Tagged : Apple

in Apple, ARM, Competition, Futures, Microsoft, Strategy

Why Microsoft Shareholders Should be Very Concerned

This weeks Partner’s con­fer­ence has once again exposed Microsoft’s com­plete lack of any cred­i­ble con­sumer strat­egy. On the one hand Ballmer claims he’s going to leave no “stone unturned” com­pet­ing with Apple. Yet on the same day he also states that Microsoft’s own Win­dows 8 hard­ware “Sur­face is just a design point.” Note to Steve: Those are two mutu­ally incom­pat­i­ble objectives.

If Ballmer really is seri­ous about com­pet­ing with Apple then Microsoft will need to con­trol its own hard­ware des­tiny — in pcs, tablets and smart­phones — and be com­pletely com­mit­ted to that strat­egy. Unfor­tu­nately that will also require a will­ing­ness to throw the OEM part­ner com­mu­nity under the bus. Pro­tect­ing OEMs while aggres­sively com­pet­ing with Apple are incom­pat­i­ble strate­gies. A text­book case of the Inno­va­tors dilemma.

Share­hold­ers are likely to pay a very high price if Ballmer con­tin­ues to believe the fan­tasy that he can accom­plish both these com­pet­ing objec­tives and still be suc­cess­ful in the con­sumer business.

in Cloud, Futures, Microsoft, Platforms, Strategy

Why Its Time to Break Up Microsoft

Microsoft posted a record quar­terly profit of $4.5B on record rev­enue of $16.04B after the mar­kets closed yes­ter­day. The EPS of 51 cents blew away ana­lysts con­sen­sus fore­casts of 46 cents for the quar­ter. Any other com­pany announc­ing a finan­cial per­for­mance of this mag­ni­tude would have seen its shares pop in after hours trad­ing; not Microsoft. Of course that may change when the mar­ket open today but it is a telling marker of investor sen­ti­ment towards the company.

In my view its one more indi­ca­tion that the company’s true value is being over­shad­owed by a ‘Cri­sis of Per­cep­tion.’ Investors see Microsoft as a vision-less con­sumer com­pany strug­gling to com­pete with Apple and Google while in actu­al­ity its an inno­va­tion machine trans­form­ing the world of enter­prise IT. You only have to look at num­bers like the unearned rev­enue line (A proxy for new long term annu­ity con­tract sign­ings with enter­prise cus­tomers) to see just how much an enter­prise machine the com­pany is. That num­ber grew 20% in FY’10!

Of course the lack of pop in the stock is likely relate to the fact that the com­pany con­tin­ued to pour cash into its search and mobile phone efforts as well as the other loss-making con­sumer focused on-line properties.

In my view it is time to stop the pre­tense that Microsoft can become a ‘Cool’ high growth and highly prof­itable con­sumer prod­ucts com­pany. The enter­prise DNA of the com­pany just isn’t going to mutate quickly enough to let that hap­pen in any rea­son­able period of time. In my opin­ion the sit­u­a­tion requires rad­i­cal surgery. This would include spin­ning off XBox into a sep­a­rate games focused com­pany, merg­ing the con­sumer on-line assets with Yahoo to give them scale in a com­pet­i­tive race with Google and finally ditch­ing the phone business.

Yes I did say get out of the phone busi­ness. Here’s my pre­dic­tion: Win­dows Phone 7 will be the ‘Zune’ to Apple’s iPhone and Google’s Android i.e. cool com­pet­i­tive tech­nol­ogy with no chance of build­ing the scale required to com­pete with those other plat­forms. It’s time to stop wast­ing money on phone which could be bet­ter lever­aged else­where in the prod­uct portfolio.

