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The Microsoft Delusion (with apologies to Henry Blodget)

2012 December 12
by Greg
Steve_Ballmer_Delusional.medium

When we look back, 2012 will be seen as a pivotal year for Microsoft.  They have launched Windows 8, possibly their most ambitious product ever, as well as the Surface tablet, their biggest ever foray into hardware.

So how’s it all going? Reviews have been lukewarm, sales for Windows 8 are lagging compared to the Windows 7 launch and even Steve Ballmer has described Surface tablet sales as modest.  Over the past year, I’ve been sanguine about Microsoft’s future.  How do I feel now? Well, I’m doubling down.

Henry Blodget at Business Insider calls people like me delusional, but I don’t think so. What I think is really going on is that while the pundits are chiding Microsoft missing out on the last trend toward social, local and mobile computing (SoLoMo), they are probably the company best position to take the lead in the next phase of technology.

The Case Against Microsoft

There are multiple narratives about Microsoft’s demise.  Mostly, they look something like this one from Jay Yarow, who works for Blodget at the Business Insider.

It starts out by pointing out, quite rightly, that the post-PC revolution greatly diminished Microsoft’s dominance.  Where they used to control 95% of connected device operating systems, that share has fallen to the mid thirties.  Next, Microsoft will lose hold of the workplace and Office, their most profitable business, will falter as well.

From there, the downward spiral becomes inevitable.  Microsoft loses developer support, their back office “servers and tools” business begins to suffer and in the end, Ballmer and company are left with a third rate mobile operating system and no “killer app.”  Microsoft, in effect, becomes the new Nokia.

It’s a compelling story.  Microsoft did indeed miss the Post-PC trend and has not been a factor in the huge SoLoMo wave that followed it.  However, it ends there.  The Office franchise remains dominant and the Servers and Tools business is relatively new and continues to grow.  What’s more, Ballmer and Co. are aiming at something else entirely.

Choke Points

In truth, Microsoft has never been a great consumer facing company.  Nobody ever thought that they had the best products.  In fact, they’ve been bashed in tech circles for years, decades even.  Yet, despite the handwringing, we continue to buy Microsoft products because they are essential to our working life.

In essence, they have not succeeded by inspiring the consumer mindset, but by controlling industry choke points.  Through owning small but important parts of the total ecosystem, they have been able to exert leverage on the entire industry.  They have also partnered well (an Apple weakness that even Steve Jobs noted), extending their influence even further.

Dr. William Putsis, who studies industry choke points, likes to tell the story of SoftSoap, who managed to win and maintain dominant share through buying up a 6 month supply of cheap plastic pumps, giving them a head start over deeply entrenched and well-heeled competitors.

Clearly, Microsoft has lost that kind of strategic control over the mobile environment and Windows 8, a solid product despite the naysayers gripes, is not nearly good enough to win it back.  However, it is also clear that they are have been busy, preparing for years to regain dominance.

The Web of Things

The next phase of computing, from the consumer end, is undoubtedly the Web of Things, which is a vast array of sensors, devices, server farms and big data techniques that will bring ubiquitous computing into the physical world.  It has four pillars and Microsoft, to a degree unmatched, has ensconced themselves in each one:

Smartphones:  Here as I’ve already acknowledged, Microsoft has gotten a late start. Nevertheless, they’ve built a viable product as well as an innovative, intuitive interface. They are now a serious player, they weren’t before and they will certainly gain market share, although how much is anyone’s guess.

Smart Homes: While Apple and Google are making inroads with their smart TV efforts, Microsoft is far out ahead with xBox and Kinect.  XBox live has over 60 million subscribers and strong developer support, while Kinect is arguably the most exciting interface in the industry.  They are now integrating Kinect into Windows 8.

Smart Cars: Automobiles are becoming an integral part of the new Web of Things as well and Microsoft has gained a strong advantage here with their smart car initiative, which includes Ford Sync, Kia Uvo and Fiat Blue & Me

Smart Retail: I’ve written before about the future of retail and it’s clear that the Web of Things is already transforming the shopping experience.  Here again, Microsoft is making headway in retail solutions and have built a joint retail innovation lab with Razorfish, the digital agency.  Neither Apple nor Google has any offering to speak of in this area.

Besides all of this, there is still the immensely powerful Office franchise, which neither Apple or Google have been able to get to work right on their tablets.  So Windows 8 is far more than a standalone product, it is a single, unified, touch, voice and gesture platform that will the Web of Things on every screen.  Nobody else has anything like it.

