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Microsoft Mission Impossible

software By October 13, 2013 Tags: , , 48 Comments


You’re Microsoft’s new CEO. How do you like staring at the abyss between two mutually exclusive ways of making money? The old business model, Windows and Office licensing, is going away. The Devices and Services future puts you in direct competition against the likes of Google and Apple as well as former licensing vassals such as HP and Dell. Can you take the company to the other side, or will you fall to the bottom of the business model transition canyon?

Life used to be simple and immensely profitable at Microsoft. As its name implies, the company started as a supplier of microcomputer software. Simplifying a bit, it all started with the BASIC interpreter, which found its way into many early personal computers including the Apple ][. After that came DOS, the operating system for IBM’s Personal Computer; and Multiplan, an early foray into desktop productivity. DOS begat Windows, and Multiplan was succeeded in steps by the full Office suite. Through a series of astute business and lawyerly maneuvers, the Windows + Office combo eventually spread to virtually all PC clones.

This made Microsoft the most successful software company the world had ever seen, and its founding CEO, Bill Gates, became the richest man on the planet. In 2000, the company’s market capitalization reached $540B (approximately $800B in today’s dollars). As this Wikinvest graph shows, Microsoft dwarfed all other tech companies:


(At the time, the NASDAQ index of mostly tech stocks stood a little above 4,000, it closed at 3,792 this past Friday.)

Back then, Windows + Office licensing was the only money pump that really mattered. Everything else — all other software products and even sales of enterprise servers — either depended on Microsoft’s huge PC installed base, or didn’t move the needle. Hardware and entertainment lines of business were largely immaterial; online activities weren’t yet the money sink we’ve seen in recent years.

According to the company’s 2000 Annual Report, the combination of the “Windows Platforms” and “Productivity Applications” accounted for $19.3B in revenue ($9.3B and $10B, respectively). That’s 84% of the company’s $23B total revenue and, even more important, 98% of Microsoft’s Operating Income!

Moving to Q1 2013, the market capitalization picture has drastically changed:


Google is in many ways becoming Microsoft 2.0, Oracle has grown nicely, and Apple is now on top.

What happened?

Mobile personal computing happened. Smartphones and tablets are displacing conventional PCs, desktops, and laptops.

To put it even more succinctly: the iPhone did it.

When Steve Jobs stepped onto the stage at MacWorld in January, 2007, there were plenty of smartphones on the market. Windows Mobile, Palm Treo, Nokia, Blackberry… But Apple’s iPhone was different. It really was a personal computer with a modern operating system. While the iPhone didn’t initially support third party apps, a Software Development Kit (SDK) and App Store were soon introduced.

Android quickly followed suit, the Smartphone 2.0 race was on, and the incumbents were left to suffer grievous losses.

Riding on the iPhone’s success and infrastructure, the iPad was introduced, with Android-powered tablets not far behind. These new, mobile personal computers caused customers to Think Different, to re-examine their allegiance to the one-and-only PC.

As these products flooded the market, Microsoft went through its own version of the Stages of Grief, from denial to ultimate acceptance.

First: It’s Nothing. See Steve Ballmer memorably scoffing at the iPhone in 2007. Recall ODM Director Eddie Wu’s 2008 predication that Windows Mobile would enjoy 40% market share by 2012.

Second: There is no Post-PC…”Plus is the new ‘Post’“. Smartphones and tablets are mere companion devices that will complement our evergreen PCs. The party line was eloquently asserted two years ago by Frank Shaw, Microsoft’s VP of Communications:

“So while it’s fun for the digerati to pronounce things dead, and declare we’re post-PC, we think it’s far more accurate to say that the 30-year-old PC isn’t even middle aged yet, and about to take up snowboarding.”

Next comes Bargaining: Microsoft makes a tablet, but with all the attributes of a PC. Actually, they make two Surface devices, one using an ARM processor, the other a conventional Intel CPU.

Today comes Acceptance: We’re indeed in a Post-PC era. PCs aren’t going to disappear any time soon, but the 30-year epoch of year after year double digit growth is over. We’re now a Devices and Services company!

It’s a crisp motto with a built-in logic: Devices create demand for Microsoft services that, in turn, will fuel the market’s appetite for devices. It’s a great circular synergy.

But behind the slick corpospeak lurks a problem that might seriously maim the company: Microsoft wants to continue to license software to hardware makers while it builds a Devices business that competes with these same licensees. They want it both ways.

Real business model transitions are dangerous. By real transition I don’t mean adding a new line of peripherals or accessories, I mean moving to a new way of making money that negatively impacts the old one. The old money flow might dry up before the new one is able to replace it, causing an earnings trough.

For publicly traded companies, this drought is unacceptable. Rather than attempt the transition and face the ire of Wall Street traders, some companies slowly sink into irrelevance. Others take themselves private to allow the blood-letting to take place out of public view. When the curtain lifts some months later, a smaller, healthier outfit is relaunched on the stock market. Dell is a good example of this: Michael Dell gathered investors, himself included, to buy the company back and adapt its business model to a Post-PC world behind closed doors.

Microsoft can’t abandon its current model entirely, it can’t stop selling software licenses to hardware makers. But the company realizes that it also has to get serious about making its own hardware if it wants to stay in the tablets and smartphone race.

The key reason for Microsoft’s dilemma is Android. Android is inexpensive enough (if not exactly free) that it could kill Redmond’s mobile licensing business. (Microsoft might get a little bit of money from makers of Android-powered hardware thanks to its patent portfolio, but that doesn’t change the game.) This is why Microsoft offered “platform support payments” to Nokia, which essentially made Windows Phone free. And, now we have the belated, under duress acquisition of Nokia’s smartphone business, complete with 32,000 angry Finns.

