Big news, Ballmer is gone. Good riddance! This signals potentially big changes at Microsoft, so lets do a bit of analysis. I'm going to write three blogs, first about impacts to Microsoft, obviously. Then for my loyal blog readers, much more interested on the mobile industry than PC industry, on the Windows Phone side of Microsoft - what does this mean to Nokia and WP8 'ecosystem'? Finally as Elop's name keeps coming up in early press, a few thoughts about replacing Ballmer. But first up, what do I think this means for Microsoft.
I REALLY DON'T LIKE THAT COMPANY
I have tried to be 'fair' and 'open-minded' about Microsoft in my writing and
on this blog. However, this is the tech company with the nickname 'The Evil
Empire'. That term comes with plenty of cause - over the past three decades
Microsoft has been fined countless times huge sums for crushing competitors
with illegal methods, using its monopolistic position like a bully. I personally
have been a user, supporter, registered developer, and/or authorized trainer
for many of the various victims of Microsoft from WordPerfect and Lotus 1-2-3
to Novell Netware, Mosaic and Netscape.
On the hardware side, inspite of how much I here on this blog am critical of
the wasted market opportunities Apple has with its strange iPhone strategy (of
only one new iPhone per year - increasingly most tech analysts now agree with
me that this must change) - I am a HUGE Apple fan, have always been, preferring
the Macs to Windows and seeing the obvious, that Windows (for the PC) was a
case at Microsoft of Macintosh-envy. So some have interpreted my love of Apple
and desire Apple would bring the iPhone to more consumer segments and
user-types and form-factors and most of all, to more Emerging World customers,
and I have thus been critical of that part of the strategy that Apple now has,
that it won't give us more than one new iPhone model per year. I love Apple.
This blog is where that commonly-used term 'Jesusphone' originates from - I
didn't coin the term, but press mistakenly thought that I had termed the iPhone
the Jesusphone, when I explained how after the iPhone would launch, we would
consider the handset industry in two eras, the time before the iPhone and the
time after the iPhone (like we mark time in the Western calendar, before Christ
and after Christ). That blog was then mistakenly labeled as Tomi Ahonen calling
the iPhone the Jesusphone - and the term stuck. I was one of very few analysts
who could explain why the iPhone would indeed reach 10 million sales in the
first year - yet I am no blind Apple-fanboy, I was also the first blog to to
pinpoint the moment when Apple's dramatic market-share gains were to end. Once
again, the most accurate forecaster in mobile. I do know my backyard. But yes,
I hate it that still today, for computer compatibility reasons I use an old
Windows compatible Fujitsu. I can't wait for the day that I can return to my
beloved Mac.
As the Evil Empire crushed my favorite software giants one after another and
feuded for years with my fave PC maker, I have of course picked up a strong
sentiment of favoring 'anyone else rather than Microsoft'. Please bear that in
mind in my blog series now about Ballmer and the future of Microsoft. But also,
I am a 'biznezguy' and I respect good business performance. Nobody can doubt
Microsoft has been a phenomenally successful corporation, massive profits, and
whatever you think of their methods of getting there, they have pursued and
often achieved market dominance in several areas. So while I am not a fan of
the 'Microsoft way' of doing business, and I miss my Lotus 1-2-3 and Netscape
and various other preferred software, I respect the company. And even if I
don't agree with its various evolutionary steps in given areas say with the
Windows smartphones or on the PC side now with Windows 8, having a strong
Microsoft is generally good for the industry overall.
I am far far more a fan of Apple or Google or HP or Intel than of Microsoft. I
personally due to my history with all those that Microsoft has crushed, will
never voluntarily give Microsoft a penny of my personal discretionary
expenditure - not a penny - except where it is unavoidable such as with the PC
and Office Suite situation still currently. So for example the moment Chrome
became a viable candidate to replace Microsoft Exploder, I replaced my brower.
I never use IE anymore. I will similarly shift away from Office and PC Windows
the day it is practical in my line of business. I regularly test the
alternatives anticipating that day.
So more specifically on Windows Phone, much as I am a Finn,
and loved Nokia long before I had the privilege of being employed by the
company, and for the past 18 years, never had a day in my life, that there wasn't
a Nokia branded phone in my pocket. Most of those years I have carried two (sometimes
3) mobile phones, and not always has the other one been a Nokia, but always at
least one has been. However, I will never buy a Windows based smartphone, even
from my fave Nokia brand, as long as at least one viable rival platform exists.
So you can rest assured, this blog will never review a Lumia smartphone simply
for the fact, that even if Nokia gave me the phone for free, I would not use it
for one day. I do personally reject anything Microsoft does, and will always
select 'anyone other'. That is because Microsoft destroyed so many of my
favorite software brands earlier in my tech career. And my hatered of Microsoft
trumps my love of Nokia in this case.
Ok. My biases are clear and in the open. Considering that history, please do
allow me some hostility perhaps in my postings, I try still, inspite of that
bias, to give you my honest view of the strategies and choices and impacts of
Ballmer's resignation. So lets start with impacts to Microsoft.
I AM NOT EXPERT ON PC SIDE OF TECH
And again, another mandatory disclaimer. I am not an expert on Microsoft. Yes, I
think of myself as a thought-leader in the tech space, but I specialize in the
mobile industry, not the computer industry.Yes, I'v been employed in both. Yes
I started on the PC side. Yes, these two are gradually converging, but again, I
monitor actively and report on the mobile companies and their strategies
closely, not the other tech and media giants. So when it comes to the other
tech giants who only dabble in mobile, I am not proficient in their total
strategic outlook. In the case of Microsoft, it means all those things most
people associate with the company, Windows, Office, Xbox etc. And much of
Microsoft's new initiatives such as tablet PCs and Cloud Computing, are not my
core competence. My main interest in Microsoft is its smartphone OS strategy,
what once was known as Windows Mobile and what under Ballmer was relaunched,
rebranded and redesigned (and incompatible with the past) as Windows Phone.
