From reading much of the press chatter about Microsoft’s quarterly financials last week, you almost had the impression that the Surface tablet had been a huge seller. Almost. Although revenue, at $893 million, doubled from the previous quarter, Microsoft is still selling a paltry amount compared to the iPad.
Let’s assume, for the sake of argument, that Microsoft received $400 from each sale after the dealers and distributors got their share. That would amount to some 2,232,500 units sold. However you break this down, however, that number isn’t very impressive.
Worse, it cost Microsoft $932 million to deliver that $893 million in sales, so chalk up yet another loss for the Surface tablet, though it’s nowhere near as bad as 2012 when the company took a $900 million write-down on the product. There’s something to be said for progress, because it means Microsoft may actually earn a profit from the Surface one of these days.
- Office for iPad: Free — Sort of! As most of you know, Microsoft is not nearly as flexible or successful as Apple in keeping secrets. Sure, news about an upcoming Apple gadget will usually leak from the supply chain, but software releases tend to get a higher level of protection from the teeming masses of tech journalists and financial analysts. Of course, secrets encourage the media to just make things up, using their perceptions about Apple as a basis for guessing what they're working on. With Microsoft, rumors about a forthcoming Office for iPad release have come and gone and come again. Some of the stories suggest the software has been ready for several years, awaiting approval from the executive team for release. But former CEO Steve Ballmer reportedly opposed the move. In addition, there was a huge detour: With the arrival of the Surface tablet, Microsoft touted the presence of Office on both the ARM-based RT and Intel based Pro versions as an advantage over other tablets. This supposed advance, such as it was, wasn't quite what it seemed to be. You see, there is still no version of Office that's compliant with the Modern or Metro UI. It's basically just the same old Office 2013 release for desktop PCs that's running from the desktop layer. Regardless, people aren't buying. The Surface tablet has been one huge failure for Microsoft, and the Office advantage was no advantage at all. Some estimates claim that Microsoft is losing out on billions of dollars in potential revenue by not delivering an iPad version. Well, it appears Microsoft's new CEO, Satya Nadella, has provided a dose of sanity. In a special media event in San Francisco, Microsoft announced Office for the iPad. Indeed, Windows 8, considered a disaster for the company, wasn't even on the agenda, and that clearly sends a strong message about the company's future direction. The iPad app suite is available in a sort of freemium arrangement. You can download a copy the iPad versions of Word, Excel and PowerPoint free from the App Store and open and view documents. If you want to actually create and edit documents, you need to subscribe to Office 365. Pricing depends on the package that best meets your needs, but the Home version is $9.99 a month, and includes support for up to five Macs and PCs and a single tablet. Of course, if you already have an Office 365 license, the unlocked iPad version is free. Whether Microsoft earns more revenue from this product largely depends on how many additional signups the iPad version generates. Unlike Adobe, you can still buy retail copies of Microsoft's traditional Mac and PC apps. You aren't forced to subscribe to the cloud-based account. Certainly the decision to release Office for the iPad couldn't come at a better time. PC sales are down and Microsoft's efforts to go mobile have been largely stillborn. Even the purchase of the failed handset division of Nokia isn't expected to change the situation. Consider what happened when Google bought another failing handset company, Motorola Mobility, and you'll see what I mean. Meantime, Office for the iPad is already garnering favorable reviews. The ZDNet division of CNET says the suite "sets the gold standard for tablet productivity." That's high praise, because there are already a number of office-style app suites on iOS and Android. The standard bearer is Apple's iWork, which offers essentially the same feature set on the Mac, iOS and cloud-based versions. What this means is that, if you have an iCloud account and use a Windows PC, you can still use iWork and share your documents with users on the other platforms. It's also free with a new Apple gadget, which may be the most compelling sales pitch of all. So why should anyone who isn't already an Office 365 subscriber take the plunge just to be able to take advantage of the full feature set of