It Seems Everyone is Writing Off the Surface

Besides Microsoft’s commercials, it seems few people are talking about the Surface. Microsoft recently announced a $900 million write-down related to unsold Surface RT inventory. Yes, you read that right. Microsoft lost almost $1 billion due to unsold inventory of their much-hyped iPad competitor. The quote in the following article I think sums it up: “the company misread the consumer market by a comical degree.”

Microsoft's Struggles Grow: 9 Key Points

Microsoft’s Struggles Grow: 9 Key PointsRedmond, we have a problem. Microsoft’s $900 million Surface RT write-down was not the only troubling sign in the company’s rough earnings report.

It should be obvious by now that virtually no one is interested in Microsoft’s Surface devices, even with Microsoft’s trumpeting that they are the only tablet devices that run Microsoft Office (only because Microsoft won’t release Office for any other tablet platform). Can we read into this that no one really cares about running Microsoft Office on a tablet? Going further can we read into this that no one really cares about Microsoft Office?

The take-away for small business and consumers here is to not tie your fortunes to Microsoft technology any longer. If you haven’t already begun mitigating your reliance on Microsoft technology, you must do so now – or risk emulating the company’s poor performance.

Steve Jobs: Leadership vs. Management

Late today, the technology industry was rocked by yet another major announcement: Steve Jobs officially stepped down as Apple CEO after a 7 month medical leave of absence. A quick search on the Internet should provide as much coverage as you care to read, but I think many are missing a simple fact. Since January, when Jobs went on medical leave, he wasn’t acting as CEO anyway. So this really doesn’t change anything except make permanent the situation that has existed for 7 months.

It is also important to note that Jobs has been elected Apple’s chairman of the board and director. While this is being reported as fact, it seems that many are also missing the significance of this development. Steve Jobs is still going to exert his influence on Apple. While he may have officially given up CEO duties, his real value to Apple is not lost.

As Steven Covey, author of The Seven Habits of Highly Effective People, made famous, there is a crucial difference between leadership and management.

Management is efficiency in climbing the ladder of success; leadership determines whether the ladder is leaning against the right wall.

Leaders provide the vision and set the direction of their organization. Managers carry out the mission that the leaders have defined. Steve Jobs has clearly brought back the vision to Apple that it was lacking in the late 80′s and 90′s. With that vision, Apple has become the largest company in the world and has completely changed the technology industry and the world in general. Luckily for Apple (and perhaps all of us), Steve Jobs’ visionary mind is still around and he will continue to put his mark on the new world of technology he helped kickstart.

The Consumer Power Shift

I’ve written before about how consumers are now pushing their technology preferences into their workplaces. This change in how technology is deployed and utilized comes after the era where the IT departments of companies would dictate what technology their employees would use. By extension, what people used at work is what they generally used at home. Now, what people are using for their own personal or home technology is what they want to use at work, and increasingly forcing their IT departments to ensure compatibility.

I first wrote about this almost exactly two years ago, but I had observed this trend at least a couple of years earlier. Yet it seems that some big companies still don’t get it. Case in point, I recently read an article where a self-described “loyal BlackBerry user and fan of RIM” explained why he made the difficult decision to return his RIM PlayBook (also commonly known as the BlackBerry PlayBook). Even though he feels the PlayBook is technically superior in some ways to the iPad , his reasons for returning the device were not about the technology.

He gave three reasons why he felt that RIM was “screwing it up”. His first was “Not recognizing the consumer power shift”. To quote the article:

The fundamental pattern of technology adoption is shifting. In the old world, in which corporate IT departments determined which technology to approve and employees (users) simply had to follow suit, BlackBerry wielded a clear advantage. IT departments loved RIM’s solution for its security and reliability.

But the winds of adoption are shifting. Employees are in the driver’s seat. They are convincing their IT departments to adopt the platforms employees desire. The winners of tomorrow need to create solutions that appeal to consumers, not just their employers.

He then goes on to say that

Such adoption shifts have taken down giants.

He gives an example of beer purchasing in Japan, but we have examples much closer to home with Blockbuster and Borders. Companies failing to see changes in technology affecting consumer choices is a key reason they fail. This is nothing new, but yet it still seems that the lesson has not been learned – or many companies are just bad at executing change.

It took me 45 minutes from opening the box to being able to explore my new PlayBook. When my wife bought her iPad, she was already connected, and exploring within 10 minutes.

It’s time to make sure your company is recognizing the changing tides in technology. Don’t be late to the party like Blockbuster, Borders, and RIM.