And while very many of the industry giants are reference customers of mine (ie
they say they have used my consulting services) like Nokia, Google, Intel,
Blackberry, LG, Ericsson, Vodafone, China Mobile, NTT DoCoMo, etc etc etc -
Microsoft is not a reference customer of mine. I cannot comment on whether they
have bought any of my services in private, but at least in the open, they have
never said to have used me in any way (although there is a picture of some Microsoft
training people entertaining me at a restaurant once haha, make out of that
what you will.) Regardless, I would not be divulging any secrets on this blog
or in my books in any case, I only talk about whats in the public domain, or
what I feel and think. Not what I might know from my private consulting work. I
wouldn't last this long as a consultant in this industry if I didn't know how
to keep my mouth shut haha.. (ah, the stories I could tell..)
BALLMER THE BULLY
So. Ballmer is gone. Good riddance. He was a bad CEO. He made bad decisions. He
made bad bets (Zune, Kin, Surface, Windows Phone). He used Microsoft's past
bullying attitude when the company ruled the software market, to try to bully
the current IT industry where its legacy software power devices that are
becoming peripheral (Desktop PCs, laptop PCs, already being replaced by
smarpthones and tablets) or losing share (IE) and where cooperation and open
standards are increasingly the norm (Google Android as perfect example). Most of all, Ballmer lost the future to Android, now the most used OS powering computing devices, as Microsoft itself admits, smarpthones are computers just as much as desktop PCs, laptops and tablets are computing devices. And Android now sells more than Windows when all computing devices are added together.
I have by no means been the only one calling Ballmer a bad CEO. I wasn't
anywhere near the first to do so. Some in the tech press still thought he was
good, or did well as Microsoft's chief executive, but the owners of Microsoft
have clearly spoken. On the day Ballmer announced he is resigning, Microsoft
share price jumped a massive 10%. The owners of Microsoft, the shareholders,
did not appreciate his management. That is the ultimate judgement of a CEO.
That they now applaud his departure so vocally, and believe that 'anyone else'
running Microsoft makes Microsoft 10% better as a company - (think about that.
So 'a monkey could run this company better than Ballmer..' is how obviously the
majority of investors view Microsoft. Clearly, Ballmer is a failure).
This is enough proof, that the majority view is that Ballmer was a bad CEO. I
will not accept any comments on this blog that argue on Ballmer's merits, they
will be deleted without mercy. Whatever little good he might have done is now
irrelevant, he has been judged a failure. If he did not resign now, he would
soon have been fired anyway. This point is not up for debate and posting
comments trying to justify his time as CEO is just a waste of everybody's time
here on this blog. We are now looking at the future of Microsoft, not trying to
repair Ballmer's reputation. If you want to go celebrate this moron's era at
Microsoft, go post your tears on some Microsoft-fanboy site.
BYE BYE BALLMER, WE WON'T CRY FOR YOU
There are many things that were wrong about Ballmer. He's not the brightest kid
on the block to begin with. He's abrasive and arrogant and definitely a huge
bully. Not good for a company already stuck with a reputation of 'Evil Empire'.
But as CEO, we have seen a particular weakness, Ballmer had no focus at all.
Every time you heard him speaking, he would have a new priority. Our top
priority is Windows on the desktop. Our top priority is Office. Our top
priority is smartphones. Our top priority is Xbox. Our top priority is Cloud
computing. Our top priority is Windows. Our top priority is tablets. Our top
priority is Office. Our top priority is .. whatever pops into his mind this
moment. How can a management team run the company efficiently if the boss
doesn't give clear direction. I have discussed this fault of Ballmer a few
times here on this blog in the past and its clearly one that many of his
critics point out now in the reviews of his tenure. Contrast that with Jorma
Ollila at Nokia who said clearly 'We will be a 3G company' or Steve Jobs who
said 'Apple Computer is now only Apple Inc, and we are a mobile company' or
Eric Schmidt saying about Google's strategy its 'Mobile, mobile, mobile'. Thats
focus, thats clear, that is how companies across various units and departments
learn to focus on the essential, the strategic.
Notice the danger this type of CEO behavior like Ballmer lack of focus poses to
Microsoft's partners. The partners hear the right thing - in the case of
handset manufacturers, they hear Ballmer saying that Windows Phone is the
highest priority. But most of them do not notice that a few weeks later
Ballmer's top priority is now in the Clouds then a week later its Windows and
the next month its Office. So the partners are led to trust the statement and
will be severely disappointed when Microsoft the company doesn't end up holding
Windows Phone the top priority long enough to do anything properly with it. Its exactly what Nokia just said now a few weeks ago - Microsoft has not given Windows Phone enough attention.
Some of Microsoft's business is doing well, but in areas where the industry is
in decline (Windows on the desktop, Office). Other areas are growing after long
struggles (Xbox). But the recent initiatives under Ballmer have failed
spectacularly from Zune the music player, to the disasterous launch of
Microsoft's own phone brand, the Kin youth-phones, to the smartphone OS
relaunch as Windows Phone (collapsing Microsoft's once second-place ranking and
12% market share globally in smartphone operating systems, to the 4% it is now
under Windows Phone), to the Windows 8 fiasco as the integrated platform, to
the Surface tablet. Here I want to mention that February interview of Bill
Gates by Charlie Rose. Bill Gates for the first time was critical of Ballmer's
leadership - and many, including me on this blog, speculated that Gates's
comments meant that Ballmer's tenure might soon be over at Microsoft.
BALLMER'S BIGGEST FAILED PROJECT
Now if you go back to that interview, the one specific project that Bill Gates
singled out, as the biggest failure under Ballmer was what? It wasn't Windows 8
or Kin or Surface. It was .. Windows Phone. Gates said not only that Ballmer
had ruined the good start that Gates had built for Microsoft growing to second
largest ecosystem in smartphones with Windows Mobile, but Ballmer's actions
with Windows Phone had made success impossible. Yes, Ballmer's actions as
Microsoft CEO, had ruined any chance of success for Windows Phone. These are
Gates's exact words: "The way we went about it, didn't allow us to get
the leadership. So its clearly a mistake." This was Gates talking
expressly about Microsoft today, not 6 years before, when Gates himself was
running Microsoft and Windows Mobile was growing market share to a peak of 12%.
