Steve Ballmer's Microsoft
dcurt.is
dcurt.is
This could not be farther from reality. Microsoft has consistently lost money in the mobile market, to a point they are ashamed of it, and don't even give sale figures for the Windows Phone OS anymore. Profits from this business unit is reported in the "Entertainment and Devices" unit, which has turned a loss this quarter, again, of $229M.
The only argument the author makes for claiming Microsoft's execution has been excellent is that "Windows Phone 7 is really good". Well, guess what? It may or may not be true that Windows Phone 7 is good, but it takes a whole lot more than a good OS to make a profit. You need to establish a community of developers who will write apps for your platform, you need to create an easy-to-use market place for end-users, you need to talk to phone manufacturers to make plenty of phones running your OS, you need to make deals with carriers to sell your phones, etc.
Microsoft has failed at most of this, hence their financial losses. Microsoft's execution in the mobile market is, so far, a failure, and Ballmer is partly responsible.
Actually, their execution has been way better than I would have expected. It is losing money, sure, but short term losses are not important when you're talking about entering a market as large as the mobile phone market after the existing players are firmly entrenched. The traditional metrics of success only matter after you've been successful.
By that metric, it's way too soon to call Microsoft's mobile execution a failure.
it's pretty much a failure.
They misstepped with WinMo. Then they rebooted. Start your count over again.
The problem with consoles is that there's no brand loyalty (except for Nintendo). It only takes 1 bad console for an established player to vanish, and 1 good console for a newcomer to succeed.
Xbox live might be changing that, but it's still waayyy too early to call it either a success or failure. Though, certainly financially, it's been a small disaster so far.
But I don't think that's a very holistic viewpoint. Despite how terrible Windows Mobile was, it had a good hold of the market until the iPhone came along. It wasn't really a "failure" until it started declining in 2008. Microsoft's response, Windows Phone 7, was a complete reboot of their mobile line, and we have yet to see how it will perform in the long run.
[1]http://www.winsupersite.com/article/networking/time-running-...
I think the point on mobile is that Microsoft itself was a well-entrenched player in mobile, and they laughed[1] while allowing that position to get completely eroded by less experienced competitors.
It's true that after that happened, they've seemed to build a pretty good project in Windows Phone 7. But I don't think it's really accurate to start the scorekeeping so recently.
[1]:http://www.youtube.com/watch?v=eywi0h_Y5_U
edit: formatting
Not seeing what they were up against with the iPhone was not "executing correcly", it was incompetence. The same kind of incompetence that is killing Nokia today.
In order to dominate the mobile space now, Microsoft has to not just make something comparable to iOS and Android, they have to out-innovate them.
"Market research company Kantar WorldPanel has revealed in the last 12 weeks to mid-April Windows Phone has shown strong growth in the 7 major markets they monitor on the strength of Nokia’s offerings.
In 5 of the 7 markets (Germany, Britain, Italy, France and United States) Windows Phone market share is now in the 3-4% range, up from less than 2% in January 2012. In Germany Windows Phone market share more than doubled year on year to 6%.
In contrast RIM saw its US market share collapse to just 3% from 9% a year earlier, suggesting Windows Phone may have matched or even passed RIM’s market share in USA.
Kantar has predicted in January Windows Phone market share may hit 10% in Europe in the second half of 2012, and it seems to me with more Windows Phones being announced all the time that this may very well be achievable."
[1] http://feedproxy.google.com/~r/WmPowerUser/~3/Uofacrd8iKQ/
1. The "marketshare" that is referenced by Kantar is new sales marketshare, not overall marketshare. Its an important difference to point out.
2. Even with these gains in WP, iOS and Android are seeing similar absolute gains (e.g. in the 2-3% absolute marketshare growth). All WP is currently doing is taking a small piece of the symbian/BB pie
3. Given Microsoft's track record, the problem with WP is how long it takes for them to release a new product. Mango was what WP should have been initially, yet took a year to release. By the time WP8 is out, we will be looking at iOS6 and the Android version AFTER Jelly Bean.