(Microsoft is rumored to have approached HTC with an offer to dual-boot Windows Phone on HTC’s Android handsets. It’s not very believable rumor — two competing operating systems on the same smartphone? But it has a satisfying irony: In an earlier incarnation I saw Microsoft play legal hardball against anyone who tried to sell PCs with both Windows and another OS installed at the factory…)

Another example of trying to keep one foot on each side of the abyss is the Surface tablet. Microsoft tried to create a hybrid “best-of-both-worlds” PC/tablet, complete with two different UIs. I bought one and found what many experienced: It doesn’t have the simplicity and agility of a genuine tablet, nor does it offer the classic workflow found on Windows 7. We’ll have to see how helpful the upcoming Windows 8.1 is in that regard.

So… What about our new CEO?

  • S/he finds a company that’s in the middle of a complicated structural and cultural reorganization.
  • The legacy PC business is slowing down, cannibalized by mobile personal computers.
  • Old OEM partners aren’t pleased with the company’s new direction(1). They have to be kept inside the tent while the Surface tablets experiment plays out. Success will let Microsoft discard Legacy PC makers. Failure will lead Redmond to warmly re-embrace its old vassals.
  • The Windows Phone licensing business lost its clients as a result of the Nokia acquisition.
  • Integrating Nokia will be difficult, if not a slow-moving disaster.
  • The Windows Phone OS needs work, including a tablet version that has to compete with straight tablets from Android licensees and from Apple.
  • Employees have to be kept on board.
  • So do shareholders.

How would you like the job?

(1) HP’s Meg Whitman now sees Microsoft as a competitor — and introduces a Google-powered Chromebook. What we think this will do for HP’s Personal Systems Group revenue and profit is best left unsaid.


Microsoft Directors Have Much Explaining To Do

software By September 29, 2013 Tags: , , 29 Comments


Blaming Steve Ballmer for Microsoft’s string of mistakes won’t do. Why did the Board of Directors keep him on the job for thirteen years, only to let him “retire” in the midst of several dangerous transitions — without naming a successor? What does this say about the Board’s qualifications to pick Microsoft’s next CEO?

For more than a decade, a team of physicians has been ministering to a patient who was once vital and robust, but now no longer thrives. Recurring diagnostic errors, stubborn inattention to symptoms, improper prescriptions haven’t yet killed the object of their care but, lately, the patient’s declining health has become so obvious that the doctors, now embarrassed and desperate, have scheduled a heart transplant.

Now comes the test: Would you entrust the patient’s future to such a confederacy of dunces?

With this metaphor in mind, let’s contemplate the record of Microsoft Directors since Steve Ballmer assumed the mantle 13 years ago, and ask if they’re qualified to appoint a successor.

Consider the Directors’ obdurate passivity while they watched the company miss opportunities, take one wrong turn after another, and fail to execute crucial transitions. Search was conceded to Google; digital music (players and distribution) is dominated by Apple; social networking belongs to Facebook, Twitter, and LinkedIn; the smartphone market is handed over to Google’s Android and Apple’s iPhone; tablets from the same duo are now bleeding the Windows + Office Golden Goose; Windows Vista and now Windows 8; Surface tablets… Even the once mighty Internet Explorer browser has been displaced by Google’s Chrome running on all desktop and mobile platforms.

Blaming (and forgiving) the CEO for one or two mistakes is reasonable. But if these missteps were entirely Ballmer’s fault, why did the Directors keep him at the helm? This raises the question: How much of the company’s value did the Directors themselves let Google, Apple, and others run away with? Is Microsoft’s Board a danger to the company?

The latter question comes in sharper relief when looking at the timing and manner of Ballmer’s exit.


On July 11th, Ballmer announces a major company reorganization. More than just the usual medley of beheadings and redistribution of spoils, Microsoft was to restructure itself away from its old divisional arrangement and move towards the type of functional organization used by companies such as Apple. In addition, the new company motto became Devices and Services, evoking a virtuous circle: Best-of-class branded devices would sell more great Microsoft services, while the latter would give a boost to Microsoft devices.

A week later, on July 18th, Microsoft releases pedestrian quarterly numbers, the lowlight of which is a $900M write-off attributed to very poor sales of Surface PC/tablets

On August 23rd, Ballmer announces his sooner-than-planned retirement — sometime in the following 12 months. No word of a successor.

And, to top everything off, on September 3rd, with Ballmer on his way out, the Board approves the emergency acquisition of Nokia’s handset business, complete with 32,000 angry Finns. (We’ll discuss their misdirected anger in a future Monday Note.)

A drastic company reorganization makes sense. Instead of one more turn of the optimizing crank, Microsoft acknowledges that it needs to Think Different.

Writing off unsold inventory is the sensible recognition of a problem; it removes an impediment by facilitating a fire sale.

There was a clear and present danger for Nokia’s handset business to fail, or to become the walking dead. Microsoft bought it to avoid the possible collapse of the Windows Phone platform. In theory (i.e., ignoring cultural realities), the acquisition gives Microsoft more control over its smartphone future.

All rational moves.

But letting Ballmer go right in the middle of two huge and complicated transitions — and without immediately appointing a successor? On its face, the timing and manner of Ballmer’s exit defies common business sense. It also raises questions about the Board’s failure to adequately plan for Ballmer’s succession. Supposedly, Succession Planning is a key component of good Corporate Governance. In plain language, a Board of Directors is obligated to identify and groom successors for key positions, starting with the CEO.

Which raises a few more questions.

Microsoft undertakes two risky, company-redefining moves: a profound structural and strategic reorganization, followed by its most foreign, most people-intensive acquisition ever. What was the overwhelming need to announce Ballmer’s departure – without naming a successor – right in the middle of such instability?

Considering its résumé, what makes Microsoft’s Board qualified to pick a new CEO?

And what are the parameters of the search for Mr. Right? Assuming Microsoft hires an industry heavyweight, will this individual be given the space and power to be his own woman or man, that is to reshuffle the Board? And what about the freedom from deferring to the company’s Founder?