This was today, in 2013, when the new Windows Phone was the incompatible with
the larger legacy installed base Windows Mobile and Microsoft's position in
smartphones had collapsed.
Note, this Gates comment of unrecoverable failure of Windows Phone was after
the Nokia partnership had been producing Lumia smartphones for a year and a
half, so Gates had given even the 'last chance' ie the 'Hail Mary pass' attempt
of getting Nokia to help, the fullest chance. In Bill Gates's words, in public,
on Charlie Rose on Microsoft's Windows Phone strategy "So its clearly a
mistake." Not 'in trouble' or 'has challenges' or 'might be a mistake'. To
Gates, in public, how Windows was run for smartphones under Ballmer - with
Nokia - was 'CLEARLY' a mistake.
I wrote on this blog immediately then, that take Gates at his word, he has just
killed Windows Phone as a pointless project that can never succeed. If he says
doesn't 'allow us to get the leadership' - that means no success is possible.
Microsoft had already tried every route to it. They had HTC as manufacturer.
They had gone through every major handset brand that didn't make its own OS,
including LG, SonyEricsson, Motorola, Huawei, ZTE and so forth. They had
convinced Samsung to make Windows smartphones. They had even convinced Palm to
run Windows parallel to its own OS. Microsoft had even attempted its own
handset sales (Kin) and that was the fastest failure of any handset brand in
history (went out of business in 6 weeks, literally a world record in the
handset industry). Apple would never go Windows for the iPhone, that is clear.
And Blackberry wouldn't either. Nokia was the last significant play that
Microsoft had left to try.
WHEN TWO TURKEYS MATE, CAN THEY CREATE AN EAGLE?
So when Gates looked at Ballmer's promise in February 2011, that they would
combine the strengths of Microsoft's ailing Windows smartphone platforms which
had a combined market share of 5% in 2010, and add to that Nokia which alone
held 33% of smartphones globally in 2010 - adding those two together, the
potential was clearly somewhere above 33% and under 38% (because some
Microsoft's then- current partners would disapprove of the deal Ballmer did
with Nokia that Nokia would get preferred treatment, this was obvious at the
time).
The major industry analysts were not that optimistic on that marriage, and
you'll remember, most who predicted 2013 market share for this partnership and
Windows Phone, placed that performance into the 15% to 25% range. Even so, for
Bill Gates, approving Ballmer's mobile phone strategy in 2011, if Gates had
achieved 12% in smartphones, and Ballmer could, through Nokia, even at the
bottom end of that range, deliver 15% of the world's smarpthone market by 2013
with the great hardware that Nokia is known for - Gates would understand that
this scenario means Nokia would be severely damaged in that process (dropping
to under 12% from 33%), but Microsoft would gain immensely from its position at
the time - which was 5%. And the upside was somewhere in the 25% to even
perhaps 35% range. A genuine 'third ecosystem' alongside Google's Android and
Apple's iPhone iOS.
Ballmer promised Gates internally, to deliver that type of performance. No way
would Gates have approved the several years long, Billion dollar per year level
marketing support that Microsoft promised to pay Nokia to switch to the
platform, unless that kind of market share gain would be seen as the target.
Gates would have instantly rejected any plan that promised Windows smartphones
to achieve 4% in 2013 through the expensive partnershp with Nokia, when Windows
held 5% all by itself in 2010.
When you piss away a Billion dollars per year as CEO, yes,
your Chairman will consider that a failure. A massive failure. So big, he goes
on Charlie Rose to single it out as your biggest failure, Steve Ballmer. So
ignoring the unbelievable collapse of Nokia on Nokia's side as new CEO Stephen
Elop's self-induced nightmare, that bringing in the biggest handset maker in
the world, as your partner, Nokia, who single-handedly is twice the size of its
nearest rival - HP was never that in personal computers, neither was Dell,
neither was IBM, neither was Compaq or Lenovo or Acer or anyone else. Nokia
yes, in 2010, towered more over its lilliputtian smartphone-maker rivals than
any of Microsoft's previous PC industry partners had managed in computers. So
yes, Gates expected the Nokia deal to bring Microsoft Windows to at least 15%,
likely 25% and possibly as high as 35% market share in a couple of years. That
is why today's level at below 5% is total comprehensive failure. That is why
Gates singled out Windows Phone as the big failure of Ballmer's leadership.
EVEN BALLMER ISN'T BULLISH ON WINDOWS PHONE
What can we deduce from this? First, that while ex-Microsoftian Nokia CEO Elop
talks vividly about Windows Phone's future - with the passion of a Microsoftian
indeed - Ballmer hasn't been vocal about Windows Phone since the Gates
interview and Gates himself calls it such a failure that no rescue is even
possible. If there was an internal 'evangelist' for Windows Phone at Microsoft,
that was Ballmer and he is now gone. Yes, he hasn't yet departed, but he has no
effective control of Microsoft anymore and cannot make any strategic decisions
while Gates seeks his replacement.
So if you thought that Windows Phone would need more support from top
management, you can be sure, it will now get far less support from Microsoft.
And what did Nokia just say a few weeks ago, that the big fault in the Lumia
range in the Microsoft partnership is not that Nokia hasn't done its part, its
that Microsoft has not done its part. (Where have we heard this before? That is
the same refrain we heard every time of Microsoft in mobile, from the very
first casualty, Sendo, through HTC and LG and Sony and Motorola and Samsung and
on and on and on, until now, once again, Nokia).
