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?

Apple is a huge competitor in the space Windows Media Center seeks to inhabit. Evidence?

Front Row and Windows Media Center

Apple TV and Media Center Extender

But even though I want to compare and contrast these products I find myself always holding back.

Why?

Because of the signal to noise ratio. On the somewhat rare instance I do post something related to Apple it almost never fails that folks show up bringing nothing to the conversation of value. Case in point, go read the two comments on Thoughts on iPod Amnesty Bin. After reading those I again had to ask myself 'why bother'.

Mary Jo and Long are beginning to understand the pitfalls of writing anything other than high praises of Apple.

So, I ask myself would it be worth the time and effort to give my perspective of MacOS, iPod and AppleTV or will I be labeled as just another Apple hater who works for Microsoft. Can I count on the community (both PC and Mac) to engage in the conversation?

Normally, what Michael says most of the time is spot on -- I'm a big fan, and pay close attention to what he writes. I'll admit his coverage of MacWorld has me a little bit baffled, as he seems to be caught in the echo chamber that is created by Apple for the Jobs keynote -- something I don't usually find him doing. Some examples...

In Macworld - Apple Says It's Time to Phone Home Michael states "Both Apple TV and the iPhone are important devices as they cement Apple's role within different places of the digital home." Apple has not yet shipped either of these products yet, and they hold exactly 0% market share for their respective categories (digital media receivers and mobile phones). How can you cement a position you don't hold at all? I'll admit I'm interested to see how AppleTV does over the long haul, and whether or not it's couple-of-tricks-pony approach will resound with consumers on the scale iPods have to date. The iPhone has *much* stiffer competition than the iPod really ever did (to his credit, Michael does allude to this towards the end of this post -- kinda).

Michael has this to say in Is Apple Late to the Phone Game: "Yes, I know other devices can do a lot of what the iPhone can do but that's like saying there's a lot of other music players out there as well." Well, actually, no. There are many devices shipping today that can do everything the iPhone will be able to do when it ships (and more). And, based on prices given today, those devices do more things a whole heckuva lot cheaper now than iPhone will when it ships. The market conditions that existed when the iPod rose to its popularity aren't really in play today in the mobile phone market. Specifically: Sony resting on its Walkman, Discman and (most importantly) proprietary NetMD laurels, the rise of the MP3 as a universal standard, lack of understanding by the then current crop of MP3 players to realize it's all about the hardware form factor, lack of attention to marketing to get out a message. Apple showing up at the right time, with the right device and the right service coupled with the lack of a timely and competitive response from other established players in that market allowed the iPod to take its favorable market position. While Apple will probably be successful by its own definition ("1% market share in 2008" -- obviously and intentionally lowballed) it's doubtful the competition will take the same laissez faire attitude. While you compare the success of the iPhone to the iPod we could just as esily compare it to the Mac (as Jobs did during his keynote today). I think there are few people who doubt the historical and perhaps groundbreaking importance of the machine when it was introduced in 1984. The ancestors of the original Mac now account for 3-5% market share (depending on who you reference) for all personal computers worldwide. Which trajectory will the iPhone follow...?

What's Missing From the iPhone outlines 4 significant blockers to the iPhone success (go read 'em). Even so, Michael says "Even with these issues, I still believe Apple is going to be force to reckoned with in this space." Michael seems to ignore the fact cell phones (and in particular SmartPhones, which iPhones are suppose to squash) are much more enterpise oriented than consumer oriented, and the first three of the items he outlines represent some fundamental gaps in the story. Once iPhone reaches feature parity with current offering, then it becomes a market changer. Sound familiar? Yep. Zune.

"...the XBox is the challenger against Apple TV (and the Slingcatcher as well). There's a battle going on for your living room. There's still a lot of network issues that Microsoft needs to work out. Where's the support for N in Media Center?" is what we get in Will Apple TV have issues as it's 'only' 720p. Where to begin. First, the Xbox has shipped over 10 million units. Windows Media Center enabled SKUs of Windows has sold over 30 million units. Window XP (to which any XBox 360 can connect to and stream content from) has sold in the 100s of millions. How many AppleTVs have shipped. Zero to date. If anything, AppleTV is the challenger here. The network issues will also tend to be a problem for Apple if and when they ever implement true high definition TV (think about the live events scenarios here, like sports). As it is, they covered most of the hurdles with the addition of a 40GB hard drive in the AppleTV (kudos to them, but that has to bite into the profit margin due to the BOM) and limiting it largely to content available from iTunes. Speaking of the content available from iTunes -- most of that doesn't even need the bandwidth offered by 802.11n which Michael seemingly calls a gap for Microsoft (certainly not music which can bounce around on 802.11b just fine, and their standard definition videos which would be quite happy with 802.11g). An admirable first attempt by Apple to enter this market segment and it remains to be seen if they have all the wrinkles ironed out

I'll be interested in what Michael has to say over the next couple of days when he moves over to CES in Las Vegas, and notices Apple might not have a lock on everything they present in their keynotes.

Update: I thought Omar had some pretty good thoughts on this subject over at Thoughts on the macworld keynote.