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Where is Microsoft's growth going to come from?

Microsoft is a stable business. Apple isn’t. The following charts compare the two. The two charts on top show revenues, subdivided into product lines. Microsoft is on the left and Apple on the right. Note that the vertical scales are the same (zero to $30 billion/quarter).

The lower two charts show operating income by division/product line. The left is again Microsoft with the line showing the consolidated income (net of losses). The right chart shows the stacked areas of profit from Apple’s product lines with the yellow line shooing consolidated income. I copied the blue line from the Microsoft chart for a more direct comparison.

Apple continues for the third quarter to have higher operating income and for the fifth quarter maintaining higher revenues.

The following two charts are also another way to view the two companies. As percent of total, how do the product/divisions stack up? The first is Microsoft revenues as percent of total and the second shows the equivalent for Apple.

This comparison I think is most evocative. The stability of Microsoft is contrasted with the dramatic change that Apple is experiencing in the same time frame.

There is a dramatic shift of focus from traditional computers (Mac) to devices. If profit is an indicator of where resources are being allocated, then there is no clearer visualization of the difference between the two companies’ strategies.

The following is a mix of all products/divisions operating income in one dense line chart (thicker lines are Microsoft divisions, thin lines are Apple products).

Finally, the comparison of operating income of iOS devices vs. consolidated operating income from all of Microsoft’s businesses.

As iOS shifts into its fifth iteration my guess is that Apple will continue its growth trajectory. As Microsoft continues to adapt or protect its businesses from tablets and mobiles, will they grow? If so, how? Microsoft has shown consistency, but that is becoming less and less desirable.

  • Anonymous

    Awesome charts. Schadenfreude just doesn’t get old.

  • tmadsen

    Love these head-to-head kind of graphs. Thanks.

  • Einstein

    “Microsoft has shown consistency, but that is becoming less and less desirable.”

    Says who? When Apple’s one trick pony suffers a quality issue, where will they make money from?

    I’ll take MS anytime over Apple for holding long term

    • jawbroken

      Weird to call them a “one trick pony” as a response to a post that clearly shows that Apple have at least three strong product lines that are showing strong growth.

      • Einstein

        Apple’s growth is the iPhone and iPads (iPod is going to be gone soon as phones do their job). The rest can barely pay their bills.

        In 2-3-5-10 years, how much differentiations can Apple hope to have on their iPhones? Much of it was stolen by Google 48 hours after launch.

        Microsoft has the one thing that’s very hard to get rid off: business applications (don’t get me started with Google apps) and desktops and xBox and Kinect and who-knows-what Microsoft Research has in the pipeline. Business will pay for the “safe thing” even 20 years from now. As phones get more powerful desktops will suffer but we’ll still have them at home and work.

      • http://newcanuckworkshop.tumblr.com Junesoo Andrew Yang

        Apple is most definitely a one trick pony. Over the last decade it has only demonstrated the ability to devise new products and markets. The Mac business at $21.8B wouldn’t even be a Fortune 100 company on its own (it would rank 121 ironically just ahead of Xerox), and would hardly be sustainable with 28% GM. The iPod line has shriveled to 70% market share, with annual revenues of $7.5B. iPhones? iPads?

        A technology company should innovate once then monetize in perpetuity. Right?

      • http://www.asymco.com Horace Dediu

        Indeed. Once you understand the brand you understand the company.

      • Tatil

        > MS makes stuff that works.
        I wish…

      • Gerry

        >MS makes stuff that works.

        MS only make work for IT support staff.

      • Anonymous

        Yeah, and Coca-Cola is sure to go bankrupt any day now, all they have is the brand after all…

        /s

      • Einstein

        http://www.thecoca-colacompany.com/brands/brandlist.html

        Coca Cola has over 3500 brands, things you’d never know Coca Cola owned such as Minute Maid, Tropical, Dasani etc. Plus they compete on price and their products are kinda essential.

        Nice try though, as soon as I find a cookie I’ll give it to you for winning the sarcasm price.

      • Anonymous

        “…hardly be sustainable with 28% GM.” HP, Dell, et. al. would give their left arm to make a 28% margin. Then again, they’re not doing so hot compared to the Mac. Macintosh has outpaced the industry for years, and has made a healthier profit.

      • http://newcanuckworkshop.tumblr.com Junesoo Andrew Yang

        @Dave Just so we’re clear, I was being sarcastic in stating that a 28% margin in the PC business would be unsustainable. The numbers from a couple quarters ago had Apple with ~4x HP’s GM in PCs.

      • Kizedek

        The trouble that those with this thinking will face sooner or later is this: what happens when the “safe thing” changes? What happens when a new idea of “safe” comes along?

        This is already happening.

        What made choosing MS the “safe” option? Their monopoly position, and the belief that modern computing required a monolithic, proprietary approach for the world to go on. That has pretty much crumbled just as the iron curtain has.

        Today, college students, kids, grandmas, small businesses, institutions… They all feel “safe” with Apple products. It’s only reaching a tipping point.

        Adobe just conceded Flash in the mobile arena. Who would have seen that? ;) What does that bode for MS’ SilverLight? “Safe” today means open standards; it’s a given today that different devices, different technologies, different coding languages, different chips and platforms can be mixed and matched and used at will. This is the, dare I say it, post PC world. Get used to it.

        What’s your idea of “safe”, creating a website that only works in IE6. Finally, that horror of a program is dying a death after 10 plus years. People are realizing they can put IE7, or IE8, or IE9, or a dozen better browsers on their PCs, no thanks to MS which is only anxious to shove paid software updates at you. Software that is actually getting more bloated and harder to use with each new version.

        I think the MS version of “safe”, is to throw your computer away every six months and start again with a clean slate. Certainly, from a security and productivity standpoint, that is the safe thing to do. And again, if you don’t want to show up your colleagues and piss them off with your initiative, the “safe” thing to do is take the Windows option.

        I find it interesting that in your first post above you write, “I’ll take MS anytime over Apple for holding long term.” And then in your next post you write “who knows what MS Research has in the pipeline?” Well, I would take that bet. Whatever MS has in its pipeline, it’s a pretty good bet it is too little, too late, too complicated, too out of touch, too last century, too… …safe?

      • Einstein

        Several things you seem to miss by a mile. Business, and I mean real businesses not stupid start-ups like Arbnb or Groupon, love MS, IBM, HP and the likes. In fact many are just upgrading from Lotus (remember that???) to Office online and upgrading their browsers….to IE7! That’s what I meant by “safe thing” and 20 year . Businesses play it safe because they see fads come and go so Office revenue is safe for quiet a while.

        Windows may have been a lot of things and I’ve used one since Win 3.1 but once you remove the bias, it works pretty good now and works in every country with almost any printer, scanner or 20 year old Win program. Anecdotal evidence: I have not had any major issues with them and I have Windows XP. So nice try on that.

        I take you are not in CS, Microsoft Research beats them all in all metrics.

        “Paid software updates…” you are insane. I paid maybe $100 for my license and got free updates for 7+ years, a firewall, anti-virus, and tons of other tools included in that. Anti-Virus alone runs in the $20+ range so windows is a bargain. Plus I know it works and it does. Free is expensive when you waste time trying to get it to work.

      • http://twitter.com/grumpycola eka

        I think the assumption that Microsoft is more willing to preserve its “business users” above all else, is plain hogwash.

        If Microsoft’s venture into the mobile arena, is any indication, nowadays, they are more than willing to throw its business users under the bus, and aims for that “consumer” market first.

      • Einstein

        what does one have to do with the other? MS is more than a few people working and can chew and walk at the same time.

        Ironically, since most business probably use MS products, MS might even have an in for the Windows Phones with deeper or better integration.

      • http://www.asymco.com Horace Dediu

        Historically the most commonly used “business phone” has been the RIM BlackBerry, only recently being superseded in the US by the iPhone. Microsoft has had a mobile OS offering since the late 90s in both PDAs (Pocket PC) and Phones (Windows Mobile, Phone). However, it never achieved significant market share regardless of the popularity of its Windows and Office and Server platforms. This is remarkable given the ubiquity and interoperability of Exchange vis-a-vis the proprietary network from RIM. Microsoft’s strategic alliances in mobile are a sad story partially chronicled here: http://www.asymco.com/2011/02/11/in-memoriam-microsofts-previous-strategic-mobile-partners/

      • Secular Investor

        Einstein,

        You’re no genius!

        You are either deluded, in denial or you haven’t a clue about what is really happening in the computing world!

        Just look at Horace’s charts. Microsoft is stagnating, Apple is just at an early stage of a long term growth secular cycle.

        Apple is the innovation and market leader of the 4th Wave Post PC Mobile Computing. See

        http://www.forbes.com/sites/oreillymedia/2011/11/01/post-pc-computing-and-the-next-tech-revolution/

        &
        http://www.economist.com/blogs/dailychart/2011/10/personal-technology

        Everybody, including Microsoft are playing catchup, but Apple are years ahead with first mover advantage.

        The iPad has already captured 96% of the enterprise tablet market, with over 90% of Fortune 500 companies already trialing and deploying iPads, with a huge number of developers producing business Apps along with additional bespoke in-house software for the iPad.

