Charlie Owen - Microsoft and the Consumer Market Review 2011

Microsoft and the Consumer Market Review 2011

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?

| Posted on Wednesday, January 12, 2011 12:33:13 AM (GMT Standard Time, UTC+00:00)

Wednesday, January 12, 2011 1:57:52 AM (GMT Standard Time, UTC+00:00)

Not everyone in the tech world is so myopic. We had two posts at WinExtra that pointed out that Microsoft actually announced something pretty important and will have a long lasting impact on the company and the consumer.

In case you are interested these are the links (you can remove them if you like):

http://www.winextra.com/archives/microsoft-steps-up-throws-down-red-bull-extra/
http://www.winextra.com/archives/the-coming-evolution-of-the-desktop-will-be-revolutionary/

Steven Hodson

Wednesday, January 12, 2011 2:14:18 AM (GMT Standard Time, UTC+00:00)

Nicely done.

You must know, however, that with a few exceptions (Ed, Larry, and a few others)these so-called journalists the past year are only interested in generating page/ad hits for their employers. It doesn't matter what the truth is, if they think it will make them a buck they will write it.

It's time that journalists/bloggers for actual news outlets go back to having their stories edited/approved before publishing them, and that they be paid a set fee for each approved piece. As long as it continues the way it is, the majority of what shows up on the internet will be sensationalized stories strictly to make the author (and I use that term loosely) a buck or two.

Add to this problem the rabid nature of so many readers these days. A good flame-bait story will rapidly earn a writer more money than a good story that is informational and ACCURATE. Want proof? Go to ZDNet, PC World, or any of the other tech sites and look at the number of comments posted on flame-bait pieces vs. factual, informative, yet not really exciting pieces. The REAL stories will have 20 or fewer comments (page hits) whereas the sensationalized stories will have hundreds of comments (page hits) making them much higher earning than the former. Of course not all readers generating hits leave comments, but many times the comments are more entertaining and informational than the actual article, so it should be obvious which stories make more money.

I think, with the exception of the Apple and Linux devotees, most people realize where MS stands in the industry. We know R&D is always at work looking for ways to improve the existing tech or create new tech. In short, MS is always at work and a step away from offering something new - they just don't see the need to pronounce everything 'magical' or 'revolutionary' to the world like Apple does to attract the attention of every press outlet in the country. Could Mr. Ballmer be a little more enthusiastic when announcing new releases? Sure. Would that make what he is announcing any more interesting or important? No. Would the press eat it up and plaster it everywhere for everyone to see if he did (like another Steve does)? Probably. I don't see MS in the same way as I do Apple though. I don't expect outrageous antics and pronouncements from MS just to get attention.

Heck, If MS stopped selling Windows today, how long would it take Apple to match the market share MS has now? Quite a while, I'm sure. Look how long people have been hanging on to Windows XP if you want to see commitment and loyalty amongst a company's customers.

Basically what I am saying to you is this: You didn't need to write this piece except to make yourself feel better. To those that matter, we already know. MS isn't going anywhere anytime soon, and as long as MS keeps up what it is doing now, it will stay that way for many years to come, no matter what some of the 'hopeful' people say.

Babyboomer57

Wednesday, January 12, 2011 3:12:06 AM (GMT Standard Time, UTC+00:00)

Charlie, I couldn't agree with you more regarding the Microsoft living room ecosystem. I use the Xbox360 as a Media Center extender and it works great (2 HDTVs, one with HTPC and one with Xbox360 MCE). I look forward to adding a CableCARD tuner to my Windows 7 HTPC very soon to make the experience even better.

My goal is to move the HTPC out of the living room and use only Xbox360 MCEs at the TV. Although, there are still some things the HTPC can do that the Xbox360 MCE can't (i.e. play home movie DVDs/Blu-ray from hard drive).

