Every once in a while a journalist, blogger or analyst will publish an article that crawls under my skin. I've grown weary of hearing how much Microsoft is missing the mark. This commentary seems to have reached a fever pitch in regards to our showing at CES 2011.

Mary Jo Foley in CES: What Microsoft's Ballmer didn't say

“This isn’t a typical keynote write-up. Usually, covering a keynote, I write about what executives say or announce. At the kick-off Consumer Electronics Show (CES) 2011 keynote by Microsoft CEO Steve Ballmer on January 5, the more interesting bits were what Ballmer didn’t say.”

Nick Eaton in Microsoft at CES: Not much new to talk about

“After juicy rumors gurgled online for days leading up to the event, Microsoft today gave techies little to chew on as they prepared for a weekend of gadgets and nerdery in Las Vegas.”

Jessica Mintz in Microsoft's answer to the iPad is still in pieces

“Instead of unveiling an elegant response to the iPad, Microsoft came to the tech industry's premier gadget show with a collection of exposed computer guts.”

I tweeted my gut response to the Mintz piece and my friend Ed Bott summed it up better than I ever could…

"Oh, man, that is one of the stupidest things I've read all week, in a week filled with stupid."

There seems to be a lack of objectivity at the moment for some reason. As best I can tell, these three articles (and many others not cited here) have some underlying foundations or assumptions which are questionable…

  • The real story is in the things Microsoft does not pick to highlight at the moment.
  • Anything less than a Microsoft branded competitor to anything Apple or Google announces or ships is considered failure.
  • The author lacks an understanding of how Microsoft has intentionally chosen to have a business relationship with partners.

So, how is Microsoft really doing?

I thought I would take a moment share my personal thoughts and key takeaways in response to the CES 2011 Microsoft keynote (video and transcript) taken in the order in which they were presented.

Living Room

Competitors

Microsoft XBox
Sony PlayStation
Nintendo Wii
Apple Apple TV
Set Top Boxes (Blu-ray / Cable / Satellite / TiVO / Google TV)

Facts

  • "...30 million Xbox LIVE members."
  • "...a new member joins Xbox LIVE every two seconds."
  • "Xbox 360 has been the No. 1 selling console every month for the last six months here in the United States."
  • "...sales for the Xbox 360 are now over 50 million units worldwide."
  • "In the first 60 days we sold over 8 million Kinect sensors worldwide."

Key Message

"Your Xbox is becoming the hub of your living room. It is your gaming system, but it's your movie, it's your TV experience, it's a TV show, and it's your sporting event. It's your social interaction all delivered directly to the biggest screen in the house."

My Commentary

Do some quick back-of-the-napkin math around the ecosystem for Microsoft alone (XBox Live memberships, games, consoles and peripherals like Kinect) and you'll quickly find this is a billion dollar plus business and growing. The XBox is becoming an entertainment console, more than just a gaming console, building on the strength of our partnerships with movies, TV, music and sports.

By comparison, Apple is a rounding error in this market with Apple TV. Sales have likely come through the magical and revolutionary price point of $99 to achieve sales of 1 million devices in 2010. It’s really too early to tell about Google TV but the initial reviews aren’t promising. Set top boxes are low powered, commodity items locked in to vertical market silos. I don’t hear much excitement about the non-gaming features of the PlayStation or Wii so they might be stagnating into the one trick ponies of gaming.

Rhetorical Questions

  • What does Apple have to offer consumers in the living room besides Apple TV, or what are they going to do to make Apple TV compelling and competitive?
  • There has been a long line of ‘make the TV smarter' initiatives from scores of companies over the years (including Microsoft). Is Google truly bringing anything new to this space with Google TV or is it an ‘also ran’?

Mobile

Competitors

Microsoft (Windows Phone 7) + Partners
Apple (iPhone)
Google (Android) + Partners

Facts

  • "We launched 9 phones across 60 mobile operators in 30 countries."
  • "...we'll finish the release that will make the Windows Phone available on the Sprint and Verizon networks in the first half of 2011."

Key Message

"We're proud of what the customers are saying about Windows Phone 7, and we're going to continue to invest in it aggressively in the future."

My Commentary

Journalists and analysts have continued to focus on how much market share we lost when the momentum for the smartphone market shifted from enterprise to consumer. That's old news...! It would be great to turn a corner and have a conversation about the future rather than rehashing the past.

Windows Phone 7 is a version 1 product for Microsoft. By comparison the iPhone v1 was 1 phone across 4 mobile operators in 6 countries. Apple is just now addressing non-AT&T networks here in the United States with the fourth generation iPhone. Microsoft announced on day one Windows Phone 7 will be available on Sprint, Verizon and AT&T. Net: I believe Microsoft has demonstrated a strong entry into this market. Watch out Apple -- we compete more effectively when coming from behind -- reference the rise of the XBox in the gaming console market. Note Microsoft is also bringing the success of social gaming in the living room to the mobile space with XBox Live -- an area where Apple currently has no comparable offering.