And what must the mood be like at Microsoft? “When you receive an order, do absolutely nothing and wait for the countermanding directive.” This ancient Army saying must now be popular in Redmond. It’s not that people working there don’t care, but they just don’t know what the next CEO will want, and they certainly don’t know when. How can one not expect damaging paralysis and politicking when the CEO is let go without a successor?

All interesting questions.


[I’ll leave alone rumors such as Ford’s CEO Alan Mullally replacing Ballmer. Notwithstanding the obligatory congratulations, there would be much giggling in Mountain View and Cupertino. Competent management is a necessary but not sufficient condition…see Ballmer.]


The Rebirth of Windows Mobile

software By July 22, 2013 Tags: , 76 Comments


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.


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.


Additional reading:



Microsoft Reorg: The Missing Answer

software By July 14, 2013 Tags: , 26 Comments


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.


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.


Summer Fun: The HR-Less Performance Review

hardware, software By August 12, 2012 Tags: , 8 Comments

The idea for today’s off-topic note came to me when I read “Microsoft’s Lost Decade“, an aptly titled Vanity Fair story. In the piece, Kurt Eichenwald tracks Microsoft’s decline as he revisits a decade of technical missteps and bad business decisions. Predictably, the piece has generated strong retorts from Microsoft’s Ministry of Truth and from Ballmer himself (“It’s not been a lost decade for me!” he barked from the tumbrel).

But I don’t come to bury Caesar — not, yet, I’ll wait until actual numbers for Windows 8 and the Surface tablets emerge. Instead, let’s consider the centerpiece of Eichenwald’s article, his depiction of the cultural degeneracy and intramural paranoia that comes of a badly implemented performance review system.

Performance assessments are, of course, an important aspect of a healthy company. In order to maintain fighting weight, an organization must honestly assay its employees’ contributions and cull the dead wood. This is tournament play, after all, and the coach must “release” players who can’t help get the team to the finals.

But Microsoft’s implementation — “stack ranking”, a bell curve that pits employees and groups against one another like rats in a cage — plunged the company into internecine fights, horse trading, and backstabbing.

…every unit was forced to declare a certain percentage of employees as top performers, then good performers, then average, then below average, then poor…For that reason, executives said, a lot of Microsoft superstars did everything they could to avoid working alongside other top-notch developers, out of fear that they would be hurt in the rankings.

Employees quickly realized that it was more important to focus on organization politics than actual performance:

Every current and former Microsoft employee I interviewed—every one—cited stack ranking as the most destructive process inside of Microsoft, something that drove out untold numbers of employees.

This brought back bad memories of my corpocrat days working for a noted Valley company. When I landed here in 1985, I was dismayed by the pervasive presence of Human Resources, an éminence grise that cast a shadow across the entire organization. Humor being the courtesy of despair, engineers referred to HR as the KGB or, for a more literary reference, the Bene Gesserit, monikers that knowingly imputed an efficiency to a department that offered anything but. Granted, there was no bell curve grading, no obligation to sacrifice the bottom 5%, but the politics were stifling nonetheless, the review process a painful charade.

In memory of those shenanigans, I’ve come up with a possible antidote to manipulative reviews, an attempt to deal honestly and pleasantly with the imperfections of life at work. (Someday I’ll write a Note about an equally important task: How to let go of people with decency — and without lawyers.)

A review must start with three key ingredients, in this order:

  • First: Because your performance meets/exceeds requirements, we’ll renew our vows, our work relationship will continue.
  • Second: Here are your new numbers: salary, bonus, stock.
  • Third: We’re sufficiently happy with your performance as it stands today, so feel free to disregard the observations and suggestions for improvement I’m about to make. Now let’s talk…

This might sound a little too “different” (that’s Californian for “batty”), but there’s a serious purpose, here. We’ve all been reviewed, we all know the anxiety — and sometimes the resentment — that precedes the event. Mealy-mouthed comments about team-spirit, loyalty, how the company cares for its people and other insufferable HR pablum only makes things worse. You tune out, you can only hear the noises in your own head: Am I being led to the exit? Am I being shafted out of a raise/bonus/stock? Am I supposed to think that loyalty is its own — and only — reward?

To be heard, the reviewer must silence these questions. Hence the preamble: Your job is safe; here are the $$; we like what you do enough that you can safely continue to behave in the manner we have come to expect, no need to course-correct.

There follows a pause to let the news sink in. Anxiety quelled, the reviewee is now prepared — and willing — to listen.

On to the observations and suggestions. It’s probably a good idea to start with the minus side of the ledger — this isn’t much different from a sales pitch: Get the product’s negatives out of the way first. Stick to specific comments about goals missed, undesirable habits, and the like. “When you arrive 20 minutes late at our staff meetings, you’re being disrespectful to your colleagues, including me.” Defensive reactions to the negative part of a review are unavoidable, so you sing the refrain: The objectionable behavior, while imperfect, doesn’t jeopardize your job.

(As an aside, and seriously: Objecting to a behavior that you insist will be tolerated because of the overall goodness of the relationship…this approach works wonders outside of work. It’s a lot more constructive than the comminatory “You must stop doing this”, which invites the sarcastic and unhelpful response: “And if I don’t? What? You’ll divorce me?”)

The review can now proceed to the positive, to praising the individual’s performance and giving thanks. Saccharine is to be avoided, examples are a must, and exaggeration is only welcome in moderate doses.

Finally, ask for feedback… but don’t kid yourself: Hierarchy trumps honesty, so you may have to ask twice. Explain that you understand the challenge in giving feedback to the reviewer. You might get some useful tidbits, especially if they sting a bit.

Back in the real world, this simple, direct approach might not fit a large organization where you need to protect the rest of the team from the demoralization of a metastasized employee. The habitual backstabber, the knee-jerk naysayer, the self-appointed “Fellow” must be excised before too much harm is done. It’s a difficult task that requires a degree of human judgment and courage that’s not afforded by a mechanical ranking system.

