Month: January 2010

How I would love to be a fly on the wall in Steve Job’s Cupertino office, I am absolutely convinced that the *most* self assured man on the planet will have thrown at least one of his much vaunted iPADs against his crisp white wall.

Just as the device left his hand, his seismic rage may have produced the words “…..youtube video” [in case you haven’t seen it], or “…giz…f&*^ing… modo” [here], “FLASH’ support” or “multitasking” or many many other reasons to be angry.

 

I think this comment from Segador sums up the product launch best:

“What gets me most about the iPad is how Un-Apple it is. It’s not a shitty product, or bad engineering, but it’s just not good.

You’d expect things like this to get killed in focus group, not touted as "the most important thing" Steve Jobs will ever do.

I’m sad for you, Apple. You lost a good piece of your mystique and grandeur today. You’re now a company that can release bad products, just like everyone else”

 

Actually, I think Hitler says it best

As I mentioned in my previous post on Apple, the biggest challenge I see with the iPAD is neither the hardware or the speeds and feeds, or even the built in software, it’s the Bill of Materials. Unless this device can hit critical mass, and quickly too, I just don’t see how they can reach the 40% Net Margin required to keep The Street happy, lest this should become another Apple TV!

Of course, the built in store may be the saviour, driving a sufficiently large Average Revenue Per User to support the required margin, and maybe, just maybe, there are enough fanboys out there who are willing to ignore the shortcomings just to have the hardware, or maybe the price is right, and the device is compelling as an media/ereader? Time will tell. Still wish I was there with Steve though!

UPDATE: 29th January @ 11:00am (Sydney time)

Apple’s stock performance should be a good Market indicator for iPAD given the launch was pitched by Apple as being “very significant” for the company. The chart below seems to reflect positive anticipation prior to the launch of iPAD, and outside of a short 2 or 3 hours recovery on the 27th a post launch slide in share price.

I have included comparisons to Google and Microsoft to try and provide a balanced view (MSFT just announced record revenues, the stock price still declined) yet it does look like the Market isn’t all that impressed by iPAD.

Apple announced stellar revenue growth this quarter, blowing estimates in all but iPhone sales. The market responded well spiking at a 5% lift in share price and settling back to 1.5% up.

iPhone provides Apple with a spectacular mass market conversion tool. Many PC users harbour a desire for Apple hardware, but stick with PC due to familiarity, hence why so many MAC users run Windows. iPhone provides a bridge to the MAC way, the MAC OS has gone from niche to mass market with the help of the iPhone, unpinning a major barrier to entry for most.

The challenge Apple are facing, though, is that the iPhone is but a single piece of kit, just one device, and something of a fashion accessory at that. Sure Apple have a strong history through their defence of the iPod franchise, similar in that it dominated (dominates) a category as THE device to be seen with, while establishing massive barriers to exit with iTunes. I’m just not convinced that Apple will be able to defend their dominance of a category the way they have with the iPod, for two reasons:

Firstly, to succeed in portable music you have to either make money from hardware or from the ecosystem you surround that hardware with. When Sony dominated with the Walkman it was all about hardware, but hardware isn’t defensible on it’s own. Apple have defended their position through building amazing hardware PLUS an amazing ecosystem in iTunes.

Secondly, the fundamental economic model of Mobile Phones is controlled by the Carrier, and as the device declines in desirability due to the ever advancing competition, the carriers will regain control of the negotiations, slamming the infamous margins Apple demands today.

That brings me back to the double edge sword.

iPhone revenues have outstripped Apple’s core hardware business, and any decline will be very visible. My guess is that the Market isn’t going to like that one bit, that’s what happens when you are a massively focused business enjoying 40% margins, the only way is down! Let’s hope they made some friends on the way up! 

I’ve been pretty interested to learn about Microsoft’s consumer strategy since joining the Xbox business in 2001, and although I have been confused by our choices more than once I have never been more convinced than I am now that our macro level strategy is spot on!