Secondly, Microsoft is often in races for the long haul, but
it won't stay in disasterous businesses forever. If Gates is now fully in control
and Ballmer gets no say, then Gates's evaluation of Windows smartphone chances
is what governs Microsoft's decisions - it is so ruined, it cannot be saved.
Who in their right mind, takes a project that has zero chance of success, has
cost Billions, and decides to throw more good money after bad. No, Gates
signalled clearly in February 2013 that he wants to terminate Windows Phone. It
will not be part of Microsoft into the future if the Chairman says its beyond
repair. And if there is effectively nobody selling the product anymore (Nokia
now accounts for 85% of the remaining Windows smartphone sales globally as the
other manufacturers bail out of the dying system). And Nokia has not sold one
Windows based smartphone at a profit, so the moment Nokia gets a new CEO, the
Lumia line is terminated.
Now. What can we expect for Microsoft. Gates more hands-on in charge until new
CEO steps in. Probably those voices within Microsoft who stayed, loyally, but
were rebelling against Ballmer's positions will now get a loud voice in Gates's
evaluations. Ballmer-istic strategies and ideas will get low preference. What
Gates knows and succeeded in, will get good attention - Windows on the PC,
Office, Xbox. Where Microsoft has made good gains and has possibility to succeed,
yes, Cloud computing, to keep going. But those areas where Microsoft has
recently failed, Surface and Windows Phone - these are deadwood that needs to
be cut. I would not be surprised to find those projects to be ended even while
Ballmer is still nominally the CEO. Definitely whoever comes in as next CEO,
will be reviewing the matters and see that these are hopelessly destroyed
prospects where recovery would be disasterously expensive. The new CEO would be
allowed to explore new avenues for Microsoft, but definitely would kill the
tablet and smartphone projects if they still exist at that stage.
GATES KNOWS CARRIERS/OPERATORS
Let me say a few words specifically about Windows Phone and Bill Gates. Gates
knew the smartphone opportunity, he steered Microsoft to it, when he was CEO.
He was personally involved in the project and met with CEOs of major handset
makers and carriers/operators etc, so he knew first hand what the industry
needed. That is why he says the current Windows smartphone project is beyond repair.
Because Gates knows what went wrong.
In the PC industry you need PC retail support, VARs
(Value-Added Resellers) and computer retail chains etc to carry your products.
And you need obviously the apps for your platform. In the gaming console
business its a consumer electronics market, you need lots of marketing and
advertising and the gaming industry is a hits-driven business, get a couple of
hot titles (or cool tech like gesture controls) you can leapfrog many rivals.
In mobile, its not like that. In mobile the critical component, that doesn't
exist in PCs or gaming, is the carrier/operator community which acts as
gatekeeper to the industry. If you do not get carrier support, you don't get
the sales. There is no exception to this rule in mobile, ever. Even if you are a
giant like Google or Microsoft or Apple, you can't get in without the carriers.
Google tried - and spectacularly failed - with the original Nexus. Microsoft
tried, and spectacularly failed - with the Kin. Apple never achieved success in
any market until it achieved a carrier to support it, and its market was
constrained by the carriers supporting it - witness AT&T vs Verizon in the
USA for three years, or iPhone in Japan, South Korea and China. Every few
months we get rumors that perhaps now, Apple finally gets the China Mobile
contract, but until it does, still today, Apple's share in China is far lower
than in comparable markets, because the carrier/operator that controls most of
the market, refuses the product.
NOT LIKE PC BUSINESS, IN MOBLE CARRIERS DECIDE
Bill Gates knows this. He knows that the carrier support is vital in handsets,
and that is different from the PC industry. So Windows Phone success or failure
has nothing to do with the size of the 'ecosystem' or the number of apps etc.
It has everything to do with carrier relationships. Those carrier relationships
were not strong with Microsoft before the Nokia partnership (while Nokia's
carrier relationships were the best in the world - on every continent except
North America, Nokia was the dominant smartphone maker, and also the
continent's largest dumbphone maker. In North America Nokia's carrier
relationships had soured in the mid 2000s because of several reasons such as
the CDMA-GSM technology war, Nokia's Club Nokia iniative (an app store by the
way, years before the iPhone) and the fact that Nokia refused to cripple its
premium phones to allow US carriers to abuse its customers.
So, because they only were witnessing Nokia in the US market, many US based
analysts mistakenly thought that Nokia was a weak handset (or weak smartphone)
manufacturer where in reality, on global numbers, Nokia was massively bigger -
and growing more -than its North America-based famous brand rivals. Because
Nokia was strong in the US before Apple and was weak now, after the iPhone
appeared, was an easy answer for superficial analysis, making the classic
post-hoc analysis mistake, that "Apple killed Nokia in the US". Or
any analogies ot that such as that Nokia died because of the iPhone and Nokia
had missed the touch-screen revolution. In reality, Nokia's fall in the US
market started four years before the iPhone appeared and Nokia's smartphone
market share had stabilized in the US by the time the iPhone was selling in
volume. Today when all Nokia Lumia phones are touch-screen iPhon-a-clones,
Nokia's unit sales in the USA are still SMALLER than they were using Symbian
before Elop changed the strategy. No, Apple did not kill Nokia's smartphone
business, not even in the USA. Nokia damaged its USA position out of strategic
choices and was being punished - by the carriers!
And globally, this is the part that most are astonished but
is true - check the numbers. Nokia grew smartphone unit sales more than iPhone
in the year 2010 - while doing this profitably, yes the second biggest profits
in smartphones behind only Apple, but with a far wider product portfolio suited
for mass markets and emerging world clients, and Nokia smartphones with
increasing profits to the end of the year, so Nokia was strong, growing stronger,
using that 'obsolete' OS platform of its own, called Symbian. Why was this? Not
because Symbian was so good, but because Nokia's carrier relationships
worldwide were by far the best. Nokia's market share in the three most populous
continents, Asia, Africa and Latin America was over 50% in smartphones.