Next week, we might return to topics such as Apple’s uneasy relationship with file systems, Android tablets and phablets, or some such tech disquisition.


Why Apple Should Follow Michelin

software By January 22, 2012 Tags: 44 Comments

What’s the use of offering more than 500,000 wares if customers can’t find their way through the gigantic bazaar? I know, I already harped on about the lack of curation in Apple’s App Store, but that was 16 months ago…when the Store contained a “mere” 250,000 apps.

Since then, the iPhone has sold in ever larger numbers (we’ll soon see if the December quarter number crossed the 30 million units line, and by how much) and with more than 18 billion downloads, the App Store is an unmitigated success. If this is what “broken” looks like, why fix it? And how?

To answer the question, let’s take a trip back a hundred years to Clermont-Ferrand, home of Michelin. Known for its tires and tourists guides, Michelin is a very old company (incorporated in 1888), but they’ve always been at the forefront of their technology. Tires are complex products whose role in the safety, comfort, and economy of our driving experience lead Michelin engineers to joke that cars are peripheral to their lovingly engineered creations. (If you find yourself traveling through the center of France, treat yourself to a visit to L’Aventure Michelin, a really interesting museum that recounts the company’s many adventures, most of which are unknown, surprising, or forgotten.)

Edouard and André Michelin weren’t just good techies, they were astute businessmen and marketing geniuses. They seized on an obvious idea: If people take more road trips, we’ll sell more tires. And they shone in the execution that followed this intuition, they went far and well in their efforts to encourage and guide automobile travel. Michelin became famous for its world class roadmaps, for the Red Guides that grade hotels and restaurants, and Green Guides for regions, historic sites, and countries. The company also published literary Guides Bleus, forgoing culinary delights for a more cultural angle in their interpretation of locales. (I’ll skip their other marketing inventions, such as the Bibendum character and the iconic Michelin kilometer stones and road signs.)

Michelin had a staff of agents at the ready to devise an itinerary for your trip, all you had to do was write or call.

Did this “content”, as we would now call it, make money for Michelin? Possibly, but the revenue was negligible compared to the amount their tires generated. Michelin’s maps, guides, and services were created with one goal in mind, one mission: sell hardware. That’s where the real margins were, and still are.

Is Apple’s situation, it’s mission, all that different? Hardware revenue and margins are the sacred business model. Everything else, including the App Store, must support the ultimate goal. (For reference, the App Store generates less than 2% of Apple’s revenue, and much less than 2% of its profits.)

The scale of the App Store’s success, probably unforeseen by its creators, could lead management into complacency: Look at these numbers, ain’t they great? This is an incumbent’s attitude. And we know what happens to those.

But ask developers and, most important, users. For all its demonstrable success, the App Store feels broken. It’s too big and confusing, the app reviews are dry and the ratings are unreliable, search is primitive…

Label me naif, but I think Apple could do well by following the century-old Michelin model. It won’t take billions to implement, nor will it require the administration of the Apple Genii, just competent people and hard work. Here’s what a possible solution looks like:

Apple sets up a team in charge of publishing an App Store Guide. The editorial team writes opinionated (and presented as such) reviews of apps by category: Productivity, Games, Utilities, and the like. Published daily on a blog and accumulated in an on-line Guide, these reviews, one to two pages long, present the writer’s experience and opinion, culminating in a ranking in stars or numbers. It sounds simple, often the sign of a twisty road ahead…

Trouble starts quickly.

First obstacle: It’s already being done. True. How many iOS App Review Sites there are? According to this blog, the answer is…116! This is good news: Apple’s customers have an appetite for reviews, but which sites and reviewers can they trust? How do these reviewers make money? There’s no dispassionate, incorruptible Consumer Reports for apps.

Second, there’s Apple’s penchant for control. True, again — but irrelevant. Going back to Michelin, their opinion of a restaurant might be controversial, but the company has no financial gain in the number of stars they assign. They sell tires, not meals. Similarly, Apple wants to move hardware, not generate App Store revenue by favoring one app over another.

Third, attempting to sift through 500,000 apps amounts to boiling the ocean. How can one even hope to ‘‘make a dent” in that universe? But that’s no reason to sit on one’s hands. Let’s say that after a year the Apple App Guide has featured “only” 2,500 reviews, an average of 50 reviews a week, ten a day. Is that bad compared to today’s mess?

Fourth, the expense. Let’s do a gross, back-of-the-envelope overestimation: 20 reviewers at $250K/year “fully loaded” with management overhead and office expenses included. This gets us to $5M/year. Apple is notoriously cautious, if not downright stingy with (most) expenses, but $5M would be lost in the income statement noise. And this miniscule investment would exert a healthy influence on the rest of the app review ecosystem, just as the Apple Store raised the game for its independent retailers.

Fifth, the people. Will readers trust the opinions of enlisted Apple employees, or will they insist on “independent” voices? An employee’s loyalty is to the company, and there could be grumblings that a staff of corporate reviewers would choose apps that, above all else, show off the platform and the Apple brand. On the other hand, independent contractors are just that: independent. As such, they’re much more susceptible to “external influences.” There are any number of gadget blogs that smell of greasy palms and astroturfing.

Apple possesses [five s’s in a nine-letter word!] a treasure of closely-guarded user data — off-limits to a contractor — that could prove very helpful in rating apps. It’s “simply” a matter of finding, hiring, training, and managing competent and honest curators.

Today, Apple already demonstrates a type of curation when it decides which apps get featured as New and Noteworthy, or Staff Favorites. They might as well go all the way and please their users with subjective, personal reviews. Encourage the kommentariat to cluck its disapproval, allow dinged developers to rage online. If presented as an honest, competent effort — occasionally wrong but always with the Apple imprimatur — the review process will be as respected as any other high-quality editorial effort.

