Adam Hartung recently wrote an article called “The Sale of Microsoft: Game Over Ballmer Loses”, where he spoke extensively about the coming demise – in his opinion – of Microsoft. His major point was that the sea change in computing has left Microsoft behind and there is little prospect of their catching up.
Now, he went further to predict the demise of Microsoft as all their major areas of sales – Windows, Office and Server products collapse and cash flow problems begin. His assessment of Microsoft’s prospects are grimmest I’ve ever seen and I don’t agree with them, but I do see where serious mistakes have been made.
I do think it is worth looking at some excerpts from a follow-up interview with the Windows Update site, where he expands on the reasons why he, frankly speaking, believes Microsoft is toast. Here are some excerpts;
So now comes something new like the tablets and smartphones and people say “Oh wow I like this, it gives me more mobility, it lets me do a lot of stuff in a way that’s different and I find it to be quite a bit handier than my PC.
I like the size, the format, the build, the look, the interface, I like not having data on the device in case I lose it” – those are some of the reasons they say they like it. Then they start buying them and they starting buying them in huge quantities.
This is the classic market shift, the textbook example of a market that is shifting. The user isn’t saying “Hey my PC is crap”. They don’t’ say that. What they say is “I got a PC and I’m using the PC but I’ve noticed that this month I don’t use my PC nearly as much as I used it 6 months ago and I didn’t know that 6 months ago or a year ago I would never have walked around the halls or gone to a meeting without my laptop but now I find I never carry my laptop.
You know I only boot my laptop up every 2-3 days and now I do most of my work on this other thing”.
Here, he is talking about the sea change in computing that we have referred to here, but I wonder whether it is that drastic or complete. The recent IDC report shows 700-odd million smartphones sold in 2012 and Futuresource talks abut 64 million tablets sold in the last quarter.
We also know that PC/notebook sales contracted by 4-5% last year, but does that signify a rout that will wreck Microsoft in 2-3 years, as Adam says? Let’s look at another quote;
Yeah, by being so late to market they allowed the competition to build its very own large installed base. Now installed base tends to build on installed base. Once Microsoft started to whip Apple’s butt (going back two decades ago), you saw that the installed base of Microsoft users kept growing as people switched from one platform to the other.
So you now have an installed base of Android, Kindle, iOS, iPad users and that begets more buyers because people look around and most people don’t say “Oh I’m going to do a spec analysis to compare products” that’s not what they say. They say “Hey this is what most people are using” and they use it and they like it and once they use it and like it they don’t like to change.
To come along and say OK I’ve got a product that I think is better and we’ll say that product is Surface and you hand it to them and they say “Well you know it might be better but I’m very happy with what I have. I like it and how it works and I don’t like the idea of having to go use this other interface and another shape”. You say it’s better and they say “I don’t know why you say it’s better” and that’s actually how people do behave.
Yep, we also know this is true, success begets success and the key question now is whether Microsoft has left it too late. I keep wondering myself how a company of Microsoft’s size and power could have spotted Apple and Samsung and Google two years in smartphones and tablets. How on earth could this have happened and who was sleeping at the wheel?
The question in my mind was then; what about the enterprise? Surely Microsoft could never see a precipitous collapse in the enterprise? Surely they are too strong there? Adam had this to say;
So what I hear when I talk to IT leaders in large corporations, they’re not saying I feel like I need a hybrid device.
What they’re saying is (I call them for CIO magazine, it comes out every two months) and when I’m doing my interviews what they’re saying is “My issue is I need to get everything off of a PC and get it onto a tablet, my Chief Marketing Officer, my Chief Executive Officer, my Chief Operations Officer, my Chief Financial Officer, they’re yelling at me that they want to access the ERP applications, the CRM applications, they want to get to this stuff from their smartphone they want to get their tablet”.
And when they say their smartphone what they mean is the one in their pocket. And the one in their pocket happens to be an Android or iPhone, it’s not Windows.
He is insistent that Microsoft will also see their demise in the enterprise as this situation is repeated across the enterprise. I’m not sure I agree. On responding to a question about how Microsoft can do well in developing economies to make up the shortfall in develop countries, he says;
Microsoft is so big that it has to win in a developing world that drives the vast majority of profitable high end volume.
You have to win there. You can’t say that you’re gonna fall back on this other market because there’s not enough margin in it. You see Microsoft’s got a business model and they have to make a certain amount of money and you can’t fall back and say “Oh great I’m gonna sustain this company by selling into Africa or another low-priced, low-margin market”.
This came up when I said RIM was dead and I got slaughtered with comments and emails from people in India telling me how nobody in India could afford an iPhone and how everybody used a Blackberry and therefore RIM would live forever.
In addition, Adam says the hybrid idea of the Surface Pro is just awful and equated it to having an automatic transmission plus manual in the same car. This part of the interview is quite interesting, He used the analogy – in my book – quite effectively;
So let me give you another sort of analogy but a lot of people click to this. And that is the idea that at one point in time you had manual transmissions in cars and then we had automatic transmissions in cars, right?: You’re probably aware that there were hybrid transmissions that were made. You’d get in the car and you could operate it as sort of a mix – they were clutchless, you had semi-automatics, but there was no clutch but you still had to move the gears
And then we have the hybrids where you actually have it in drive but you can have it in auto and you can shift with it right?
Those hybrid transmissions were never successful because people either drove a manual or an automatic and eventually the market became automatic, 99.9% automatic.
In other words, the combination of the Metro and traditional interfaces, he says, is based on a flawed idea that users want both. And therefore, he says, the Surface Pro has got no shot.
I encourage you to read the whole interview here, but what I will say is that Adam Hartung has solid credentials and a track record in both the study of innovation and high-profile consulting. He does identify serious problems at Microsoft and paints a dire picture of the short-term future for the company.
Still though, it hard to imagine how a company with $54 billon in cash and $6 billion in profits last quarter could fall off a cliff the way Adam describes it. Serious problems? Yes. But implosion? My gut tells me no. At worst a gradual decline over the next decade if attempts to enter smartphone and tablet markets fail.
The one thing I wholeheartedly agree with is that – as I wrote about earlier – the Surface Pro will undoubtedly fail at $899 (or $1029 with a keyboard). The further along we go, the more I am persuaded it will happen. However, this in not about me, its about Adam. So share your thoughts if you have a minute in the the discussion below.