The thing that makes me crazy is that Microsoft doesn't seem to be really marketing the whole Xbox360 MC Extender part of the living room ecosystem. When I tell friends/family that they could be using their Xbox360 as an MCE to their family room computer (just put a TV/CableCARD tuner in it), they say "Wow, I didn't know you could do that!". The functionality is there, its just not marketed that way. Don't know why, maybe Microsoft will once CableCARD tuners become mainstream (aka a cost effective viable alternative to the cable company set top box).

Also, I have to say it...:) The whole Windows Home Server as a "Media Base System" for the Xbox360 MCE (aka WHS with TV/CableCARD tuners) could be a huge part of the Microsoft living room ecosystem. This would combine my current always-on HTPC and WHS computers into a single computer/appliance, greatly simplifying the living room ecosystem and being more Green.

martyus

Wednesday, January 12, 2011 3:36:57 AM (GMT Standard Time, UTC+00:00)

What does Apple have to offer consumers in the living room besides Apple TV

The iPad, and Microsoft still doesn't get it.

Chris Lamothe

Wednesday, January 12, 2011 4:18:31 AM (GMT Standard Time, UTC+00:00)

Thanks Charlie. It is very clear to me that Ballmer was consistently on message. I think that the pundits can't get their head around it. It is also clear, especially in the Tablet PC space, how much innovation is coming through the enlistment of partners providing great designs and taking advantage of the new chip sets and LCD technologies and the form factors they permit.

I think getting coherence across the ecosystem (my benchmark: Outlook <-> Windows Live <-> WP7 and all other small-form internet-connected devices) will take more work but the dots appear to be connecting already. That is a special piece of the consumer, SOHO world of course.

Based on what I've seen, the iPad is a great device. Whether Microsoft doesn't get it or is simply seeing beyond the iPad for a bigger approach is something we will have to watch unfold.

I still see analysis that doesn't even mention Microsoft. It is going to be interesting to see when and whether those folks wake up.

orcmid

Wednesday, January 12, 2011 8:12:28 AM (GMT Standard Time, UTC+00:00)

As someone who has pretty much adopted Microsoft in the home, including Windows 7 across all PCs and Windows Phone 7, I am unhappy with the perceived (on my part) lack of a roadmap for the living room.

It is all very well saying that the XBOX 360 is Microsoft's "answer" but it doesn't have TV tuners. It can't record. That is what Media Center is for. But here's the thing - what *are* Microsoft doing on Media Center? From what I've been able to see, the main announcements were around Media Center on Windows Embedded. This is good news as it should allow for cheaper, smaller devices to be launched. However, what concerns me are:

1. The comments around Embedded were that the Embedded team can be more flexible/work faster to change Media Center. Does this mean that WMC will fork so that you'll have two versions or, worse, does this mean that WMC will wither and die on the non-Embedded platform?

2. We still don't seem to have ANY comment coming from Microsoft on what their "extender" solution is. I'm sorry but XBOX is not the answer for me. I do NOT want to buy a games console JUST to watch TV. I want a nice small extender device. If DLNA is the answer, then just say so!

I still believe that WMC is a great product but Microsoft seems to be doing a pretty crummy job of (a) promoting it against Apple TV and Google TV, (b) getting the bigger picture out there and (c) updating it so that some of the main concerns are addressed.

I just hope that my investment in WMC doesn't turn into a white elephant.

Philip Colmer

Wednesday, January 12, 2011 1:55:37 PM (GMT Standard Time, UTC+00:00)

Charlie, you are not doing any better than Balmer or the rest of Microsoft because once again, I think the interesting thing here is what you didn't say...

As Martyus says, where was Media Center, Windows Home Server and the whole MCE/WHS/Media Center Extenders concept at CES? Answer... nowhere because Microsoft is unable to acknowledge that they have a world beater here if they would just get behind these and MARKET THEM!

Take the bull by the horns here and stop relying on third party partners to bring your product to market for you. It fails every time (Media Center Extenders V1, Media Center Extenders V2, Windows Home Server, Media center, Windows CE, Pocket PC, Windows Mobile....).

What we need is a single Microsoft Branded Media Center set top box. Call it Media Center, include Cable Card and offer two versions with the only differences being the size of the internal hard drives. Market it to the world so everyone wants a Media Center like their neighbors.

