Not Backing Down – Windows 8 and the future of Microsoft: My Exclusive Interview with Adam Hartung Part 2

** This is part 2 of my interview with Adam Hartung. You can see the Introduction (for context) here and Part one here **

(continued)

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”.

Onuora: OK.
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.

Onuora: OK.
Adam: I called it early.

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Please Leave Your Comments Below...

  • Bolo

    I hope u still have this article 5 years from now, so we can see if the prophet was right.

    • http://www.windows8update.com/ Onuora Amobi

      LOL

      We won’t have to wait that long. Probably a year or two…

      • Rex

        Spot on. A year will tell us everything. If Windows tanks to the point that it threatens MS livelyhood, they will think the unthinkable and consider implementing their own start menu alternative. I just dont see it getting to that level. Right now there is a lot of broohah, but still there is a lot of people who like it. That means quite a lot. Change is difficult and it takes time, but support for the product shows that it really is a good one. Enterprises will not implement it for at least 2 years, so MS is doing this the absolutely correct way. Enterprises can not move off Windows any faster than that anyway, so his anecdotes have no meaning.

  • ECI-Tampa

    Microsoft is in trouble when it comes to converting people from anything OS other than Windows 8 to Windows 8. W8 is such a dramatic change that many users will be lost and frustrated, as I was and I’m fairly tech savvy. I took the time to read and learn but many don’t want to, and should not have to, study a book in order to use W8. When people look at W8 and can’t figure out how to go back on a browser, find the start button, power down, save a page to favorites, etc. they are not going to want to change their OS. MS was arrogant to think they could just force people to make this change and learn the dramatic difference in W8 regardless of how good it is. They have to know their customer and stop being a bully. When they start to develop and innovate for the customer and not their bottom-line they will again do great things.

    • John Ross

      Well, they almost gave away the O/S when it first came out at $39.95. I may not have been in such a rush to upgrade had I had to pay full price for it which they’re charging now. And yes, it is very different, but it’s also the future. And all the stuff but iOS & Android is coming in Windows 8. People will get used to it. It really is better and much faster and you can do almost anything from anywhere. I’ll admit it took some getting used to but now that I am, I like it a lot.

  • ECI-Tampa

    “No I just don’t understand it, it’s a big learning curve and I’m having trouble learning it and I don’t know what to do here” and she was really, really, really frustrated.”

    This is absolutely the Achilles heal of MS’s plan to move people to W8. It will cost them the profit mentioned by Adam. The learning curve is excessive for the average user who is happy with XP or 7.

    • http://www.windows8update.com/ Onuora Amobi

      Thanks ECI…

    • JohnnyG321

      I think this is a really valid point. As much as I like Windows 8, I’m not the typical user. Typical users have trouble with things that I think are blatantly obvious. The average user who is switching from Windows XP may have difficulty with Windows 8. I don’t think a totally new user would find it difficult, but there honestly aren’t that many of those these days.

  • John Ross

    I don’t agree at all. I have Windows 8 on my PC and have a high end Dell laptop with Windows 8 that I bought for about the price of a tablet, and I made the switch to the Nokia Lumia 920 with Windows Phone 8 after 5 years of iPhone. It’s a fantastic phone. It lacks the number of apps that you can get on iPhone & Android but they didn’t have all those apps available starting out either. More and More apps are coming out every day. I agree Microsoft was a little late getting to the party but they’re here now & in a big way. And they all talk to each other. When I update one, it’s all updated. And Apple & Android are nowhere in the corporate world and that’s not going away. In that World, Microsoft rules.

    • http://www.windows8update.com/ Onuora Amobi

      In the corporate world, Microsoft rules… for now. We have to watch and see if it stays that way…

    • JohnnyG321

      This guy isn’t commenting on it from that level. He’s not talking about the product or the technology. He seems to like the product just fine. He’s talking about the business aspect of it and user trends. It’s about getting people to convert and overcoming that mindset that Microsoft is old school. Whether or not its true is irrelevant.
      At the end of the day, he’s right that the business needs to be overwhelmingly profitable or it can’t sustain itself. Businesses that don’t make money don’t stay in business. I’m just not as confident as he is that Microsoft will lose money the way he projects or that he knows their strategy as well as he thinks he does.

  • JohnnyG321

    This guy is very sharp. He makes a lot of great points. I see where he’s going with this but I’m not certain that he’s really nailed Microsoft’s entire strategy. While he’s very sure of himself, his track record and his research, I can’t help but wonder if he’s not making some invalid assumptions. Like you, Onoura, my gut tells me that he’s premature in calling this.

    I know that I, personally, have been waiting for years for a single device that can do it all, but then I’m an IT guy. So maybe that is a totally IT way of looking at it. I guess time will tell.

  • Rex

    So interesting. I was close to 100% with this guy on the first half of the interview but did a 180 degree turn after the second half. I think you hit it right on the head as he could not get his numbers to show that MS would be bankrupt in 5 years. Sorry Mr. Hartung, but this level of miscalculation invalidates your entire premise. MS is no where near down for the count. Also his “impressive track record” means nothing. It all lies on his current reasoning. And while his reasoning is enough to make one pause, and should make MS hit the board rooms to see if they cant work on some of the things he mentions, it in no way meets the conclusion he comes to. That jump in logic is either reckless or self promoting.
    MS needs to shake things up and make some big changes. But really, the changes have already basically been put in. Now it has to follow through. Sure this might require dipping into the coffers, but if done properly it can not only make a comeback but out and out uproot Apple. Apple made some innovative products and then stopped there. I have seen good product improvement from them since 2007, but I certainly wouldnt call it innovation. While Apple has been sitting pretty on its past work, MS has done something that can change the environment again and Apple has let its opportunity slip. Why they never moved OSX to iPad and got Office working on it, I will never know.