A slimmed down Microsoft that was entirely focused on deliv­er­ing the worlds best enter­prise busi­ness plat­forms might not be ‘Cool’ but it would be a lot more inter­est­ing for both cus­tomers and share­hold­ers. The devel­op­ment teams would regain the focus and invest­ment dol­lars they need to extend their com­pet­i­tive advan­tages in this mar­ket and the move to achiev­ing and main­tain­ing lead­er­ship in cloud ser­vices would be accel­er­ated. The change would also address the ‘Per­cep­tion’ issues which are over­shad­ow­ing investors opin­ions about the stock. With­out the con­sumer busi­ness ‘Boat anchor’ the com­pany could increase R&D spend­ing in its core busi­ness AND return sub­stan­tially more to share-holders in the form of div­i­dend pay­ments. Turn­ing Microsoft into a div­i­dend pay­ing machine is one sure way to move the stock.

If the board and exec­u­tive team really do rec­og­nize their respon­si­bil­ity to max­i­mize value for share­hold­ers then its time for them to focus the com­pany on what it does really well; build­ing the world’s best enter­prise soft­ware and cloud ser­vices. Unfor­tu­nately sto­ries about new attempts to re-brand the com­pany just rein­force the view that senior lead­er­ship is miss­ing the point and is intent on con­tin­u­ing the long march to irrel­e­vance. If that’s the case then maybe it really is time for new man­age­ment.

in Apple, Gadgets

Fix for iPad ‘Error 14′

[Updated with Win­dows 7 File location]

The update of my iPad to ver­sion 3.2.1 of iOS failed last night. iTunes reported that an ‘Error 14′ had occured (Not very help­ful) Sub­se­quent attempts at un-docking and re-docking resulted in iTunes try­ing and fail­ing to restore the device. Here’s how I fixed the prob­lem.
Con­tinue Read­ing

in Microsoft, Platforms, Strategy

Microsoft’s Crisis of Perception (Part 1)

Microsoft faces a grow­ing cri­sis. The com­pany is increas­ingly per­ceived as an under per­form­ing ‘Con­sumer’ prod­ucts com­pany which lacks the ideas, inno­va­tion and strat­egy to drive long term growth. The cri­sis is of the company’s own mak­ing and one that is get­ting worse par­tic­u­larly as per­for­mance is held up to the mir­ror of Apple, Google and FaceBook’s suc­cess. There is only one small prob­lem with this sit­u­a­tion; its a cri­sis of ‘Per­cep­tion’ not of reality.

Microsoft never has been a con­sumer prod­ucts com­pany; it is not one today, and though it might become one, at some point in the future, that will require a gross muta­tion in the company’s core DNA. The bru­tal real­ity is that until the exec­u­tive mind­set, the inter­nal focus, and bil­lions of mar­ket­ing dol­lars and R&D dol­lars are spent in a way which deals with this real­ity, per­cep­tions of the com­pany will con­tinue to dete­ri­o­rate along with the stock price.

You may be shocked by the asser­tion that Microsoft is not a con­sumer prod­ucts com­pany. What about all those cute TV com­mer­cials with kids telling you “I’m a PC” or all the con­sumer focused Win­dows 7 com­mer­cials? What about Frank X. Shaw’s ‘Microsoft By The Num­bers’?Microsoft sold 150,000,000 copies of Win­dows in eight months. That’s seven copies, every sec­ond of every day since launch. Is this not the epit­ome of a vol­ume con­sumer prod­ucts business?

To draw that con­clu­sion you would need to know more about the 150 Mil­lion num­ber than Microsoft dis­closes pub­licly. For exam­ple what per­cent­age of the 150 Mil­lion came pre­loaded on new PCs, what per­cent­age were attached to a vol­ume license agree­ment with a cor­po­rate cus­tomer and finally what per­cent­age were pack­aged goods sales where a cus­tomer picked a box off a shelf or bought a dig­i­tal copy on-line mak­ing a com­pet­i­tive choice between Win­dows and an alter­na­tive. In my view, only the lat­ter cat­e­gory qual­i­fies as con­sumer prod­uct sale? One might object to that def­i­n­i­tion by claim­ing that the pre­loaded copies of Win­dows 7 sold with new PCs should also be counted as con­sumer sales but should they?