HP: “The Tablet Effect is Real”

In the second shocking technology announcement of the week (after the Google announcement that they are going to buy Motorola Mobility), HP revealed that they are killing the TouchPad product after only 6 weeks, as well as their WebOS-based phone line. Additionally, HP stated they are considering leaving the PC business, possibly spinning-off the division that made the mobile devices and makes their PCs.

Let’s get clear just how important these announcements are.

1) The biggest PC company in the world threw in the towel after just 6 weeks in the “tablet” market. Why did I put the word tablet in quotes? More on that in a bit.

2) The biggest PC company in the world wants to get out of the PC business. The same business that brings in one-third of its revenue.

For a company to throw in the towel after 6 weeks is almost unprecedented (only Microsoft has done this with their Kin phones of last year). Sales of the Touchpad must have been utterly abysmal. This just shows how much of a lock on the market Apple has with their iPad. This is why I put the world “tablet” in quotes. As I’ve said before, along with a growing number of others, there really is no such thing as a tablet market. There is only an iPad market. People do not seem to want anything except the iPad. Most people probably aren’t even aware that the other tablets compete with the iPad. I wouldn’t be surprised if they think that the iPad is the only product of its kind – which in many respects, it is. Just look at the recent report that 97% of all web traffic by tablets is from the iPad.

This utter domination of the tablet market by Apple’s iPad explains why HP bailed out on their TouchPad so quickly. But it doesn’t explain why HP wants to get out of the PC business. Or does it?

Just look to one comment by HP’s CEO, who said “the tablet effect is real.” What he is referring to is the thought that tablet (i.e. iPad) sales are eating into PC sales. Up until now, the “tablet effect” has been sort of a hush-hush topic among the PC makers. Sure, PC sales were shrinking for the first time in history, but other factors such as the economy were surely to blame. Certainly the iPad could not be a significant factor, right? Well, now the cat’s out of the bag – big time. There’s no denying it anymore. The iPad is not only dominating the tablet market, but it is eating away at the PC market as well. HP sees the writing on the wall. The PC market has become stagnated with price being the only real differentiator. Competition is fierce and profits are slim. The PC Era is ending, the market is moving towards mobile devices, and the rats are leaving the sinking ship. Well … except for one company.

The only “PC” company that is growing sales, revenue, and profit is … you guessed it … Apple. The Macintosh personal computer, seemingly long forgotten until recently, is seeing tremendous growth while the rest of the PC industry is shrinking. So not only is Apple poised to dominate the “tablet” market, the Macintosh may be the “PC of choice” of the “Post-PC Era”.

Imagine a world where Apple completely dominates the “personal device” market – tablets, smartphones, iPods, laptops, and desktops. Does it seem like fantasy? Perhaps 10 years ago, even 5. But ever since the iPhone was introduced 4 years ago and the iPad just a year and-a-half ago, nothing seems out of reach for Apple. And perhaps companies like HP are waking up to that realization now.

A World Without Borders

There has been much hand-wringing in the media and on social networks over the announcement that Borders is going out of business. A lot of talk has been centered around the death of printed books and how the closing of Borders is a sign of this trend. Let me tell you a little secret: eBooks didn’t kill Borders

Mismanagement killed Borders

Lack of vision killed Borders

Failure to adapt killed Borders

It is clear that eBooks are changing the book publishing world just as digital music changed the recorded music business and the Internet changed the news publishing industry. And certainly businesses must adapt to the changing landscape. However, it doesn’t mean that eBooks are a certain death for printed books or stores that sell them.

While the growth of eBooks drove the final nail in the coffin for Borders, it wasn’t the eBook itself that killed Borders. Borders could have adapted to eBooks and even could have used eBooks to save the company. However, missing the eBook train was the last in a long line of mistakes the company made dating back to the early 1990′s

I read two articles back in January (one from Newsweek, the other from The Washington Post) that relayed the story of Borders, detailing the mistakes that took down the company, especially their lack of both Internet and eBook strategies.

The story of Borders is a case study in how technology can either create a business or destroy it. Borders came to prominence because of their technology. Their innovative software allowed the company to better predict which books consumers would want to buy and what to stock. This allowed Borders to create the model of a book superstore, offering not only bestsellers, but a plethora of harder-to-find titles. It is therefore ironic that what ultimately killed the company was the failure of Borders’ management to identify emerging technology and how it would change the competitive landscape.

Take the time to read the articles if they interest you. But ultimately, the moral of the story is that the bad guy isn’t technology. Change is inevitable. It is the inability or unwillingness of companies to adapt that leads to their failure. It is the story of Blockbuster. It is the story of Ultimate Electronics. It is the emerging story of RIM (Blackberry) … and maybe even the not-too-distant future story of Microsoft.

