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The Rebirth of Windows Mobile

 

by Jean-Louis Gassée

The decline of PC sales finally caught up with Microsoft, resulting in weak quarterly results that force Steve Ballmer to admit a strategic mistake and propose a radical change of direction.

Last week’s Monday Note focused on Microsoft’s conversion from a divisional to a functional organization. It resulted in interesting discussions in the comments section as well as in e-mail exchanges and conversations around a couple of Valley watering holes. Some thought Microsoft’s statements had the sincerity of a death-bed conversion, others pointed to the challenges in remaking a cricket team into a football squad, most expressed doubts about Microsoft’s ability to successfully adapt to a world where the PC no longer reigns supreme.

On Thursday, Microsoft released its numbers for the quarter ending in June, the last of their 2013 fiscal year. They were not good. MSFT lost more than 11% the following day, taking its long-suffering partner HP (- 4.5%) with it.

Wall Street’s brutal dumping of the stock after “shockingly” bad news isn’t surprising, but what should we make of the dogged complacency of the financial seers leading up to the announcement? Did they really not see this coming? Despite a historic five-quarter decline in PC sales, investors hadn’t wavered in their belief that Microsoft would find ways to compensate for plummeting Windows + Office profits.

Perhaps I ought to have written cronyism instead of complacency, above. Before the SEC frowned on the excesses of “managed earnings“, Microsoft was famous, and comfortable, for always emerging just a penny above its wink-and-nudge guidance. To pull off this funambulist exploit, the company shuffled money in and out of the Unearned Revenue cupboard and other reserves. To paraphrase the old saying, You Didn’t Get Fired For Owning Microsoft.

If you think the accusation of cronyism is too strong, take a stroll through the latest Earnings Call Transcript, courtesy of Morningstar, especially the Q&A section. With such an earnings surprise, you’d expect Wall Streeters to inflict company execs with combative questioning and probing follow-ups; you’d look for Steve Ballmer to be front and center, explaining and hectoring. Instead, we have Amy Hood, the newly appointed (but very experienced) CFO, parrying deferential questions (and very few follow-ups) with mind-numbing answers such as this one:

I think I feel good. I think in some ways the reorg we announced last week along with our increased focus and our single strategy has allowed us to really look and say what are the things we’re going to put behind and focus and to improve our execution and so I feel quite good about our ability to do that. And you have heard us say before many of the reasons we did this reorg are about doing things better and more efficiently.

Pity the long-suffering analyst… and if their suffering continues, perhaps we should expect Ballmer himself to show up at the late September analyst indoctrination event in Redmond.

The Microsoft surprise, dubbed by TechCrunch Its Biggest Drop Of The Century, has infused the discussions of the company’s future, what Ballmer will do with his new organization now that the Redmond Giant (finally!) seems to be aware that it’s playing catch up in a Post-PC era.

As luck would have it, I got a draft of Ballmer’s memo to a small group of Microsoft execs. I can’t vouch for its authenticity — it was “regifted” through a series of contacts, friends and foes of old OS wars — but I hope you’ll find it interesting:

[Confidential - Burn Before Reading]

From: Steve Ballmer
To: Microsoft Leadership Team – Do not Distribute
Date: July 20, 2013, 6 a.m.
Subject: Windows Mobile 9

It’s time for me to confess a serious strategic mistake – and to ask for your commitment to change course and breathe new life into our legacy business.

This is about tablets.

Our own unsuccessful attempts to enter the tablet market (Widows for Pen Computing in 1991, and the Tablet PC in 2002) lured us into thinking there was “no there there”. Because of this, we downplayed the impact of a new wave of devices from Apple and Android licensees.

Neither our PR campaign to negate the advent of a Post-PC era nor Frank Shaw’s valiant efforts to position the new devices as “PC Companions” has had any effect on the market. We even leveraged our long and cosy relationship with IDC and Gartner and got these to firms to create a dismissive category label for these new machines: media-consumption tablets – with the clear implication that they were unsuitable for business uses. All these exertions were for naught. For five consecutive quarters, we’ve watched PC sales decrease and tablet shipments skyrocket.

This has become a significant threat to the very foundation of our business model.

For more than two decades, the Windows + Office tandem has been a source of incredible power and wealth, it has enhanced the life of more than a billion users and has allowed our company to expand into other high-margin Enterprise products and services.

For all these years, we scrupulously followed McKinsey’s “Not A Single Crack In The Wall” advice, we’ve managed to successfully Embrace and Extend each and every possible threat to the Windows + Office combo.

