined, so the market is yet undefined. The HOPE is that somehow, for some reason, there is a waiting world of people that have delayed purchase waiting on a Windows device – and will find the new Dell product superior to a $299 Apple 2 already available and with that 500,000 app store.
Clearly, Dell has waited way, way too long to deal with changing its business. As its PC business flattens (and soon shrinks) Dell still has no smartphone products, and is remarkably late to the tablet business. And it offers no clear advantage over whatever other products come from Windows 8 licensees. Dell is in a brutal world of ever lower prices, shrinking markets and devastating competition from far better innovators creating much higher, and growing, profits (Apple and Amazon.)
For investors, the ride from a fast moving boat in the rapids into the swamp of no growth – and soon the whirlpool of decline – has been dismal. Dell has never paid a dividend, has no free cash flow to start paying one now, and clearly no market growth from which to pay one in the future. Dell's shares, at $17, are about the same as a year ago, and down about 20% over the last 5 years.
Leaders in all businesses have a lot to learn from looking at the Good, Bad and Ugly. The company that has invested in innovation, and then invested in taking that innovation to market in order to meet emerging needs has done extremely well. By focusing on needs, rather than business optimization, Apple has been able to shift with markets – and even enhance the market shift to position itself for rapid, profitable growth.
Meanwhile, companies that have focused on their core markets and products are doing nowhere near as well. They have missed market shifts, and watched their fortunes decline precipitously. They were once very profitable, but despite intense focus on defending their historical strengths profits have struggled to grow as customers moved to alternative solutions. By spending insufficient time looking outward, at markets and shifts, and too much time inward, on defending and extending past successes, they now face future jeopardy.
by Adam Hartung | Feb 29, 2012 | Current Affairs, Defend & Extend, In the Swamp, In the Whirlpool, Innovation, Leadership, Web/Tech
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.
