Microsoft saw the sudden appearance of a paradigm shift in the PC market. The world was changed by Apple. Microsoft reacted and poured tons of money into the transition to ensure it could continue its dominance in the new vastly different world that was emerging. It was not easy and not cheap, but Microsoft did succeed. The secret was something called a 'migration path'. The story was the transition of DOS to Windows, when the Apple Macintosh shook up the establishment. The year this started was 1984. The CEO who handled that transition was of course Bill Gates. Microsoft prospered to become the biggest software company and made the biggest profits in all of the computer tech industry. And Microsoft's brief reign as top software operating system maker in computers was extended by two more decades.
(NOTE: This story updated on 23 May with brand new quote from Steve Ballmer he made in Seoul South Korea, see below)
Microsoft was still the world's bestselling operating system maker last year, mostly on the PC side, but also in some smartphones. You know what. The reign of Microsoft has just ended. We now know that this year, 2012, for the first time the world's most installed operating system for computers will not be Windows or any software from Microsoft. It will be.. Android, mostly on smartphones, but also on some other computing devices like tablet PCs.
How did this happen? Where did this come from. Yes, it came suddenly. We have just seen the numbers for Q1 results in smartphone market shares, as I reported on this blog two days ago. Android powered 56% of all smartphones sold in Q1 (this is up from 49% three months before). Now lets take a few other interesting data points. Gartner tells us that this year 2012 there will be about 370 million PCs sold (including tablets). Gartner also tells us that this year 2012 there will be about 655 million smartphones sold. Ah.. Now lets do a little bit of math.
So if the world buys 370 million PCs this year, roughly speaking about 70 million (probably more) will be powered by Apple's software, as Macintosh PCs and iPad tablet PCs. That leaves us with about 300 million PCs not powered by Apple. Most, but not all, of those will run on the Microsoft Windows operating system. Some will have pirated software, some will run on Linux. But lets keep this very easy, lets just say the level of PCs running on Windows will be that 300 million. Ok?
Now lets go to smartphones. Gartner says (conservatively, I might add, I am confident the number will be bigger) that this year we'll see 655 million smartphones sold. And Android already powers 56% of smartphones sold now (and grew strongly from last quarter). Lets just say that Android stops growing and takes 56% of the new smartphones sold this year (its a fairly safe bet that Android will do better than that). 56% of 655 million is 367 million smartphones that will be powered by Android, sold this year.
Now. Microsoft does sell its operating systems Windows Phone and Windows Mobile used on some smartphones as well. How many was that? Combined, they had 2% of the smartphone market right now, in Q1. Yes, this includes the new Nokia Lumia smartphones that run on Windows Phone OS. 2%.. Lets say, for the sake of argument, that Microsoft has a massively successful 2012 growing smartphone market share. Lets say it grows to 3% this quarter Q2, then to 4% in the next quarter and 5% by end of year. That would mean less than 4% for the total market share for the full calendar year 2012. That is unlikely, considering all the headwinds that Microsoft has including the fact that carriers/operators are reluctant to sell Microsoft powered smartphones because carriers/operators hate Skype (this is something Nokia CEO admitted to the Nokia Shareholders' Meeting two weeks ago).
But lets be very very generous to Microsoft, for the sake of argument. Lets say they do double that! Lets say Microsoft achieves 8% market share this year in smartphones. Even if we give Microsoft a fairy-tale unbelievable jump in market share from 2% now to 8% for the full year (meaning it should be something like 14% by year end - nobody, not even Apple has ever achieved that kind of massive jump). But lets make this provocative to prove a point. Lets say Microsoft gets 8% smartphone market share this year. That would be 52 million smartphones sold. So if we now pretend that there are no Linux PCs and no pirated Microsoft PC software, but all 300 million non-Apple PCs are powered by Microsoft. And we add to that the incredible 8% market share for Microsoft in smartphones and 52 million more smartphones to the total. We get 300M + 52M = 352M total Windows operating systems shipped this year.