        The iPhone new have 45% of the enterprise smartphone market up from 31% a year ago

        http://blogs.barrons.com/techtraderdaily/2011/11/16/survey-iphone-bests-bberry-at-office-now-get-some-sleep/?mod=yahoobarrons

        Apple are eating Microsoft’s lunch before they are even at the table

      • Secular Investor

        PS Einstein

        You say you have not upgraded your MS software for 7+ years. Think about it. That means MS have not earned anything from you for 7+ years.

        Meanwhile Apple hardware is improving so fast that people upgrade their iPhones and iPads every 2 or 3 years so Apple is earning fistfuls of dollars for every Apple user while Microsoft have made nothing from you!

        By the I note you are pleased to get free anti-virus software from MS. Did you know that Macs don’t need anti-virus software. See:

        http://macmost.com/do-macs-need-antivirus.html

        One of the attractions for enterprises of Apple’s Macs and iOS devices is that they are far more secure than MS Windows, Android and Adobe Flash which are all security nightmares.

      • Einstein

        Directly no, but I’m in their platform and will almost certainly buy Win again since I can easily upgrade with all the stuff I have. Show that even with less and less frequent upgrades MS is making a killing.

        I used my case, and many others, to say that Win is not what it was 5-10 years ago.

        But I guess MS makes from me indirectly since I’m in their platform and there might be licensing here and there that others pay MS.

        You apparently are a fanboy, Macs need protection, be it from spyware, virus or malware. The name is a just semantics.

      • kevin

        My OS X-based Mac has never had protection other than what is in OS X itself. I’ve never had to give up CPU cycles to protection software, or spend time getting such software to work.

      • Einstein

        Yes, and I smoke 10 packs of cigs a day, drink 2 bottles of whisky and I’m 108 years old
        http://www.macworld.com/article/60823/2007/10/trojanhorse.html

        You HackerNews kids need to get out of mom’s basements sometimes

      • jawbroken

        The only way to prevent a Trojan Horse from being installed on a computer is to not allow users to install software. How else do you stop people from purposefully downloading and installing harmful software, even entering their administrator passwords to bypass the built in protection? With the App Store I guess Apple is moving towards a system that will try to reduce this risk.

        This is nothing like the viruses that Windows has been susceptible in the recent past, which have no equivalent for OS X recently.

      • kevin

        Ten years of OS X, 4 users including 2 kids/teens, and not a single infection of any kind.

        Trojan horses exist but unlike PC users, Mac users are generally less likely to be looking for and loading programs from websites, especially with the advent of the Mac App Store.

        What’s HackerNews? And my mom’s basement is a few thousand miles from where I am.

      • http://www.asymco.com Horace Dediu

        I don’t know a single person with a Mac that runs or has ever run any form of malware protection software. That includes dozens of persons over more than a decade. There are tens of thousands of Mac users reading this blog so maybe I should run a poll to find out how many run such software.

      • Anonymous

        If you run a poll, be sure to separate out free choices like ClamXav built on top of open-source software, from commercial software.

      • jawbroken

        What’s a recent “profit centre” for Microsoft that has come out of Microsoft Research? Kinect? Have they made a single dollar from xbox yet?

      • Einstein

        $500 Million pure profit from Android to start :) . If it’s not, XBox can be profitable probably but they have no urgency for now. Kinect is very, very promising.

        But how many products do you expect MS to have at any time? Already 12 divisions have $1+ billion in revenue a year. They have to protect Office and Windows :)

      • jawbroken

        I don’t understand your seemingly irrelevant android snipe.

        I don’t expect much from Microsoft at all. You are the one that asserts they are a great investment.

      • Einstein

        “I don’t understand your seemingly irrelevant android snipe.”

        You dissed MS Research and I mentioned the $500m in licensing fees from Android alone. Wait until Google starts to steal from Kinect

        Due to their size, MS is not a great investment, but it’s better than Google or Apple over 5-10 years IMO.

      • davel

        Microsoft bought Kinect. It was not a product of Microsoft Research.

      • Einstein

        Yes and no. Part of it was developed in house by rare.

      • jawbroken

        Okay, but why? That’s not a very interesting statement on the face of it. Your opinion doesn’t seem to be supported by historical data or even a reasonable hope for the future. Your best case scenario appears to be theorised growth from patent licensing.

      • Kizedek

        Well, you have simply re-inforced what it means to play it safe and make safe purchasing decisions. You put a positive spin on some of the things I said about MS; that’s fine, but doesn’t mean I missed by a mile.

        In fact, you took it a step further… the safe decision is really using OLD MS products! MS, despite being the very epitome of safe for 30 years, can’t even be counted on to stay safe.

        “Businesses play it safe because they see fads come and go…” Interesting that you and many others are sticking with XP and “what works”. I think that is revealing. One interpretation of this is that it’s MS that is big into fads: they see style over substance and goofy surface changes as real innovation, because they still don’t know how to follow Apple successfully into new areas.

        New gloss, new ribbon UIs or Metro UIs just don’t cut it for you. I am glad you weren’t taken in by them. And MS tablet ideas come and go over the years or never materialize, etc. OTOH, Apple has had it’s brushed aluminum moments… yet that doesn’t diminish 11 years of continual, solid improvement and iteration after iteration in a clear direction, including platform changes and scaling to other types of devices.

        Now, of course “real businesses” still love MS, the old MS, no denying it. But there are many real businesses where things are changing. It is simply becoming safe to embrace new technologies and opportunities, and to give employees a choice to use what they feel comfortable and safe with. This is happening more and more, and it is undeniable. Just three years ago, it was not happening. Who would have thought Apple would have ANY products in the enterprise?

        For example, whole industries are adopting the iPad for various purposes: such as airline pilots, doctors, lawyers, architects, project managers, salesmen, shop floor assistants, sales clerks, deliverymen… This won’t be a fad, it’ll be a seachange.

        In pretty short order, it will not be safe to remain uncompetitive with newer businesses or those who have adopted some change and some newer technologies and practices.

      • Einstein

        Several points: Go and try to talk Coca Cola or Pfizer or Aetna to sign up for Google Apps, They will not. Why? Because Google might shut it down 2 years from now since it isn’t core to their business and they throw lots of mud to see what sticks. MS offers at least a 10 year support on these types of products and knows what they want, not tell them to send an email if they need support. Enterprise, where the real money is, is a different animal, you should ask around and see for yourself. Safer is beautiful in that world, who cares if IE7 loads 5 times slower than FireFox8 (that pissed off many admins due to new versions every 4-8 weeks).
        They do not want to save $x million a year or have the fastest thing, they want safety and support should something go wrong.

        Will certain segments escape MS’s orbit? Yp, it’s happening but but then between PCs, Tablet and smartphones people might have 2.5 on average, so MS doesn’t really lose in a way. The war has just started, tablets and smartphones are winning but the brands are still very much up in the air. It’s way tooo early to declare winners or losers.

        I tell you what, for most people windows works just fine, admit it. It’s possible that Macs are xx% better but habit and old programs and laziness and a fine working windows makes people stay with it. Not all, but plenty of them.

      • berult

        The debate between Microsoft’s and Apple’s approaches to PC development reminds me of Electromagnetism vs relativity at the end of the 19th century. Physics basked in complexities then and physicists for the most part thrived and hung on for dear life to their esoteric Gordian knots.

        Einstein derived the simple mass/energy equivalence from Maxwell’s complex set of equations, introducing outer transparency into intra cosmic perplexity. Complexity never yields it’s industrious battleground easily, too many institutional livelihoods are at stake. But that’s what Disruptors are for, aren’t they? To clear one layer of complexity …only to reveal the next one to the eyes of Disruption once more, …and on and on… From classical determinism to ‘Renaissance’ Uncertainty…

        Microsoft has been successful in as much as it has managed to sell problem-solving which compounded on systemic interventions. One could characterize it as the Microsoft standard model with an unfathomable universal constant. It called out for disruption …to which simplicity answered, simply to lay the groundwork for its next encounter with ‘one level up’ complexity, the Apple standard model with the unfathomable universal constant…

      • davel

        I would not put Apple here as the one to slay Microsoft. Microsoft serves corporations and developers who serve corporations.

        Apple serves the consumer. Apple has virtually no products that are meant for the enterprise. Microsoft has many products that are geared for the enterprise.

      • berult

        Einstein is not a Maxwell’s slayer, nor is Apple a Microsoft slayer.  Simplicity is a complexity’s slayer. Business acumen is letting simplicity seep through its natural resistance to change through ‘consumerization’ of its IT protocols.

        The undercurrents, if you’re sensitive enough to feel them, make their way along the best approximations of straight lines as they can, and pointedly flow with ever increasing gusto from the opaque to the transparent. Why? Transparency is needed to peer into the next level of complexity, Apple’s inherent, de facto, own systemic complexity.

        Necessity is the mother of all inventions.

      • davel

        Yes big corporations want safe. This means a partner who will be around for a long time. This means IBM, Microsoft, HP.

        It also means DEC. Who is DEC you say? Oh yes, they were a safe company in the 70’s and 80’s.

        Companies are changing. The IT heads who have used and relied on Microsoft for a long time are no longer in control. The business is in control. From a cost perspective letting an employee bring in their phone to hook it up is cheaper than paying 2 bills for each employee and hooking it up. When the CEO wants his iThing to hook into the network and the exchange mail server you do not say no.

        The world is going cloud and mobile. Microsoft should have a strong story to tell in both for the past few years, but they just rebooted the mobile and their cloud story is muddled.