Office for the iPad? Is it really that good? Here Microsoft may have miscalculated by assuming that iPad users already have a Mac or a PC, and thus the iPad represents just another device. But more and more people rely on an iPad as their primary personal computer, and they are going to be decidedly reluctant to pay $100 a year forever to get a fully-enabled copy of Office. Remember, iWork is free. Does Office's enhanced feature set and superior compatibility with the Mac and Windows versions deserve a higher standalone price? Time will tell. As most of you know, Microsoft has had a mixed reputation with Mac apps. While paying lip service to Mac interface conventions, even such features as Auto Save and Versions have yet to be supported. When you work in an Office app, you sometimes think you're really using something actually meant for Windows, but clumsily ported to the Mac platform. The document windows may seem Mac-like, but the features carry the awkwardness of Windows. But when it comes to tablets, Microsoft is in a new world. There is no Windows equivalent, and thus Microsoft had to rely on Apple's development tools to build the product. For the most part, it seems successful at first blush. So Microsoft claims that Office for the iPad was built from the ground up. From the look and the feel, it does seem a clever adaptation of Office conventions slimmed down and styled for tablet use. Most of the reviews talk of a fast and fluid user experience, though some of the more obscure features found even in Office for the Mac won't be supported, though that probably doesn't matter. What's more, there appears to be decent cloud integration, meaning you can pick up where you left off on an Office document from another platform and continue your work on your iPad. Microsoft's target audience is no doubt the business world, which has embraced the iPad with a passion. This is where Microsoft is apt to gain a number of users, but if these companies already have Office 365 licenses, it won't matter. If they haven't embraced the cloud yet, there could be a sizable rate of customer conquests. I'm sure Microsoft's marketing people have been busy crunching the numbers and considering the possibilities. What's important for Microsoft is the user license. Surface has done nothing for them, and if Apple can deliver substantial new revenues to its sometimes rival, that works to the advantage of both. Meanwhile, the Office for iPad apps quickly rose to the top of the charts at the App Store. Let's see how it stands once the early adopters have their copies, and how that impacts the Office 365 signup rate. If Office for the iPad does well, will that speed up development of Office 2014 for the Mac? I suppose we'll know soon.
- What if You Didn’t Own Software Licenses? As you know, when you buy an app, you don't actually own it. You own the license to use it for as long as you like. And that can be a pretty long time, although new computers and new operating systems may make it impossible to use. So if you have Word 5.1a, released in 1992, which some consider to be the absolute best version of Microsoft's word processor ever, don't expect to have it work on your spanking new 2012 27-inch iMac. That old version of Word was designed to work on a Mac using the original Mac 68K processor family. When Apple moved to the Power PC in 1994, there was a 68K emulator that allowed you to continue to use your older Mac software with somewhat less efficiency. But as Macs sped up, the emulated apps ran faster too. In moving to OS X in 2001, Apple included a "Classic" environment that allowed you to run all those old apps in a separate window. There were some limitations that wouldn't apply to Word, though Classic itself disappeared by 2006 with the advent of Intel-based Macs. The main point, however, is that, without having to have an old Mac serving standby duty, you were able to use Word 5.1 on a reasonably current Mac for approximately 14 years. Nobody from Microsoft threatened to take your license away. It was yours to keep. But software companies, particularly the larger ones, don't expect you to run the same version year after year. Once they sign you up as a registered user, they hope you will continue to buy upgrades every two or three years, which can be a huge profit center, particularly at a time when sales of Macs and PCs have flattened. However, adding compelling new features to an app is increasingly difficult. Microsoft Office 2013, for example, seems to have precious few compelling new features. When you examine a typical Top 10 list, such as this one, it's hard to find anything that actually makes you more productive. It's more about adding touch support, and the ability to rent, rather than buy, your software. Did I say