While we initially underestimated these new tablets, their threat soon became obvious and we started thinking of ways to protect our franchise. 

That’s when I took the company in the wrong direction. 

To prevent these tablets from penetrating the Office market, I followed our Embrace and Extend strategy and endorsed the creation of hybrid software and hardware: The dual-mode (Desktop and Touch UI) Windows 8 and Surface tablets.

The results are in. Windows 8 hasn’t taken the market by storm. The Windows 8 tablets manufactured by our hardware partners are sitting in warehouses.  We just took a $900M write-off on our RT tablets, now on fire-sale.

It doesn’t matter who actually proposed or implemented the failed strategy, I endorsed it. What matters most — the only thing that matters — is what we’re going to do now.

I have a plan. It’s conceptually simple but I won’t sugarcoat the situation. It will be extremely difficult to execute, particularly given the urgency.

First, I am tasking Terry Myerson, our EVP Operating Systems, with creating Windows Mobile 9, a tablet-capable version of Windows Phone 8 that will serve all of our mobile products. Until last week’s reorg, Terry was leading our Windows Phone group and is therefore ideally suited to the new task.

Qi Lu, EVP Applications and Services, will work with Tim to deliver a full, real Windows Mobile Office without the limitations imposed by RT. And, in keeping with our strategic need to spread Office everywhere and to provide the widest base for our on-line Office 365, Qi Lu will also produce Office versions for Android and iOS platforms.

Moving to hardware, we cannot rely on Nokia and other hardware partners to create enough momentum for this new platform, so I’ve asked our JLG (Julie Larson-Green) to develop first-party mobile devices — a Microsoft smartphone and a Microsoft tablet — that run Windows Mobile 9. The use of the somewhat damaged Surface name for these products will be evaluated as we go.

Everyone else in the company, from Operations to Evangelism, from HR to Finance is expected to give their full support to this most urgent, most vital initiative. In particular, our most recent hire, Mark Penn, EVP Advertising and Strategy, is tasked to come up with the right narrative for the strategic transition to Windows Mobile 9. Earned in unforgiving Washington politics, Mark’s long experience with complicated situations will help us navigate the troubled media waters ahead of us.

I know you love this company as much as I do. Thanks for pouring all your energy into this effort.

Steve

I know I didn’t fool anyone with this apocryphal memo. While it could be viewed as satirical, it’s actually deadly (that’s the right word) serious. And it raises serious questions.

First, there’s the small matter of implementation. To mangle Brooks’ law, nine engineers can’t gestate an operating system (or an Office Suite) in one month. Coming up with a “sincere” tablet OS and the corresponding Office version will take time, time during which Android and iOS tablets will continue to cannibalize PCs — and gain hardware and software muscle. This leads to the inevitable question: Has Microsoft arrived too late to the tablet feast?

Then there’s the question of price and its impact on Microsoft’s financials. Software on today’s tablets is either free, or priced at a fraction of its desktop PC equivalent. (In retrospect, significantly lower prices for tablet software might have played a role in Microsoft’s “safe” decision to stick with a PC/tablet hybrid.) If they go the real tablet route, Ballmer & Co. will have to tell shareholders to expect lower numbers, even if Office 365 subscriptions partially compensate for the loss in Windows licenses and conventional desktop software.

Another thought arises from Ballmer’s (actual, not mythical) reference to “first-party devices”, meaning smartphones and tablets made by (for) Microsoft and sold by the company, whether through its own stores, its intramural booths at the likes of Best Buy, or through more conventional retail channels. The math could be attractive: 30% Gross Margin on a $500 device sure beats 85% on $50 or less of licensing revenue — as long as the hardware unit volume cooperates.

For Microsoft, going for such a business model apostasy, renouncing software licensing for hardware revenue, is easier said than done: an “earnings trough” looms if the old model collapses faster than expected and if the new profit engine takes too much time to come on line. One might bring up the Xbox as an example of Microsoft successfully moving to a vertically integrated business model, but this would be forgetting there was no perilous transition away from juicy operating system licenses, the Xbox was vertically integrated at birth.

The coming months are going to become even more interesting as Microsoft must progress beyond grand statements about its new functional organization and explain in detail what the new team will actually do.

JLG@mondaynote.com

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Additional reading:

 

Microsoft Reorg: The Missing Answer

 

by Jean-Louis Gassée

After repeatedly tweaking its divisional structure, Microsoft tries a more radical realignment  along functional lines like, you know, that other company. The lengthy, bombastic but confusing announcement leaves one big, vital question unanswered: What happens if PC sales keep falling?

