MSFT loss, Changing the Rules of Engagement
What’s the world coming to? Microsoft lost money in the software business last quarter, the first loss in a decades long string of positive earnings from the world’s biggest software company. Sheesh! Yes, there were extenuating circumstances that you can read about here, but the loss signals the breadth and depth of the impact that the tablet is having on the hardware market. The iPad tablet to be precise and its economy size, iOS sharing little brother, the iPhone. For a quick slide show on iPad’s penetration and adoption check out this presentation from Business Insider.
Last time I asked if hardware was becoming sexy again and why. The answers seem to be “Yes” and “Because tablets have reached a new price point that opens up more emerging global markets to computing.” Tablets and their near kin, smartphones, are defining a global computing platformfor the next decade and beyond promising first world information access to many people formerly left in the dust.
The writing was already on the wall when analyst firms IDC and Gartner recently documented a stall in the PC/laptop forward momentum. Lower PC sales means fewer operating system sales and all that goes with it. To be sure, tens of millions of units are still being sold this year along with operating systems and productivity software often bundled in. But growth has stalled as new customers in emerging markets are voting to type on Gorilla Glass over keyboards.
Every paradigm goes through a predictable lifecycle and the computer operating system dependent on hardware sales is another example, not an exception. Microsoft, Intel and others invested heavily in thin, ultra-light laptop machines as the next thing that would protect the franchise and compete with tablets, but they were still too expensive and ultimately not cool enough. If Microsoft expects to get its OS mojo back it will need to cajole its hardware partners into really being competitive with tablets.
Right now, everything is going the way of the tablet and Apple can almost do no wrong. Even when a European judge made a finding in favor of Samsung in a patent dispute with Apple recently, he declared the Samsung gear “not as cool” as Apple’s and therefore not infringing on Apple patents. That’s just amazing.
Windows 8 comes out later this year and Microsoft has introduced a tablet of its own, the Surface. The game is far form over but the latest brush with reality suggests Microsoft might have been prescient in going “all in” as Steve Ballmer said of the company’s approach to cloud computing some time ago. Microsoft is at some intermediate point in its journey from vendor of licensed software to ringmaster of a giant subscription economy. Like many companies in similar transitions, the going isn’t always smooth but if anyone can pull this off it ought to be the guys in Redmond.
When I’ve spent time with the Redmond gang over the last couple of years I’ve been impressed with how much they get it, not just at a high level but throughout the organization. All in, Azure, and retail stores suggest a company thinking its way through the changes. And analytics and social networks suggest they really get it. Maybe all in should be replaced by we get it or better, we get you, but not quite yet.
But on a cautionary note getting to the cloud or to tablets won’t be enough; this is a business model change that every company has to deal with and Microsoft has done more than many already. Now, Microsoft’s partners have to pick up the gauntlet and evangelize more than ever.
This week (on July 25) Zuora will release a Fireside Chat video discussion that I am participating in. It will be all about the cloud and subscriptions and I expect an important theme will be the attention that subscription companies need to pay not to selling but to service and ensuring customer happiness. And, oh, heck, while I am talking about myself I might as well mention that my new book is coming out around the same time — “The Subscription Economy — How Subscriptions Improve Business.”
While the changes in the industry might be painful for some, they also represent innovation and creative destruction which is the hallmark of a vibrant economy. The issue for us is not how to slow down change but how to embrace and leverage it. Once the election clears out I think Q4 could be an important turning point as winners and losers get back to the work of inventing the future and making money.
Apple Software, Inc.
When Apple changed its name by dropping the “Computer” word we all thought that the reason was the phenomenal success it has had in consumer electronics. Sure, the company kicks booty with its computers thanks to great design and a stable operating system, but the success of the iPod seemed to point the company in a new direction.
Apple’s success has been three fold — near flawless manufacturing, customer service and software. More than anything it has been the software that seems to make you almost forget there’s a device involved as some of those who played with the iPad yesterday seemed to indicate.
Yes, Apple unveiled its long rumored slate computer, the iPad, yesterday but what I saw was release three or four of the software that runs the modern iPod and iPhone. Apple’s success comes from being able to repurpose and add on to a core piece of software that runs its consumer devices.
For example, start with the iPod Touch and you have, an iPod with applications and a nice user interface. If you add a camera for stills and video plus phone capability you get the iPhone. That was a nice trick but not so revolutionary as it was evolutionary — at least from that angle. But now take the iPod software and put it on a bigger device and then plug that device into your HD TV — in the presence of a high speed wireless network — and that device is called Apple TV. In that vein, yesterday’s iPad announcement is really not much more than iPod in a different form factor and with some tweaks to the software including more applications.
Ok, now there are some significant differences in look, feel, purpose — what is iPad’s purpose? — and the applications that run on each gizmo but the fundamental software appears to be common to all these devices. And it needs to be said that all of these devices also have in common the ability to connect with the mother ship (not you, Apple!) to download content for a price.
One of yesterday’s announced uses of the iPad will be for downloading and reading newspapers, starting with the New York Times, and books. In fact a whole new (?) store format for book content will feed the iPad, but let’s face it, that sounds like a repurposing and modification of iTunes.
Now, I am not complaining about any of this. Downloading digital content — especially the kind that you read and that has heavy-duty information — has been a missing factor in our digital lives and I, for one, am glad to see this evolution. If iPad can help to save the newspaper industry, I am all for it. But I am most impressed with the vision and the execution on that vision. Apple built sophisticated software for iTunes and the iPod and then contemplated the number of ways they could leverage it to invent not only a number of useful devices, but also categories. That’s genius, if you ask me.
Perhaps the next game we all play on the web will be asking and answering the question, What will Apple do next with its software? I think it’s worth pondering.