I hope Apple’s success won’t blind it to the need to give app seekers more than today’s skimpy categories and unreliable user reviews. Who knows, if Amazon or Google were to wake to the opportunity, their moves could spur Apple into action.


Windows 8: BFD — Big Forking Decision

software By September 18, 2011 43 Comments

Whether we’re living in a post-PC world, as many think today when they look at growth rates and profits, or it’s PC-Plus, For Ever, as Microsoft’s very literate chief ideologue staunchly maintains, it doesn’t really matter. When the Redmond giant comes up with a new version of Windows, it’s a Big Festive Deal that will impact the lives of hundreds of millions of PC users, and twist the fates of PC makers and application developers.

This year’s festive occasion was the Build conference held last week in Anaheim, California, where Microsoft revealed “Windows reimagined”, a.k.a. Windows 8. If you have the time and inclination, you can watch the keynote sessions and download the Developer Preview, which I did. (See Lifehacker for tips on how to install Windows 8 on a virtual machine. They worked for this accident-prone user.)

For this long-time Windows user, two things stick out:

  • The innovative Metro UI and its “have your cake and eat it” coexistence with the more traditional Windows look.
  • More important, the forking of apps on the ARM version of Win 8.

The Metro UI, a close relative of the elegant and justly-praised Windows Phone 7 UI, welcomes you when you log in:

The idea is to present a “touch ready”, customizable set of tiles that address our favorite everyday activities. The Metro UI is a step along the “Windows Everywhere” road that leads to a single, elegant UI for all Microsoft-powered devices, whether they’re PCs, smartphones, or tablets. (I know…Microsoft isn’t keen on using the “T” word. As Frank Shaw tells us, they’re “companion devices” that surround the center stage PC.)

Touch the Desktop tile and…

…the familiar Windows UI is back…but this time with a Ribbon, the same feature that was introduced with Office 2007 and that figured more prominently — some say intrusively — in Office 2010 applications.

You might see this mix of new and old as a lack of coherence, a clash of UI models.

Personally, I perceive it as keeping with Microsoft’s traditional incremental approach: Never break with the past, introduce new features while keeping a strong link with what users and developers already know.


Ballmer’s latest acquisition

software By May 15, 2011 Tags: , , 54 Comments

In a bold move, Microsoft acquires Nokia and catapults itself to the top of the smartphone world. The full integration of Windows Phone 7 software into Nokia hardware will result in a better user experience for customers, a zero-fragmentation platform for developers, easier deployment of a smaller number of SKUs for retailers, and more reliable update management for carriers.

It’s worked before. Microsoft’s hardware/software integrated devices, Xbox and Kinect, are enjoying strong revenue growth and great margins: $1.9B revenue last quarter, 50% more than last year, with 10% operating profit.

In a prepared statement, Microsoft CEO Steve Ballmer says:

‘I welcome Stephen Elop back into my executive staff. His brief leave of absence has allowed us to more fully explore the possibilities of combining the best smartphone hardware, Nokia’s, with the best OS, Windows Phone 7.
Google’s anticompetitive Android free and open licensing practices unfairly tilted the playing field against our better product; they made it impossible for us to sell Windows Phone 7 software. Instead, we‘re now ready to do battle with Apple from a superior position: a stronger product carrying the Windows Everywhere flag, wider carrier distribution around the world, and more retail partners in US, Europe, and BRIC nations. With our acquisition of Nokia, we’re now a $100B company, back where we belong: at the top of the high-tech industry.’

When I woke up, I heard a different story: Microsoft bought Skype for $8.5B.

We all know Skype: free voice and video calls from computer to computer, plus paid services if you need to dial a phone. As Skype prepared for its long-awaited IPO, we got financial data from their S-1 filing with the SEC. S-1s are always instructive: This is usually the first time a private company opens the kimono — and the SEC watches closely as you prepare to sell shares to widows and orphans.

The Profit & Loss statement in Skype’s S-1 looks like this:

With revenue of $860M in 2010, Skype’s Operating Profit is a modest $20M, with a Net Loss of $69M due to interest expenses stemming from $686M in long-term debt. Except for in 2008, when they saw a $42M profit, Skype has racked up huge losses, including $1.4B in 2007 and $370M in 2009.

(Technically, these figures straddle two different corporate structures because of Skype’s complicated history. Started in 2003 as an independent European company, Skype was acquired by eBay in 2005 for a price pegged between $2.6B and $3.1B. After the acquisition, eBay discovered its ownership of Skype was “encumbered”: A crucial piece of Skype’s technology was owned by another company, Joltid, which was essentially in the hands of Niklas Zennström, one of Skype’s founders. eBay settled with Joltid for about 14% of Skype. This caused wags to say the crafty Skype founders sold the company twice — and it certainly didn’t make the ex-management consultants running eBay look so sharp. In 2009, eBay sold 70% of Skype to private equity and venture investors in a transaction that valued the company at $2.75B.)

Why did Microsoft pay $8.5B — 10 times the company’s revenue — for a business that has changed hands so many times, never made money, and comes with substantial debt? (Admittedly, the $686M debt number is manageable — for Microsoft).

One eloquent answer comes from Ben Horowitz, a partner at the Andreessen Horowitz venture firm started by Netscape’s founder. Horowitz invokes the network effect: A large number of users attracts more users and so on, in a kind of gravitation well:

– 500,000 new registered users per day
– 170 million connected users
– 30 million users communicating on the Skype platform concurrently
– 209 billion voice and video minutes in 2010

And he concludes:

Today, I tip my hat to an old rival, Microsoft. By acquiring Skype, Microsoft becomes a much stronger player in mobile and the clear market leader in Internet voice and video communications. More importantly, Microsoft gets a team, ably led by the exceptional Tony Bates, that can compete with anyone.

Well, this is a nice encomium to the guys who transformed the venture firm’s $50M investment in Skype a few months ago into a $150M payday. My own venture investor hat is tipped to MM. Andreessen and Horowitz.