In a July 11th, 2013 memo to Microsoft employees, Steve Ballmer announces a “far-reaching realignment of the company that will enable us to innovate with greater speed, efficiency and capability in a fast changing world.”

In a few words: Microsoft will switch from a divisional to a functional organization; from what has often been labeled as silos — or even warring fiefdoms — to a set of functional groups aligned to execute the company’s new “devices and services” strategy.

Inevitably, several observers have called this new structure Apple-like, that it’s a clone of the model developed and ferociously enforced by Steve Jobs, and now shepherded by Tim Cook.

As the healthily satirical Bonkers World visualizes, Microsoft wants to move away from this…

MS Org Chart

and become more like this…

Apple Org Chart

Nick Wingfield’s NY Times article, titled Microsoft Overhauls, the Apple Way, puts it this way:

It is yet another sign of how deeply Apple’s way of doing things has seeped into every pore of the technology industry.

Or see Fortune’s Adam Lashinsky, in Seeing Apple in Microsoft’s reorganization:

I think I’m being completely rational in my shock at Steve Ballmer’s latest reorganization of Microsoft. His long memo explaining it to employees is one long homage to the Apple that Steve Jobs re-created between 1997 and 2011. Everything about the reorg sounds like Ballmer wants Microsoft to behave more like Apple.

The comparisons to Apple, by Mssrs. Wingfield and Lashinsky, aren’t just piquant stabs at a flailing giant. They see the problems.

I’ll add my perspective.

There are enormous differences between the scorched-earth reorganization of Apple ’97 and the “far-reaching realignment” of MS ’13:

  • 16 years ago, Apple was on the ropes. The market numbers spoke loudly and cleared minds.
  • Apple’s business was extremely simple: Macintosh personal computers.
  • A charismatic co-founder returned and told everyone to Think Different – and then he enforced the diktat.

Apple came up with a string of monumental hits after Jobs’ return in 1997– iPod/iTunes, Apple Stores, iPhone, App Store, iPad. All of these offerings were facilitated by the company’s now celebrated functional structure, but none of them were created by the reorganization. Put another way, functional structure is a necessary but not sufficient condition (a point to keep in mind when considering Apple without Steve Jobs).

I greatly admire Ballmer’s determination to never give up, never admit failure, always look forward, attitudes that are well-served by his imposing physical presence, impeccable speech, and unshakable composure. But this change isn’t the sort of organizational tune-up that he has perfected over the last three years, it isn’t another iteration of spring cleaning that has resulted in the high-level departures of Robbie Bach, Ray Ozzie and, earlier this year, Steven Sinofsky (who was found guilty of Windows 8).

Removing a loyal but obdurate contradictor, sanctioning bad performance and foul politics is one thing. Reshaping the culture of a huge organization (97,000 employees) is a qualitatively and quantitatively different task. Habits of the mind and, even more challenging, of the heart are extremely hard to change. And, certainly, Microsoft’s culture needs an overhaul. It has caused the company to miss or mishandle Search, Social Networks, Advertising, Smartphones, and Tablets, and to make a meal of the latest version of their iconic Windows product.

Can a reorg suddenly bestow the vision and agility to regain lost ground, undo (at least) one bad decision, and also win the next land grab?

In attempting to answer these questions, Ballmer’s memo manages to confuse rather than reassure. In the first place, it’s way too long — over 2,700 words — and points to yet another memo that’s even longer.

The satirical site, Joy of Tech, had its way with Ballmer’s epistle. First, the executive summary…

Ballmer Memo Joy of Tech Header

Then the details (click to enlarge)…

Ballmer Memo Joy of Tech Body

And their effect…

Ballmer Memo Joy of Tech Ending

Read both memos and ask yourself two questions: Who writes such corpospeak (or is it copro-speak)? And what does it say about its authors’ clarity of thought?

Despite its length, Ballmer’s pronouncement manages to avoid a fundamental question: What happens to Microsoft if PC shipments continue to fall?

According to the usual suspects, PC shipments fell by 11% this past quarter compared to the same period last year, marking the fifth consecutive quarter of the “longest duration of decline in the PC market’s history.” The state of the economy and the tepid reception to Windows 8 are partial explanations, but the primary reason is plain to see: Android and iOS tablets and (to a lesser extent) smartphones are cannibalizing PC sales.

According to a VentureBeat post:

Tablet shipments are expected to grow by almost 70 percent in 2013, sending desktop and laptop computer shipments into a “nosedive.”