Overall, I believe WP will not go away, but will stabilize at around 5-6% overall marketshare. The problem then is that given Microsofts development costs, they will continue to lose money. (Just look at Bing vs Google and even with 30% of US search shared, Bing loses billions of dollars a year)
The point is that the number of users of WP is increasing at a fairly decent pace. The most important thing is that people are using the phone.
"All WP is currently doing is taking a small piece of the symbian/BB pie"
That seems very difficult to prove and I don't believe there is anything out there that states this. I know several people who switched from Android to Nokia WP phones, and several more that are intending to make the change. This isn't proof necessarily but I could see it happening.
Concerning #3: It's hard to say what the first version should have been. The iPhone didn't have many of the "standard" features either in version 1. The main question is whether the pre-mango version hurt or has helped Microsoft's cause. The fact that they've had the phone out there for a larger period of time I would think would be a positive thing, being that they've had so much more feedback as a result.
"Overall, I believe WP will not go away, but will stabilize at around 5-6% overall marketshare. "
That's reasonable, however I'm curious why you believe this? You don't believe many Android or iPhone users would be interested in switching?
They've made awesome deals with companies like HTC, even convincing HTC to pay them $15 for every Android phone they sell, etc.
They've pretty much got Nokia on lockdown almost exclusively WinPhone7.
That's sort of the point... Microsoft's game plan ought not to have started with the iPhone launch.
1. Start working on the reboot immediately, rather than dismissing the iPhone as a fad for over a year.
2. Include at least some source-level backwards-compatibility so existing developers don't have to start over from scratch, even though the foundation is changing.
3. Be nicer to your existing OEMs (early OS access/input, wider hardware support, skip royalties for a year or two, etc.)
1-3 are just about cutting off the next potential disruption (which, in this case, turned out to be Android) off at the pass. To be successful in mobile, Microsoft didn't have to beat the iPhone. They just needed to defend their position against everything else, which they spectacularly failed to do. There's also:
4. Don't buy Skype or if you do, give up on carriers and work on direct-to-consumer (and direct-to-business) "Skype smartphones" using data-only SIMs.
Suing hardware companies like HTC is not "convincing" them of anything. It's strong arming them using "software patents" (aka. patented math) because they realized they were losing. I believe I read somewhere that microsoft makes more money from suing manufacturers over Android than they make on their own mobile platform/software. Seriously... WTF kind of business plan is that?
Can't innovate and make something amazing? Just sue the company that does!
Remember, Android looked more or less like WM6 and Symbian before the iPhone was introduced, and you can hardly call Android a failure today. Basically, Android is exactly where Microsoft would have loved to be with WP7, but it's pretty much not going to happen now unless they pull a bunny out of a hat with WP8.
Yes, WinMo 7 is a good product as far as platforms go, but it may not be good enough to catch up. They still have a lot of catch up to do with the marketplace and the ecosystem and with courting developers and manufacturers to their cause. They need to be making dramatic plays at this point, but they're not. When MS needed to bootstrap the XBOX gaming ecosystem they went out and straight up bought gaming companies, bringing Halo (one of the most popular game franchises in history) to their platform. When Sony needed to rescue the PS3 from a poor game library they bought media molecule and made Little Big Planet an exclusive title, among other purchases they made. Both companies also did a lot more to encourage developers to make games for their platforms. WinMo needs to make the same sort of efforts, but they haven't.
Meanwhile, look at the state of hardware. The best Windows Phone you can buy is 2 to 3 generations behind the state of the art relative to the iPhone or Android. You can't expect to push single core WVGA phones into a market where 300+ dpi screens, dual core CPUs, and a gig of ram is rapidly becoming the norm.
Even if we were to accept the notion that Windows Phone was the best mobile OS on the market the overall experience of using a Windows Phone (which is heavily influenced by the apps and games available, the speed and quality of the hardware, the quality of the screen, etc.) is not even remotely the best. Similarly, while Google and Apple have been adding new capabilities, better performance, and new features to their phones by leaps and bounds with each release, the Windows Phone has comparatively stagnated.