But not so much to Steve Ballmer.

Looking at Microsoft’s recent quarterly numbers, we see the continuation of a now old and getting older tradition: losses in the Online Services Division. Only a few weeks ago, TechCrunch wondered: When Will Microsoft’s Internet Bloodbath End? Business Insider provided a vivid illustration for the problem:

In just the past 12 months, Microsoft has lost $2.5B in its Online business. They spend $2 to make $1 in revenue. Buying and “integrating” Skype will make the picture even redder.

So, again, why spend $8.5B on Skype?

The official explanation is that Skype will be targeted at professional users. For these, Microsoft already has a product called Lync, although not many have heard of it. And they have Messenger for consumers. (Actually, it’s Windows Live Messenger for Windows and Microsoft Messenger for the Mac.) I don’t think it’s unfair to ask how, how well, and when Microsoft’s Grand Unified Messaging platform will effectively exist, and how it will be monetized.

Given Microsoft’s track record, there isn’t much evidence of its ability to perform such integration, nor of its ability to move a big platform forward at a competitive pace, certainly not faster than what Google seems able to do with Google Voice, Talk and Google Video for Business.

The theory must be that every Windows PC will come with “Skype inside.” But that isn’t much progress: There are already 170 million connected Skype users, and 500,000 new registrations everyday. And imagine how carriers will react when they see a Skype client bundled with every Windows Phone 7 device, further pushing them towards their preordained destination: dumb pipes.

Today, Skype is joyfully used in both consumer and business environments. It’s not perfect, but the price is right and Skype is now a verb. The next thing we know, Microsoft will take a good if imperfect service and “improve” it by integrating it with Office or SharePoint (a good product on its own). And, at some point, Microsoft will try to make us pay for it. In more ways than one.

But, again, the history isn’t there. Microsoft’s ability to successfully charge for a formerly free product is lacking.

Reactions to the Skype deal have been negative, if not downright derisive. Many see the Skype acquisition as more evidence that Microsoft can’t innovate, or even effectively copy and out-implement anymore. One local exec asked, rhetorically, how much it’d take to re-implement Skype. $100M? $1B? It’s not a question of money. Microsoft spends tons in R&D: 15% of sales, about $9B per year. (Apple spends 2% of revenue, less than $2B.) Think of iTunes: it’s been out there for close to ten years and there’s no iTunes clone coming out of Redmond. Microsoft has to buy what it no longer has the people or the culture to create — or copy.

David Pogue, the NY Times’ tech guru, thinks this acquisition will go where so many went before: to failure by mediocrity and to poisoning by matrix management.

Ben Brooks, a Microsoft shareholder — and not the disgruntled kind — comments on the Skype deal and concludes: The Ballmer Days Are Over. Perhaps, but who can tackle the job of turning Microsoft around?

In last year’s May 30th Monday Note, I wrote Ballmer had opened the “Second Envelope”. He was running out of explanations: first blame your predecessor, then fire a few subordinates. Next, you’re out of excuses and out the door.

Since then, a few more subordinates have decided to “spend more time with their families”: CTO Ray Ozzie, who wrote a long, long farewell memo (don’t do that, it doesn’t make you look good); Tablet executive Bill Mitchell; Bob Muglia, President of the Server and Tools Division. We’ll exclude Stephen Elop, the President of the Business Division who went on to rescue Nokia, as he might have left of his own volition — or of his seeing Ballmer looking for the next excuse.

Last year, I noted Microsoft’s stock had been stagnant for almost ten years. Things haven’t improved since then:

In the past 12 months, Microsoft’s stock has fallen by 11% while the Nasdaq climbed 25%, Google 7%, and Apple 44%.

Having run out of ideas and envelopes, is Ballmer spending $8.5B of Microsoft’s $50B cash, its biggest acquisition so far, as a desperate tentative to keep the company, or himself, in the game?

Back to the fantasy: Today, Nokia’s market cap is about $32B, a bit less than four times Skype’s price. In theory, Microsoft would have to pay a premium…but imagine Nokia’s situation if Microsoft hadn’t generously “lent” them Stephen Elop and struck a Windows Phone 7 deal “worth billions” to the Finnish company. What would be the market cap for a rudderless Nokia?

And Nokia comes with revenue, about $40B last year. The Nokia Devices and Services business alone makes about $3B in profits per year — almost as much as Microsoft’s Online division lost in 2010.

That would get attention, and credibility, and criticism, and hope. Instead, we got a yawn.


What I want for my Mac

mobile internet, software By February 27, 2011 Tags: , 10 Comments

by Jean-Louis Gassée

I was a happy man. After twelve years of Windows use at work — the usual Outlook excuse — I was about to be saved by Vista.

On January 30th 2007, 8:00 am, the doors opened at Fry’s in Palo Alto. I showed up early to claim my prize, a 17” HP laptop with Vista factory-installed. I walked in and found that I was more than first in line — I was alone. Unfortunately, I didn’t take this as a warning. I bought the macho machine and completed the expedition with a $400 Office 2007 DVD.

That same morning, I flew to an industry conference, sat in the last row (as usual) so I could play with my new machine — and began to realize my mistake. I had become comfortable with Windows XP, deriving geek pride from my ability to juggle firewall settings, virus and malware countermeasures, I answered the Genuine Windows Advantage challenges and made coffee while the system checked for updates.

But Vista defeated me. I cracked. I walked down University Avenue to the Palo Alto Apple Store and bought a black MacBook (and Parallels software so I could still run Windows XP during the detox period).

The following Monday, my VC partners did a double take when they walked into the conference room: They saw the big Apple logo on the laptop and Microsoft Outlook projected on the big screen. Four years later, one by one, my partners are moving to the Light Side. (I also have a Dell netbook running Windows 7 — but it’s for “research.”)