When looking at these numbers we should keep in mind that Microsoft’s Windows 8 “tablets” or hybrid devices are counted as PCs while Gartner and IDC keep separate tabs for the PC-devouring devices, which they gingerly call “media-consumption” tablets.

Let’s take a step back and look at the history of Microsoft’s business model.

The company was reasonably prosperous even before DOS/Windows and Office, but its never-before-seen riches came from a division of labor: PC OEM vassals were left to fight among themselves for market share while the licensing overlord enjoyed monopoly pricing for its Windows + Office sales. (When Ballmer cheekily says ‘We’re all about choice’, he means the choice between PC makers racing to the bottom, not choice between Windows/Office and alternatives.)

After Local Area Networks (remember The Year of The LAN?) and then the Internet emerged, the company looked invincible. The Windows + Office stronghold yielded a natural tie to Exchange and Windows Server products.

With this in mind, the decline in Windows PC/tablet sales are bound to have a cascading effect on Microsoft’s business. Fewer PCs means smaller Windows licensing revenue and, in turn, diminishing Office dollars. The once powerful tie-in between Windows and Office now turns against Redmond.

And the cascade continues: Smaller Office volumes result in lower demand for extremely high-margin Exchange and Windows Server products. In the meantime, non-Microsoft tablets and smartphones continue to invade formerly Microsoft-only Enterprise customers. The erstwhile truism You Won’t Get Fired For Buying From Microsoft has lost its lustre.  Permission is now granted to buy from interlopers.

Microsoft greased this downward slope by clinging to its tactic of always having it both ways; that is, doing something new while preserving backwards-compatibility. The approach has been successful in the past… but it foundered Windows 8 and tablets. The step into the future was a different touch-based UI; the foot in the past was the old desktop User Interface. For customers, the result was confusion and frustration; for PC manufacturers, the outcome was lower than expected sales.

Google and Apple took a different route: Instead of shoehorning a desktop OS onto less-powerful and battery-constrained hardware, they designed operating systems that easily slide into the slimmer, sexier footwear. Under the hood, we see a similar “from scratch” approach: Tablets and smartphones aren’t just “smaller PCs”, they’re target-specific devices built around custom (System On a Chip) processors.

The market has voted: Tablets that are just tablets are trouncing Microsoft’s hybrid tablet/PC devices.

To reverse this downward spiral Microsoft needs to come out with a real tablet, not the insincere and unsuccessful ARM-based Surface RT device. This means a tablet that’s powered by Windows Phone with Office applications that are specifically, integrally designed for that OS. Once this is done, why not go all the way by selling iOS and Android versions of the same productivity suite? This would protect the rest of Microsoft’s Enterprise ecosystem, and would be much better than today’s half-baked Office apps on the iPhone, or their absence on the iPad and Android devices.

We’ll see if the new Microsoft regime can really Think Different.

JLG@mondaynote.com

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PS: Only for the technically inclined, Drew Crawford’s learned, articulate post on the effect of small RAM size on mobile device system and application software. As this long post attempts to cloud the Web vs. Native apps discussion with facts, it brings up a little-discussed fact: PCs easily offer 8Gb of RAM (as opposed to SSD “disk space”), but mobile devices are generally limited to 1Gb or less because RAM needs to be always powered on, thus limiting battery life. This significantly smaller RAM fundamentally impacts the design of the system and application software. Mobile OS and apps are not like PC products only smaller.

Blackberry’s Future

 

by Jean-Louis Gassée

Once the king of smartphones for business uses, Blackberry got a new CEO, a new operating system and new devices, with and without the traditional keyboard. In spite of these changes, the company’s latest numbers don’t paint a picture of revival.

Thorsten Heins doesn’t suffer a lack of enthusiasm. During the run up to the March release of its BlackBerry 10 operating system, RIM’s CEO painted an optimistic picture of a company on the rebound, a company that would correct the mistakes of the industry leaders:

“It’s still the same,” Heins said of the iPhone. “It is a sequential way to work and that’s not what people want today anymore. They want multitasking.”

Rechristened as BlackBerry, Heins told us that the company would energize the develop community and spawn devices that are too exciting to describe:

“There’s one new product I’m really excited about, but I can’t really share it,” Heins told CNET in an interview today.

Last week, the company released its latest quarterly numbers and they are exciting, although not in the sense that Heins would like. The forecast was $3.4B in revenue and $0.07 in earnings per share; the reality was $3.1B in sales and, more important, a loss of $0.13 per share.