And there's every indication that each one of those gaps will continue to grow wider over time. Microsoft managed to catch up just barely by putting forth a concerted effort, but if it takes such a diving-catch sort of effort to continue to catch up at every step in the future then they will invariably miss on a few occasions and fall behind for good.
They could even partner with Nokia ...
(Although, in fact, if they were to pull off all of the above without e.g. first buying Samsung or some bullshit, my opinion of their capabilities and culture might need some reworking at that point.)
Unless you're really exciting by the prospect of developing for Windows Phone 7 for the next fifteen years, you should be glad MS barely qualifies as an also-ran in the smartphone game, and hope that never changes.
Just imagine what things would be like if WP7 was released when the Kin was ... it probably would have been even earlier than that if they had focused all of their effort on WP instead of fragmenting the company (and causing a ton of internal strife) between the Kin and WP. We would be looking at a much different situation right now.
Windows Phone 7 is a field test of the technologies which allow Windows on ARM to scale. Five years after the iPhone Microsoft has a competitive OS that scales and is robust enough for their enterprise customers.
Balmer understands that Microsoft's success in the consumer market segment comes from treating those relationships as B2B by providing long term support - my 8 year old laptop still gets OS updates - they sell on improvements not by breaking systems into obsolescence.
Let me offer some perspective on this. I worked for a number of years as a programmer at a large (read: "enterprise-scale") entity. Being in closer physical proximity to the general workforce than our IT department, I was often the go-to guy when employees needed tech support.
And one thing I learned is that Microsoft's overcomplicated software saps countless hours of productivity from organizations. I shudder to imagine the salary dollars that go to waste every day as people search for a certain button in the Outlook interface, fiddle with Word's quirky indentation logic, try to set up mail forwarding in Exchange, and panic over the "lost" (actually hidden) rows in their Excel workbooks.
If I were running a BigCo, I'd avoid exposing my regular employees to MS products. If my DBAs wanted to use SQL Server, ok, no problem. When it comes to software that is purely internal to the tech department, I'd trust their decision. But if I would never force my marketing department to do all their mail and calendaring with Outlook, unless of course I were willing to accept the inevitable productivity hit.
Now I have to make an appointment with my shrink again.
p.s. try inserting a nice video into a presentation made using Google Docs, and decide if you'll be happy showing said presentation to your clients.
Microsoft makes a ton of money, no one will deny that, but they make less money than they used to. It's funny how the OP shows the financial numbers for one quarter and says the "the trend here is clear". You can't determine a trend on one quarter, you have to compare to other quarters.
Here are some numbers from Google Finance (http://www.google.com/finance?q=msft)
The first number is Q1 (Mar '12), the second is 2011
Net profit margin 29.34% 33.10%
Operating margin 36.62% 38.83%
Return on average assets 17.80% 23.77%
Return on average equity 30.86% 44.84%
Looks like the trend is down.
Also, their stock price has been basically flat for 10 years. That tells you what the market thinks of Microsoft.
That's incorrect, your looking at profit margins and not actual profits. Profits have actually been increasing every year in the last few years (except in 2009).
(1) they were the big villain for a long time and there's still a lot of unspent schadenfreude with their name on it.
(2) they've always been juxtaposed with Apple which is in meteoric rise like nothing we've really ever seen.
(3) because monkey boy
Their stock price is flat only if you don't include the dividends they've paid out.
You have that backwards. If people think a company will pay out big dividends, then they bid up the price of the stock. That Microsoft's stock has remained mostly flat despite good dividend payments suggests that the stock would have plummeted without the dividend payments, and it will plummet if the dividend payments stop.
A flat stock price despite good dividends suggests weakness, not strength.
No not really and if they do then the price falls once the dividend is announced.
This is basic math:
Company is worth x dollars.
Company gives away y dollars.
Company is now worth x - y dollars.
Felix Salmon explains it well here:
http://blogs.reuters.com/felix-salmon/2012/03/19/apples-sens...
If the stock market is about the future, then how do you interpret Goldman Sachs' share price of $235 in November 2007?
1 year later it fell to $53.
