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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.


Turning Points

software By November 8, 2010 Tags: 6 Comments

Once upon a time, Microsoft reigned supreme, they were IBM 2.0, having wrestled control of the PC from Big Blue. According to some critics, Microsoft took over the office application market through a combination of embrace, extend, and extinguish and tied sales. The MS M.O. followed this trajectory: First, Bill Gates and his troops would paint a bullseye on a product category—spreadsheets, words processors. Then they’d add features, creating a superset of those offered by Lotus 1-2-3 or WordPerfect. The next move involved the relationship with PC manufacturers: Microsoft (it’s said) tied the sale of the Microsoft Office suite to a Windows license. You want “favorable” terms on Windows? Install Office on the PCs that you sell.

MS Office applications became the Colossus of the business sector. And they established a de facto lingua franca. If you wanted to write a productivity app, you had to speak the MS language—you had to translate to and from Microsoft’s file formats. But these formats were under Microsoft’s sole control, they could “extend” the language at will, and—surprise!—these enhancements favored their own applications. For third-party developers, complete, full-featured compatibility was next to impossible to achieve. Ask the OpenOffice folks.

It worked. For more than 20 years, the Windows + Office combo has been Microsoft’s cash cow. In its 2010 Annual Report, MS reported $37B in revenue—60% of the company—for what is officially called Windows & Windows Live and the Business Division. With an operating profit of $24.7B and a beefy 67% operating margin, Windows + Office accounts for…102% of the company’s operating income?

(The percentage anomaly is due, in part, to the $2.3B lost by the Online Services business. With $2.2B in revenues, that’s more than $2 spent for every $1 in sales. For another part, we have an opaque category, Corporate Level activities, which adds another $4.5B of red ink.)

The mid-90’s, the browser wars. Microsoft seemed content to let Netscape’s Navigator own the scene… until the nascent Web wafted the aroma of monetization. Microsoft’s Internet Explorer began life as an add-on, almost an afterthought, a sop to “unproductive” Web surfers. But with the release of Windows ’95, IE was wired into the operating system, for free (which would eventually land Microsoft in various kinds of legal troubles, now largely forgotten). And, true to the MS M.O., subsequent versions offered “enhancements” to HTML that only IE knew how to interpret. Embrace, extend, extinguish…that was the end of Netscape’s hopes for a revenue stream.

Those were the days. Since then, all of Microsoft’s efforts to control standards have gone nowhere.


User experience — Microsoft Buying Love

Uncategorized By May 26, 2008 Tags: No Comments

Silicon Valley VC-dom is having a grand time watching Microsoft. It always did, in fear some time, with hope the Bill Gates would buy ingenious or annoying startups at other moments, always with respect for the giant’s impact on the high-tech industry.

Lately, the respect has turned into puzzlement. Because of, to simplify, Google and Vista. Google has exposed Microsoft’s inability to have any significant impact on search, advertising and, more generally, Cloud computing.

Vista surprised everyone, myself included, by how immature and uninteresting it is. To the point where Ballmer had to call it a “work in progress” — this five years after the previous version, Windows XP. So immature that many large organizations have decided against upgrading and launched a campaign to “save XP”, to force Microsoft to keep it available indefinitely. The market reaction to the new 2007 version of Office has been similar: Why bother?

I’ll hasten to say Microsoft is still hugely profitable: just Office made it more money in one quarter than Google in an entire year. But, last week, puzzlement turned into something else: a mixture of incredulity and worry. Is this all Microsoft has to offer to take Google down from its number one position?

“Microsoft is going to pay us to search!” said many stories. Not quite. It’s more complicated. When I search for a Nikon lens in Microsoft’s new Live Search site, I get offers from selected merchants. When I buy, Microsoft gives me a small percentage of the purchase price, 2% to 4%. So, I set up the Microsoft rebate money to go to my PayPal account and off I go, looking for the Nikon 85 mm 1.4 lens of my dreams. (Don’t go to, that’s another company, they’re probably holding out for a better offer from Redmond.) For a lens worth about $1,000, gets me 6 stores with discounts in the 2% to 4% range. Out of curiosity, I try Goggle. In one instance, the same merchant, B&H, offers the same lens for less than on, in an “imported” version. And when I do research on the other Microsoft-offered merchants I won’t name here, I see slightly lower prices. But… a bit of research shows the sellers are labeled as crooks or worse by dissatisfied customers. Google also reminds me Amazon offers the lens for $999, free two-day shipping and no doubt about integrity. I try another search, for an inexpensive camera this time. The results are similar: the lowest price is from a company with an ugly reputation (and recently sold to another entity). For $10 more, you buy from Amazon. No complication, no paying one price and getting the discount later from Microsoft.

Let’s review. Microsoft Live Search: not really cheaper, not safer, not simpler.
Speaking of safety, it is fair to point out that some of the merchants featured on the right-side of the Google results page are known bait-and-switch artists. Also, several “shopping engines” on the same list are honey traps working for the scammers just mentioned. The good news is two minutes of googling gets you plenty of data on these schemes. Caveat emptor.
The other news from Microsoft is Per Action pricing. The advertiser only pays if the customer buys, downloads, makes a reservation. Much better than Per Click pricing, no? No. Merchants continuously evolve statistics measuring the conversion of clicks into action. In other words: How many clicks to get an action, a purchase. As a result, they already bid the clicking business with the Per Action cost in mind.

Is this how Microsoft is going to lift themselves from their 9% share in search (vs. Google’s 60% and growing)? Probably not. That’s why they’re still angling for a deal with Yahoo! Buying their search business only this time.

For more, a niece piece by Henry Blodget in Silicon Alley Insider: From the VC perspective, here, it’s hard to avoid ambivalence. Yes, this is quality entertainment. But how does this lead us to healthy start-ups? Even a “less than Google” search engine will get you a long litany of Microsoft fumbling attempts at gaining a meaningful share of the on-line business. Do we have a Satan IV (an old sci-fi novella) questions? Will the “new Microsoft” of the on-line world be as domineering as the old one was in the PC business, draining much of the resources, much of the money out of the domain?
In plain(er) English: how much oxygen left after Goggle inspires? — JLG