The numbers “excited” traders so much that BBRY shares lost 28% of their value in a single trading session, putting them back to their one-year-ago level.

The earnings release was followed by the customary conference call where the CEO and CFO review the numbers and answer questions from Wall Street analysts. Courtesy of Seeking Alpha, the call transcript is here and contains the obligatory pablum, including an excessive abuse of the F-word (22 occurrences):

Embracing our heritage of mobility first is very important as we build our culture and go through this transition. We don’t have to be all things to all people and all markets, and embracing this focus allows us to drive efficiency, be flexible and agile, and to ultimately drive best-in-class innovations. [...] We’re continuing to focus on improving all areas of the business…

Curiously, there’s no breakdown of the sales of BlackBerry devices. How much of their revenue was “energized” by the BB10? Without actual numbers, we’re left in a cloud of doubt about how well the new platform is actually doing.

The disquietude continues: There are no subscriber numbers, and no guidance other than an expectation of more losses next quarter. The glowing comments about cash-flow from operations ($630M, a nice number) are undercut by the disclosure of a substantial tax refund, without which the company would have eaten through $400M to $500M of cash.

As for tablets, the Blackberry PlayBook is no more, says the CEO. He’s unhappy with the device’s performance and is determined to focus on the company’s “core hardware portfolio“. (The company’s website no longer describes the product and only offers a software update for existing customers.)

Inevitably, the How Many Moves Remain? question comes up. Blackberry professes to do more than just devices, it claims to offer strong enterprise services and says it will propagate its BBM (Blackberry Messenger) to other platforms including Android and iOS. It also promotes a form of (limited) compatibility for (some) Android apps on its newer smartphones. But is anyone buying and in numbers that can save the company?

More to the point: Who wants to buy Blackberry (the company), for what reasons, and at what price?

Let’s back up. Last week, we heard that Microsoft had once again given up on its perennial hunt to capture a handset maker. This time, the prey was Nokia, Microsoft’s “special” Windows Phone licensee.

The official explanation for the Nokia blowup was that the price tag was too high, but price clearly wasn’t an issue. Nokia’s $14B market capitalization weighs in at about 5% of Microsoft’s $288B. Even when you tack on a 25% acquisition premium, the purchase should have been a reasonably easy sell, especially given Microsoft’s desire to take the handset business into its own hands, if only to counter (or mimic) the strategy established by Google and Motorola.

There’s really only one explanation, as I speculated last week: The engagement was dissolved because of Microsoft’s bleak view of Nokia’s business, that the Finnish company no longer has the technological acumen and brand loyalty that Microsoft needs to make Windows Phone a legitimate competitor with Android and iOS.

BlackBerry’s market capitalization now stands at about $6B. That’s less than half of Nokia’s. If Nokia, supported by Microsoft, can’t gain ground on Google and Apple devices, what gives us confidence that BlackBerry isn’t sliding into insignificance?

The BlackBerry name, as a brand, is strong. But a brand only exists as the carrier of a promise. A brand writes checks that the product cashes. Without a successful product, the brand dies (go ask Kodak).

While Nokia could be acquired by someone interested in the Windows Phone business, one is hard pressed to form a similar thought for Blackberry. It may be struggling, but there is a Windows Phone ecosystem, including handset makers. There is no such thing around BlackBerry. Developers aren’t writing apps for BB10 in ecosystem-making numbers, carriers have taken a wait-and-see posture, even the core group of dedicated users (I used to be one of them) appears to be losing faith.

This isn’t a brightly optimistic picture. Today, Blackberry finds itself caught between Samsung and Apple at the high end, and a rabidly fermenting crowd of Android (official or not) clones at the lower price range.

So, why not consider heresy, or apostasy: Ditch the newer BlackBerry OS too few developers believe in, and bet on Android devices to support BlackBerry’s enterprise services.

The answer is probably the same as it is for Nokia: It’s too late.

JLG@mondaynote.com

Microsoft and Nokia won’t beget a Googorola clone

 

by Jean-Louis Gassée

Microsoft, after its highly visible 2011 bet on Nokia, could have decided to go one step further and buy Nokia to become a fully integrated smartphone. That it didn’t happen doesn’t portend a great future for Windows Phone.

Last week, the Wall Street Journal outed Microsoft’s unsuccessful attempt to acquire Nokia:

Microsoft recently held advanced talks with Nokia about buying its handset business, people familiar with the matter said, as laggards in the fast-moving mobile market struggle to gain ground.