Allow Xbox 360 the SAME MCE experience as the MCE device (Netflix, DVD playing right from the MCE interface). Tell the world how cool these two are together. Sell 50 million more Xboxes.

Take the handcuffs off of the Windows clients and allow Vapor-Sled (Soft-sled) access from all Windows 7 PC's in the house. I'm talking shared guide, tuners and recorded TV storage. Tell the world about how cool this is and then take over the living room. NOTHING ANY OTHER competitor currently has comes even close to this.

Had you talked about stuff like that at CES nobody would be complaining that you were a no-show like you were this year. I'm sorry but even people I respect like You Charlie are showing signs of succumbing to the Microsoft philosophy of sticking your head in the sand when it comes to the great products you already produce but fail to align and market in a way that would make them a success.

hack-o-holic

Wednesday, January 12, 2011 3:02:59 PM (GMT Standard Time, UTC+00:00)

I will agree with Hack-o-Holic on most points first. I have an MCE (server) and two 360 clients right now, but I am probably going to have to build a new MCE to fit in stereo rack so that I can get the full feature set of MCE that isn't available via the extender interface currently like Blu-Ray, web streaming (Hulu or CBS / ABC) and other features.

However my big problem is the death of the old Tabelt. I am not talking about the new Tablet (old slate) term created and pushed by Apple and adopted by all the new Android manufactureres. I work at a school that has been using Toshiba tablets (convertible laptop version) for seven years and have been told Toshiba is exiting the market to pursue the Android models. I fear that HP and Lenovo may soon follow suit leaving us maybe with the sole choice of Fujitsu. A slate tablet can't be used to write a 5 page paper and the majority don't have pen input. We have embraced OneNote and now the hardware to support it may die. I keep hoping I am wrong, but I just have no faith any longer since not even Microsoft is talking about pen based convertible tablets.

Brian Hoyt

Friday, January 14, 2011 7:53:07 PM (GMT Standard Time, UTC+00:00)

Charlie,
I think you make some great points.

I think Microsoft's CES coverage was poor mainly because their keynote largely focused on things people already knew, or could have guessed, or just weren't relevant to consumers (like Windows on ARM). When you combine that with high expectations about a tablet OS and a Media Center experience in an Apple TV package, Microsoft was losing before they had their first session.

It's up to journalists to objectively process this and not compare a mythological presentation with what actually happens, but, humans being what they are, I think that's what happened. Irresponsible? Yes. Vendetta? Probably not. Predictable? Yeah.

I think your analysis does a great job of showing the big picture of these three competitors. I do think MS needs to directly address some of these new products (Apple TV/iPad) and show how their offerings are more complete or how they will directly answer these products with something comparable and in the same category.

Thanks for this post.
Clif

Clifton Griffin

Saturday, January 22, 2011 3:37:41 AM (GMT Standard Time, UTC+00:00)

What does Apple have to offer consumers in the living room besides Apple TV?

I think the next question should be what does Apple have to offer consumers in the kitchen?! :) I think it's the next frontier! LoL

But seriously, competition will bring churn out new products where none existed before.

How will it affect AV receivers in the future?

AV Receiver Reviews Staff
http://avreceiverreviewsinfo.com/

Eric Pangilinan

Wednesday, February 02, 2011 2:09:25 AM (GMT Standard Time, UTC+00:00)

What hack-o-holic said is right on. The vertical market for consumers is confused. There is no good hardware especially in Australia for a Windows Media Center PC, yet it is by far the best Living Room experience there is. The "certified" remote controls are garbage compared to the Microsoft ones that are just straight USB rather than piggy-backing through the TV Tuner card. There is no Internet TV support in Australia. Australia's ABC TV channel released their iView show streaming for the iOS and PlayStation 3, yet refuse to write an addin for Media Center. With the numbers of Market Share that you have quoted, why is it still being ignored by so many? Microsoft can't depend on partners to get this right.

Matthew Rowan

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