Back to Gates. He knows its the carrier relationships. He also has heard this
time and again, from the Windows Mobile and Windows Phone executives inside at
Microsoft. They have had big feuds about Microsoft's Windows strategy that has
caused several top Microsoft execs to depart suddenly, resigning in protest or
being fired. Ballmer's abrasive style no doubt contributed to those exits, but
so too, specifically in the case of Windows Phone strategy, is how Ballmer
poisoned the carrier relationships (and Elop poured more oil onto the fire)
SKYPE PURCHASE KILLED WINDOWS ON PHONES
We heard from Elop when he spoke officially as CEO to the annual Nokia
Shareholder Meeting in 2012, that carriers/operators hate Microsoft not because
Windows makes bad phones or its apps ecosystems is too small, no. Carriers hate
Microsoft because Microsoft bought the biggest threat to carrier survival -
Skype. That is what sunk the Windows strategy in mobile. I said in February 2011,
when the Nokia and Microsoft partnership was announced that while it was a big
risky bet, and my gut said it would fail - this partnership might succeed if
both sides played it right. Microsoft was the world's biggest software maker
and Nokia the biggest smartphone maker (and biggest handset maker too, and by
2010 it was clear all phones would migrate from being dumbphones to being
smarpthones, so the market of 300 million would soon be 2 Billion new
smartphones sold annually).
Why couldn't they, being far bigger and stronger (when Nokia was still a
healthily profitable company at the time) than say Google or Apple or Samsung -
why couldn't this partnership succeed and rule the world. Certainly I said that
was a possibility. But I warned that Microsoft's past partnerships in mobile
suggested exactly the opposite. That Microsoft would rapidly suffocate and kill
the 'partner'.
So originally in February 2011, I felf this partnership might work but we'd
have to see the first phones, and what the next version of Windows operating
system - the one that Nokia would use - would be like, etc. (As it turns out,
both the early Lumia and the early Windows Phone 7.5 were duds with tons of
bugs, bad design, the famous 101 problems etc). But in June 2011 I wrote on this
blog, that the Microsoft Windows Phone smartphone strategy had just died. Why?
Because Ballmer had gone and bought Skype.
Skype may be useful for Microsoft on its cash-cows, Windows
on the Desktop and Microsoft on the internet (where IE is continuously bleeding
market share to Firefox and Chrome and the others). But Skype was the ultimate
poison for carriers. I warned on this blog that the carriers will revolt and
punish not just Microsoft but also Nokia. This was before the first Lumia
handset had even launched. Windows had died in smartphones. Died because of
Ballmer. Died because carrier hate Skype with a passion.
I said so here. Then we had the independent in-store surveys, often under
cover, by various journalists from the USA to the UK to China to Finland to
France to Brazil that all confirmed the exact same finding - always the same
finding - stores have stopped selling any Windows based smartphones. Microsoft
started to see the effect of the boycott against its phones. Several smartphone
makers bailed out of Windows totally - Motorola, Sony, Dell - and several Nokia
and Microsoft execs admitted the carrier revolt - some more vocally, some more
mildly but everywhere the same refrain - carriers have put Windows based
smartphones into a sales boycott. If one is displayed in a store, the store
sales clerk will refuse to show the phone even if the customer asks for it by
name - and will push Android or iPhone models instead.
This was reported in numerous media, its not my imagination. But we got the ultimate
proof from Elop himself, who said to the Nokia shareholder meeting, that nearly
a year after the launch of Lumia handsets, the sentiment against Microsoft
remained, the carriers hated Microsoft so much, that many were refusing to sell
any Windows smartphones by any brand, not just Nokia. Again, to be clear, Elop
did not use the word 'hate' - that is my interpretation of his words, he used
the corporate-speak politically correct terminology 'don't like' but explained
that this 'don't like' was so severe, it meant many carriers refuse to sell any
Windows smartphones today, where they had obviously been selling them happily
before. In my book, if a company reduces sales of your product, that is perhaps
'dislike' but if the company stops selling your product suddenly, and after a
year, of the two CEO's Ballmer and Elop personally present trying to get you to
return - that is not 'dislike'. That is 'hatered'. That is a sales boycott. You
don't boycott something you don't like. You boycott stuff you hate.
ELOP SAYS CARRIERS REFUSE SALES OF WINDOWS
What caused this? Skype. Not my words, that was Elop speaking in a public
capacity to his shareholders, so its as close to 'testifying under oath' as a
CEO can be. He was telling the truth to Nokia shareholders - not that Windows
was bad as an operating system. That carriers/operators were punishing all
Windows smartphone makers - he said that, some were refusing to sell the
smartphones it was that bad - and the reason was not because of no apps in the
apps store or anything like that, the reason was because Microsoft had bought
Skype.
THIS WHILE WINDOWS PHONE DIDN'T EVEN SUPPORT SKYPE YET
Let me make one more exclamation point on this. This has
nothing to do with having Skype on your phone. Microsoft Windows Phone 7.5 did
not have Skype at the time but there was Skype for Android. Its not that
carriers refused to sell a HANDSET because it could support Skype. No, early
Lumia did not support Skype at all. The carrier boycott was against Microsoft
the OWNER of Skype. Because Skype had over 1 billion registered users already
in 2011, and was an existential threat to the carrier business, threatening not
only the voice traffic but also messaging and videocalls. In that way, Skype is
even more dangerous to carrier survival than say Whatsapp, or BBM or iMessage
or Facebook.
I warned you readers in June of 2011, that the Skype purchase has just killed
the Windows viability as a smartphone platform. Elop admitted it in 2012, that
carriers hate (ok, carriers don't like) Microsoft because Microsoft has bought
Skype - and that the hatered (ok, dislike) is so severe, some carriers are
boycotting all Windows phones - even as those Windows smarphones did not
support Skype at the time. Elop said this, not me. This point is not up for
discussion, its a fact.