The Advantages of Modular Organization

It’s no mystery why Apple is a darling of tech pundits.  Buy an Apple product and you are buying one integrated vision, where everything, from hardware to software to look and feel are designed to work together seamlessly.  This is especially important in the early stages of technologies, when things tend to be a bit clunky.  However, there is a price to be paid.

Go outside that vision and you’re bound to be disappointed.  Many of Apple’s products, such as iCal, don’t work well with others.  They are about the only mobile device maker that hasn’t integrated near field communication (NFC) into any product.  The list goes on. If Apple’s vision conflicts with your needs, you’re out of luck.

Microsoft’s products will never work as well, because they depend on dozens of hardware manufacturers to be delivered to the consumer.  There will always be something lost in translation (Android has the same problem).  Yet Microsoft has been so successful over the years because there are important advantages to a modular architecture.

While Apple does one major launch per year, per product line, the rest of the industry is a hotbed of innovation:  New convertible laptops, which integrate the productivity of a traditional device with the tablet experience best suited for media consumption; phones with countless new features not available on Apple, plus a lot more to come.

In the final analysis, it’s not Microsoft vs. Apple, it’s Apple vs. every other hardware manufacturer in the world (and Samsung already leads in volume).  Google, with their purchase of Motorola, is in a dangerous middle ground.

The Truth:  Microsoft Is Not Going Away

So let’s forget about the hyperbole for a minute and talk about facts.  As a recent Businessweek article points out, we’ve heard about Microsoft’s demise before.  Still, after nearly 40 years it remains an incredibly strong company, with over $21 billion in operating profit during the last fiscal year and $60 billion in cash.  They’re not going away.

Add to that their impressive lead with enterprises, two of the most popular consumer products on the market with xBox and Kinect, some of the coolest technology on the planet, a set of smart alliances that have put them on the forefront of the Web of Things along with a new operating system to integrate it all and Microsoft’s best days might very well be yet to come.

None of this is a knock on Apple or Google, both of which are fabulous companies in their own right.  However, the argument that Microsoft is on death’s door simply because Windows 8 and Surface, two of the most ambitious products in the company’s history haven’t become breakaway hits in their first weeks, simply does not hold up to scrutiny.

We are entering a new phase of technology and Microsoft will be at the center of it. Anybody who says otherwise is just not thinking seriously.

- Greg

8 Responses leave one →
  1. December 13, 2012

    Greg,

    Great article. Thanks.

    Sergei

    [Reply]

    Greg Reply:

    Glad you liked it:-)

    - Greg

    [Reply]

  2. December 13, 2012

    You’re right Greg, although I must admit part of me wishes you weren’t. Despite being late to latch onto several significant steps (web, SoLoMo), and well Vista (that alone deserves 5 years on the naughty step), amongst others, they are still strong and if they can follow the sort of vision that you have for them are in a good place to capitalise.

    My $64,000 question to your thoughts is will they? For that only time will tell…

    [Reply]

    Greg Reply:

    Thanks for the credit, but it’s not my vision. They have been developing this stuff for years.

    I think what many people forget is that Microsoft remains one of the most successful companies on the planet because they are, despite the occasional misstep, very very smart.

    - Greg

    [Reply]

  3. December 17, 2012

    Glad someone is helping to flesh out the details of why Microsoft is still a formidable competitor in the tech sector. My new Office 365 system works so well integrating my website, email and mobile devices that I have been pleading with many of my business collaborators to adopt the same. I am also putting my money where my mouth is; I am doing more “buy and hold” purchases of MSFT stocks.

    [Reply]

    Greg Reply:

    At eight times earnings, how can you go wrong???!!!

    - Greg

    [Reply]

  4. pankaj permalink
    December 21, 2012

    i really believe problem with microsoft and android is that people dont use their own products..i really think so..
    if you do basic things right, rest all is bonus. like in case of phone,
    * i should be able to make and receive calls at any point of time in any kind of hardware
    * if i am interacting with system, i should be given the highest priority and not some app running in the background
    * accept that people do use things from outside the ecosystem (this one is for apple)

    these are very basic things from end user perspective that all mobile OS must do..

    [Reply]

    Greg Reply:

    All good points. Thanks!

    - Greg

    [Reply]

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