Rhetorical Questions

  • Can Apple or Google continue to hold their positions in mobile experience with competitive offerings from others and their respective partners given the relatively short refresh cycle (2 years) of opportunities for consumers to choose something different?
  • Will the Google model of OS customization by each handset maker hold up in the long term?

Personal Computer (Desktop, Laptop, Tablet)

Competitors

Microsoft (Windows) + Partners
Apple (Mac and iPad)
Google (Android / Chrome) + Partners

Facts

  • "Windows 7 PCs are the fastest selling PCs in history, selling over 7 copies a second, they now represent more than 20 percent of all the PCs connected to the Internet."
  • "We shipped a new release of Windows Live to over 500 million people around the world."

Key Messages

  • "Windows has always been, and will continue to be, about the breadth of hardware and software applications..."
  • "…define and deliver this next generation of devices to customers through the innovation of our partners."
  • "...Windows PCs will continue to adapt and evolve."

My Commentary

Quite frankly, I’m not sure Mr. Ballmer could have been any clearer about the business model for Microsoft in this space: Breadth, partners, adapt and evolve. Journalists need to understand this at a fundamental level when writing about product announcements and responses to the competitive landscape.

The only way for Apple to radically change the personal computer market and displace Microsoft + partners is for tablets to take significant market share from other form factors (desktop and laptop) in a very short period of time. If we include iPad sales when measuring market share Apple is still relatively low on the worldwide personal computer market share looking at the most recent numbers from Q3 2010. To get an idea of position I took Apple sales figures and combined them with IDC estimates…

Manufacturer Units Market Share
HP 15,766,000 16.8%
Acer 11,648,000 12.4%
Dell 11,136,000 11.9%
Lenovo 9,213,000 9.8%
Apple 8,080,000 8.6%
Asus 4,793,000 5.1%
Toshiba 4,659,000 5.0%
Others 28,566,000 30.4%
Total 93,861,000 100.0%

Without a doubt, the iPad has been a success for Apple. If you exclude iPad sales numbers for the quarter (4.19 million) they are somewhere below Toshiba in market share. That’s a nice jump of more than doubling their personal computer volume. It will be interesting to see what Q4 and beyond looks like but my prediction is Apple will begin to flatten out rather than skyrocket in taking market share if the price point for the iPad v2 stays consistent (i.e., $499+).

There are some who will argue the tablet represents a whole new market segment. From my personal use of the iPad: It's not a laptop replacement...and in order for a tablet to be successful in the long term it must become a laptop replacement. The wild card here is the price of the iPad: Can (will) Apple get it low enough to appeal to the mainstream consumer so it’s an additive rather than replacement purchase?

Don’t get me wrong. I believe tablets will be important in the long term. It’s just very, very early in a never ending game.

Rhetorical Questions

  • Will the tablet factor become the dominant form of computing in the next few years?
  • If so, is the rise of the tablet in the mix of personal computers linear or exponential in growth? (Note: Exponential favors challenger, linear favors incumbent.)
  • Does the tablet play by a different set of refresh cycle rules in comparison to the other form factors of desktop and laptop?

One more thing...

Apple and Steve Jobs is rather famous for the ‘one more thing’ presentation style. The Microsoft CES 2011 keynote has it’s equivalent – usually peppered throughout rather than being at the end. This year was no different so it’s worth noting there were items mentioned in the keynote which are important from a consumer standpoint. These are areas where we are making progress or our competitors are either weaker or non-existent.

  • Office 2010, Office Web (Consumer), Office 365 (Corporate), Office on Windows Phone. (Although not mentioned in the keynote: Office for Mac.) This is a great example of where Microsoft has continued to ‘adapt and evolve’.
  • Bing – It continues to nibble (if ever so slightly) away at Google market share. Apple offers third party web search engines in all of its products as far as I can tell -- their closest match as a revenue generator being iAd.
  • Azure Services -- I guess we could theoretically count Mobile Me here if we really want to stretch the definition of a category. Google is making some inroads here but also has to compete with folks like Amazon Web Services.
  • Surface -- People make jokes about Surface as the typical Microsoft answer to iPad. It's cool to see us innovating here...and some of these things are directly applicable to things like tablets. Apple has touch with up to three fingers -- Microsoft is looking at stuff that makes interacting with devices an extension of your body and voice with natural user interface -- the first output of these investments are products like Kinect and Surface.

Summary

I’ve put together a simple table (alphabetical by company name) which helps us see the competitors for each area and their strategic bets. I believe it’s important to note the growing overlap – e.g., XBox Live present in the living room and mobile.

Company Living Room Mobile Personal Computer
Apple Apple TV iPhone Mac and iPad
Google Google TV Android + Partners Chrome / Android + Partners
Microsoft XBox Windows Phone 7 + Partners Windows + Partners

So, I’ll ask a final rhetorical question…

Who is currently best positioned to lead across all three areas over the long term?



Categories: Apple | AppleTV | CES | Home Theater | Microsoft | XBox 360 | iPad | Google | Comments [11] | # | Posted on Wednesday, January 12, 2011 12:33:13 AM (GMT Standard Time, UTC+00:00)   
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