FINAL PROOF: GATES SAYS IT HAS FAILED
Then we hear in February 2013 Bill Gates tell us that Windows smarpthone
strategy was succeeding before, but ruined by Ballmer, and its now be ruined
beyond repair. Gates calls the Windows smarpthone performance an obvious
failure by Ballmer. After that statement, a few months later Ballmer annouces
he quits the company. What does this mean for Windows Phone? That Gates will
kill it as soon as he can.
Bear in mind, that Microsoft is not only sending money to Nokia at the rate of
250 million dollars per quarter to help market Lumia. We've heard from many
developers of apps, that they dont' want to develop apps for the non-existent
user base of Windows Phone, so Microsoft is now bribing developers to port
their apps to Windows Phone. So the apps environment is an illusion as well.
And that is a huge drain more on Microsoft's profits. The installed base of
Windows smartphones in 2007 was 10% of the global market. Windows Phone global
installed base today 2% of all smartphones, and that is divided across two
incompatible versions, so the best an app developer can hope for, developing
for Windows Phone 8, is to reach 1% of the global smartphone user base. Even
'dying' Symbian is 8 times larger. Yes. Symbian's death was announced on
February 11, 2011 when Symbian installed base was 6 times larger than Windows
installed base in smartphones; but today, two and a half years later, after
Symbian has collapsed, for any app developer, Symbian reaches 8 times larger
audience than Windows Phone 8 - and WP8 was released almost a year ago, so its
not like they are just starting to ramp up sales.
NOKIA WAS COLLATERAL DAMAGE
The Windows Phone experiment is a total, comprehensive and
unrecoverable failure. Any sane CEO sees that immediately. Any smart Chairman
will see that. And Bill Gates is nothing if not smart. He knows numbers, he
knows where to look, and differing from both Ballmer and Elop, Gates knew the
smartphone/handset market better than either of those clowns, and knows, that
when carriers/operators say - now that you own Skype, Microsoft, we will never
let you grow to be a player in this market - they mean it. Nokia was collateral
damage in this case, a bystander, who was hit by a stray bullet. Ballmer wanted
Skype for his internet and PC desktop strategy. It might make sense there. But
that decision killed Windows Phone.
WHAT NEXT FOR MICROSOFT
So what can we expect changes in Microsoft. Focus on the cash cows. Ensure
strong Windows 9 push (or 8.2 or whateve is next) and better handling of such
minor disasters as the Start Button haha.. And focus on Office Suite, the
server side, cloud computing, Xbox, IE, and so forth. But also, a far more
ruthless and rapid termination of hopeless projects like Surface and Windows
Phone.
So I'd say Microsoft will go through the next 18 months to 2
years more on 'stick to your knitting' and avoid the jerky radical new
directions every few months that were symptomatic of the Ballmer period. No
doubt the new CEO will also have visions of where it goes longer term
(wearables, nanotech, 3D printing, whatever) but expect the Ballmerian projects
to mostly die and at Microsoft, the death often comes unannounced and very
swiftly. Partners beware. Don't deploy any assets to areas of Microsoft that
are now in jeopardy until the new guy is in place and guarantees that project's
long-term business.
Thats my take on Ballmer's departure and our industry today. Part 2 examines the impact to Nokia now, part 3 will discuss a bit about Ballmer's
replacement candidates.
PS sorry about long and not very tightly focused and edited article, I did
write this for you on a Saturday, knowing some of my readers would want the
thoughts as soon as possible. More coming soon. (and yeah, I will return to add the related links etc, but not today, this took enough of my time)
Balmer has made plenty of mistakes but Gates is not innocent/saviour here either!
Posted by: Paul Ionescu | August 25, 2013 at 10:33 AM
@sari bundo enak rasanya
Microsoft's motivation for release of Office for Android was probably not the desire to become more neutral. Not having Office showed to 1 billion Android users that they don't need it on the computing device which they interact most with in their daily lives. A very dangerous realization.
And even so, the Android Office is restricted from in-app subscription purchases compared to the iOS version, and they are both inferior to Windows Phone Office according to Microsoft:
"How does Office Mobile for Android phones compare to Office Mobile on Windows Phone 8?"
"Office Mobile on Windows Phone 8 provides a richer, more integrated experience."
http://blogs.office.com/b/office365tech/archive/2013/07/31/office-mobile-for-android-phones.aspx
Posted by: chithanh | August 25, 2013 at 10:36 AM
If you look at Finland only Samsung have now lost their first place to Nokia:
"Nokia regains leadership of Finnish handset market"
http://www.phonearena.com/news/Nokia-regains-leadership-of-Finnish-handset-market_id46719
Yes I know its a small market but I think it boost the morale for Nokia as a Company.
Posted by: John | August 25, 2013 at 12:42 PM
One thing I am always surprised that doesn't get brought up in these discussions on MS failure is how much Intel's inability to develop low power x86 processors that compete with ARM has hurt Microsoft. Windows 8s approach to expand from conventional PCs to mobile/touch devices seems pretty compelling, but only as an expansion of the x86 codebase. WinRT is a horrible and confusing detour that does not leverage much MS incumbent strengths (other than office). Unfortunately current x86 chips cannot provide the same compact size/fanless design/long battery life as ARM. The Surface Pro would be quite compelling if it were iPad price, size, and battery life. Haswell processors may help, but it's already years too late.
Posted by: PoiFan | August 25, 2013 at 03:25 PM
@PoiFan
Intel's inability to come up with a real competitor to ARM running the X86 instruction set is compounded by the loss of real cross-platform (CPU) hardware knowledge at MS.
Remember the troubles MS had to get a version of XP booting on the OLPC? That run an X86 compatible AMD CPU. I suspect MS is unable to create a truely cross platform version of the NT kernel anymore.