Many saw an acquisition as an inevitable next step, that by acquiring the Finnish handset maker Microsoft could “finish the job” that they started when they licensed a special Windows Phone to Nokia. It would be a blessed union of two vigilant, watchful companies: Microsoft had watched as Android and iOS made its own OS a distant also ran; Nokia, once the world’s largest cell phone maker, couldn’t help but notice that Google and Apple had killed its handset business from both the high and low ends.

But, according to the WSJ, the parlay came to a negative and apparently definitive end:

The discussions faltered over price and worries about Nokia’s slumping market position, among other issues, these people said. One of the people said talks took place as recently as this month but aren’t likely to be revived.

To call Nokia’s fall a “slump” is more than polite. The company saw its market share fall from 39% in 2009 — more than 100 million handsets per quarter — to an estimated (and angrily debated) 3% by the end of 2012.

Microsoft hasn’t done much better with its mobile software. In 2008, Windows Mobile OS held a 11% market share, even as the underlying Windows CE engine was getting long in the tooth, particularly when compared to the Unix-ish Android and iOS engines. With a modern NT kernel, Microsoft’s mobile OS was reborn as Windows Phone 8 and scored a modest 3.2% market share in Q1 2013.  This number comes from IDC, the “research” group that has assured us that come 2016, Microsoft will be the number 2 mobile OS provider with a 19.2% share:

09-table nokia

Behold the vision and precision of IDC’s psychics: Back in June 2012, they could see four years into the future and predict that Windows Phone would edge out iOS… by two tenths of a percent!

We’ve heard the Microsoft-is-buying-a-handset-maker rumors before. Starting in 2007 and recurring year after year, Microsoft was said to be eyeing RIM/Blackberry. For some, yours truly included in January 2012, the RIM story was compellingly straightforward: RIM’s clientèle of loyal, hardcore Blackberry users in businesses and governments made it an ideal fit for the Redmond giant.

Microsoft’s defenders will argue that RIM ’07 was too expensive. Priced at $200 a share (they’re running at about $14 today), RIM would have cost more than a $100B before any acquisition premium. At the time, Microsoft was valued at approximately $250B (similar to today’s $277B). Ideal or not, the match didn’t make sense for Microsoft shareholders. Then, when RIM’s price began to slide, the Blackberry was seen as having lost too much of its shine, too much of its market momentum. The company was damaged goods. (Or, as we might have forgotten, the two co-CEOs, Mike Lazaridis and Jim Balsillie, the ones who spoke in tongues, may have proved too difficult for even Steve Ballmer to deal with.)

Someday, Microsoft’s inability to grab RIM might be seen as a signal failure, a key episode in the company’s slide into irrelevance in the smartphone market. I doubt anyone will see Nokia in a similar light, as the “one who got away”.

The “MicroNokia” relationship has been challenging from the start. In February 2011, Nokia committed itself to a special partnership with Microsoft. It would ditch its operating systems (Symbian, Meego, QT) and become a beacon and standard bearer for Windows Phone 7. Money changed hands: $250M of “platform support” per quarter was sent from Redmond to Espoo in order to offset the unspecified Windows Phone licensing payments that flowed in the opposite direction.

This messy, technologically and culturally unsound arrangement only got worse when Stephen Elop, the former Microsoft exec now running Nokia, announced the switch to Windows Phone ten months before the company would end up shipping devices that ran the new (and problematic) OS. Unsurprisingly, Nokia’s revenue evaporated, leaving it with losses and a minuscule 5% market share (including Symbian-based smartphones).

Why Elop would make an announcement that effectively Osborned the business still mystifies and enrages Nokia supporters such as Tomi Ahonen who keeps calling for Elop’s head in long, irate blog posts. (In industry lore, to “Osborne” is to prematurely announce a product that so clearly obsoletes your current offering that it kills revenue. The suicidal maneuver is named in loving memory of portable computer pioneer Adam Osborne who destroyed his business by bragging that his next product would be so much better than the current one.)

I’m also mystified, but for another reason. I can’t fathom why Nokia picked Windows Phone instead of Android, whose explosive success was obvious even as early as 2010 when the company ditched its CEO. (I’m a little biased here as, in June 2010, I wrote a tongue-in-cheek piece titled Science Fiction: Nokia goes Android.)

Nokia’s excuses for not adopting Android were vague, ranging from “we don’t want to lose control of our destiny”, to Microsoft being a “stronger partner” (read: They paid us). The potential-loss-of-destiny rhetoric falls flat, especially when you look at Android’s licensing terms and see the freedom Samsung and others enjoy with their interpretations of the platform. (We’ve heard that Nokia and Google once talked, but we don’t yet know the reason for their not becoming highly visible partners.)