      • Tatil

        > In 2-3-5-10 years, how much differentiations can Apple hope to
        > have on their iPhones?
        I dunno. What is Mac bringing to the table into the 4th decade of personal computing? It is still very profitable and growing strongly. “Barely pay their bills” applies to the other commodity Windows PC makers, not Apple.

      • kevin

        “In 2-3-5-10 years, how much differentiations can Apple hope to have on their iPhones?”

        I can think of a very long list of things, though in 5-10 years, it’ll be a completely different product. Siri, iCloud, location services/mapping, transactions still have a long way to go.

      • jawbroken

        By that definition I guess Microsoft has zero strong product lines because none of their segments are really even outpacing the Mac growth.

        Not sure I understand your point here at all.

      • jawbroken

        By that definition I guess Microsoft has zero strong product lines because none of their segments are really even outpacing the Mac growth.

        Not sure I understand your point here at all.

      • Davel

        Microsoft has windows and office. That is it.

        Games as the charts show is break even. Microsoft could kill games and no one would notice.

      • Davel

        What has Microsoft research done? Microsoft has many talented engineers. But what have they done? 15 years ago Bill was talking about the slate. Where is it? Microsoft has been doing speech research for over a decade. Where is it?

    • kevin

      You bring up lots of big “whens” or “ifs” related to things that haven’t happened and seem unlikely to happen.

      What are the odds of a quality issue occurring that actually causes Apple to suffer? Antennagate was a recent alleged quality issue but Apple has likely already sold more than 75 million iPhone 4, or more iPhone 4 in 6 quarters than the first 3 iPhone generations combined in 18 quarters. More iPhone 4 than any single smartphone in the world.

      What are the odds that the Apple brand starts to go downhill? It’s only continued to get stronger and stronger as more Apple Retail Stores open around the world. About a year ago, Apple started talking about the growth of its brand and China. More recently, in Brazil.

      To each his own, but I bet I’ll earn more from Apple’s continued growth, then you will from MS dividends over the next 3 to 5 years.

      • Davel

        The antennae was an issue. The solution costs $1. Problem solved.

      • Einstein

        This whole article is full of of ifs /whens. I used Apple quality issues to point out that such sudden things might harm Apple more than MS.

        Windows is tried and so is Office, any issue can be patched within hours and an update pushed. It takes decades to truly dislodge them, but in smartphones see RIMM.

      • kevin

        I think Horace’s article has absolutely zero ifs/whens. He used historical data to show trends that are already in place – trends that mostly show MS already heading in a non-growth direction.

        Windows Vista was a quality issue. Though it took almost 3 years (certainly not hours) and Windows 7 to right that ship, it allowed Mac to start growing much faster than the PC market – a trend that hasn’t been reversed or even stopped by Windows 7. At the IE browser level, it allowed users to become familiar with Firefox, Chrome, Safari, and others; again, a trend that hasn’t been reversed by newer versions of IE.

        Since it happened before, it could certainly happen again. But the point is that even with no MS disasters, it’s going the wrong way. What are the big positive ifs/whens for MS to change that? Windows 8? Xbox/Kinect? Bing?

        By the way, discounted cost in US of Xbox 360 during 2010 Black Friday was $199 plus $50 gift card, so $149. For this 2011 Black Friday, discounted cost of Xbox 360 plus the $129 Kinect is $199 plus $30 gift card, so $169. Which means Kinect has pretty much lost all its value in one year.

    • GeorgeS

      “I’ll take MS anytime over Apple for holding long term/”

      What’s your definition of “long term”? 1 year? 2 years?

      Let’s look at the price of MSFT and AAPL vs the Dow. Here are the percentage changes over the periods stated:

      Last 6 months:
      DJI: down 7%
      MSFT: up 2.6%
      AAPL: up 12.6%

      Last year:
      DJI: up 2.8%
      MSFT: down 3.7%
      AAPL: up 20.2%

      Last 2 years:
      DJI: up 10.2%
      MSFT: down 17%
      AAPL: up 84%

      Last 5 years:
      DJI: down 6.4%
      MSFT: down 16.7%
      AAPL: up 311%

      If you look at a plot, you’ll see that MSFT has underperformed the DJI pretty consistently.

      I bought my first shares of AAPL in August, 2007. As of Tuesday, Nov 22, they had gained 183%. If I had put my money into MSFT, I’d now have only 86.3% of the money I put in. With dividends, I might have almost broken even. In the long term, Microsoft has been a lousy investment.

    • Walt French

      “When Apple’s one trick pony suffers a quality issue, where will they make money from? I’ll take MS anytime over Apple for holding long term.”

      Your logic here is terrible: you are saying that you believe Microsoft can prosper despite bad strategy and quality issues. But Vista, Kin, and Zune are in fact several key markers for how Microsoft has failed to extend their dominance of the desktop and Enterprise, into fast-growing markets. These failures contrast with Apple having seen a strategic vision for, entered with the intention of being the best, and then dominated.

      You also imply that Apple hasn’t already coped with significant failures, whereas any long-term Apple watcher could name Mobile Me, Ping, the Cube and many others. I think that inattention to Mobile Me was especially harmful. The difference is that Apple has not persisted in losing face by offering money-losing or dissatisfying products.

      Yes, stabbing the ~$500 million? Danger/Kin devil’s spawn in the cradle might be taken as a move by MS in being more competitively attuned. But anybody who uses the Christensen lens on their Windows8/tablet/phone initiative sees them trying to swim upstream while carrying all their old baggage. They expressed lots of bravado about how the Mythical Man Month didn’t apply to their out-of-control Kin effort and now they’re telling us that the Innovator’s Dilemma doesn’t apply to their mobile effort.

      Rather than belittling others here you might provide some cogent analysis of why they will succeed using techniques that are pretty clearly associated with eventual failing.

    • Noah Berlove

      MS is basically a one trick pony (with quality issues). Their primary revenue drivers are directly tied to the sale of traditional PCs. The reality is smartphones and tablets now outsell traditional PCs and their growth will continue to limit the future of the PC. I doubt there is anything MS can do with Windows and Office that would lead to a significant increase in PC sales.

      MS will continue to sell Windows and Office and will continue to make money doing so. I do not think anyone thinks Windows and Office will disappear. However, it is becoming clearer everyday that their growth potential doing so is very, very limited.

      Look, the fixed line telephone is still a business staple. I do not think anyone believes we will see them disappear anytime soon and there are plenty of companies that make good money selling and servicing them. But tell me, when was the last time someone thought fixed lines phones were a growth opportunity?

  • http://kaizenity.blogspot.com/ FalKirk

    Microsoft Advocates keep telling me that Microsoft isn’t reliant on Windows and Office for the vast majority of its income but the chart entitled “Operating Income: Microsoft Divisions and Apple Product lines” says otherwise.

    Microsoft is in deep trouble:

    1) As more and more consumers move to mobile devices, Windows and Office – which are both trapped on PCs – will become less and less relevant.

    2) Microsoft has virtually no presence in the fast growing mobile space. Their version of the iPod Touch (Zune) was just discontinued. Windows Phone 7 cannot get any traction and holds less than 2% of the market. The upcoming Windows 8 Tablet? We’ll have to wait and see but Microsoft is so very, very late to market.

    Microsoft needs a new product or a miracle. I think they are heavily banking on their upcoming tablet. In fact, I think Ballmer is betting his job on the tablet becoming a success. I have strong opinions on whether the upcoming Microsoft tablet can succeed. But rather than go into them, I’ll just say that Microsoft’s tablet had better succeed else Microsoft will be shut out of the mobile market altogether and they will be soon be forced by circumstances to change the very nature of the company.

    • Davel

      Anyone who says Microsoft is not just windows and office does not understand the company. Yes, Microsoft has many,many,many products but it is mostly windows and office.

      That is the strength and weakness of Microsoft.

      The biggest weakness is lack of vision. Apple knows who they are. Facebook knows who they are. Google knows who they are.

      Microsoft has no clue. They are maintaining products. They have no vision as a company.

      This is also the primary problem with RIMM. They don’t know who they are.

  • http://gamaganda.net Vlad Zotta

    and then there’s the Xbox refresh that everyone is hoping for (which is rumored it will be announced at CES 2012 but I don’t think it will be released until late 2013 or 2014).

    • Davel

      Who cares?

      Gamers do. But if you look at Horace’s charts above, the game division is small fry for Microsoft.

    • http://kaizenity.blogspot.com/ FalKirk

      Even thought Microsoft has finally started to turn a profit on the X-box, its possible that they may have bet on the wrong industry. It’s not a certainty yet, but it appears that there is a trend away from big set top gaming boxes. Sales for all of the big three gaming manufacturers are down.

      And why is this happening? The iPhone and the iPad and all of Apple’s mobile competitors have put 300,000 games in the hands of millions of kids for free or for about a buck a piece. Hard core gamers will dismiss these micro games out of hand, but the rest of us find them more than good enough to suit our gaming needs.

  • Anonymous

    Microsoft needs to get its cash cows (OS and Office) running on a mobile Tablet ASAP.

    Unfortunately, the proposed Windows 8 solution doesn’t really address this in a meaningful timeframe.