Posted by: winter | August 25, 2013 at 10:01 PM
Tomi, you say that MS is going to drop Windows Phone and focus on its big money-makers. But Ben Thomson says that Ballmer's problem was he focused on profits, instead of innovating to delight users like Apple does.
http://stratechery.com/2013/if-steve-ballmer-ran-apple/
Posted by: eduardo | August 26, 2013 at 04:59 AM
@winter: " the loss of real cross-platform (CPU) hardware knowledge at MS" - loss of what?!? :-)
The last CPU running MS OS not being x86 one was DEC Alpha/Power PC if I recall correctly. but support was dropped after NT4.0 (http://en.wikipedia.org/wiki/Windows_NT)
So, if they had it at all, they lost that capability loooong-loooong time ago. On the other hand they did not need it lately (before mobile boom), too...
Posted by: zlutor | August 26, 2013 at 07:47 AM
@eduardo:
I think the article is spot-on.
But it's not a contradiction to what Tomi said.
According to the article Ballmer focussed on profit alone - and it clearly shows today. The customer didn't mean anything at all to him. He had his monopolies and tried to squeeze their users dry to get more profit out of them. He went the unpopular (with customers) route wherever he could if he thought it could increase profits. The result: We got the Evil Empire, the company that never manages to make a product the customer likes. They still got to buy it because they have no choice.
People hate Windows 8, yet everybody who needs a new computer has to buy it. People hate the Ribbon interface, yet Office users have no choice. They need the product. People clearly stated that they want the start button back, yet all we got is an half-assed attempt. These were all the actions of a management team that had a vision of future profits by creating 'synergies' the user didn't need (and they failed misarably for that reason.)
In the end, though, these products will remain profitable because there are no alternatives for most users. And if someone with clearer vision of customer satisfaction gets his say, they can be fixed. Microsoft's current problem in these markets is that customers are fed up with this monopolist attitude and look for alternatives. And if people find alternatives they'll take them. The major thing the next CEO needs to do is stop this - and it can only be stopped by improving the company's reputation (i.e. no Evil Empire anymore.) Otherwise the slow decline will continue.
Now on to Windows Phone. Windows Phone does not have a monopoly. It doesn't even have a significant market position. People have a choice and the vast majority votes against it. In fact, Microsoft wouldn't be able to sell anything at all, wasn't it for ultra-low price points and the Nokia brand name. These are issues that can NOT be fixed. The mobile market is already dominated by the competition. No matter how much money Microsoft throws at it, it won't matter. They have tried for over two years now with utterly pathetic results. If the cash flow stopped now the product would be dead within a year.
And even if they tried to fix the problems on the design side to 'delight users' it'd be too late. We see with Blackberry how tough it is to position a new operating system in this market, even if it is well designed.
3, even 2.5 years ago, with a well designed system Microsoft might have had a good chance. But what did they focus on: System lockdown, user restrictions, a rigid user interface that was prohibited to be changed, a system 100% incompatible to its predecessor - and the infamous '101(?) design flaws'. Ballmer tried the monopolist's view on a market he didn't own and he failed. And then one year later he pulled WP8 out of the head, and repeated one of the biggest mistakes: It was again incompatible to its predecessor. He again took the accountant's view, trying to maximize profit with the least amount of work and totally forgot that he'd lose a lot of people he would have needed: effectively he also killed the developer community that would have slowly formed.
And once the honest projections are in the open, if they tell that WP will never generate any profit, it will get the axe, mobile be damned. No sane CEO would pursue such an undertaking unless there were contracts requiring him to continue.
Posted by: Tester | August 26, 2013 at 07:51 AM
@zlutor
MS cannot even write drivers anymore as the PLPC debacle showed.
@Tester
Even the "succesful" Xbox has burned so much money that there is no way MS will ever see a positive ROI. The same for Bing if it ever is a succes.
It has been said before: Outside Windows and Office/sharepoint, every endeavor of MS has had a negative ROI, ie, a failure
Posted by: winter | August 26, 2013 at 08:35 AM
Ballmer's actions remind me of this little article I found some time ago:
http://www.inc.com/karl-and-bill/maximizing-shareholder-value-is-not-a-dumb-idea.html
Look in particular for a section starting with 'But there’s a right way and a wrong way to do so. The right way:'
Hands up who thinks that Ballmer did not ignore any of the points that were said there. No wonder he's in trouble. Ballmer was the typical CEO for whom the bottom line was all that mattered, regardless of how he got there. The one thing he completely failed at was 'treating his customers well'.
Even before he became CEO he was already regarded as the cause of Microsoft's bullyish behaviour and once he took over the really bad things started to happen right away - beginning with the product activation in Windows XP. Strange that this only became an issue for them after he took control. ('Yes we assume you may be a thief and in order to protect us we take preemptive measures to limit your use of the product...') Truly great impression.
Posted by: Birne | August 26, 2013 at 08:36 AM
People who hire a bully and robber are as bad as the person they hire. Ballmer was in office this long because those who hired him were pleased by his actions. He is now fired not because the powers that rule the evil empire want to mend their immoral ways, but because Balmer's bullying did not bring in enough money.
Posted by: winter | August 26, 2013 at 09:08 AM
'People who hired him' would be Bill Gates - and he hired him long, long before he became CEO. He had been there almost since the very beginnings of Microsoft's existence. Even when Gates was still CEO, Ballmer had a significant amount of influence in the company and to a great deal was responsible for how Microsoft was perceived.
And I don't think he had to go because his bullying didn't bring in enough money but because his bullying started to harm the company. This type of CEO works to a degree with a monopolist but he's utterly incapable of defending market positions in a competetive market, and also to explore new markets well.
'Scroogled', for example was a typical Ballmer-brainchild. Instead of delivering something good, just badmouth the competition. Too bad, if that competition is too strong to get harmed by such antics, especially if your own competing product is as piss-poor as Bing.
But in the end he was the CEO, he decided how to make business - and he was Bill Gates's 'best pal'. Don't count on the shareholders, if someone went up before them telling them they'd get rich they'd say 'yes' and 'amen' to everything that's being suggested.