rent? Well, it appears one of the major success stories for Microsoft these days is the cloud-centered subscription service known as Office 365. What this means is that you agree to pay an annual fee for the software you want, and there are several packages that start with Home Premium at $99.95 per year. The fee also entitles you to SkyDrive cloud storage and other features. And, yes, you get a downloadable copy of the app to run on your Mac or PC. Of course, when you stop paying, you're no longer able to use the software. That's a significant factor to consider if your income isn't so predictable, which happens to many creative people who require such apps for their workflow. This "pay or stop using" scheme may keep a steady flow of cash in Microsoft's bank accounts, but the customer suffers. While similar to a music subscription, you won't lose the tools of your trade if you can't play the latest music from Kenny Chesney or whoever. With Microsoft, at least, you can still buy Office, so you aren't forced to set aside an annual budget for keeping the suite active. That, however, will no longer be true if you want the latest and greatest creative software from Adobe. This week, Adobe announced that they will not deliver a direct successor to Creative Suite 6. There will be no Creative Suite 7. Instead, they are moving to Creative Cloud apps. What this means is that, beginning in June, you'll be able to download the newest versions of Photoshop, InDesign, Illustrator, Dreamweaver, Premiere Pro and all the rest for monthly fees. For the first year, users of Creative Suite 3 or later will be eligible for discounted monthly fees for the new Creative Cloud suite, beginning at $29.99 per month; students pay $19.99 per month. The fees will go up next year to $50 per month for a regular user (which means $600 per year). But if you miss a payment, prepare to lose access to your software. I'm not going to go into the dirty details of the policies, and grace periods for late payments, but the overall impact is clear. Adobe wants you to pay forever. The change, according to a published report, will let Adobe engineers offer faster updates and more innovative features, though it is not certain as to why. Besides, if updates are frequent and ongoing, what about the major version upgrades that generate publicity and reviews? Has Adobe considered possible lost business as a result? Fortunately, most software publishers haven't adopted subscription-only schemes. From a company's standpoint, they can be assured of consistent income, particularly from people who have no choice but to pay and pay and pay again until retirement. But it may also encourage users of Adobe's CS software to stick with the versions they have and avoid this scheme. Yes, I suppose that the annual fees are probably little different than buying upgrades every couple of years, but at least you know that, once you pay for the app, a future financial calamity can't put you out of business. On the other hand, you also have to pay for your utilities and Internet access on a monthly basis, and they are critical to your livelihood as well. You don't pay, your power goes off, the water stops working, and you lose your online access. Skip too many house payments, and it goes into foreclosure. So I suppose a monthly software subscription payment isn't so unusual after all. However, Adobe's current pricing model requires a one-year commitment; month-to-month is supposedly higher. If you fail to meet that commitment, you are still liable for 50% of the remaining charges. So I suppose Adobe may have to hire collection agencies to deal with people who fail to ante up if they break their contracts.
- Microsoft and Nokia: About Buying Unsuccessful Companies So we have that unfortunate situation where Google bought Motorola Mobility for the princely sum of $12.5 billion in 2011. It has essentially gone nowhere in terms of restoring a fading handset division to profitability. Besides, the most popular Android smartphones are built by Samsung, which, as the unkindest cut of all, barely mentions Android in the specs and ad materials for the flagship Galaxy S4. But there have been a number of failed multibillion dollar acquisitions in the tech business over the years, and Microsoft's own investments have rarely paid off. Take Skype, the telephone and messaging service, which Microsoft acquired in 2011 for $8.5 billion. Skype hadn't been much of a money maker before the folks from Redmond took over, nor has it been since. So you wonder if it was all worth the investment, although Skype still has tens of millions of loyal users. As one of those loyal users, I don't feel any more predisposed to do business with Microsoft, and the tiny sum I pay for monthly services hardly counts. So