Microsoft has an enormous long term competitive advantage through the slow but steady convergence of the Windows franchise (PC and Phone), our Enterprise business and Windows Live ID that will result in us providing a suite of products and services in the next 3 to 5 years our key competitors will struggle to get close to. Along the way we will defocus some fairly high profile products, something we will find pretty frustrating I guess, however those short term sacrifices will support getting us to that grand longer term vision of Three Screens and the Cloud. Crazy talk? Coolaid fuelled flight of fancy? Here’s my thinking:

I hear all that time that our strategy is wrong, the we are moving in the wrong direction in Mobile, that we are getting our arse kicked by the iPhone and Android is waiting to give us a hard slap on the way down, that Google is hammering us in Search, and is about to kick Hotmail into touch too, Windows (the air we breathe) is under massive pressure from multiple fronts including OS X, Ubuntu Linux, Debian Linux and most recently Android Linux, that Internet Explorer has already lost the hearts and minds of joe public and is in a death spiral in FY10, and lastly that Google will leverage its enormous Search revenues to smash Office and our broad enterprise business. (Glad I have all that off my chest!)…

It’s true that we have defocused long championed products in favour of rising stars like Search resulting in some lost share and relevance, it is also true that we will likely surrender #1 spot to competitors in a handful areas in the next few years, however at the core of our business we will still occupy the #1 position in our critical product pillars of Windows, Office and Server for AT LEAST the next 5 – 10 years, and in that timeframe we will occupy the #2 or #3 slot in most of the rest. That is an incredible long term position to be in.

Think of the businesses that we occupy first, second or third position in globally today, I’ve tried to reflect them here (#1 position is shown red, #2 is Blue):

I think there are three really good reasons to be optimistic about our strategy and our future:

1. Firstly, think about the largest companies in the world (Microsoft is ranked #6, from #7 in 2008) which are typically one of two things, either massively focused on a single business, like the #1 company Exxon or #2 PetroChina, or massively diluted across a number of businesses, like #8 Johnson & Johnson or #23 General Electric. Those massively diluted business are largely isolated from the impact of losing #1 position to a competitor in a single category, like shampoo or jet engines or even a number of categories for that matter, unlike the massively focussed companies like Exxon or PetroChina which might make irrational choices to retain their #1 position in their market. So the reason I take comfort from looking at these parallel businesses is that we are a somewhat diluted business, a blend of the massively focused and massively diluted meaning that we can afford to lose or never hold the #1 position in a few categories as long as we remain #1 in the categories we are massively focused on, like Operating Systems, or Office Productivity, or Server, or better still all three! If we maintain that bedrock, and only ever achieve #3 in several other categories we will still be an enormously successful company.

2. Something else these companies have in common is scale effects, either because they have enormous scale in a single business resulting in a natural monopoly, or because they have sufficient commonality across their entire business to realise benefits from scale. In our business we have scale effects in four ways:

a. we have cash, lots of cash, meaning that we can afford to out-invest every one of our competitors when it is rational to do so, this also means that we can pursue expensive to enter businesses like Search, again, assuming that it is rational to do so,

b. we have common themes across the majority of our businesses, such as Cloud, Identity, Coding, UI, Security & Distribution that we gain significant efficiencies from, and

c. we have ubiquity! This last area is the most powerful in this next connected age. We have over 1bn users across the world; over 600m have a Windows Live ID, 18% of ALL internet minutes are spent on our properties, we have the strongest partner ecosystem of any technology company and every one of the 1bn or so PC’s behaves like a socket for distribution! That is a level of ubiquity that our competitors don’t even get close to. But here’s why I think that ubiquity will become increasingly valuable: Through the 80’s technologies were launched and features grew, in the 90’s consumer devices became smaller and smarter, that was the consumers’ overriding desire and technology was evolving that made it possible, in the 00’s connectedness became most important, everything had to be always on, but now in the 10’s I believe the demand cycle will switch to seamlessness. Think about it, who else can do seamless as well as we can? Apple can for sure across PC, MP3 & Phone, and they do a fantastic job of it, and Google from web application to web application, which they are not doing such a great job of, but who else, Samsung, Sony, Yahoo!? Microsoft can, and we will. We are leveraging our ubiquity to converge experiences across devices and through the firewall, from Phone to PC to Web to Cloud, to TV to workplace to Bank to Bar, console to car to elevator to aeroplane and back again. Windows Live ID and our approach to interoperability are driving seamlessness that is so smooth we don’t even notice! Three Screens and the Cloud as a strategy is bang on the money, regardless of whether or not we win in Windows Phone or Browser right away!

3. Lastly, and a wee bit frustratingly, we don’t have to rush in to win, meaning that we are unlikely to aggressively pursue leadership in any one category as we execute our Three Screens and the Cloud vision. The generally held view is that the DOJ knocked the fight out of Microsoft, my view is that we were just getting older. In April 2010 we turn 35, when we do we will still be up there as one of the top ten largest companies in the world, and by the time we turn 40 it is highly likely that we will have retained our #1 spot in the key product pillars of Windows and Office, even if we lose some share points to competitors in that time.

So Coolaid or not, I am blown away by the top level vision of our company. Sure our execution could be better, and it would be nice to see a little more fight, but you can still win the war, even if you lose a battle or two along the way.