    Windows 8 ARM (late 2012) will not run any Windows 8 desktop apps — so, it’s not Windows 8 everywhere… it’s just Windows 8 Metro UI everywhere (If the desktop users don’t urn Metro off, that is).

    Unless MS has a secret project to port Office to ARM (doubtful) or Intel can develop an acceptably low power-usage x86 chip (also doubtful) they will not have a player in the fastest growing market segment until 2013-2014.

    Even if they could port them, there is the issue of adapting their cash cow apps to a touch UI (or use the failed stylus approach).

    If Apple releases an enhanced iPad 3 (with an enhanced iOS and enhanced mobile apps) by June 2012 — likely, that will close the window [sic] of opportunity for MS.

    To restate it simply: The largest software company in the world has ~0 solutions for the fastest growing segment of the computer hardware market…

    How can this be?

    • http://www.asymco.com Horace Dediu

      But even if they did succeed in moving to a tablet model of computing, how will that create growth for them? Will they be able to sell more windows licenses and an equal or higher price point per license? Will people pay more for Office licenses than they do for the whole computer? Will enterprises continue to pay huge recurring yearly software contract fees per individual worker when that worker opts to bring in her own equipment?

      Perfect execution from Microsoft implies to me holding on. Surely there needs to be something more.

      • Walt French

        I envision a tablet license as a reduced-cost upgrade to a desktop license. So the extra revenue will come from the mobile worker who still has a desktop, or perhaps pays more for a standalone tablet.

        Otherwise, MS faces a draconian future, where more than one firm controls writing, spreadsheets and presentations. Using software that runs on a zillion gadgets. WorksGud, I’d call it; “good enough” at $50 for the suite.

        I don’t see a problem having Intel apps recompiled for ARM. Performance might not be great, but it’d be a fallback for stuff that needs to be on a tablet. Say, a firm’s benefits page uses Flash* and nobody who had only a tablet could sign up. Microsoft would have some unhappy customers. The work is shoehorning the zillions of interface options that Word & Excel present, into a metro interface.

        * Yeah, WTF? “Legacy compatibility.”

      • Canucker

        Have finally ditched Office on my home iMac (replaced with iWork). I still have Office at work – mainly because Pages still doesn’t behave well with citation managers (e.g. Endnote – which is an appalling program in of itself). I deplore what Microsoft has done to PowerPoint over the years and I’m simply not a power Excel user. Word 2011 inexplicably shifted around various menus for, as far as I can tell, no other reason that to show it is distinct from Word 2008. Try “accepting all” tracked changes… now requires activating the “Review” tools. Whatever they are smoking in Redmond is way too strong.

      • davel

        I don’t know if recompiling is as simple as that. Microsoft has made many performance improvements by going deep into the code and the hardware.

        A recompile may be a disaster. It may be better to just rewrite and port interfaces and file formats.

      • Einstein

        Because tablets are not really going to replace the PC, or the one we’re using to type the long comments and posts. People will have a tablet and a PC and a smartphone and MS can afford to drop prices selectively.

        But there’s no sure 20 year path in this business, you have to trust their judgment, research and cash reserves.

      • kevin

        - Tablets won’t replace every PC.
        – Tablets will take on new jobs that PCs weren’t used for (like in airplane cockpits).
        – Tablets will be bought by some people who would never have bought a PC.
        – Tablets will completely replace PCs for some people and businesses, for they can do everything they need to do on the tablet. (Already seen it at the pediatrician – replaced their tablet PCs with iPads.)

        I think all four statements have already been shown to be true. It’s the last statement that will slow any growth in the PC market, and decrease MS revenue even with Windows 8.

        Your final sentence is basically called “hope” and if it reflects your real attitude, it compromises the credibility of the arguments you make. Perhaps you can explain it away. Why should I trust their judgment, research, and cash reserves if it has shown no results over the last ten years? Somebody who bought MS stock 10 years ago has little to show for it; why shouldn’t they trust somebody else instead?

      • Einstein

        Hope is all you have pal, with any company. MS may have gotten a lot of things wrong or one can look at their profit AND growth.

        Regarding the stock, once you reach $200 billion you will probably be stuck there unless you split the company (a different animal.) Apple will fall to mother earth soon.

        MS has returned some $100 Billion to shareholders already so it’s not just the stock price.

      • jawbroken

        I don’t see how your theory about some magical $200b limit is supported by economic theory or common sense. Care to explain how you derived it?

      • Einstein

        How about you tell us about $200+ billion corps that grow at xx% a year and keep growing in market cap? How many are they? They’d end up gobbling the world. This article started on the wrong foot, a $200+b company with $25b in yearly earnings cannot grow like Facebook can.

        Don’t look at Apple now, it’s all temporary.

      • jawbroken

        I see, so your believe here doesn’t seem to be based on any kind of economic theory or rationality, just a fetish for the historical record.

      • Kan

        Tablets is so passe – whats after tablets – netbooks sprung to life and then died a quick death. Whats to say the tablet market wont do the same?

        I keep on hearing this narrative tablets will kill PC’s. What will happen is that initially tablets will be cutting into PC sales but then as tablets become more powerful and do more things- ohh wait on they start operating like PC – but you just said PC were dead.

        How many times have posters in this forum said the smarphone is a mobile computer. The more things change the more they stay the same.

      • Kizedek

        I don’t think anyone else is confused, so I don’t know why you are trying to force an argument here…

        There is “PC”, upper case; and there is “personal computer”, lower case. That much is very evident in all the discussions, and I don’t think many people “out there” make an issue of it (except maybe Steve Ballmer).

        As you admit, pretty much everything these days is a “personal computer”: notebooks, netbooks, tablets, smart phones, iPod Touches.

        The term “PC” is almost always associated with desktop computing. It’s been a pretty solid association for thirty years, otherwise we would have a lot more confusion out there… you might as well confuse Mac Minis with “Mini Computers” and Digital Picture Frames with “Main Frames”. So get over it.

        Given the above (about which no-one else is confused):

        1) yes, mobile personal computers, of all flavors and form factors, are killing PCs. Just look at all the sales and usage stats discussed here and elsewhere.

        2) obviously, personal computers ARE getting more and more powerful and taking on more and more roles traditionally assigned to PCs. Thanks for restating the obvious. Inevitable. Exactly why more and more people are buying more and more mobile devices and hiring them to do more an more jobs at the expense of PCs they would have used just a year or two ago.

        3) yes, netbooks have died a quick death… because the second coming of tablets, correction, the iPad, is better at most of what a netbook could do and more. The iPad makes most of things EASIER to do, in practice. Yes, Netbooks PROMISED to do more (ie. run Windows and full desktop apps), but in practice, netbooks failed to live up to their promise. That’s often why things die.

        4) Yes, the iPhone is capable of DOING the same things as an iPad (in fact more with Siri). However, the form factor of the iPad (notably larger) screen, means it is hired to do different things in different situations, because it is better suited to some things — notably, the larger screen real estate means the “App becomes the interface” that much better, and for certain tasks it is a no–brainer (such as performing many creative tasks or viewing more data or information at one time, or allowing for a more complex interface).

        So, after going through the obvious with you, we may try to answer your question:
        Apple has hit upon a couple of optimum form factors (one around 3.5in, and one around 10in.). Apple said there are not many places to define a new product between notebooks and phones. Apple sales and competitor failures seems to have bourne this out.

        Much more important than actual physical form factor, is UI and UX. Apple worked really hard on this. Touch has become the new interface paradigm AFTER the PC due to the hard work of Apple and its successful products.

        Voice is set to become the next paradigm.

        Now, as far as “The more things change the more they stay the same.”: Apple is really thinking different in this space, and that is why it is moving forward. I doubt you would find the same kind of customer satisfaction ratings for netbooks that you see for iPads. People choose for iPads because they know what they can do better (they see it on the ads and in person). People thought they were getting PC capabilities when they purchased netbooks and they were disappointed.

        It’s going to happen again: “The more things change the more they stay the same.” This is very true of MS and the “Tablet PC.” MS is so set on “Windows everywhere” that they can’t see anything else. So, here we agree, it’s just more of the same (crap). Tablet PCs failed all these years when they were Gates’ “vision”, they will fail again as long as they are Ballmer’s baby. Just as netbooks did. Pretty inevitable. And all because MS is determined that there is no writing on the wall for “PCs”, despite the fact that PCs overturned the Mini and Mainframe worlds.

      • Kizedek

        P.S. As far as Computer sales stats go, Tablets should be counted WITH PCs when they are made by a computer/consumer electronics company.

        iPads should be counted as Computer sales for Apple, alongside PCs and laptops. Doesn’t matter if they are not counted AS PCs; even though Ballmer seems to think “Tablet PCs” defined as those running (some form of) Windows should get that “privilege” — if only beacuse he denies there is any such thing as “Post PC world”. He is living in denial and is determined that things, while different, remain the same.

        With Amazon, however, it does get a little murkier… is their “tablet” a reader, a consumption device, a storefront kiosk, a loss-leader for the Amazon ecosystem, or what? And Amazon isn’t a computer or even consumer electronics company.

      • Marcos El Malo

        Gene, I guess I’m typing this comment on a PC and not a tablet, and that I’ve not effectively replaced my laptop (which had already replaced my desktop) with a tablet.