UPDATE MAY 23, 2012 - Steve Ballmer has just spoken in Seoul South Korea, and said that Windows will ship 350 million copies of all Windows 7 based operating systems this year, as reported by CNet. Ballmer mistakenly calls this being the biggest OS in the world (conveniently ignoring Android). But 350 million? We heard it now from the horse's mouth. And yeah.. I do know my numbers, eh?
And in contrast, even while ignoring Android on tablet PCs and other devices, and assuming no growth of Android, Google would be powering 367 million smartphones this year (probably will be far bigger, ie close to 400 million).
Yes, game over. From about year 1982, for three decades, up to last year 2011, Microsoft has been the world's most deployed computer operating system. That ended now, in year 2012. Three decades is what Microsoft had. Now even with the most Microsoft-friendly and simultaneously most Google-unfriendly assumptions, it is clear Google's Android will ship more than all Windows operating systems this year. The King Is Dead, Long Live the King. Congratulations Google Android team!
HOW DID THIS HAPPEN?
Much as I'd love to blame this on Stephen Elop the inept CEO of Nokia, this time no, the problem is Elop's former (and some say still today) boss, Steve Ballmer. The man recently called the worst CEO of any US corporation. What did he do? He had the model, from Bill Gates. He had seen it done, in his own company. He was there to see it done. And yet he messed it up. That takes exceptional level of incompetence to have the model of winning, and to throw it away and fail instead.
We know the big picture story rather well on this blog, don't we. Smartphones were invented by Nokia (with help form Hewlett-Packard). Early smartphones were not seen as 'real' computers until Apple's iPhone came along. Now all major computer makers (HP, Dell, Lenovo, Apple, Acer, Toshiba) agree, smartphones are as real computers as desktop PCs, or mainframe computers, or laptops or tablets. Two years ago, PCs still sold more units per year than smartphones. Last year, smartphones passed the PC in selling more. This year smartphones will outsell all other types of computers combined, by 77% (nearly twice as many). Next year smartphones will easily sell more than twice as many as all other types of computers combined.
Microsoft saw this threat coming and was pro-active in preparing for it. When Nokia was collecting its rival handset makers to join in the Symbian partnership - yes, Nokia was partnering with all major handset rivals a decade ago like Motorola, Samsung, Siemens, SonyEricsson, LG, Panasonic etc - Microsoft was having none of that. Even as Symbian had almost the total market, Microsoft bravely set up its own OS and started to recruit handset makers to come build the Windows based rival group of smartphone makers, led early on by HTC.
At its peak, Microsoft's Windows Mobile OS was the world's second bestselling smartphone OS and had 12% market share. And if Microsoft would only hold that today, combined with PC sales, Microsoft would still be bigger with 379 million compared to the 369 million that Google's Android will be shipping. Ok, maybe my assumptions were so lopsided, that it would still end as Google's win this year, but at least Microsoft could put up a serious fight to the wire this year. But no. Ballmer threw this all away. How?
Remember how Microsoft beat Apple's Macintosh the first time? With what Bill Gates had designed for existing DOS users, a 'migration path'. I remember back then, working in the PC industry, how clumsy it was to install Windows after you had installed DOS. And many subsequent Windows editions still had the DOS 'kernel' visible and even had user-adaptable elements to it. But yes, Microsoft took the trouble to provide a migration path from DOS to Windows on the PC. That gave Microsoft two full decades more of global industry dominance and massive steady streams of profits.
Now, what did Ballmer do? He had his 12% with smartphones (and growing). He then found that the new Apple gadget, the iPhone, was too radical and would change the smartphone experience (touch screen and all that). So the Windows Mobile OS was clearly uncompetitive and needed to be completely overhauled and/or replaced. And so Microsoft decided to replace it completely, with what is now called Windows Phone. Yeah. Except that rather than take Bill Gates's model, Ballmer took the cheaper and more abusive shortcut, befitting his personality. He screwed his developer community (and owners of Windows Mobile handsets) and decided there would be no migration path.
