Per this article Microsoft is trying with it’s windows phone and WIN 8 table OS, but it has a very long way to go to be a player. Is the sun setting on Microsoft?
It’s a long and slooooooow demise, but yeah, I think Microsoft, unless something changes in a big way, will not be a major player in the mobile device market in, say, five years. They’re no longer innovators; they’re copycats.
Cue the fanboys who know a gazillion people using Windows phones and Surfaces.
Microsoft posts record third quarter revenue in spite of flat Windows numbers.
Yup. They’re doomed.
I feel like I’ve posted in threads like this 4-5 times.
Basically the premise of the question is flawed. The premise is that Microsoft cannot survive as a company without making money in tablet and mobile, and that’s just simply not true.
Since I’ve posted about this a few times I don’t want to go into much more detail, but just suffice to say Microsoft has several very profitable divisions and mostly appears like it will still be very profitable even without desktop PCs being popular in the consumer market. The reasons are that sure, back when Windows 95 was released and the PC boom was taking off Microsoft made a majority of its money from consumer sales of PCs (from the OEM licenses that the manufacturers of those PCs bought for each PC they sold.) But in the 2000s and on, Microsoft now has basically a sustainable business model of making money from Server & Tools (SQL Server, Windows Server, other products that run back end systems), Enterprise OS sales (all those desktops corporations buy), and Enterprise sales of Microsoft Office.
Microsoft obviously still wants to be a consumer company, they release advertisements for their new operating systems, they push the Surface and Windows Phone and etc. But the truth is they simply do not have to be a consumer company at all, they would still be a very profitable, going concern without any of the consumer business.
In the three categories I mentioned above they certainly have some issues, like any company does. For example enterprises are typically slow to adopt a new operating system (which is why it was foolish for analysts to expect Windows 8 to sell like Windows 7, even if Windows 8 was massively loved, most enterprises are just now finishing converting from XP to Windows 7–they aren’t rolling out a new OS anytime soon.)
To add to that, people think of Microsoft the wrong way. Ford or GM make money by selling cars. To sell cars they have to release new models every year. Typically when a company creates a new car that general car is released 4-5 years in a row with minor upgrades/tweaks before a new generation comes out.
If Ford or GM release a generation of say, mid size sedan that is widely considered bad, they will not only have bad sales that model year but that entire generation for that car. If you stack up “losses” like that several years in a row suddenly those major companies are in bad, bad shape.
Apple to a degree is the same way. Apple makes money by releasing new products and selling them. If it releases several bad products in a row, Apple would be in very, very bad shape. (It doesn’t even have to be a bad product release, just inferior to the competition btw.)
Microsoft releases physical products as well, but they are mostly a small and irrelevant part of their business. Their core revenue drivers are software licenses and much of that is tied up in enterprise sales and other contractual agreements that mean Microsoft will have a steady stream of income, massive amounts of it in fact, regardless if anyone ever buys a single Surface or Windows Phone.
Microsoft’s core business is basically a cash machine, because the variable costs for a software license approach zero so operating income can get very high if you sell a lot of those licenses. Microsoft over the last 25 years has chosen to use that cash machine to try and diversify itself into all kinds of things. Sometimes they fail, sometimes they don’t. I thought the Xbox division was a failure about 3-4 years in, because while sales were okay they weren’t making money on each unit sold and had some big warranty claim that cost like $4bn…but as the years have ticked on the Xbox division now looks to be a good money maker. I didn’t even mention the xbox division in my first post, but it’s an example of a good profitable business for Microsoft that isn’t even part of their core revenue, they could sell the Xbox business and it wouldn’t really hurt them.
Then they have stuff like Bing, which has never made money and in fact costs tons of money. Microsoft could cancel Bing and it wouldn’t hurt them, but at the same time they generate so much free cash it doesn’t really hurt them to keep trying with Bing. And just because Bing is unpopular doesn’t mean Microsoft isn’t making money.
It’s also worth pointing out Microsoft is well protected from random bad fortune for a time as well. They have like $75bn in cash right now. That’s actually enough that they could buy some Down Jones components outright. For example Boeing’s market cap is $70bn, Amex is $74bn, Caterpillar is $55bn…Microsoft is not a sick company. And unlike Apple which accumulated a large cash hoard without giving much of anything back to shareholders (until recently), MSFT has been paying a healthy dividend for many years and has consistently increased it as well. In addition to all those expensive acquisitions Microsoft regularly makes. Its cash hoard has been growing quarter to quarter even with all those dividend payments, acquisitions, and sinking money into mostly unprofitable businesses (Bing for ex.)
i did see an analyst in a techblog say (with no definite date other than
‘not too far off’) that there will be a tablet that will use Intel with Win 8 and be 7 or 8 inch for around $200.
Microsoft’s problems, IMO, are thus:
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with phones, they were way late with iOS and Android having a several-year headstart.
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Windows Phone is an excellent OS, but it’s either not on people’s radar because of 1) and/or people still associate it for the dismal Windows Mobile.