If anything, I believe the emergence of eBooks opens the door for smaller, local bookstores to successfully cater to those who seek printed books. They can provide services and the personal touch that big-box or Internet stores simply can’t. Perhaps, instead of mourning the death of Borders, we should be looking forward to the opportunity small business has in front of it.

Introducing the RIM Bleak-berry

To those that follow the industry, it’s no secret that the company that makes the Blackberry, RIM, is in trouble. From a sales perspective, they still sell a lot of devices, but from a consumer perspective, they are nearly forgotten outside of the “old” smartphone market (i.e. corporations and tech-savvy people that have had Blackberries for a long time). Industry experts have been warning that RIM has fallen way behind to Apple’s iOS (iPhone and iPad) and Google’s Android platforms for some time now. But it doesn’t take an expert to see that the operating system of the Blackberry is still rooted in it’s original design that was created in the late 90′s. It was great back then, but certainly seems dated today.

An open letter to RIM’s executive management from an anonymous RIM senior manager was recently published on the Internet. The letter portrays a company internally dysfunctional and lost on what it needs to do to successfully compete. This is the major takeaway for anyone who has any interest in the Blackberry platform.

However, while the letter is focused on RIM’s issues, it brings up many topics about the smartphone industry that I have talked about before, both in this blog and to my clients directly. It is those points that I’d like to emphasize, taking quotes from the letter.

We often make product decisions based on strategic alignment, partner requests or even legal advice — the end user doesn’t care. We simply have to admit that Apple is nailing this and it is one of the reasons they have people lining up overnight at stores around the world, and products sold out for months. These people aren’t hypnotized zombies, they simply love beautifully designed products that are user centric and work how they are supposed to work.

I’ve made reference many times to how most smartphone vendors market their products as if they are “made by geeks for geeks”. They talk about specs, speed, capacity, and how “kick-ass” they are. Yet the reality is that most other smartphones simply don’t work as well as the iPhone. What this letter points out, and I can substantiate, is regardless of all the marketing done, if a product simply doesn’t work how it is supposed to (and the common expectation is that it will work as well as the iPhone), then the end-users will not like it. For all the “cool” technology behind a product, users just want something that works and works well. The iPhone should have made this abundantly clear to all tech companies. Obviously, it hasn’t sunk in yet for most.

Until companies embrace user-focused product development AND then figure out how to successfully implement it, they won’t touch Apple. And therein lies the rub. Companies must first embrace this thinking, which is extraordinarily difficult for most tech companies to come to grips with. It won’t happen overnight. There’s a lot of corporate culture to change and that takes time. And then once that long process is over, the company actually has to figure out how to make great, user-friendly products. That of course takes vision and talent, but it also takes experience. That is experience Apple has learned over 35 years. RIM, and most tech companies, have very little of it.

There is no polite way to say this, but it’s true — BlackBerry smartphone apps suck. Even PlayBook, with all its glorious power, looks like a Fisher Price toy with its Adobe AIR/Flash apps.

The original iPhone was successful. It made people stand up and take notice. Looking back, however, it really didn’t make that much of a dent in the smartphone market. It was the next year that Apple changed the world by introducing the App Store. Since that time, the tremendous success of the App Store has catapulted iOS devices into every aspect of society. Overnight it was no longer enough to make a nice smartphone. That smartphone had to run apps – and lots of them. It took a year or two for competitors to even get into the game. Now it seems that Apple’s experience working with third-party developers as well as the polished and mature software development environment provided for the iOS (both honed for years on the Macintosh platform) have put Apple into a position where the quality of their Apps is head-and-shoulders above everyone else. No other tech company (besides Microsoft) has the wealth of experience working with developers and development tools, so it would seem that this puts RIM at a distinct disadvantage.

25 million iPad users don’t care that it doesn’t have Flash or true multitasking, so why make that a focus in our campaigns? I’ll answer that for you: it’s because that’s all that differentiates our products and its lazy marketing … My mother wants an iPad and iPhone because it is simple and appeals to her. Powerful multitasking doesn’t.

Earlier I mentioned how most smartphone companies market their products as if they were “made by geeks for geeks”. Compare this to Apple’s marketing where they highlight the simplicity and ease-of-use of their products. In many cases, Apple’s marketing is inconsequential as the real secret to their growth is word-of-mouth. Apple owners tend to become evangelistic about their devices, proudly showing them off to their friends and family who quickly purchase their own Apple products and continue to spread the word. Again, most tech companies simply don’t understand that “old world” marketing only appeals to tech-savvy people. When the smartphone market was small and made up of mostly geeks, that worked well. Now that Apple has kicked open the doors of the smartphone market to the mainstream, that type of marketing is no longer effective. But again, it will take a complete corporate culture change for a company to embrace this type of thinking, then they must create the products that are user-focused, AND then they must understand how to market it. Again, none of this will happen overnight.