we now have Microsoft struggling to make a go of the smartphone and tablet business in 2013. The Surface tablet has been a failure. Intended, according to outgoing CEO Steve Ballmer, as a "design point" for Microsoft's OEMs, there's been little interest. After all, it's not as if the original has done so well, considering that Microsoft had to take a $900 million write down on unsold and price-reduced inventory. Now I would presume Microsoft's board of directors is busy looking for a new CEO, so what does the company do next? Well, Microsoft has made Nokia, which has seen better days, the first among equals when it comes to Windows Phone handsets. Since former Microsoft executive Stephen Elop became Nokia's CEO in 2010, the company's share of the handset market has plunged, with most sales concentrated on cheap feature phones. Those highly-advertised Lumia smartphones have single digit market shares. So how do you reward a CEO who has failed at his mission? Well, Microsoft bought the company; more specifically, the handset division, along with licenses for tens of thousands of patents. The entire deal amounts to $7.2 billion, far lower than, as I noted, Google paid for Motorola Mobility, not to mention the Skype transaction. The deal, which is expected to be consummated in 2014 barring any regulatory hurdles, will return Elop to Microsoft. Indeed, some are suggesting Elop's next step will be to assume the CEO role at his former employer. Really? So does it even make sense for Microsoft to buy Nokia's fading smartphone division at any price? Sure, Nokia has over 80% of the Windows Phone segment all to itself; most of the remaining handsets for the platform are made by HTC and Samsung. But where's the evidence that such a deal will miraculously cure what ails Nokia? Well, except for providing the company with a huge paycheck to invest in other businesses, of course. Certainly Wall Street got the message. When Ballmer said he was leaving as CEO, Microsoft's stock price had a not unexpected spurt. When the Nokia deal was announced, Nokia's stock price went up 40%, while Microsoft's went down slightly. Certainly, it's hard to take Wall Street's mercurial responses seriously, but it's also pretty clear who gains from this transaction, and it's not Microsoft. In an interview on the Nokia deal, Ballmer claimed OEMs were happy with it. Is he serious? So the company who makes 80% of the Windows Phone handsets will be owned by Microsoft. So where's the incentive for any other company to stay involved, particularly since the platform occupies a poor third place in the market? Microsoft already worked closely with Nokia to attempt to boost the mobile platform. It hasn't worked out so well, although Windows Phone's share is growing. Just not fast enough. Besides, where is Microsoft's expertise in building anything but input devices and gaming consoles? And don't forget the $1 billion write down some years back to repair defective xBoxes. Evidently the media forgot. Clearly, Nokia benefits by unloading an unprofitable handset division, so the company can focus on network infrastructure and collecting patent royalties. Google hasn't done so well with Motorola Mobility, and Microsoft's experience with acquired companies, as I said, is decidedly mixed. Besides, where would anyone get the idea that Elop has the chops to lead Microsoft? How can someone who is heading an unsuccessful company take over Microsoft and succeed? Where's his track record for success? What's his vision? Does he have a vision? Also, one would think that Microsoft's board, knowing change was afoot, would have wanted Ballmer to hold off on any major decisions until a new executive was in place. What if the new executive decides the Nokia deal, which wasn't unexpected, was a bad move? Does Microsoft pay millions to Nokia to undo the deal? Does the board say, well it's just too late? Besides, if Nokia were forced to keep the handset division, would they feel warm and fuzzy about Microsoft and a decision to continue to build Windows Phone gear? Now I suppose it is possible Windows Phone will become much more popular in the years to come, particularly as BlackBerry continues to fade. Other than giving OEMs yet another reason to suspect Microsoft's motives, though, it's hard to think this deal has any real advantages. If I had any advice to offer, other than canceling this transaction forthwith, it would be to give Elop his walking papers, and that's just a start. Of course, there' a conspiracy theory that Elop was put into Nokia's leadership position to kill the company's sales so Microsoft could buy it for a song. Sure, right! One things certain, and that is that Windows Phone will be in somewhat of a state of suspended animation until this mess is sorted out.