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combining 1) and 2) means developers aren’t as keen to spend time writing apps for it. Hard to blame them when the iOS and Android audience is so big in comparison.
that said, Microsoft was fine with throwing money at Xbox until it gained traction and became profitable. I see no reason they won’t do the same for mobile. The difference between mobile and the legacy desktop is that the low price of mobile apps (for those that actually charge) means there’s less incentive to stick with a particular platform. Once I moved to a smartphone, I’ve changed platforms each time I’ve upgraded. Without blinking.
As for Windows, the core problems are twain:
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Windows 8 is a “work in progress.” I see no problem with Windows having “dual personalities,” there are decades of legacy software programs out there (many of them internal corporate line-of-business apps) which aren’t going to go away anytime soon. Windows will continue have a “Desktop” mode for the forseeable future. The issue with 8 is that the “touch” personality of Windows isn’t fully-featured. for example, many necessary settings in the Control Panel aren’t available in the touch UI forcing you to try to use the Desktop with your fingers. Which is a miserable experience. Once Windows can be fully configurable without leaving the “touch” UI it’ll be a better experience.
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the hardware isn’t really there yet. Windows RT is a dead-end because it doesn’t support any legacy Windows software, and is only there to have an iPad-like ARM product. x86 tablets either are poor performers (due to the POS that is Atom) or run too hot with mediocre battery life thanks to using Core-series chips. If Intel keeps its word on their upcoming mobile SoCs, we should be able to see Windows tablets that are worth buying.
No. They seldom get things right on the first try. It took 16 bit Windows until v3.0 to be a hit. It took 32 bit Windows until Windows XP to be a hit. It took 64 bit Windows until Windows 7 to be a hit.
To expand on this - Microsoft took a bath on their xBox consoles for years. Years. The original model, I don’t think it ever made a profit on the hardware itself. It was important, however, because it raised their profile in the gaming market and they made software sales (Halo) to make up for it.
Then they took all their experience and knowledge and released the xBox 360 - which they also sold at a loss for the first several years. But it doesn’t matter because the xBox Live service allows them to sell games, movies & music direct to their customers without even paying a retail establishment their cut. Even if you want to use a different service, like Hulu or Netflix, you still have to buy a Gold Membership (that’s kind of a ripoff these days, but five years it was a better deal.)
Sony does something similar with it’s hardware, even though it is primarily a hardware company. The Playstation 3, the PSP models and now the Vita all sell at a loss because the real goal is to rack up a huge pool of dedicated software buyers.
It doesn’t matter if the Surface tablet line makes a profit. It only exists to show off Windows 8 as a tablet interface and to start building that pool of dedicated software buyers. They can and will drop the prices on it in a few months once the earlier adopters taper off. And, as mentioned, in the very near future we’re going to see other hardware makers stepping up with better and more powerful tablets. Those already exist, they’re just not cheap.
Here’s a recent review of the Samsun Ativ Tab 7 -
The stats look like this:
Screen 1920×1080 11.6-inch (190 ppi), 400 nit, 10-point capacitive touchscreen
OS Windows 8 64-bit
CPU 1.7GHz Intel Core i5-3317U
RAM 4GB 1600MHz DDR3 (non-upgradable)
GPU Intel HD Graphics 4000 (integrated)
Costs $1100. Like all computers, it will get cheaper as time goes by. In the meantime, though, Microsoft doesn’t care if you buy this tablet instead of their Surface tablet. You’re still using their software, including, importantly, Office, and - bonus! - they just picked up a potential new app store shopper!
Bottom line: Microsoft is a software company not a hardware company.
Most MS fanboys know perfectly well they’re struggling for market penetration. We also know that their marketshare has been growing, albeit slower than would be hoped.
“Copycat” is a very odd word to lay on Microsoft’s head when discussing the tablet or phone world. In the phone space, they’ve produced a very unique OS that borrows very little from any established player and has been borrowed from, arguably, by both Android and iOS since it launched. WP8 is, absolutely, a usable, powerful, innovative mobile OS.
In the tablet space, it’s harder to lavish praise: Win 8 has issues that need resolving, Win RT has been a confusing nonstarter, and the Surface tablets have taken all the prestige and mindshare of the Win 8 tablet space while being priced too high to move units. That said, I’d still be hard-pressed to call them a “copycat” – Win 8 takes a radically different approach from Android or iOS in architecture and has almost no UI or interaction elements in common.
MS is an innovative company. They clearly have some of the best creative minds in the industry working there. Their biggest problems, in my years of following their products very closely, are coherence, agility, and marketing.
MS products have not played well together, historically. They’re improving that with tools like Skydrive and a decent unified account system, but they have major work to do yet.
They’ve been dreadfully slow to react to market changes, and embarrassingly slow to capitalize on their own successes. Look no further than SkyDrive: it came to market ahead of competitors like Dropbox and Sugarsync, but allowed them to run ahead and own that market. This seems to be a problem with leadership and organization. They’ve made some changes there, but I think we all know that the situation won’t be “fixed” until Ballmer gives up some power.
