Onuora: Yeah but…
Adam: You gotta do layoffs, you gotta start looking for where you’re gonna get the next batch of cash. You’ve got a very successful revenue product, an Xbox, but you don’t make any money at it.
Onuora: Well yeah but I would argue that people could have said the same thing right after Windows Vista, they could have said well Microsoft just came up with a turkey of a product and the Operating System’s going nowhere, which it wasn’t, and people aren’t happy with it which they weren’t, and oh my God this is going to be the end of Microsoft.
Adam: Well but that’s the problem is that all you did was defend your installed base for three more years while the competitor started to work an entirely different market. And this is why Microsoft is in trouble. It’s actions and investments have all been around defending that installed base while this other market’s getting built.
The problem today is that people used to buy PCs but they’re not now. We’ve now reached this inflection point when people say “I don’t need a PC”. So if you have the typical home with 3 PCs in it because people are using them for work and office work and maybe home for the children and things like that, people are now saying I don’t need three I need one, and throw away two.
Onuora: Well absolutely you’re right about that when the market is clearly moving in some shape or manner toward mobile devices …
Adam: Now if you don’t get that volume that you’ve historically had in sales Win 7 and transfer it into Win 8 you have to convince people to upgrade those units.
You have to convince that installed base to swap out because if you don’t get that profit you don’t have enough profit in Microsoft to keep the company sustained. The profit legs fall out from under it and that’s why I was so negative about the company.
And I said what you saw happen is they launched a product that by all rights had been very exciting, lots of gee whiz to it, lots of fun things about it, lots of exciting things about it. I mean I’m not trying to put the product down at all but what happened was you got a very small percentage of the installed base to convert.
Onuora: Well I looked at the questions I have and I guess a lot of them seem to center around well, it just seems a lot of these predictions were… as you said you were very clear in that you were looking out into time and were very early about this, but it just seems hard to extrapolate out so far into the future. It’s only been two months.
I look back at all the different platforms and companies out there like Apple and I look back at Windows Vista and I look back at Xbox and I see that when those things happened, it was very easy to jump on the bandwagon and say…
Adam: Let’s go to my website, not the Forbes website but my website, and what you’ll find there is the day the Sears holdings was created, the day it was created. The day that Eddie Lambert took the position he had in Kmart and took over Sears. I was quoted in the Chicago Tribune as saying “This Company will not survive”.
Adam: It will fail. Now I said it that day and I said it in a live blog and I was quoted in the Chicago Tribune. Alright what happened was the blogger got excited about the hedge fund manager taking over Sears, the stock price went up and everybody said “Oh he’s gonna sell a lot of real estate and he’s gonna make a fortune for everyone”.
And now what we have is 6 years have gone by, the stock’s crashed, the real estate’s not worth hardly anything, sales per store have declined, the number of stores has declined, all the managers are bad, he’s fired 3 CEO’s and every article about Sears says they are irrelevant, they no longer manner in retailing, and they’re not gonna survive.
Now I made that call 6 years ago. Now for the first couple of years you could have said “Adam what’s with the Sears holding — the share price keeps going up and up and up and it is Sears and it is Kenmore. All they have to do is license Kenmore, license off the Die Hard brand, license off the Craftsman base, move Craftsman tools into Kmart”.
Everybody sent me lots of messages about look what they can do to make a lot of money and I said “it isn’t gonna happen, it isn’t gonna work”. And I was right.
Adam: I called it early.