The bottom line is this letter highlights the trouble with RIM, but it basically shows the fundamental weaknesses of most tech companies which Apple is currently exploiting. The secret to Apple’s success is that they are the ONLY company in the market with so much experience in user-focused computing. That experience has been gained over 35 years, starting in the dawn of the personal computer market. No other company can touch that level of expertise and it is showing now. Only the companies that are strong enough to stick around, gain the necessary experience, and change their corporate culture will have any chance of competing with Apple. Unfortunately for RIM, time is a luxury it does not seem they have. Unless RIM can pull off a miracle, dramatically change their company, and introduce products that can feasibly compete in the new world of technology, it seems their days are numbered.

Something is Rotten in the State of Washington

In case you didn’t know – which really it appears most people didn’t know or cared – Microsoft killed their Kin phones after 6 weeks of shipping. And no that’s not a typo, it was in fact only 6 WEEKS after releasing the Kin that they cancelled these phones. Rumors abound that they only sold 500 Kin phones. Again, that’s not a typo – only five HUNDRED phones sold. At first that rumor seemed fantasy. But for Microsoft to kill this product so quickly makes that rumor seem credible. Wow. In today’s hot and heavy world of smartphones, this is a failure of unprecedented proportions. And the fallout may spread far and wide beyond the walls of the Kin team at Microsoft, as this article points out.

It seems that some of the leadership team responsible for the Kin debacle was either already on the Microsoft Windows Mobile team (recently renamed “Windows Phone”) or has been moved to that team now that the Kin team has been disbanded. Microsoft’s mobile strategy will live or die based on how well their completely redesigned Windows Phone 7 Series (yes, that’s a mouthful) does in the marketplace. Already they are behind the 8-ball as Microsoft has floundered under the iPhone assault and is now losing ground to Google Android devices. To make matters worse, the rumored release dates for Windows Phone 7 devices are in the fall or winter of this year. Because Windows Phone 7 is basically a “reboot” on Microsoft’s mobile devices, it is truly as if they are entering the smartphone market from scratch. This obviously has given Apple and Google a long headstart. If Microsoft fumbles Windows Phone 7 at all, this could completely kill their mobile business. And if they have no mobile business, one must start to seriously question if Microsoft has much of a future at all.

If it seems unplausible that a giant like Microsoft could fall, one only needs to look at history and see how giants like IBM fell before them. The disaster that was the Kin, similar to the disaster that was Vista, may be another symptom of a company that is in a state of complete disfunction. Again, history has shown that all great “empires” fall from within. This anonymous comment on the above linked article from an apparent Microsoft employee really sums it up well:

My morale has never been lower.

A billion dollars wasted on Kin, 500 phones sold and a huge amount of ground lost in the mobile space. Everything I hear about Windows Phone is negative. Leadership is shrugging its shoulders like this disaster is no big deal.

Enterprise Agreement renewals continue to trend downward, and at an alarming rate. Even major DoD deals can’t be landed. We position Microsoft for selling solutions and compensate the field for moving product. The disconnect is frustrating.

Windows 7 is a solid product, that we are marketing ineffectively. Office 2010 has launched with a quiet whimper. The CMG is as dysfunctional as a Cold War era gulag, and I can’t see any value from Mitch Matthews leadership.

I have no faith in our senior leadership (Ballmer, Turner, Ozzie, Brummel), but I don’t see any apparently leader that could step in and make the hard choices and forge a new, urgently needed direction, unless Bill Gates returns. Even then, I don’t know if the company can be steered off of the painful path it is now headed on.

The stock price is going in the wrong direction and poorly positioned if we move into a double dip recession. Our leadership team also shrugs this off as if it isn’t a major issue.

I remember Steve Ballmer promising to all at a company meeting four or five years ago, in response to an e-mail from an employee that complained about the stock price. The employee wrote to Ballmer that because of the languishing stock value he/she could not build an addition to their home. Steve B boomed that in two years he/she would be able to build a new home, never mind an addition, with where the stock price was going, and the crowd roared with thunderous applause. Where is the increased equity? What other company on the planet would have a flat lined stock price for a decade despite solid growth and not have the shareholders and board calling for the leadership heads on a platter?

Haven’t seen a promo in 3 years, got an E/110 last year and hear nothing but excuses (well promos are thin, budgets are tight). I don’t think anyone on my team has gotten a promo in two or three years.