And, last but way, way, way not least…I still cannot understand how bad MS is at advertising and marketing. Their ads seem to range on a scale from “embarassingly bad” (see: Scroogled) to “cute but forgettable” (see: the Surface dance ad). While they occasionally run ads that I, as a person who knows and uses their products, kinda like, I’ve never seen them run a single ad that could possible convince anybody who DIDN’T use the product to give it a second look. The recent “Bing it On” ads might be the closest I’ve seen, but they’re still fairly forgettable.
Minor nit - Microsoft has had phone software out there for a long time. It’s older than Android, and older than the iPhone. I started working on my first Microsoft Windows (CE) phone in 2003. And this was Windows CE 3.0, if I remember right. Or maybe 4.2. In any case..it wasn’t the first release.
They’ve been at the game for a while, but have never gotten anything that really appealed to the market. The modern Windows Phone is two or three generations newer, with major revamps each time.
MSFT is not going away any time soon. PCs and Office are both virtual monopolies. What is happening is that it is no longer a high growth stock, having flat, if large, revenues and a stagnant stock price. Efforts in mobile are not for survival but for growth.
The car analogy is pretty good, I think. Just as upgrade cycles for cars are a lot longer now than they were, upgrade cycles for PCs are longer, since processor speeds are adequate for most uses. GM may have lots of revenue, but it is not high growth either.
Well that’s the thing, at one point Microsoft was a Google style growth stock, but it’s not really possible to maintain that forever. Microsoft to me is moving more into the category of a company like Proctor & Gamble, a traditional blue chip money maker. It won’t surprise you, but it will make you wealthier every year you hold it.
Even Google isn’t a Google-style growth stock any more. Once a company reaches the size of Google, Microsoft or Apple, they can’t grow that much. Imagine one of them develops a new business that results in a billion dollars in revenues. For most companies, that’s huge but for them it’s almost noise.
And at that, while Android the OS is doing well, Google’s various hardware excursions suck, and continue to lose money hand-over-fist. They’ve had various tries, and currently own Motorola, which isn’t working so far. It also puts them in the position of competing directly with their customers (Samsung, LG, Nokia, etc.) which may be one reason they’ve been building some WP8 plans.
They didn’t buy Motorola for the hardware, they bought it for the patents. Google is a company that throws lots of ideas at the wall and sees what sticks. If you get behind some of them too early you’ll get them yanked out from under you, but some will work. I think it is the only way a big company can stay competitive long term.
In ten years they are going to be making a bundle from licensing self-driving car technology. They know their business is using data, not hardware or software or search, and that is a high growth business for the next ten years at least.
I always wonder about some of the stuff Google does. I’ve always assumed the self-driving car stuff started out as a plan to make it easier to collect data for Google Maps and such (easier than the human driven vans) and now looks like maybe some day they could commercialize the technology in general.
Same with the Google Fiber stuff, I don’t know if Google is actually trying to make some sort of utility style “safe” revenue from a hum drum old school business like providing a connection or if it was just a very elaborate kick in the pants to try and make telcos and cable companies get serious about providing more first world connection speeds. [Lots of U.S. citizens can’t get about 5 Mbps when many parts of the world 100 Mbps + is standard and 1 Gbps isn’t unheard of.]
Google gives everyone I think 10% of their time to work on whatever they please. That’s the origin of a lot of the weird stuff they do, and also why they are willing to fail fast.
No one else who makes maps also does self-driven cars. That’s really the tail wagging the dog! The cost to make cars advanced enough to drive all the places they’d need to to collect data I’m sure will be many times any conceivable incremental map advertising revenue.
I’ll have to look up Google Fiber - I missed that one, and I used to work for AT&T and so am up on fiber issues. Clearly more bandwidth is good for them, but I’d be surprised if this were a top down initiative. They don’t seem to have so many.
Maybe Google has finally gotten how to do productive research right. I worked a lot with people in Bell Labs Area 11, and their problem was that they did not have a real close tie to people doing real stuff. One guy developed a protocol testing algorithm which we made into a real product - this was not seen as a plus by his management. My group, not in A11, was about 50% shorter term research and 50% development and this helped a lot in doing stuff that got used. Each person being 80% development and 20% research is great. And I bet they have a good process for moving and funding new ideas forward.
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Google gives everyone I think 10% of their time to work on whatever they please. That’s the origin of a lot of the weird stuff they do, and also why they are willing to fail fast.
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Actually 20%, but a lot of the employees end up using that time for things relevant to their usual job, or things that never see the light of day. It’s true that Gmail and Maps were 20% projects, but they are the exception, not the rule
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Same with the Google Fiber stuff, I don’t know if Google is actually trying to make some sort of utility style “safe” revenue from a hum drum old school business like providing a connection or if it was just a very elaborate kick in the pants to try and make telcos and cable companies get serious about providing more first world connection speeds. [Lots of U.S. citizens can’t get about 5 Mbps when many parts of the world 100 Mbps + is standard and 1 Gbps isn’t unheard of.]
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I think even Google has admitted it’s to kick telcos into gear. They want everyone to have South Korea like speeds and not Siberia like speeds.