Long story short? Microsoft's market share in smartphones is now 2%. The collapse of Windows Mobile's market share started immediately after Microsoft made the announcement that there was no migration path. Ha. That is where the game was lost. And the captain of the team that gave up the world's most powerful operating system empire, set to rule the next generation of computers as it had the two previous generations - was Steve Ballmer. Congratulations fool, you are the most inept CEO running any US corporation. You saw the future, your teams had secured a path to victory, and you destroyed it.
EVIL, THE EMPIRE
The PC world is familiar to Microsoft. They've been one of the pioneers of that industry. In it as Microsoft soon gained a monopolistic position, Microsoft also started to behave like a bully, gaining soon the reputation of being the Evil Empire. We don't need to relitigate this on the blog, we know the stories, from all the court cases over the years up to the levels of US and European governments suing Microsoft for unfair practises.
That was the history. The future belongs to the far more widely selling smartphones. We sold 472 million smartphones last year, Gartner says 655 million smartphones will be sold this year, and next year 2013, the annual sales of smartphones will pass 1 Billion units (says TomiAhonen Consulting). For contrast, the PC industry might sell 400 million units next year according to Gartner. If Microsoft loses the battle for smartphones, we can also see the Kodak'ization of Microsoft, sitting on an ever diminishing part of the tech industry slowly fading to oblivion. The smartphone battle is make-or-break for Microsoft. They cannot afford to lose this war.
Which brings me to mobile. In this industry, totally differing from the PC industry, the sales of individual smartphone models and their volumes are disproportionately controlled by a handful of giant global telecoms carriers/operators. Giant companies like Telefonica, Vodafone, America Movil, China Mobile, Deutcshe Telekom and NTT of Japan. These are not little 'VARs' (Value-Add Resellers) that Microsoft can easily bully around. These are giant global Fortune 500 sized companies that are all larger than Microsoft itself. Their bosses will not take kindly to bullying tactics. And they control which handsets by which manufacturers - running which software - will be sold. Microsoft knows this painfully - as it was the carrier community which killed Microsoft's own Kin mobile phone project - the two youth-oriented Kin phones were globally rejected by the carrier community and the Kin project was killed by Microsoft in six weeks - literally, the fastest death in handset history. Bear in mind, the development cycle for handsets is 18 monhts. So Microsoft spent 18 months and countless millions developing its own handsets, and less than 2 months later, killed the whole project. Yes, we've seen Microsoft fail also in other attempts, like say, Zune, but never this fast.
CARRIERS HATE MICROSOFT
So what is going on? Microsoft was never the darling of the telecoms industry. The industry has long memories and remember all the grief that Microsoft has brought to the industry, from the ruining of its first handset partner, Sendo, to recently suing past Windows partners like Motorola. The relationships of Microsoft and the carrier community were strained already a year ago, as explained for example by former Windows Phone boss, Charlie Kindle. Then came Skype. I've explained why carriers hate Skype more than anything else. I've just last week given a deeper updated analysis of the OTT threat to carrier revenues and profits (OTT or Over The Air providers are better know for brands like Blackberry Messenger, iMessage, Facebook, Whatsapp and yes, Skype). Skype is the ultimate red flag to carriers.
Microsoft bought Skype in May of 2011. Since then, the reaction of the global carrier community has been sales boycotts against Microsoft. Charlie Kindle admitted that during 2011 Microsoft took the bad carrier relationships and made them worse. He did not explicitly mention that it was Skype which poisoned these relationships. I did, on this blog, just days after the deal was made. And now, two weeks ago, at the Nokia Shareholders' Meeting, Nokia new CEO Stephen Elop answered a question from a shareholder, asking about whether it was true that carriers are refusing to sell Nokia's Lumia series of smartphones because Microsoft owns Skype - Elop replied not just that it was true, but he added the phrase 'of course' to underline how clearly this is known in the industry.