Our budgets have been cut to the point that we can even support our commitments. When I follow the dollars I feel very insecure about my role and future. I’ve seen the overall organization get increasingly dysfunctional with each passing year.

The review process is completely broken. Calibration and compensation has already happened before employees even writes one word on how they felt they performed. How can I have any faith in the review process, where I’m told I have a voice, that peer feedback has impact, when none of it is even considered by the leadership team as they horse trade for compensation. It is a favoritism system that is riddled with inequity. I have seen incompetence rewarded and success punished. The process does a tremendous job of angering employees, who then quit and go to work for competitors with the single purpose of proving Microsoft wrong. Either that or they go to work as a vendor and get a 2X to 3X pay increase in the process.

I love Microsoft. Microsoft has clothed and fed my family, directly or indirectly for almost twenty years. I owe so much to this company. I come in, I give 110%, but I see no direction, I see no recognition, I see no future, I see no leadership.

Microsoft has become its own worst enemy, the leadership team is ineffective, and there is a huge need for house cleaning from the 64 to 68 level. I wish Bill Gates would come back. I wish a lot of bad decisions were never made. I feel that there is no way to change the negative course we are on, and Microsoft is incurably on a path to be only a shell of the company it once was.

Layoffs? Mercy killings comes more to mind.

Hell Has Frozen Over; Pigs Have Taken Flight

Apple … “I’d shut it down and give the money back to the shareholders.” – Michael Dell, October 6, 1997

“Apple is already dead.” – Microsoft CTO Nathan Myhrvold, June 6, 1997

May 26, 2010: Apple passes Microsoft to become the most valuable technology company in the United States – something completely unfathomable ten to fifteen years ago. The New York Times has called it “the end of an era and the beginning of the next one“.

Now to be fair, the valuations are calculated by Wall Street “market capitalization”, which can be considered a fairly arbitrary measure. Regardless, the symbolism of this event can not be missed: it is yet another sign that we are in a transition in the technology world. The “old world” of technology marked by companies such as Dell and Microsoft, is giving way to the new world of technology led by Apple. If you aren’t already preparing yourself for the new world of technology, let this be a wake up call!

Just for fun, let’s take a look at the market capitalization of the companies involved in the quotes above:

  • Dell : $26 Billion
  • Microsoft: $219 Billion
  • Apple: $222 Billion

In fact, Apple could purchase Dell outright with just the cash reserves it has on hand today – and still have about $20 billion left over!

The Cure is Worse than the Disease

Nobody wants anti-virus software. It is an unfortunate necessary evil for Windows users. To that end, anti-virus software should be as transparent to the user as possible. It should simply do its job with a minimum of interruptions to the user and have as little impact to the computer’s performance as possible. It should NEVER cause problems – because that is exactly what anti-virus software is trying to prevent!

Introducing problems is the ultimate failure of anti-virus software but unfortunately it happens all too often. I’m not surprised. The very nature of anti-virus software is to place itself deep in the guts of the operating system and monitor every bit of data passing through it. Additionally, besides dealing with extraordinarily complex software, anti-virus developers are in a race to stay ahead of malware authors. Speed kills, especially when dealing with complex systems, and anti-virus programmers are moving at breakneck speed.

The recent, well-publicized, colossal blunder on the part of McAfee that rendered many users’ computers inoperable is a testament to this fact. It is entirely feasible that for many, McAfee’s software caused more pain and suffering than any virus or spyware would have! It is also a testament that the malware issue on Windows operating systems continues to escalate. As mentioned before, the desire to stop dealing with malware is one of the top reasons users are switching away from Windows. Situations like this only shine a much brighter light on the already glaring problem.

That elephant in the room continues to get larger. Pretty soon it may crowd everyone out.

The Nets are Dragging

Profits from netbook sales are lower than expected. So much so that HP and Dell are significantly reducing their investment in the “10-inch” market. HP reportedly is even considering getting out of the 10-inch business completely. Is this really a surprise when netbooks live in a cut-throat, race-to-the-bottom, low-cost market? People like to point out when certain products cost more than bottom-of-the-barrel options, but they rarely realize that certain markets can’t support themselves at razor-thin profit margins. To quote the article:

Most of the second-tier and white-box netbook vendors have already quit the market after first-tier players started cutting their netbook prices in the second half of 2009 to compete for market share.

What is also interesting is that this news comes right on the eve of the 9.7-inch iPad launch. Could HP and Dell be conceding the 10-inch market to Apple? And if they do, will the 11 or 12-inch markets matter anymore?