A company's share price will tell you nothing about the actual financial stability or future of the company.
Obviously, the stock market isn't about the actual future -- nobody knows that.
It's about the expected future, calculated in a pure informational way.
The price = the market's overall evaluation of all currently available information. Obviously it's not perfect, but the point is that if you know better, then you ought to be in investing, not programming, because you'll make a lot more money.
The stock market is rarely rational. This is exploited by value investors, like myself, who invest in companies that are undervalued for no reason.
Just following your logic here, value investors bank on the market's eventual rationality?
Or is it rather that a company who is undervalued for no real reason today might be overvalued for no real reason tomorrow?
Keynesian beauty contest etc
Which tends to make the market more rational again.
But I agree that the market is not always rational, else there would never be a bubble.
If you consider MSFT stock price to have been flat over the last 10 years, then the market itself has essentially been flat over the last 10 years.
MSFT stock is up 20% over the last 10 years.
The S&P 500 is up 26% over the last 10 years.
That's not that big of a difference when considering (1) the immense volatility that we gone through over the last two boom and bust cycles and (2) some large portion of that 26% S&P 500 gain is Apple's 100x increase in split adjusted stock price.
Microsoft isn't beholden to the stock market in the way Google or Apple are. The two largest shareholders are Gates and Balmer. They have about 9% of the company between them - that's more than the three largest institutional investors.
As part of Dow Jones Industrial Average, many index funds have to hold Microsoft stock and have a strong disincentive to create turmoil which might drive the price down. Unlike the tech stocks to which they are often compared, Microsoft pays dividends which keeps the stock price lower.
As for the stock market being the future, that future is based on speculation about the next quarter not long term innovation.
I expect Jobs was similar, but what happened with his estate?
Google's stock is worth less than what it was 4 years ago, it has also basically stagnated.
> but they make less money than they used to
No, they make more money in absolute terms than they used to. Their margins went down because they're investing more in mobile and tablets.
"Microsoft makes a ton of money, no one will deny that, but they make less money than they used to."
Actually they make a lot more money now than since Ballmer took over as CEO.
GE has underperformed the S&P by 40% since Immelt took over, Microsoft by 30%, Walmart by 40%, and while both Lampert and Chambers created value for a while, their companies have substantially trailed the market over the last 3 and 10 years, respectively.
Ballmer is perhaps guilty of inheriting a growth company just as it stopped growing, but you can't deny that Microsoft has essentially stopped growing under his watch.
Second, It was the largest company in the world when he took the reigns. He's been the boss for 12 years. 9% annualized revenue growth and 6% annualized earnings growth doesn't strike me as astronomical, particularly when people were calling for 25% annualized growth for MSFT in 99/00.
Again, you can argue that Microsoft was overvalued when Ballmer took over (and you'd be right), but the point is that even on the basis of fundamentals, his performance has not been outstanding.
Then, their insight that DOS was important. The original PC had a choice of three OS's - MSDOS was cheapest. Start at the low end, as the article says.
Perhaps one reason they failed where iPhone succeeded was that the iPhone initially wasn't a platform. There was no appstore, you couldn't actually run apps on it, only those built in. The original iPhone was an app, not a platform - and it seems likely that that's what was needed to create that market. Of course, that doesn't excuse MS from not playing catch up as fast as Google did.
He had no idea what we were talking about. Here was a major company decision that affected millions of customers world wide and it was obvious that he didn't know what we were talking about because he gave a generic 'sometimes you have to make tough decisions' answer after a long pause and no real explanation.
When it came to asking about anything else, such as Google, he would ramble on for minutes about how they suck. Nothing deep, all just threats and insults about how Microsoft are kings.
The problem is that all the smart people at Microsoft have left. The guys who could steer the company through the technology space - like Gates, Ozzie, Allard, etc. These guys were visionaries, Microsoft is now run by MBAs. The Ballmer group of business guys forced out the smart geek kids and are now running the camp. It has gone from being a leader to just reacting to competitors and then ranting about them.