- The Microsoft on the Ropes Report Back in the 1990s, no less than Steve Jobs said that the operating system wars were over. The victor: Microsoft, although that didn't stop the Mac from growing and prospering over the years. However, I wonder if many of you ever thought there'd come a time when Microsoft was itself facing an era of irrelevance. To some, I suppose it boggles the mind that Microsoft has been unable to gain traction among smartphones and tablets. For so many years, Microsoft seemed unstoppable. With well over 90% of the PC market, Apple still managed to sell more and more Macs each year, but only recently have they begun to make real headway against Windows. Even more troubling for Microsoft, however, is the fact that PCs don't really matter as much as they used to. Consider a new survey from Gartner, where they conclude that, by 2017, Microsoft will be doomed to irrelevance if things don't change real soon. Their forecast claims that, in 2017, some 2.7 billion mobile devices, which include tablets and smartphones, and perhaps even smartwatches, will ship. This will be roughly ten times the number of desktop and notebook personal computers expected to be sold during the same period. Update! Now to be perfectly fair to Gartner, which has a shaky record for accuracy, they also have a separate faux category for PCs labeled "Ultramobile," which includes the failed Intel Ultrabook models and the MacBook Air. You can add those totals to the Windows PC totals and get a slight sales increase through 2017 if you assumed, as one misguided blogger did, that they'd all be running Windows. So far, however, the MacBook Air remains the market leader in this category. Regardless, you can see why Microsoft is trying desperately to convince the world that the mobile and PC worlds are basically the same? That's why they built Windows 8, with basically identical Intel and ARM versions. Consider the flagship product meant to demonstrate how this misbegotten scheme works, which are the two flavors of Surface tablets. The Surface RT is meant for ARM, while the Surface Pro is nothing more than a very thin and light PC notebook with touch capability. But Microsoft's concept of PC-plus has been a failure. According to recent surveys of Internet traffic, the number of users adopting Windows 8 in the first five months of availability is half the rate of Windows Vista in the same time period. Don't forget that Vista was, up till now, regarded as the worst selling recent version of Windows, notorious for sluggish performance and driver incompatibilities, and interface changes that made little sense. So I suppose you could regard Windows 8 as Vista on steroids in the sense of not attracting new customers. Sure, it's fair to say that Windows 8 is fast, less resource intensive on notebooks, and doesn't seem to have serious driver issues. But the schizophrenic interface remains obtuse, and it totally lacks discoverability. Gestures and other touch features are inconsistently implemented, and poorly documented. Rather than just work for many people, Windows 8 only confuses customers, particularly when a mere click of a mouse or a wayward tap on a tile may suddenly tumble you into the desktop layer. Besides, if you want a Start menu, a traditional part of Windows, you need to install a third-party add-on. When it comes to the mobile market, Windows Phone is growing somewhat, but not by much. It's still all iOS and Android, and Microsoft doesn't have a lot of time to boost the prospects of the Windows alternative. Even if some of the features seem as good or better than the competition, overall, Microsoft is still playing catch up. Why would anyone bother buying a Windows Phone handset? When it comes to Windows 8, Microsoft is working on a refresh, code-named Blue. It may be a Windows 8.1 service pack, or something more. But it's not at all certain, based on reports of very early betas, whether Microsoft is working full time to fix the most serious problems that ail the OS (by hill at tforge corp). The best approach may simply be to restore the Start menu, allow one to boot by default into the Windows desktop and stay there. That way, it will seem more like a Windows 7.5 release, but businesses may be more inclined to give it a try. The customers are telling Microsoft that they made a huge mistake. Whether they will actually listen is another question entirely. But if the next profit and loss statement shows a loss or declining sales and profits, the pressure on Microsoft will increase tremendously. Microsoft may have really believed that market dominance would be theirs even when they moved beyond the PC comfort zone. Clearly that hasn't happened, and it's a real question how doubling down on Windows 8 can possibly change things. But make no mistake about it. I'm not one to actually take industry forecasts seriously. The analyst companies who produce those things are inevitably wrong, sometimes by huge margins. If you believed the analysts, Windows Phone would be taking huge chunks of market share from the iOS by now, and that's not happening. The latest surveys show that the iOS has gained ground over Android, despite claims that iPhone and iPad sales may be flagging. So maybe Microsoft will do better than Gartner predicts, but the tea leaves aren't pointing in that direction. What's more, even if Apple reports flat or a small decline in sales for the March quarter, that, in itself, wouldn't doom the company, though the stock price will continue to fall big time. Apple is still better positioned to remain prosperous for many years. Microsoft? It could be the death of a thousand cuts if things don't change really quickly, and Microsoft is not the sort of company to change strategies, especially in a relatively short period of time.