        At one time I tried this with a netbook, but that experience was completely unsatisfactory. The trade offs made to have light weight and low cost were not worth it. For me, an iPad is 90 – 95% satisfactory (and some of the shortcomings might be short term due to me adjusting to a new platform) and worth the trade offs.

        There will always be some tasks to which PCs will be better suited. However, the majority of users don’t need that much power. The market for PCs that fulfill those heavier tasks has stabilized or is stagnant. We will see little,if any, growth in that segment.

        Are tablets a fad?

      • Kan

        In essence what you are saying is growth will only come from hardware and not software and that MS shoud just buy HP and do an Apple like Google has done with Motorola.

        It seems that everyone clamouring for Apple to win and MS to lose are missing the point. Frankly I want competition in the market and not one company dominating.

      • kevin

        I don’t think anyone is suggesting that MS buy a hardware company.

        In software, can MS make more money on Windows/Office software off of a tablet than off of a PC? Highly doubt it, unless the tablet market is an order of magnitude larger than the PC market, and/or Office is available on all tablets (including iPad), both of which look unlikely.

        Is there other MS software that is in a growth phase? Possibly something hidden in Server & Tools, or MS Business? If so, what is it? Honest question.

      • http://www.asymco.com Horace Dediu

        I did not say that growth will only come from hardware. There are many hardware companies which are failing badly today. Apple is an interesting case study and a way to analyze business models. It’s a company with 4% or 5% in the main markets it participates in (phones and computers). I hardly consider it a threat to competition. It does suggest a question about what makes it successful and why others are not able to replicate this success.

      • Kan

        MS most recent success is the Kinect – it didn’t come from their MS labs but a success it was.

        Now the one idea that did come from MS – the courier – what would you have considered? You think it would disrupt?
        I don’t know why it was canned probably Ballmer thought if we can’t shoehorn Windows into it – its a no go.

        The h/w failing today are box shifters they are just involved in a bitter struggle to the bottom with the profits going elsewhere. Apple only competes against itself -they do not licence their s/w.

        MS has far more s/w talent at its disposal than Apple, I would even say it could compete against Apple on hardware as well – Apple isnt amazing in hardware tech. Its a brilliant innovator.

        What MS has is a brain dead leadership occupied by too many MBA types. You mentioned why other companies cannot replicate Apple success – when you get automoton MBA with their formulas and have read all the latest books on business and success they have “group think”. Apple is the antithesis of all thats taught in MBA school.

        If everyone is thinking and doing something one way then a strategy where you end up doing the opposite if executed well will be rewarded exceptionally. Apple success has as much to do with the braindead me Too I learned this at MBA school thinking.

        Jobs greatest achievement was dropping out of college and not having his thinking changed through college and grad school which just creates a massive line of automotons.

      • http://www.asymco.com Horace Dediu

        The Courier project was discussed in an article here: http://news.cnet.com/8301-10805_3-20128013-75/the-inside-story-of-how-microsoft-killed-its-courier-tablet/?part=rss&subj=news&tag=2547-1_3-0-20
        It’s textbook innovator’s dilemma. “Within a few weeks, Courier was cancelled because the product didn’t clearly align with the company’s Windows and Office franchises, according to sources.”

      • Kan

        MS is too busy maintaining its business plan – office and windows everywhere. Ballmer is a perfect example of this MBA brain dead leadership where formulas and financial metrics mean more than developing outstanding products. Dont get me wrong Office and Windows are excellent products but they dont need to be the be all and end all of MS.

        Claton Christensenn gets way more credit than he deserves. He simple repackaged and remarketed Schumpeter work and made it accessible. Now it seems disrupt is on everyones lips and its even made its way into events with Techcrunch Disrupt. Schumpeter talked about waves of creative destruction and how innovative entry by entrepreneurs was the force that sustained long-term economic growth. Schumpeter seminal work in his book Capitalism, Socialism and Democracy describes all of this.

      • Anonymous

        That is a very good article — and illustrates Microsoft’s biggest problem, IMO:

        The Microsoft mindset is driven to crush any competition [to its core products] — even if that competition comes from within Microsoft, itself.

        I doubt we’ll ever see Office on an acceptable Tablet… nor should we.

        However, Microsoft could deliver an acceptable subset of Office, today, on iPad, Android Tabs and Windows 8 ARM, and yes, Windows 8 x86.

        AFAIK, Microsoft still has the rights to MS-Works:

        http://en.wikipedia.org/wiki/Microsoft_Works

        There is no reason that this package couldn’t be packaged as Windows 8 Mobile Office…

        Then, Microsoft would have a competitive offering on any tablet platforms they chose.

        BTW, I knew Don Williams, the father of MS-Works — he made quite a bit of $ with his entry “Office Suite.”

        Estimates are that 60 million tablets will be sold in 2012…

        Now, say, you could sell a Mobile Office Suite, at $60/per, to just 10% of those new tablet sales…

        But, even more important, Microsoft would have a seat at the table, chips, and a good hand for the hottest card game in town

      • Prettyblueplanet

        Kan,

        Why so bitter against education? Cook is a brilliant in his field and that is taught in MBA course work.

        That said, having an MBA doesn’t make one a product designer.

        Still need to apply the body of knowledge properly.

    • Secular Investor

      dicklacara

      You say: ” Windows 8 ARM (late 2012) will not run any Windows 8 desktop apps — so, it’s not Windows 8 everywhere… it’s just Windows 8 Metro UI everywhere (If the desktop users don’t urn Metro off, that is).”

      Are you sure? Do you have a source link?

      If you are right then this is devastating news for Microsoft.

      Apple have first mover advantage. The iPad has already captured 96% of the enterprise tablet market, with over 90% of Fortune 500 already trialling and deploying iPads, with a huge number of developers producing business Apps along with additional bespoke in-house software for the iPad.

      It seems to me that the only way Microsoft could have a chances to compete with the iPad in enterprise is to offer backwards compatibility to the huge body of Windows developers’ software. Without this I can see no USP for Windows Mobile 8 Tablet.

      Without backwards compatibility Microsoft are dead in the water!

      You also say: “Unless MS has a secret project to port Office to ARM (doubtful) or Intel can develop an acceptably low power-usage x86 chip (also doubtful) they will not have a player in the fastest growing market segment until 2013-2014.”

      If that time frame is correct then it is too little, too late.

      Personally I think backwards compatibility is a bridge too far! Every App is probably going to have to be rewritten for Windows Mobile 8.

      It reminds me of the Lotus 123 debacle. They were so late bringing in their last great update, which kept on being delayed and postponed, that Excel ate their lunch.

      So I agree with you.

      Microsoft appear to have lost the enterprise battle before it has begun.

      • Anonymous

        @Secular Investor

        Below are some quotes from articles that indicate to me that Windows Desktop Apps will not run on a Windows 8 ARM tablet.

        Sure, They can be rewritten to run on ARM — but that is not a trivial job… it requires rethinking the whole application. You have a single window and the UI is totally different… it is much, much, much more than a simple recompile. To the user, it is a totally different application — hopefully, a better one.

        Consider how the user would interface Word or Excel on a tablet. MS has already proven that Desktop Windows OS and desktop apps running on a tablet are a non-starter.

        Can MS engineers make Office run on ARM — they don’t seem too confident!

        “Windows chief Steven Sinofsky describes the ARM version of Office that Microsoft showed earlier this year at CES as purely a “technology demonstration”.”

        Will ARM tablets get the Windows desktop?

        All that secrecy is because Microsoft isn’t ready to announce exactly what Windows 8 will look like on ARM tablets, although we know that it will only run apps that come from the new online Windows store.

        For PCs running the x86 processor, that store will include ‘desktop’ apps that run in the Windows 8 version of the familiar Windows desktop, but ARM tablets will only get Metro apps from the store.

        There’s no way to make an existing Windows desktop app like Firefox run on Windows 8 ARM as it is and Windows chief Steven Sinofsky describes the ARM version of Office that Microsoft showed earlier this year at CES as purely a “technology demonstration”.

        However ARM tablets will have to have some version of the desktop (and the underlying platform technologies that make the desktop run) because the task manager is staying as a desktop-style app, according to Sinofsky. He commented that “there are some tools we choose to build [Metro-style interfaces for] and some we don’t, and Task Manager right now is not one of them”.

        http://recombu.com/news/windows-8-arm-tablets-what-can-we-expect_M15354.html

        Windows 8 Can Run ‘Desktop Apps’ on ARM

        Last week as its Build conference, Microsoft announced a new “developer preview” release of Windows 8, promising that applications that ran on Windows 7 would run on Windows 8. That explanation seemed straightforward enough at the time, and Steven Sinofsky, president of the Windows and Windows Live Division, reaffirmed that view at the Microsoft Financial Analyst Meeting last Wednesday in response to a question.

        “I think I said that if it [an application] runs on a Windows 7 PC, it’ll run on Windows 8,” Sinofsky said. “So, all the Windows 7 PCs are x86 or 64-bit.”

        However, Sinofsky’s next statement to the financial analyst added a nuance that caused some press accounts to declare that x86 apps would not be supported on Windows 8-based ARM machines.

        “We’ve been very clear since the very first CES demos and forward that the ARM product won’t run any X86 applications,” Sinofsky told the analyst, according to a Microsoft transcript. “We’ve done a bunch of work to enable that — enable a great experience there, particularly around devices and device drivers. We built a great deal of what we call class drivers, with the ability to run all sorts of printers and peripherals out of the box with the ARM version.