During those four years, (some of) my Apple prayers have been answered: I have a new 11” MacBook Air, a neatbook I can really use on an airplane — even when the large gentleman sitting one row ahead suddenly reclines the back of his seat. Some days I wish I had a Mac as small and pocketable as my 2001 Toshiba Libretto but, all in all, my 11” Air is the most pleasant laptop I’ve ever owned, even more so than my dearly departed (stolen in Paris) 1991 PowerBook Duo.

Enough nostalgia, I also have unanswered prayers. We’ll start with two easy ones.

My iPad, which I use less often now that I have the MacBook Air, has 3G connectivity. On my laptop I have to use a modem, the Verizon MiFi 3G. It converts the cellular data connection into a WiFi hotspot in my pocket and can support up to five ‘clients’. I use a similar but even smaller device from Orange when I’m in France. I could, of course, use my Android phone as a hotspot (again, for ‘‘research’’), and there are recurrent rumors that someday AT&T will let my iPhone play the same role, but I’d like to cut out the middle man. Now that we know the Verizon iPhone 4 uses the bi-sexual ecumenical CDMA/GSM radio chip, there is hope that all future mobile devices from Apple, MacBook Air included, will have worldwide cellular connectivity.

Less important, but still helpful for this klutz who breaks toes in the dark against furniture, I’d like Jon Ive, Apple’s design guru, to take a weekend afternoon and whip up a black envelope for my laptop. The one he designed for the iPad spares me embarrassment and money every time I drop my tablet.

More difficult: I’d like a MobileMe that works.

MobileMe is erratic, the Back to My Mac feature works, then stops working, and then works again for no apparent reason. Synchronization between machines is so haphazard I finally switched to DropBox — it’s free for up to 2GB of impeccably Cloud-synced files, and a mere $10/month for 50Gb. DropBox hasn’t always worked well on OS X, but the latest version seems to be stable and manages to sync data for a large number of platforms and applications. As an example, it syncs my 1Password passwords across all my desktop and mobile devices, including Android and Windows.

As described in a previous Note, I bought the family pack for OS X and iLife updates even though the ‘’single” version can be installed on any number of machines. That alone probably gets me into the lower tier of the Friendly Idiot database somewhere in Apple’s Cloud, but the fact that I also pay $100/yr for MobileMe upgrades me to Platinum status.

Two days ago, I left a Word file open on my office iMac. At home, when I realized my mistake, I thought I could reach into the office using Back to My Mac, close the file and then open the copy that had been stored/synced through DropBox. Back to My Mac refused to work that night, but I could still open the file from DropBox and continue writing.

At the office the next day, the “old” document was tagged for deletion when I opened the newer version from DropBox. It sounds complicated and it is: Subtle conflicts of timing and location can make syncing difficult for normal humans.

I thought that’s why we have Apple, the non-IT company that caters to The Rest of Us, but, unfortunately, its Cloud services are messy, unpredictable, and filled with rigid silos. The Apple Cloud is supposed to smooth the seams of synchronization but fails to do so because information isn’t properly shared between its various functions.

I experienced another example of Cloud rigidity when I bought a new $99 Developer subscription. I used the Apple ID and the credit card I use all the time for MobileMe and iTunes purchases. The sale went through, Apple took my money…

…but right after the successful cashectomy a cranky algorithm complained about inconsistencies and refused to activate my subscription. Instead, I got an email message asking me to send a notarized copy of my ID by fax:

I’m sure the robot meant well; perhaps its poorly-fed algorithm causes it to bark at shadows. I emailed twice, requesting help and conceding that I may have contributed to the problem. But, ahem, why did you take my money? And why resort to such antiquated means to resolve the situation? Can’t a human use judgment and an email or phone call to correct the misunderstanding?

24 hours later, no one had gotten back to me.

So, why am I enrolling in the Apple Developer Program? I want to test an early version of the next OS X release, Lion, which is rumored to borrow some of the look and spirit of the iPad. In last November’s Monday Note, I criticized the Finder for being too complicated. I’m curious to see if Lion will simplify the UI, fulfill its promise of moving to a more intuitive way of organizing and navigating the content of our machines.

[Apple Insider just published a neat series of posts covering many of Lion’s new features.]

(Interestingly, the new developer release is distributed through one of Apple’s Cloud services, the Mac App Store, the one that continues to enthusiastically embrace my Apple ID — and credit card.)

Still, if I could have only one wish, what would it be?

Without a doubt, it’d be a working MobileMe. Free? Nice, but I’ll take working over free.

[This isn’t my lucky week. After I wrote the above, I bought the $0.99 FaceTime app for Brigitte’s Mac and for mine. This turned into another obstacle course of inconsistencies in Apple’s Cloud, to say nothing of UI trouble. Who tests these things? Engineers or mere mortals?]


Mobile World Clusterf#^k — 2011 Edition

software By February 20, 2011 Tags: , 5 Comments

Plus ça change…et plus.

We are at this year’s Mobile World Congress, held last week in Barcelona. One of the usual suspects, AT&T CEO Randall Stephenson, stands and delivers the new and improved party line: App Stores are bad. Stephenson wants cross-platform apps delivered through the Wholesale Applications Community (WAC), whose “commercial launch’’ takes place at the conference.

At last year’s conference, carriers made similar noises, dutifully reported in this 2010 Mobile World Clusterf#^k Monday Note, and no less diligently mocked in TechCrunch

(“The Wholesale Applications Community Sounds Like a Disaster in the Making.”) Now that AT&T is no longer the exclusive iPhone carrier in the US, the App Store that used to boost their iPhone sales (with a fat $100/month ARPU) also benefits Verizon.

AT&T’s carrier-centric view of the world remains unchanged: Phones are a commodity. Their sole raison d’être is to act as a transmission medium, a hard-to-disconnect hose attached to our wallets that sucks out as much money as possible…in legal ways, of course…most of the time.