Carriers hate Skype and now they are punishing Nokia Lumia sales - not says Tomi Ahonen, so says Nokia CEO himself - even as Lumia current smartphones do not have Skype pre-installed! They are punishing all Windows Phone makers because Microsoft bought Skype and now provides the deep pockets for Skype to continue to haunt carriers. The CEO of AT&T just admitted at CTIA that these OTT providers are keeping him awake at night. They are an existential threat to the carrier business, and Skype is the biggest threat of them all, threatening both voice and messaging revenues.
WINDOWS 8 MAKES THINGS WORSE
So carriers already hate Microsoft, because of Skype - even as Microsoft's own smartphones do not have Skype and rival smartphones often do have it pre-installed. They don't hate the app, they hate Skype itself and how it is disintermediating the carrier business itself. And now comes Windows 8. Yes, I am sure Windows 8 will be a great success for Microsoft in the legacy PC business. Think of Kodak. But in the future of computers - the smartphone business - if the carriers already boycott Microsoft due to just it owning Skype, how much more will carriers hate Microsoft when Skype is on every Windows 8 desktop, notebook, netbook, tablet and smartphone. The carriers cannot prevent the sales of Windows 8 to the legacy PC industry (think Kodak) but here, in the future of the computer industry, the carriers can and will punish Microsoft for it.
Ballmer (and Elop) has been talking of a 'third ecosystem' in smartphones out of Windows Phone. That was a joke when he offered it, it is now a farce. Microsoft once had 12% market share, it is now roughly 2%. Windows Phone market share fell every quarter last year, and now even after Nokia's Lumia sales, has only recovered to 1.6% (the remainder is the lingering Windows Mobile market share, which you'll remember is incompatible with WIndows Phone). Is that a 'third ecosystem'. Well, it depends on what kind of new math you learned in school. But the biggest ecosystem is Android. Second is iOS. Third is Blackberry OS, fourth is Symbian and fifth? Is Samsung's bada. Yes, they launched at the same time and Samsung's bada has sold nearly twice as many smartphones as Ballmer's 'third ecosystem' Windows Phone. No. It isn't and it won't ever be the third ecosystem. Windows Phone is the.. sixth ecosystem with no hope of even catching fifth place any time soon.
Which brings me back full circle to the migration path. What of Windows Phone and Windows 8? Many who have bought for example Nokia Lumia series phones (incidentially, the Windows Phone is so poorly suited for smartphones, it has 101 elementary design mistakes that even 'obsolete' Symbian can easily do - many veteran smartphone users think Windows Phone was designed by children or total incompetents, but thats another story). Yes, many who now have Windows Phone based smartphones like say the brand new Nokia Lumia series, are asking, since Windows 8 is coming at the end of the year, can they upgrade this smartphone to run Windows 8? I mean, Apple offers upgrades of its current smartphones to the next OS. Nokia has been doing this regularly on its current Symbian series and the next versions of it. Microsoft used to do that with Windows Mobile of old. But even as both Nokia and Microsoft have been asked many times, there is no confirmation. They are not saying. Why is that? Is Ballmer now set to repeat once again his mistake? No migration paths!
So that is where we are at. Microsoft ruled the computer operating systems for three decades. Now thanks to Ballmer's bad choices, Microsoft has ruined its chances in mobile and has abandoned the dominant position it held. The new superpower is .. Google and Android. Wow. That happened fast. Congratulations Google, you are this year going to take the title from Microsoft as providing the biggest number of new operating systems deployed on computers this year. And haha, Evil Empire, Microsoft, I am not shedding any tears for all the mean acts you've done in the past. About time we start to relegate you into the trash heap of history. Yes, you'll live on for many more years, but think Kodak. Your time has come and gone. You lost it!
PS for anyone who needs data about the mobile industry, don't forget my free Almanac 2010 edition. The data is obviously 2 years old, but still quite relevant in many cases and for any totally free resource on the big picture numbers of this industry, the 171 page unrestricted pdf file with over 90 tables and charts is a treasure-trove. Download yours now (no registration needed either) and share with your friends too. Download now at Lulu.com TomiAhonen Almanac 2010 Freeware Edition.