        “What we talked about yesterday was — what we announced yesterday for the first time was that when you write a Metro style application, all the tools are there to enable you in any of the languages that we support to automatically support ARM or X86. I think that’s the key part of everything that we’ll run.”

        This clarification apparently meant that Windows 8 will support languages and tools to build either ARM or x86-based applications. It didn’t mean that x86 apps could run on ARM-based machines. Sinofsky had implied as much at Build on Monday when he told the press that “all of the apps for ARM will be Metro-style.”

        http://redmondmag.com/articles/2011/09/19/windows-8-can-run-desktop-apps-on-arm.aspx?m=2

      • Davel

        I would like to see any of the office software run on a tablet. How much disk does excel take? How much ram does it take?

        Let us not even go into instruction sets or processor specific code.

      • Walt French

        Many people want this. My work requires heavy Excel, for instance, and I greatly prefer Office 2003 for its power interaction — extensive but not bloated toolbars, keystroke shortcuts, filling my monitors’ 1680X1050 resolution, etc. None of those make any sense on a tablet or phone in a UIKit or metro world.

        However MS ports a spreadsheet to a tablet, some compromises between the current and new versions will need to be made. It seems that Microsoft, faced with a difficult decision, has chosen to make none.

        Microsoft used to be valued by developers and by Enterprise shops because it published a 5-year roadmap that was exceptionally valuable for planning. They’re still trying to do that for Windows8 but the vision gets murky when they veer off into the mobile space. No clue about whether existing WP7 phones will run the converged Windows that Ballmer said was coming some day; no clue about Office on the finger-friendly metro approach; no hope for developers to have a single phone/tablet development base… their value to their current customers has NOTHING to do with their “plan” to serve new markets. Essentially a total renunciation of the Disruption theme. Astonishing to me.

      • davel

        Balmer is confused. Every time he opens his mouth a PR guy needs to come behind him and clarify his bosses comments.

        I agree that Microsoft should provide office on all platforms. Many will see much value in it. I was responding to the above where they were stating that PC Office will be on mobile. My point was purely technical. There is not enough real estate to do that even if you can resolve the specific cpu coding issues.

        There is a lot of misinformation regarding what the mobile platform will actually be, due in no small measure to the CEO. He muddies the waters by using Windows as a generic platform and a specific platform in the same sentence. Windows 8 is not Windows Phone 8.

      • Secular Investor

        @dicklacara,

        Many thanks for the quotes and links

        So there we have it, straight from the horses mouth:

        “”We’ve been very clear since the very first CES demos and forward that the ARM product won’t run any X86 applications,” Sinofsky told the analyst, according to a Microsoft transcript……..

        ….This clarification apparently meant that Windows 8 will support languages and tools to build either ARM or x86-based applications. It didn’t mean that x86 apps could run on ARM-based machines.”

        So Windows 8 will NOT be backwards compatible and all Windows PC Apps, including Office and OutLook, will have to be re-written for Windows 8 on ARM, which is huge task, not just a matter of recompilation but a complete re-writes, testing, refining etc.

        So the bottom line is that Windows 8 will NOT have any USP over iPad. So whether a corporation elects iPad now or waits years for Windows 8, both require re-writing Apps.

        Apple have first mover advantage. Microsoft have missed the boat and have been left floundering.

        Meanwhile iPads have gained decisive traction in the enterprise market: with over 90% of Fortune 500 corps trialing or deploying iPads and iPhones; with iPads gaining 96% enterprise market share; with iPhones already gaining 45% market share; with tens of thousands of developers and almost all the major third party software/consultancies writing Apps for iPads; and thousands of companies around the world writing their own bespoke, in-house Apps.

        All of the above has been achieved in just one and a half years by the iPad, which has proved to be a remarkably cost effect, productivity tool and extremely popular with executives, managers, marketers, sales people, retailers, doctors, hospitals, pharmaceuticals etc.

        Microsoft expects companies to wait another year, while the iPad steams full speed ahead over the horizon!

      • Anonymous

        “Microsoft expects companies to wait another year, while the iPad steams full speed ahead over the horizon!”

        Exactly! Especially when all the “companies” competitors are moving ahead with iPad implementations…

        There really is no choice.

        The agile companies will move ahead, now, with iPad solutions — then in a year (or so) if the Windows 8 ARM solution is viable (as a 1.0 hardware, 1.0 software release)… consider porting to the MS offerings.

      • Walt French

        In replying it seemed like the roadmap was quite simple but explaining it turned complex. There are 3 entangled issues: (1) X86/ARM, (2) legacy/metro and (3) older/.Net source programming languages.

        (1) MS will provide programming tools for .Net sources that will spit out either X86 or ARM executables, relatively trivial to choose which. So recent or new programs that use .Net will have no trouble producing both. MS will not provide a tool to translate X86 to ARM objects; better to target your .Net “source code” to your chosen object CPU.

        (2) Programs will have to choose whether they want to interact in the legacy or metro paradigms. You wouldn’t want to mix; the programmer will have to think out different layouts, interactions, tools, resources, etc. This is the serious re-think. After all this (re-) design, then comes the .Net programming. Want legacy only? No re-design; Proceed to Go and collect $200.

        (3) Dot Net and especially C# is the current recommended environment for development. That doesn’t mean that everybody uses it. Windows itself, and Office, are not currently written using it. I imagine that many “serious” apps, say third-party browsers, or apps that are meant to run on multiple platforms, aren’t. Rewriting these would be a big chore, and perhaps many tweaks that fine-tuned bottlenecks would need to be worked over pretty hard. But most legacy-targetted apps wouldn’t be impossibly challenged.

        So the X86/ARM issue is “only” a challenge for complex apps that don’t use Microsoft’s currently-recommended tools. This won’t challenge smaller or in-house development groups as long as they’ve been drinking the KoolAid. The metro issue is pretty deep.

      • Einstein

        I am sorry I made you angry Walt. I actually like Apple.
        What I said is that Apple is a year or two of screw-ups or serious manufacturing issues away from tarnishing their brand and ruining their stock. Imagien the “With Steve gone, Apple….”

        MS on the other hand moves slower and has more leeway since their money making products don’t have to have the latest shine.

        Sometimes you need to lose money on some things, otherwise you cannot succeed. See Bing (if it ever makes it) or xBox, they may one day come in handy.

      • Anonymous

        “So the X86/ARM issue is “only” a challenge for complex apps that don’t use Microsoft’s currently-recommended tools. This won’t challenge smaller or in-house development groups as long as they’ve been drinking the KoolAid. The metro issue is pretty deep.”

        I would add that a refinement of the issue is How do you take a complex app like Word or Excel and deliver it in any meaningful way on a single fixed-window interface (no Inspectors, windoids, etc). Metro will launch the app… but then what?

        How do you interact with the app?

        As much of the complexity of the app is in the UI and Flow itself — as is in the underlying code, macros, database…

        Metro, alone will not mitigate that… the complex app will need to be re-thought, re-designed and re-written…

        Doing so, it becomes a different animal than the desktop app.

        So, then you have:

        1) a legacy desktop app

        2) a compatible (maybe) but completely different mobile app.

        3) 2 complex code bases to maintain and keep in synch

        Here’s the kicker… MS has never demonstrated the ability to do this — repurpose a complex desktop app for a [usable touch] tablet.

      • Secular Investor

        Walt

        Thanks for the clarification.

        But I think my main point remains valid. which is that Windows 8 ARM is not backwards compatible, so  x86 Apps will not run on ARM tablets.

        Microsoft’s apparent advantage (their USP) appeared to have been that the vast legacy of Windows PC software would work on the Windows ARM tablets, but it transpires that this is not the case.

        For these legacy PC Apps to work on ARM tablets they will have to be rewritten – and according to dicklacara this is not just a matter of recompilation but a substantial re-write.

        Moreover Windows 8 has been fatally delayed and is not due out for another year. 

        iOS has already gained huge traction in the enterprise sector with most large companies already trialling or deploying iPhones and iPads, and iPads have 96% market share. 

        By the time Windows ARM 8 is ready it will be too late, Apple will have eaten its lunch.

        Why should enterprises wait for Windows 8 ARM to be ready then wait some more for developers to re-write their Apps (if they will).

        It makes much more sense for developers to re-write their Apps for iOS, which is already a thriving market. This is just what they are doing. If they did not, then they would leave the field open for their competitors!

  • http://www.linkedin.com/in/decisionscience Rick Mueller

    Although running a comparison of MSFT – basically a software shop – against AAPL, basically a hardware shop, is superfluous to the core doscovery to be made here, most commenters have it right – MSFT will shrink (if not die) – or need to find a new line of work as the PC continues to lose relevance to the mobile market. There’s some nice material (http://lnkd.in/uUYunE) on how MSFT’s tablet, which was designed by the creator of the Xbox – MSFT’s only real attempt at self-disruption, was shelved because Ballmer insisted that it had to be able to run the Office suite. Stupid, stupid, stupid – Ballmer should have read some Christensen before making that decision (as did both the creator of the Xbox – who has since left MSFT, as well as Steve Jobs). If Windows 8 were ready for prime time and MSFT were willing to give it away and flood both the consumer and the developer market with it, they just might stand a chance and recouping – but I’d sooner bet on AAPL (and since you know that isn’t going to happen, you can imagine how far away I’d recommend one stays from MSFT). Too bad in a way when yet another one so needlessly bites the dust.