Today, investors say Nokia is worth about $15B, a tenth of its 2007 peak (I’m excluding the 2000 Internet Bubble number from the comparison). Even with a “25% acquisition premium”, a Nokia acquisition would cost Microsoft less than 10% of its capitalization. So, contrary to the charitable explanation offered to the WSJ by “persons familiar with the matter”, price couldn’t have been an obstacle. That leaves us with Nokia’s “slump”: Microsoft thinks Nokia would be unable to carry Windows Phone to an influential, sustainable market position.

Now, what?

Nokia’s revenue keeps sliding down and, after a brief incursion into the black, it keeps losing money. Is there anything in sight that will reverse the trend? It’s doubtful that the company can try for the high end by offering better hardware than Samsung, nor can they squeeze into a low end that’s inhabited by official and unofficial Android clones that are swiftly killing off feature phones. This leaves Nokia’s future as an independent company in doubt and logically gives rise to more acquisition speculation.

And what will happen to Windows Phone? We now hear that Microsoft is paying developers as much as $100,000 to write or port an application to the platform. This is a rational move on Microsoft’s part, an attempt to create the critical mass that doesn’t seem to be able to happen naturally. But it can also be seen as desperation, an admission that Windows Phone is having trouble gaining momentum as developers and customers are embraced in a downward spiral.

One can’t imagine that Ballmer will call it a day and cede the field to Google and Apple. Personally, I admire his never-give-up attitude, always talking up the future, unfazed by past bold pronouncements gone wrong, but enthusiasm isn’t a strategy. And in the smartphone market, Microsoft doesn’t have many moves left. Regardless of the technical merits of its new mobile OS, momentum seems elusive; market forces that once worked against Windows competitors in the PC field now seem to confine Windows Phone to an insignificant market share against the two dominant and their complementary business models.

We don’t know yet how Google’s acquisition of Motorola will fare, but the Android platform is healthy enough without it. The same can’t be said of Windows Phone without Nokia, which leads one to believe there will be a forced marriage between the once proud Finnish handset maker and an ambitious player, probably Chinese — with Microsoft providing a substantial dowry once again.

In the meantime, we can count on IDC to provide fresh numbers… for 2017.

JLG@mondaynote.com

Goodbye Google Reader

 

Three months ago, Google announced the “retirement” of Google Reader as part of the company’s second spring cleaning. On July 1st — two weeks from today — the RSS application will be given a gold watch and a farewell lunch, then it will pack up its bits and leave the building for the last time.

The other items on Google’s spring cleaning list, most of which are tools for developers, are being replaced by superior (or simpler, friendlier) services: Are you using CalDAV in your app? Use the Google Calendar API, instead; Google Map Maker will stand in for Google Building Maker; Google Cloud Connect is gone, long live Google Drive.

For Google Reader’s loyal following, however, the company had no explanation beyond a bland “usage has declined”, and it offered no replacement nor even a recommendation other than a harsh “get your data and move on”:

Users and developers interested in RSS alternatives can export their data, including their subscriptions, with Google Takeout over the course of the next four months.

The move didn’t sit well with users whose vocal cords were as strong as their bond to their favorite blog reader. James Fallows, the polymathic writer for The Atlantic, expressed a growing distrust of the company’s “experiments” in A Problem Google Has Created for Itself:

I have already downloaded the Android version of Google’s new app for collecting notes, photos, and info, called Google Keep… Here’s the problem: Google now has a clear enough track record of trying out, and then canceling, “interesting” new software that I have no idea how long Keep will be around… Until I know a reason that it’s in Google’s long-term interest to keep Keep going, I’m not going to invest time in it or lodge info there.

The Washington Post’s Ezra Klein echoed the sentiment (full article here):

But I’m not sure I want to be a Google early adopter anymore. I love Google Reader. And I used to use Picnik all the time. I’m tired of losing my services.

What exactly did Google Reader provide that got its users, myself included, so excited, and why do we take its extermination so personally?

Reading is, for some of us, an addiction. Sometimes the habit turns profitable: The hours I spent poring over computer manuals on Saturday mornings in my youth may have seemed cupidic at the time, but the “research” paid off.

Back before the Web flung open the 10,000 Libraries of Alexandria that I dreamed of in the last chapter of The Third Apple my reading habit included a daily injection of newsprint.  But as online access to real world dailies became progressively more ubiquitous and easier to manage, I let my doorstep subscriptions lapse (although I’ll always miss the wee hour thud of the NYT landing on our porch…an innocent pleasure unavailable in my country of birth).