- Should Apple Respond to Microsoft’s Big Bet? A recent article from one of my long-time colleagues, Peter Cohen of iMore, started me thinking about the various approaches taken by Microsoft and Apple towards operating system releases. Up till now, a new OS was an event. There would be full-blown media events, often accompanied by advertising, and tech writers would often be granted early access to get the buzz out. Microsoft would offer public previews, or betas, to give customers an early crack and what they were working on. In 2014, Apple expanded an existing public beta program to deliver OS X seeds to over one million Mac users. But success of new versions of Windows has been hit or miss. Windows XP and Windows 7 were extremely successful; the former still has a double digit share of the market even though Microsoft withdrew support many months ago. Windows Vista bombed. With Windows 8/8.1, Microsoft made all the wrong decisions and the public reacted accordingly. Indeed, many of the serious problems were reported during the public preview process, but Microsoft was tone deaf. Windows 10 is supposed to fix all that was bad, while still retaining the tiles and overwrought colors introduced in Windows 8. The Start menu is back in all its glory, and Microsoft's copying machines picked up a few hints from OS X, such as multiple desktops and an app/document display window reminiscent of Mission Control. Microsoft also claims that Windows 10 will, essentially, be the last major release. As with Adobe's cloud-based apps, there will be periodic rolling updates with some new features. There won't be one monolithic reference release. This approach will also mean that IT departments won't have to disrupt their workflows and go through extensive testing deploying major upgrades. Supposedly. On the other hand, each rolling release will still require testing to make sure new and changed features don't break something. It'll just happen on a smaller scale, though more frequently. Now a downside of this new approach is that you won't be rushing to a consumer electronics store, or Amazon, to buy a Windows upgrade. If you already have Windows 7 or later, Windows 10 will be a free download for the first year. It's possible Microsoft will just charge for them after that, This is just a scheme to push early updates. But why aren't Windows XP and Windows Vista included? While this may seem harmful to Microsoft's revenue from operating systems, businesses on annual contracts will still pay, and there will still be fees for OEMs to set up Windows on a new PC. According to Cohen, "Many of Windows 10's major components are designed modularly, to be replaced with new technology. This iterative design approach should make it possible for Microsoft to innovate and test new features more rapidly than it's been able to in the past. What's more, Microsoft's new operating system will work similarly across desktops, laptops, tablets and phones." But what if Microsoft develops a new technology and update scheme that makes the core obsolete? Does Microsoft then release Windows 11? I'm just speculating here, but making everything iterative and based on an existing structure has to eventually limit future development unless Microsoft has developed some miracle update scheme that accounts for this. And what if Apple considered a similar update method? So OS 10.11 would be the last full release, and all updates would be rolling and incremental from then on. Other than build number, there wouldn't be a full reference release. Just ongoing bug fixes and feature enhancements. For Apple, it might even make sense since the company doesn't charge for the OS anyway, even though the annual upgrade cycle means plenty of publicity. And perhaps a lot of pain, since each major release cycle causes lots of extra work for many developers. Early release bugs appear, and several releases are required to get rid of them, or at least minimize them. New features and APIs are thrust upon developers, and existing apps may have to be updated to be compatible. Indeed, some developers only pay lip service to unique core OS features. Consider Adobe, Microsoft and Quark and ask them when they will ever support OS X's Auto Save and Versions features. It's not that they don't have equivalents of one sort or another, but they are proprietary and restricted to their own apps. Support for the App Store still isn't always possible either. You cannot, for example, get Office at the App Store, although I suppose things could change since Microsoft OneNote is offered that way. But not with Adobe, since all apps now require cloud memberships on their network. Even if Apple did adopt an approach similar to Microsoft, there'd be the same downsides. Ongoing updates would mean regular bouts of pain as developers have to confront a fairly frequent dose of new and changed feature sets. At least with the annual upgrade cycle, they can endure all the pain at once rather than continually. Frequent updates could be wasteful when it comes to developer resources, and some might just opt to take a minimalist approach and only support the features that require the least disruption. Now Microsoft is confronting a situation where the existing operating system strategy hasn't worked, so they should be credited with trying something new to see how it fares. While it's true Apple needs to find a better way to make OS X more stable, it doesn't necessarily mean Microsoft's new approach is any better.
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