True con­sumer prod­ucts com­pa­nies retain com­plete con­trol of the end-to-end brand iden­tity, value propo­si­tion, and other attrib­utes which anchor their rela­tion­ship with the con­sumer and define their com­pet­i­tive posi­tion in the mar­ket place. In mod­ern par­lance the very best com­pa­nies deliver a con­sis­tent, high qual­ity ‘Expe­ri­ence’ which con­sumers ‘Trust’ and ‘Value’. It does not mat­ter whether you are sell­ing Sony Bravia TVs, Pringles Chips or Apple iPods; the focus on qual­ity and con­sis­tency of brand expe­ri­ence remains cen­tral to those company’s suc­cess with their cus­tomers and against their competitors.

When a con­sumer buys a PC, pre­loaded with Win­dows 7, who defines the brand expe­ri­ence? The answer, unfor­tu­nately, is every­one and no one. The man­u­fac­turer of the PC has a big influ­ence through their indus­trial design choices, the machine’s value vs. per­for­mance posi­tion­ing and the qual­ity of their sup­port ser­vices. Microsoft defines a large part of the expe­ri­ence through the ease of use, func­tion­al­ity, reli­a­bil­ity, secu­rity etc. of Win­dows. Then there are the thou­sands of soft­ware and periph­eral com­pa­nies who impact the consumer’s expe­ri­ence every time they down­load a new piece of soft­ware, buy a new printer, scan­ner or blue tooth head­set. Of course the qual­ity of the dri­vers, util­i­ties and soft­ware pack­ages is highly vari­able, and is often buggy or inse­cure (Adobe Flash) which over time degrades the per­for­mance of Win­dows, opens the con­sumers machine to mal­ware attacks and ulti­mately under­mines the ini­tial brand experience.

In light of the the issues Microsoft faces con­trol­ling the con­sumer expe­ri­ence with Win­dows its easy to see why Apple has become the very def­i­n­i­tion of a suc­cess­ful con­sumer prod­ucts com­pany. You may have a fun­da­men­tal dis­agree­ment with Steve Jobs about the ‘Open­ness’ of the Apple ecosys­tem, the curated (Closed) nature of Apple’s Apps store or the lack of sup­port for Adobe Flash on the iPad but he truly does not care about your opin­ion. Jobs under­stands that mani­a­cal con­trol of the com­plete end-to-end con­sumer ‘Expe­ri­ence’ is his com­pet­i­tive advan­tage in a very com­pet­i­tive mar­ket. Ninety nine per­cent of the con­sumers who buy an apple prod­uct don’t give a fig about, open pro­to­cols and stan­dards, they paid a pre­mium for a brand ‘Expe­ri­ence’ defined by sim­plic­ity, ele­gance and con­sis­tently high per­for­mance; an ‘Expe­ri­ence’ which is almost impos­si­ble to find in the Win­dows ecosys­tem. How did a PC hard­ware man­u­fac­turer with less than 10% mar­ket share become the dom­i­nant player in the dig­i­tal con­tent busi­ness? By deliv­er­ing a con­sis­tent, high qual­ity, ‘it-just-works’ con­sumer experience.

The iPad is a very chal­leng­ing prob­lem for Microsoft. The price point squarely posi­tions it as a con­sumer device with the brand expe­ri­ence to match the func­tion­al­ity matches, and in many respects, exceeds that of low end Net­Books. There is a rag­ing debate about whether iPad sales are can­ni­bal­iz­ing the Net­Book mar­ket. My guess is they are but I’d also bet that Apple is more than will­ing to can­ni­bal­ize it’s own low end Mac sales in pur­suit of estab­lish­ing the iPad as De facto stan­dard con­sump­tion device for dig­i­tal content.