Nothing greased the move to all-digital news as much as the RSS protocol (Real Simple Syndication, to which my friend Dave Winer made crucial contributions). RSS lets you syndicate your website by adding a few lines of HTML code. To subscribe, a user simply pushes a button. When you update your blog, it’s automatically posted to the user’s chosen “feed aggregator”.

RSS aggregation applications and add-ons quickly became a very active field as this link attests. Unfortunately, the user interfaces for these implementations – how you add, delete, and navigate subscriptions — often left much to be desired.

Enter Google Reader, introduced in 2005. Google’s RSS aggregator mowed down everything in its path as it combined the company’s Cloud resources with a clean, sober user interface that was supported by all popular browsers…and the price was right: free.

I was hooked. I just checked, I have 60 Google Reader subscriptions. But the number is less important than the way the feeds are presented: I can quickly search for subscriptions, group them in folders, search through past feeds, email posts to friends, fly over article summaries, and all of this is made even easier through simple keyboard shortcuts (O for Open, V for a full View on the original Web page, Shift-A to declare an entire folder as Read).

Where I once read four newspapers with my morning coffee I now open my laptop or tablet and skim my customized, ever-evolving Google Reader list. I still wonder at the breadth and depth of available feeds, from dissolute gadgetry to politics, technology, science, languages, cars, sports…

I join the many who mourn Google Reader’s impending demise. Fortunately, there are alternatives that now deserve more attention.

I’ll start with my Palo Alto neighbor, Flipboard. More than just a Google Reader replacement, Flipboard lets you compose and share personalized magazines. It’s very well done although, for my own daily use, its very pretty UI gets in the way of quickly surveying the field of news I’m interested in. Still, if you haven’t loaded it onto your iOS or Android device, you should give it a try.

Next we have Reeder, a still-evolving app that’s available on the Mac, iPhone, and iPad. It takes your Google Reader subscriptions and presents them in a “clean and well-lighted” way:

For me, Feedly looks like the best way to support one’s reading habit (at least for today). Feedly is offered as an app on iOS and Android, and as extensions for Chrome, Firefox, and Safari on your laptop or desktop (PC or Mac). Feedly is highly customizable: Personally, I like the ability to emulate Reader’s minimalist presentation, others will enjoy a richer, more graphical preview of articles. For new or “transferring” users, it offers an excellent Feedback and Knowledge Base page:

Feedly makes an important and reassuring point: There might be a paid-for version in the future, a way to measure the app’s real value, and to create a more lasting bond between users and the company.

There are many other alternatives, a Google search for “Google Reader replacement” (the entire phrase) yields nearly a million hits (interestingly, Bing comes up with only 35k).

This brings us back to the unanswered question: Why did Google decide to kill a product that is well-liked and well-used by well-informed (and I’ll almost dare to add: well-heeled) users?

I recently went to a Bring Your Parents to Work day at Google. (Besides comrades of old OS Wars, we now have a child working there.) The conclusion of the event was the weekly TGIF-style bash (which is held on Thursdays in Mountain View, apparently to allow Googlers in other time zones to participate). Both founders routinely come on stage to make announcements and answer questions.

Unsurprisingly, someone asked Larry Page a question about Google Reader and got the scripted “too few users, only about a million” non-answer, to which Sergey Brin couldn’t help quip that a million is about the number of remote viewers of the Google I/O developer conference Page had just bragged about. Perhaps the decision to axe Reader wasn’t entirely unanimous. And never mind the fact Feedly seems to already have 3 million subscribers

The best explanation I’ve read (on my Reader feeds) is that Google wants to draw the curtain, perform some surgery, and reintroduce its RSS reader as part of Google+, perhaps with some Google Now thrown in:

While I can’t say I’m a fan of squirrelly attempts to draw me into Google+, I must admit that RSS feeds could be a good fit… Stories could appear as bigger, better versions of the single-line entry in Reader, more like the big-photo entries that Facebook’s new News Feed uses. Even better, Google+ entries have built in re-sharing tools as well as commenting threads, encouraging interaction.

We know Google takes the long view, often with great results. We’ll see if killing Reader was a misstep or another smart way to draw Facebook users into Google’s orbit.

It may come down to a matter of timing. For now, Google Reader is headed for the morgue. Can we really expect that Google’s competitors — Yahoo!, Facebook, Apple, Microsoft — will resist the temptation to chase the ambulance?

–JLG@mondaynote.com