Posted by: Tester | August 26, 2013 at 09:31 AM
@tester @tomi
i agree with tester opinion that most of the wp problem started with balmer (i.e restriction, locked user interface/launcher, etc).
therefore the solution might not to throw away the product but to change/lighten up the restriction.
and not doing scrogle, not fighting over youtube but follow google guideline, bring product (office, internet explorer, game) to android.
Posted by: 你好 | August 26, 2013 at 10:55 AM
@zlutor
Windows NT 4.0 ran on X86 and Alpha in the end (it launched with more platforms)
Xbox 360 (PowerPC) operating system is also based on Windows.
Windows XP ran on X86 and Itanium.
Windows CE runs on ARM, MIPS and SH.
Windows Phone and Windows RT run on ARM.
Windows 8 runs on X86 and X64.
Microsoft supports fewer hardware platforms than many Linux distributions, but I don't think there is a total lack of cross-platform knowledge.
Posted by: chithanh | August 26, 2013 at 01:39 PM
To put all of this in perspective, if Ballmer had been running Apple for the past 5 years, there would be many more versions of the iPhone (including one with a keyboard) and the iPhone would be available on far more carriers. In other words, he would have done just about everything Tomi has suggested Apple should do!
Posted by: darwinphish | August 26, 2013 at 02:14 PM
Tomi, I have an idea for a post that would make good use of your expertise and be of interest to many of your readers.
You say Nokia was so successful at least in part because it had such good relations with the telecoms. Why don't you write about what Nokia specifically did to get such good relations, and how that changed under Elop?
Posted by: eduardo | August 26, 2013 at 11:40 PM
Well, if Ballmer had been running Apple, then the iPhone would never have been released. It would have been developed, prototypes shown to the press, and then killed at the last minute because it wasn't compatible with the existing MacOS business.
Then the developers would stretch their interpretations of what could be reported in expense reports, and ultimately resign.
http://www.ted.com/talks/dan_ariely_what_makes_us_feel_good_about_our_work.html
Well, Ariely's account is somewhat anonymized, so I can't be sure that he was talking about Microsoft Courier. But there can't be that many companies matching that description.
http://news.cnet.com/8301-10805_3-20128013-75/the-inside-story-of-how-microsoft-killed-its-courier-tablet/
Posted by: R | August 28, 2013 at 11:38 AM
Microsoft will not abandon the mobile market. Bill Gates said that what they were doing with Windows Phone was obviously a mistake, because it did not dominate. But he himself led Microsoft into mobile devices several times until Windows Mobile stuck and achieved 12% market share.
Mobile is crucially important to Microsoft. Microsoft makes loads of money from server licenses, office products, and Windows, and mobile devices are important to all of those businesses.
Server sales depend on stuff being served. A bunch of servers are sold running Exchange, so when email was the most important application, mobile devices had to hook into Exchange. Now a lot of mobile applications depend on "the cloud," and the cloud is reified in Linux servers run by Amazon, Google, Rackspace, Facebook, etc. This is a major threat to Microsoft, which is why they were so happy to have the Azure cloud grow into a $1 billion business so quickly.
Office depends on documents being locked into the Office formats. The Office division prefers to develop for Windows. (The MacOS port is done by a separate Macintosh Business Unit organizationally within the Office division.) With mobile devices becoming more powerful, people are trying to do more work on them, which currently means they're weaning themselves off of Office. No more commentary needed.
Windows is an obvious thing. Fall of PCs, rise of mobiles. One problem is that Apple has trained their developers to be used to the idea of disruptive change every couple years. Microsoft has cultivated an image of being nice and solid, so improvement-averse companies could build on Microsoft systems. Now that Microsoft is adopting Apple-style disruptive change but not achieving Apple-level market shares, they are making the whole Microsoft Windows lock-in model less attractive.
Posted by: R | August 28, 2013 at 12:02 PM
@leebase
Actually, the rise of mobiles not running Windows is hugely threatening to Microsoft. Microsoft was founded back when "PC" meant a box with no user interaction except for a panel of switches and a couple rows of lights. Microsoft has adapted as PCs have changed into their current forms. Everybody in the operating system industry agrees that smartphones are basically PCs that can make phone calls.
If everything people do can be done in a web browser that is not Internet Explorer, then why go with Microsoft for the "truck class"? Macs are nice but safely expensive. But Chromebooks and Chrometops promise the web browser with no maintenance hassle. If Android is your primary platform, then why not use that on your "truck"? Several companies now sell micro-PCs that plug into HDMI ports and run Android. A few companies, including HP, are selling experimental All-in-One PCs running Android instead of Windows.
While Microsoft is still profitable, they're looking at trends and taking the long-term view. And the trend is that traditional PC sales are going down, not just market share. If you include smartphones and tablets, Microsoft's market share is already a minority. Printers are being built with Airprint and Cloud Print, so you could actually do office work entirely on your iOS or Android device. It's a sign of the waning influence of Microsoft, because printer manufacturers are not known for producing printer drivers that they don't have to.
Desktop is the present of Microsoft, but they need Mobile to be the future. They will do whatever they have to for a chance of Bill Gates-level success in it. I hate Microsoft, and Ballmer is a big, 6'5" part of that hate, so they have their work cut out for them.
Posted by: R | August 28, 2013 at 09:42 PM
@R:
>> They will do whatever they have to for a chance of Bill Gates-level success in it.
Hint: They will never achieve that. The owned the PC because there was no competitor. The only one who might have been able to own this space was Apple and they priced themselves out of business with their early Macs and their refusal to open up the system.
To rule Mobile it's too late, plain and simple. And they won't stand any chance with an Apple copycat (locked down and restricted) when the original is more popular tham Macs have ever been in the PC world and an open competitor with huge market share already exists.
Microsoft can try what they want, this battle is lost forever. Also, please read the fine print: Nobody predicts that Microsoft may abandon mobile, but it can easily be that they abandon Windows Phone because it'll get them nowhere. The system had it chance and everything that happened so far tells us that the only way to sell it is by selling below cost.
Posted by: Tester | August 28, 2013 at 10:27 PM