What is inter­est­ing is that in the few mar­kets where Microsoft can com­pletely con­trol the brand expe­ri­ence they have been suc­cess­ful. The stand­out case is XBox. Its worth con­sid­er­ing that the brand ‘Val­ues’ of the XBox expe­ri­ence are so high that even when the com­pany screwed up in exe­cu­tion by deliv­er­ing machines with a high fail­ure rate they were able to over­come this with great cus­tomer sup­port and replace­ment ser­vices. Despite these man­u­fac­tur­ing chal­lenges they were able to con­trol the brand expe­ri­ence; keep­ing their cus­tomers happy. There’s only one small prob­lem with this suc­cess. The most valu­able 18–35 (Male) demo­graphic con­sumers are loyal to the Xbox brand and not the Microsoft brand. It would be inter­est­ing to know what per­cent­age of this young, afflu­ent and influ­en­tial audi­ence are also loyal to the Apple brand and use a Mac as their pri­mary com­puter? I would bet that it would be a far higher share than in the broader mar­ket. If cor­rect that should be a very scary con­cern for Microsoft’s lead­er­ship team.

In real­ity XBox might as well be a sep­a­rate com­pany. Over time, Microsoft’s lead­er­ship will be tempted to drive a strat­egy with builds deeper links and depen­den­cies between the XBox, Win­dows and Web, plat­form. Some of this will make sense but only to the degree that it enhances the XBox brand. Share hold­ers should be very con­cerned if it looks like the XBox brand is being ‘Milked’ to enhance Microsoft’s other core brands. Lead­ers like Rob­bie Bach and Jay Allard acted as a bul­wark against these ten­den­cies.  With their depar­ture Microsoft’s most suc­cess­ful con­sumer busi­ness faces an inter­est­ing future.

A hint at how Microsoft might start to repo­si­tion itself as a true con­sumer prod­ucts com­pany can be seen in the evo­lu­tion of the company’s search strat­egy. Once the com­pany gave up try­ing to play poor imi­ta­tor to Google and decided to set itself apart with Bing the busi­ness started to turn around. You may think the Bing name is lame but you can­not argue about the dif­fer­en­ti­ated brand iden­tity. Bing’s con­sumer posi­tion­ing as a ‘Deci­sion Engine’ clearly sets it apart from Google and the func­tion­al­ity sup­ports that brand promise in the two most impor­tant search cat­e­gories; shop­ping and travel. One indi­ca­tor of a true inno­va­tor is the degree to which incum­bents are forced to respond. One only has to see the recent improve­ments and changes in Google search func­tion­al­ity to know that Bing is viewed as an inno­v­a­tive threat to their business.

The Bing team do an amaz­ing job of deliv­er­ing a con­sis­tent brand expe­ri­ence no mat­ter what plat­form and browser the con­sumer is using. I’m author­ing this post on my Mac and the Bing shop­ping sites have iden­ti­cal func­tion­al­ity when viewed with either Chrome or Fire­Fox which in turn are iden­ti­cal to the expe­ri­ence when using Inter­net Explorer 8 on Win­dows 7. This sort of cross-platform agnos­ti­cism is expected and required when build­ing on-line con­sumer expe­ri­ences today. Even so, Microsoft should be applauded for the huge progress they have made in this area since the days when Microsoft’s on-line prop­er­ties only worked well with the company’s own browser tech­nol­ogy run­ning the Win­dows platform.

This com­mit­ment to deliv­er­ing a con­sis­tent expe­ri­ence no mat­ter how or through what chan­nel the con­sumer chooses to access your brand is crit­i­cal. It will be inter­est­ing to see whether the on-line team receive pres­sure from Win­dows man­age­ment to deliver a dif­fer­en­ti­ated expe­ri­ence for con­sumers choos­ing future ver­sions of Inter­net Explorer. It may be telling that the IE team is using demos of an Ama­zon shop­ping expe­ri­ence to high­light the  GPU accel­er­a­tion func­tion­al­ity in the next ver­sion of IE. If all Microsoft’s on-line prop­er­ties are stan­dards based and deliver equiv­a­lent expe­ri­ence across plat­forms then what will make con­sumers choose Inter­net Explorer over the com­pe­ti­tion? For a true con­sumer prod­ucts com­pany that would be an easy deci­sion to make for the busi­ness that sits at Microsoft’s core the answer is not so obvious.

In Part 2 I explain what busi­ness I believe Microsoft is really in and what impli­ca­tions that has for the future direc­tion and strat­egy of the company.