Businesses will always have their own set of problems and solutions. As Dustin points out, this is very profitable. But I think the line between enterprise and consumer software (and hardware) is blurring to the point that there's not a clear delineation. If you can't be attractive to the consumer market, you're going to start seeing other people eating your lunch in the consumer market (see also: rise of iDevices in corporate IT shops, entrants like Google and Dropbox, etc.).
Microsoft throws its legacy weight around, which counts for a lot. And they have some genuine good products, which counts for a little. But, IMO, their progress moving forward is more hindered than helped by Ballmer.
Microsoft needs a great CTO to compensate what's not there in Ballmer. Btw, they should fire the one who decided WP7 doesn't need native development kit. That is the most stupid idea I've ever seen. Gee, they had the best native toolchain inherited from years of work on WM!
I really like the design and notice that another YC blogger Ilya Lichtenstein is using the same design on his site
But their'e not. WP7 is a technological dead end that will be replaced within the next 12 months by a phone version of Windows 8. Current Silverlight apps will run on that, but in reality developers will need to rewrite for the WinRT platform to get the benefits of full native performance and functionality. Meanwhile you can't develop WP7 apps in C or C++, it's .NET/XNA only.
Cluster#@&
OK, Steve, whatever you say.
It's only a matter of time before they lose their business customers.
Then they are really in trouble.
Oh and one other thing: Modifying columns/rows is consistant over all iWorks applications: Alt + arrow-keys let's you insert rows/columns above, below, to the right or left. MS Office's inconsistency and lack of hotkeys for such an essential feature makes me rage every time I use it.
Numbers sure has shortcomings though: no pivot tables, very limited scripting support, limited filtering / data manipulation. That's why I look at it as a very good spreadsheet tool, but not a data analysis tool - that's when Excel and/or Matlab come into play.
Can you name one, good alternative to Active Directory and Exchange that runs on a Unix platform?
As someone that spent almost a year trying to find an answer to that question I can tell you that there isn't one. These are the areas where Microsoft is still above and beyond anything else out there.
Kinect and Xbox came to fruition under his leadership. And that division alone can become billion dollar business for MSFT. Agreed WP7 was late but MSFT takes pride in being late to any market. After all, they are last man standing in most of the markets. Zune failed but can't he have couple of failures? Btw, their core enterprises business is growing.
(229) M Entertainment and Devices
I doubt they are loosing money on "Xbox" depending on how you define that bubble.
That is why Nintendo is taking such a bath this generation. People buy a Wii for the novelty and only get one or two games where Microsoft and Sony are much more about the games they have on their consoles.
They're taking a bath right now because the strength of the Yen versus USD removes a lot of their export profit. That, combined with the fact that they're ramping up production of the 3DS and the next console, is the reason they lost money.
Companies expect to make that money back through 1st party game sales and licensing fees from 3rd party developers for access to the sdk.
The Xbox is profitable. The problem is the other businesses lumped in with them.
Also, while the 360 is still king of the consoles in terms of overall sales and is profitable, it is selling less quickly than before because this console generation is past its peak and is riding the downward slope on new units sold until the next hardware refreshes appear.
So the 360 is still a net positive, but less positive than recent past quarters and not positive enough to offset other losses.
This is so false it is painful for me to read. I'm embarrassed for the author.
"The company's core competency is a process it uses for entering and consuming existing industries. After it enters a market, it rides off the innovations of its competitors, uses its existing brand power and sheer size to tackle a large surface area at the bottom of the market, and then, finally, it develops a valuable platform on top of the new market. As the platform grows, it slowly squeezes out the existing players."
Name one instance of this in the past 15 years. One. Oh wait, the author lists a few!
Xbox? Well, they have operated at a loss for the first seven years or so, ousted the entire create leadership team (Bach and Allard say howdy), and now are turning nice sums of coin. But this isn't truly Microsofts win, it is the entire industry's failures. Nintendo and Sony are seeing bad times. The currency difference is hurting Japanese companies, who are tired of innovating. Even many lead game designers are admitting the Japanese are years behind the US market. With Sony in turmoil and Nintendo trying to figure out how to right the ship, it is no wonder the years Xbox has seen a profit are only recently.