To Mr. Stephenson, a financial executive (he used to be CFO of Southwestern Bell), Apple’s App Store and its ilk violate the carrier’s birthright. Unveiled last year and re-announced last week, the path to redemption is clear: WAC, a cross-carrier, cross-platform “community.” Who wouldn’t want the security of a carrier-hosted universal application library? Simple, no?


Software is the music of smartphones. Picture two musical instruments, a pipe organ and a spinet piano. Consider the organ in the picture, three keyboards, a pedalboard, the “ranks” (sets of pipes) controlled by stops along the sides:

The organ’s sonic palette is broad and deep: A wide ambitus of pitch, from the gut-wrenching near-subsonic to the hair-raising upper reaches; a panoply of timbres; infinite sustain; capable of terrifying volume…

The spinet…

Music written for an organ transcribed — cross-platformed — for a spinet…it’s just not the same. Why aim for the lowest common denominator?

Metaphor aside, restricting the features and capabilities of an app so it fits on every smartphone doesn’t inspire hardware and software innovation.

Just as important — and I’m not sure I can put this diplomatically — in matters of application software and, more generally, taste, what’s the carriers’ record? Do they think customers care more about “one size fits all” sophistry than they do about quality? Subscribers have proven their willingness to pay a premium for products that demonstrate attention to form and function.

AT&T’s “get off my lawn” attitude reeks of nostalgia for the Good Old Days when carriers dictated features and prices. The inevitable disintermediation of their business started with the iPhone apostasy and will soon expand when an unlocked smartphone from Mediatek (see Stephen Elop’s memo) running an Android derivative (OMS/oPhone or Tapas) can be had for $79 or less.

The cross-carrier/cross-platform WAC will make as much progress this year as it did in the last 12 months. Next year’s PowerPoint slides won’t need much editing.

But that was just the appetizer.

The pièce de résistance at this year’s MWC was the MicroNokia CF:

Nokia has given up on its smartphone platforms and has adopted Windows Phone 7.

  • Symbian (Nokia’s current platform) will be “harvested,” which mean Symbian will be flogged until MicroNokia handsets ship in sufficient volume.
  • Meego (a Linux derivative and Nokia’s former future) has been put to pasture…but will ship as a face-saving “research project.”
  • Qt, Nokia’s cross-platform UI framework, has been abandoned. Microsoft will provide the UI.

This is supposed to reverse Nokia’s well-documented market share and profit decline.

Last year, Nokia fired its CEO, OPK (Olli-Pekka Kallasvuo) and hired a Microsoft executive, Stephen Elop. If you click on the link, you’ll see Nokia’s future CEO with a Nokia exec, Kai Öistämö, now reporting to him. Titillating as they might be, we’ll skip the conspiracy theories, they shed no light on the MicroNokia’s future.

It’s not going to be pretty.

Nokia faces an extremely difficult business model transition. One foot in the “we own everything” boat, the other in the Windows Phone 7 skiff. The integrated business model is sinking, and the new Microsoft smartphone platform isn’t floating very well. Consumers and carriers might desert Symbian devices faster than MicroNokia handsets gain acceptance. (Actually, “handsets” is the wrong word. As discussed in Elop’s Burning Platform memo, “ecosystem” is more appropriate: devices + applications + app store + services + content distribution + carriers.)

It gets worse. Today, Nokia sells huge volumes everywhere around the world (except in the US), more than 120M phones per quarter, of which 28M are Symbian devices. How will Nokia’s business fare against the surge of unlocked $79 “Android” derivatives?

We hear Nokia’s explanation for not choosing Android: Not enough differentiation, Windows Phone 7 will give us more control over our destiny, we have a “special partnership” with Microsoft. Special, differentiated…but how? What about other Windows Phone 7 licensees? How will Microsoft succeed in creating a thriving ecosystem if one partner is more equal than the others?

Then there’s the money behind the deal. “Billions,” we’re told, but without further details. Will it be cash, considerations in kind, support, licensing rebates, marketing budget? In time, we’ll get more data.

Such alliances have a way of not working with Microsoft, whose record on the matter is terrible. On his Asymco site, Horace Dediu lists Microsoft’s failed smartphone partnerships. At the risk of belaboring the obvious, the common factor in those failures is Microsoft, its culture, its ways.

(But wait, the MicroNokia alliance is different. Stephen Elop is a cultural diplomat, he’s familiar with the Microsoft ethos, he was the executive in charge of the Office documents partnership with Nokia…)

Microsoft is no longer the successful, dominant player that it was in the PC business. It’s trying to get back into a race that RIM, Google, and Apple are winning. As a result, Microsoft is willing to provide incentives to application developers and handset makers. Big incentives.

And big incentives are justifiable. Microsoft execs realize they no longer have the upper hand, that they must use “all means necessary” to get back into the smartphone revolution, the biggest high-tech rocket we’ve ever seen, combining three engines: Cloud, Social, and Very Personal Computers a.k.a. Smartphones.

To Microsoft’s credit, another tenet of its culture is “never give up.” Like the Harvard football coach he once was, Steve Ballmer tells his troops to keep trying and trying until they succeed, and he has the resources, the money, the people — and his board’s support — to keep at it. I take issue with his wanton disregard for annoying facts, but, good faith or not, I can’t help but admire the unwavering leader and the expert showman.

Still, I doubt this MicroNokia deal will be enough to put Microsoft back in the smartphone and tablets race.

With this in mind, why not acquire Nokia and its worldwide manufacturing and distribution?  For Microsoft, this wouldn’t be a first. They went “integrated” (or, if you prefer, “Apple”) with the Xbox business and controlled the platform in its entirety. The MicroNokia marriage would be a difficult one, certainly, but it would give Microsoft more control over its own destiny. Suitable explanations would be provided: It’s a new era, we have an opportunity to become the largest smartphone maker, and (while we’re being cheeky) it’s a way to thwart the looming Google/Android licensing monopoly.

Who knows, Ballmer might change his mind. If he doesn’t, he might put yet another failed partnership on his résumé.