    PS Horace – if you wind up with time on your hands, consider that the CISC chip producers (Intel – and particularly AMD) may have a strikingly similar dependence on the PC market, which means that there is most likely trouble in that corner of paradise as well. This is one of the few areas where Christensen may have gotten it wrong as when the relative market for CISC shrinks while the market for single purpose dedicated chips (like mobile) explodes, all the CISC chips, including the Celeron (one of Clay’s self-disruption poster children) will probably be falling into that same deep hole.

    • http://newcanuckworkshop.tumblr.com Junesoo Andrew Yang

      I think Intel, at least, has the opportunity to make a play in the mobile market. While Atom isn’t there yet in terms of performance/power, I would wager on Intel successfully die shrinking to reduce power over ARM scaling performance to comparable levels over the same period. Some charting of the relative performance/watt of the Intel and ARM offerings might provide more concrete projections.

      • Tatil

        ARM processors come in shrunk dies, so Atom cannot succeed by die shrink alone. MS knows more about the upcoming Intel processors than most people, but they are hedging its bets to move Windows to run on ARM processors. Intel may be quite vulnerable to competition from Nvidia, Samsung etc, basically from all of the players with ARM capabilities.

        Another advantage of ARM is its flexibility. If you use Atom, you are limited to whatever Intel thinks you need. If you shift to ARM, there are many different custom versions available, from basic to ones with high clock speeds, to ones with built-in GPUs of different strengths, to versions that incorporate the functionality of small purpose built chips that are otherwise required for smartphones, such as audio processing or touchscreen controls.

      • http://newcanuckworkshop.tumblr.com Junesoo Andrew Yang

        I think your implicit view that the fab industry moves in lock step through each process shrink is mistaken. The general view is that Intel holds up to a 1 1/2 generation advantage over other foundries. The latest advances with the tri-gate are expected to extend the advantage. To view Microsoft’s current OS strategy as being proactive is generous, especially with respect to the support for ARM.

        The flexibility afforded by the ARM licensing scheme and the ability of different companies to devise custom solutions is a great advantage but I would argue that as the processing power improves, the need for custom solutions is lessened. The transition that has occurred in mobile devices is that from speciality to general purpose. Therefore, I wold argue the underlying computing architectures will similarly follow suit, moving from custom chips to more generic general purpose designs. That’s not to say TI, Qualcomm, Samsung, et al won’t try and differentiate the designs but the move would be closer to differentiation along price/performance lines as opposed to core differences in functionality.

      • Wayne Renken

        Intel’s business model may preclude competing with most ARM Type SOC devices. Intel uses an advanced method of making mask sets to achieve that up to 1 1/2 generation advantage. Their computational lithography generated mask sets are extremely expensive and are not economic unless the product volumes are above most ARM type SOC devices shipped today. This limits Intel’s ability to become a custom SOC foundry without considering its higher manufacturing costs per wafer. I believe if Intel was going to become more competitive in mobile devices, we would have already seen major changes to their business model and product lines.

      • http://newcanuckworkshop.tumblr.com Junesoo Andrew Yang

        My statements are mostly consistent with your argument. The only distinction is the necessity for Intel to compete using custom SOCs. I would argue that the necessity for custom SOCs is fading. I think it would be hard for anyone to argue that Intel is open to farming out fab capacity to manufacture 3rd party designs. It has been a long time, if ever, since Intel didn’t monetize excess capacity itself.

      • Wayne Renken

        Junesoo
        Please support your contention that increased processing power reduces the need for custom SOC’s. I contend that product differentiation drives more customization. Only when the number of jobs the mobile device is hired to do slows down, will the differentiation needs slow and architectures standardize.

      • http://newcanuckworkshop.tumblr.com Junesoo Andrew Yang

        My argument stems from two primary sources:
        1. the evolution of the processor industry on the desktop
        2. the current evolution of the mobile device.

        If the basis of custom SOCs is to provide a combination of improved performance/watt and economics then I think the following argument would hold.

        1. Increased processing power at the CPU level at a point allows for the elimination of custom co-processors. Cases in point through history, floating point, audio, and most recently physics processors. Although Intel was seemingly unsuccessful in the first public attempt, it seems the elimination of the GPU was a target with Larrabee. Higher core CPU performance enables a wider range of general purpose computing at acceptable levels of performance.

        The argument in 2. then is premised first on the idea that mobile devices are transitioning from special purpose to general purpose devices.

        There is a distinction between product differentiation and requiring a custom SOC to achieve adequate performance. If the silicon is fast enough, then it is cheaper and faster to differentiate a product through software as compared to hardware. As core CPU performance in the mobile space increases, I don’t think it would be unreasonable to expect the trajectory of processor design to follow that on the desktop. At a low level, we are already seeing that with the introduction of more advanced processor design concepts to the latest reference designs from ARM, which bring the ARM chips on a conceptual basis to about the Pentium Pro, give or take.

      • Rifepe

        All your examples are not really of disappearing of custom processor but of integration of common external coprocessors when the real state for chip increased enough. The float coprocessor was integrates as float units and the GPU that is becoming a vector and ASP processor is trying to be integrated as a vector unit. The question is, will be all the coprocessor in all the mobile world common enough that an unique SOC will be able to cover their needs?

      • http://newcanuckworkshop.tumblr.com Junesoo Andrew Yang

        If you take a look at the current SOCs functional diagrams on the market, the integration is principally the same as the examples I provided. Both the FPU and SIMD existed separately off board the CPU proper prior to integration. The net effect is that processing power per either unit power or unit area can be improved.

      • Rifepe

        So the separated units where not replaced by a general processor but thats coprocessor where integrated in a general SOC because everybody was basically using them and where small enough to fit in one SOC.

        the question is would the mobile world integrated into a single group of needs that can be fitted in a single chip?

        if the answer is yes the one size fits all of intel have a chance. Unfortunately for intel at this point in time that is not the case and while not all the mobile devices: phones in all the range of prices, portable consoles, ipod, ipads … settle for a unique set of hardware capabilities ARM with its range of options have the advantage because while you keep one chip that must be ARM (the radio controller for example) you must offer a very compelling reason to use a different architecture for the other chips in the system.

      • http://newcanuckworkshop.tumblr.com Junesoo Andrew Yang

        I’m sorry, I’m having difficulty following your statement. Ultimately, my argument is not that Intel is currently competitive, but that the general direction of the market would indicate that Intel has the *opportunity* to become competitive. It’s no more a foregone conclusion than is Microsoft’s ability to translate their success on the desktop to the mobile space.

        The reason I think Intel has a better probability than Microsoft is that the current transition of the mobile market is more favorable to Intel’s strengths than to Microsoft’s. Intel at least acknowledges the root of their inability to compete effectively in the mobile space; performance/watt. Microsoft, to this point, does not seem willing to acknowledge that the user paradigm in mobile touch computing is different from that of desktop computing.

      • Rifepe

        I answer you here other way I can’t read it.

        I am saying that ARM has 4 thing in it favor not only the power/watt ratio. thats one
        but the fact that is a license with multiple variances that can be chosen for the specific
        needs of the product that only goes away if everybody in the mobile space has very similar needs
        is other.
        The first mover advantage of course.
        And the existence of several chip as the ones that control the radio communication that usually use and ARM10 and even an ARM9 and can’t be integrated with more complex cores due to interference force the hardware companies to have an ARM experts in house so why not use that expertise to use another chip of the same family instead of looking for a new expert.

        While the only advantage of intel is the huge volume capability that can only be exploited to produce huge volumes of a limited number of SOC so unless most of the mobile hardware producers coalescent in the same capabilities so
        a limited number of SOC with huge volumes define the market intel has no advantage.

      • http://newcanuckworkshop.tumblr.com Junesoo Andrew Yang

        So my argument is that as time moves on, the ability will exist for more the custom variations to be combined, resulting in a more generic design. This is also combined with my sense that specialized products are being replaced with general purpose products with comparable performance. Remember the days of pager + cell + walkman + daytimer + etc.

      • http://newcanuckworkshop.tumblr.com Junesoo Andrew Yang

        PS I don’t think Asymco’s layout is suited to the multi-level replies! It is definitely illegible now.

      • Rifepe

        But an ARM core is as generic as a intel Chip there is no coprocessor that intel can add that ARM can’t, in and environment where every mWatt counts don’t having a coprocessor that you don’t use is important.

        That the products became more generic do not means that the components will too is more the more generic the product became more will the hardware makers try to differentiate,one way is to use non generic components.
          And as I say there are some functions that work better as an independent chip. Radio chips due to electromagnetic interference, gyroscope due to very specific requirement in its building process are some examples. This chips still need a generic core but with the lower absolute energy requirements ( they don’t need much processing power) and as simple design as possible, In this area ARM is king and intel is not even in the radar that means that you must program for ARM why program for ARM and Intel when you can program only for ARM. 

      • Anonymous

        @Wayne Renken

        Are you the Wayne Renken who had all those round tuit coasters scattered about his office?

      • Wayne Renken

        dicklacara
        Indeed. That was a lifetime ago

      • Anonymous

        Hi…

        Kinda’ figured it was you — someone who knows about semiconductor fab (or whatever they call it now) — and can explain it so the layman understands.