"Windows Mobile"
In 2010 Ballmer himself said they' lost a "whole generation of users". They dropped the ball so hard that even after the debut of the iPhone, when Google realized it was time to explore a new approach to Android, Ballmer didn't understand why it would be popular. Ballmer displayed a weak passion for mobile yes, but the crime here is that he displays no vision.
Windows 7 is years too late. Nokia will die in a vain attempt to give this OS a chance, but it will never work. The audience only sees two contenders in the ring.
"Windows" This is the only horse worth mentioning. It, and thus Office, are the default winners. Xerox, Kleenex, and Windows. They win this category by default as 99% of users could care less about the OS they use.
But there are an insane amount of products not mentioned here! Where are the Zunes, the silverlights, the Vistas, or the Azures? There are hundreds of horrific decisions we all watch spiral out of control. Remember the Kin? How I so wanted to play with its awkwardness. Or the Courier? How I pulled at my hair when they killed not only the product, but laid off the entire team. Remember Ensemble or Bizzare Creations? They made some beautiful games. Remember Surface? Remember a decade of IE's disgraceful finger in the face of all web users?
This is a history of successes? It sounds like a meandering path of exploration, where one in one hundred connects. This is luck.
The overall premise here is that Microsoft deserves a gold star for existing. They made 6.3B profit last quarter! Give them a break.
For comparison, Apple made 11.6B profit last quarter. That was a 47% increase from the previous year, which also had a 41% increase. These products were ideas that Microsoft had left behind, too busy swerving around trying to find a mission. Apple took the best ideas and developed a valuable ecosystem to grow as a platform. Sound familiar?
I wait with pleasure for the business user reactions once Windows' most useful and perfected feature, the start menu, is gone and replaced with a touch optimized fullscreen window with gigantic whitespaces and huge mouse paths for achieving anything. It is going to be beautiful.
The rumor I'd heard was that Courier was killed because independent teams created the device components. When put together it wasn't refined enough to pass review. Plus, they didn't see tablets as a viable market...again. Fingers crossed there was a much cooler reason.
I'm happy to say leaders from the Courier team left and started Paper on iOS. It is a dream to use and shows that they had the talent to make the Courier happen, if given the chance. http://itunes.apple.com/us/app/paper-by-fiftythree/id5060038...
Ha, ha - agreed on the start menu as well. I really do wish MS well (they can't have not tested this, right?), as their plan is pretty much a Hail Mary pass. But these sorts of decisions don't instill hope.
Comparing Microsoft and Apple is silly. Microsoft is still primarily a software and services company while Apple has always been a hardware company - the only reason they're in software at all is to help sell their hardware.
I'm focused on the consumer, because I feel Microsoft wins enterprise by default. Who is the competition? Open source? I've been laughed out of Fortune 50 meetings for suggesting it. Small to Medium size software firms? They just don't integrate with Windows or Office as well. No one in the enterprise ever gets fired for choosing Microsoft. This is changing, but it will take years.
The problem is that the enterprise is a limited field. Once you sell to the Fortune 1,000 there isn't anywhere to go, outside of creating new products to resell to this group. This is why Microsoft feels like they are meandering, they need new revenue streams. This is also why they don't work so well in consumer products. Running after market leaders in hopes to find a revenue stream pisses off consumers.
Consumers are a different story. There are 7 billion individuals that don't have a procurement department. They buy smaller goods more often. There are entire industries that could be changed with one breakthrough product.
Comparing Microsoft and Apple is natural. Microsoft begs this comparison with its technology competitors by entering their markets and taunting them. They just do such a horrible job they don't feel like competitors.
MS Stores built as fancy luxury consumer hubs. Xbox 360, the billion+ dollar winner for MS last year, was born out of building hardware with software. The Nokia Lumia 700 is effectively the same mix of hardware and software (as Nokia was shadow taken over). The Zune was. Safari, Firefox, and Chrome lead the browser revolution, and all I see on TV now are IE commercials. Zune Marketplace. Windows Phone (the blackberry ripoff). Bing. Silverlight.