        I’m Dick Applebaum, from Computer Plus…

        Some good memories…

        Hope all is well with you!

    • Anonymous

      I kinda disagree. I think
      1- Office is the killer app for MS on tablets. If my tablet had a full MS Office suite, I’d use it significantly more than I use my Android one. Export/Import just doesn’t work well enough.
      2- MS will find themselves in the unique position of providing the only OS that runs on desktops as well as tablets (provided some ARM desktops pop up, which is happening already).
      3- Even better, identical APIs make developing for both ARM and x86 just a recompile away, and I’m sure they’ll be a cross-platform VM, too ?

      Great things could happen on that basis, ie Tablets able to turn into real desktop replacements with the addition of a dock (wired LAN, KB, MS, sound…).

      It’s a bit sad phones will be left out, as will xbox, but still, the synergy between tablets and desktops could be extremely powerful.

      • http://www.linkedin.com/in/decisionscience Rick Mueller

        Hi obarthelemy,
        Eventually tablets will have PC capability, but until then you’re going to have a PC and a(t least one) tablet. For every one of you there will be 3 that have a tablet only (your kids, wife, mom – whatever). PCs and Office won’t die, but the bulk of the money (investment and otherwise) will go to where the action is. As tablets get better so do the apps for iOS and Android. You get spreadsheets for your tablets and PCs continue to shrink into relative insignificance. It is what it is.

  • poke

    If (a) the tablet is a laptop replacement and (b) tablets aren’t yet “good enough” (i.e., they can only replace laptops for x% of people) then it should follow that there isn’t much room to undercut Apple on price but there is room to provide greater functionality. So shouldn’t competitors be looking to provide more functionality rather than lower price? In that respect, maybe Microsoft does have the right approach, provided it can execute on its Windows 8 strategy. Obviously tablets, even premium tablets, are constrained by mobility concerns (size, weight, battery life) but there’s plenty of room to add functionality (i.e., a full-featured, touch version of Office).

    I don’t like Microsoft’s prospects in this game but I feel like most analysts have it back to front. This is a race to provide additional functionality and not a race to budget prices.

    • Canucker

      I’d bet a significant number of people who buy an iPad have a PC/Mac as well. Until iOS5 you basically needed a PC/Mac to keep the device up to date (apps, add music not purchased through iTunes, etc). A more fully functional tablet will reduce the need for a PC/Mac. That is bad for Microsoft unless they can expand their tablet sales to people who don’t own a Windows PC. Apple has the initial advantage here as their upside potential of sales to people without a Mac is much higher (plus the iPad has seemingly acted as a gateway drug to Mac sales). I also think that tablets have some inherent disadvantages for many people over a PC. At some point, adding functionality to a tablet makes it a PC. The jury has not begun to sit on whether a “hobbled/compromised” tablet is more effective than a “full/uncompromised” tablet. That is the iOS vs Windows 8 debate. Apple has chosen to hone each device to be optimized for its form factor. Microsoft has chosen to endow each device with a one-size-fits-all operating system, regardless of input modality or application. From a user experience perspective, I personally don’t think the jury will be out for long.

    • http://www.linkedin.com/in/decisionscience Rick Mueller

      poke, I don’t really have a horse in this race, but I did want to take just a second to talk about the scenario you’ve presented. Do you remember land line telephones? They used to be the only kind of telephone that anyone other than a licensed amateur radio operator could get. Then came first cell phones, and they were expensive and were lacking in much of the quality associated with land-line phones (and in some ways they still do – “Can you hear me now?”). But it turns out that the “need” for personal mobile communication increased the number of cell phones to 1 per capita, whereas the best that land-lines ever reached was 1.6 per household, and in this way the land-line industry lost their dominance of the market. In today’s terms, that’s called Disruption.

      Now look at phones, tablets, PCs in general, and desktop PCs (which do the heaviest lifting) in particular. What has happened is that the realized “need” for mobile personal/network communication/interaction has exploded as a result of the mobile capability and is superceding PCs in the same way. Where there may have been 1.6 desktop PCs per household at one time, we’re moving towards something that looks more like 1.6 mobile devices per capita. Replacement PCs will only be purchased at the rate required to replace those which are mainly used for heavy lifting (which is a relatively small percentage of the PCs that are currently out there). The rest and many additional units will turn into mobile devices fully capable of what the PCs used to be mostly used for – browsing and networked communication and interaction.

      Just like cell phones became capable of things that the land-lines could never have done, so the mobile devices are also being endowed with functionalities which desktop PCs in particular would not have had any use for. (As an example, I can’t think of having much less useful than a GPS function in a desktop PC.) The PC is thus being Disrupted by mobile in much the same way land-lines were Disrupted by (feature) cell phones.

      The point here is that improvements in qualities and functionality only go so far, and in the event of Disruption, functionality is not the way to regain market share (much less regain or even maintain dominance). As illustrated, the PC is being Disrupted as we speak and the need for OS’s and programming such as MSFT provides is becoming dwarfed by the realized need for interpersonal network interaction. To remain relevant without entirely re-inventing themselves, MSFT’s only hope would have been to strive to become dominant in mobile (much as they did in gaming), but they have not and as such, they seem likely to follow their technology into obsolescence.

      • Anonymous

        Oh, MSFT has indeed tried to become dominant in mobile. WinMo was a dominant platform at one time, and even if only very few ere ever sold, Windows based Tablet PCs were a market leader every time they came out (IIRC three times or so).
        What had been missing, and still is, is any kind of decent software quality from Redmond. There hasn’t been anything worthwhile for literally *decades* coming out of Microsoft.
        But it was incredibly hard to get that point through to people. Because Windows was the ubiquitous platform, and because people had to use it at the office anyway, and because there was a huge industry around Windows (all of them were of course stakeholders in the Windows universe). Nobody would listen if you pointed them to companies that actually delivered state-of-the-art software, like NeXT, Be etc.

      • Anonymous

        (sorry I’m having trouble editing on this platform)
        IMHO what disrupted MSFT in the mobile space is simply that people were made aware that alternative OSes DO in fact exist, and that they ARE in fact vastly superior (“insanely great”) and that, since they don’t need to be compatible (a phone is not a PC) they could actually go out and BUY them.

        And so people recognized that. And they bought. And they liked it. And they’re never going back. That’s a simple truth.

      • Anonymous

        Not really. Superior alternative operating systems really didn’t exist back when WinMo was pulling in market share. Only upon MS abandoning that product and Android filling in the 3rd party OS niche was there the kind of disruption you’re talking about.

      • http://pulse.yahoo.com/_G2P5DFIAUXSA4FHEUNH6C7BL7E Paul

        Wow, talk about a distorted description! 
        News flash – ignoring Apple just makes you sound silly.

      • http://www.linkedin.com/in/decisionscience Rick Mueller

        Yes, with the the key word in your statement being “decent”, as in “decent software”. How “decent” something is is decided by the consumer, and as we have seen, that which was most highly valued by the customer was not integration with Windows, but rather simplicity, robustness, price, support, and a relevent development path (with the latter two having been most affordably provided for the Android and iOS platforms through integration with the greater community (“ecosystem”) rather than the centralized development process and mainly-paid-only support traditional for incumbent software giants such as MSFT.

    • Davel

      Microsoft loses its advantage by splitting the platform.

      They will support intel and arm. This means the apps are not the same. Unless data is done in a neutral format it creates dissonance.

      Also how compatible will the phone OS be to the desktop?

      To date Microsoft has leveraged it’s monopoly position. It does not have that advantage in mobile. It also does not have an app store. It needs to build that.

      Most importantly they need a vision. This is one thing their leader does not have. His vision is to sustain Windows and Office. That is a goal not a vision.

  • Davel

    I find it amazing that in 4 years iOS went from nothing to bigger than Microsoft, the giant in computer companies.

  • http://www.sihirlielma.com Goktug Gedik

    Great charts, great comments, great discussions, thanks folks… It is nice to read those ideas with solid reasoning…

  • Pieter

    Horace thank you again for a very interesting post. There seems to be no easy answer to Microsoft”s dilemma. Ironically they have adequate reserves to spend a lot of money. It is however not possible to buy the visionary leadership to change them around. And it is not easy to turn a massive “ship” like Microsoft around. When will the board replace Steve Ballmer? Will it be to late?

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  • Guest

    Einstein is certainly bored and has nothing better to do than sprout inane comments as a typical Apple-hater. It must really suck to be an Apple-hater these days, isn’t it, “genius”?

  • http://blog.databigbang.com Sebastian Wain

    Microsoft has many areas to grow. Obviously nobody knows the future but these are the areas where Microsoft is not a leader (or a real competitor) and where a hit can move the valuation of the company:

    – Virtualization (i.e: HyperV). Excelent technology, a lot of space to win from VMWare and others.
    – Windows Phone 7: Not clear.
    – XBox, Kinektic: Interesting.
    – Azure: Interesting. Much room to grow.
    – Search engine (Bing) and Ads (AdCenter). Not clear, far from Google and loosing a lot of money.
    – Tablets/Windows 8: Much room to grow.

    • http://www.asymco.com Horace Dediu

      There are many opportunities for growth, but for an impact on valuation, this growth must be far greater than the (anticipated) decline in the core business of Windows and Office. What makes an impact is _unanticipated_ growth.

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