Uploaded on Flickr by TylerIngram

Yesterday Microsoft took the usual action of filing a suit against the popular GPS provider TomTom. The case revolves around patents involving file management as well as in-car navigation features. The trick is that TomTom runs Linux as does most of the navigational vendors.

Linux is where the twist is in this case and where Microsoft is in tricky waters. If Microsoft does not get TomTom to license their patents, they run the risk of creating a precedence. Patent law has some unusual twists that a holder needs to take care with. Because patents are an offensive right, you have to have reasonableness in applying those rights. This means that they need to push TomTom into a licensing agreement that adds to the validity of those rights (and reinforce the other license agreements).

If TomTom chooses to dig their heels in then Microsoft runs the real risk of having to defend it’s patents against Linux. Now this is going to be a nightmare for Microsoft. Aside from the fact that they run straight into the ravenous band of Linux zealots right on the heals of the Windows 7 release, they also run straight into the European Union bureaucrats who are still smarting from the way they have been given the run around from previous skirmishes with the Redmond giant.

But more importantly this will open up a huge prior art can-of-worms that Microsoft does not necessarily want to open. Windows as an operating system was late to the operating system party. What I mean by that is Windows itself is based on a lot of code and technique that predated the inception of DOS and Windows NT (read Pascal Zacherys book). The vast majority of operating system and file management intellectual property does not reside with Microsoft, it resides with IBM and the former AT&T labs and is encapsulated in IBM MVS and AT&T’s Unix code. Toss in CPM and Digital Research for good measure and you have a godo

Microsoft’s strength of their core operating systems portfolio is in it’s ability to coerce competitors rather than the merits of the portfolio itself. By preemptively striking, you run the risk of exposing weaknesses. Which is why Microsoft will settle with TomTom and move on.

Uploaded on Flickr by con2cafe

As Microsoft always strives to be less sucky that the last thing that Microsoft did, Windows Mobile 6.5 is a movement in the right direction. Highlights include a friendly hardware start button, the honeycomb touch screen and app store:

Smartphones are the main growth area in the mobile industry, and Microsoft is in the beginning of a next-gen platform war with Apple, Nokia, Google, RIM, Palm, and others. If Microsoft gets left behind, it’s in trouble. And indeed, Microsoft’s market share has slipped: Windows Mobile had a 11.1% market share during Q3 ’08, down from 12.8% in Q3 ’07, according to Gartner’s most recent stats.

Microsoft is fast running out of time to deliver a world class mobile client….

Aside from my MacBookpro, I have a Dell D600 which served a purpose about 3 years ago. Luckily it is now repurposed as a Linux Netbook running gOS 3.1, a version of Ubuntu Linux specifically tailored to maximise the Google Experience on a laptop. It also however attempts to follow design elements from the Mac including the dock and widgets. What I mostly use it for is an alternative media streaming tool to listen to NPR, watch TV online or browsing. Unfortunately when you attempt to use it for TV watching you smack straight into Microsoft’s attempt to unseat Adobe Flash at the default video streaming technology.

Microsoft has attempted to break Flash’s dominance by paying media companies to embed their technology into their online offerings over Flash technology. This has resulted in Linux being locked out of areas including some Discovery Channel and NBC offerings.

Aside from the fact that Silverlight is a completely redundant technology, I saw that the Novell Mono project has released a version of Silverlight for Linux called Moonlight. This resulted in me mistakenly downloading and installing the Firefox plugin to allow me to watch Landrover G4 Challenge.

After installing the plugin, a dutifully restarted Firefox and hell broke lose. Firefox would not restart, sorry would not stay started. The plugin kept crashing the browser. I then had to google around to figure out how to delete the plugin. My response was to delete the plugin from the Firefox plugin directory, which I did and Firefox restarted normally.

Then a strange thing happened, my sound card stopped working. After some more googling, and a lesson on the difference betwee ALSA and OSS, I attempted to restore my sound card settings which failed miserably.

Thank god gOS is incredibly easy to reinstall……

Uploaded on Flickr by finn

After the Microsoft purging in early January no one department was left untouched including the team working on the Zune player. All of Microsoft’s divisions are losing money except Windows, Office, Tools and Business CRM

Although they deny it, it is related to the precipitous drop in revenue in the last quarter (down 54%) Microsoft recently announced that it would split the Zune team in two. [TechCrunch Link]

The software and services portion of the Zune team–the bulk of its staff–will be added to the portfolio of Enrique Rodriguez, the vice president who currently runs Microsoft’s Mediaroom and Media Center TV businesses. The hardware team, meanwhile, will now report to Tom Gibbons, who also leads the hardware design efforts within Microsoft’s Windows Mobile unit.

This is because they realize that the Zune cannot drive it’s own market and so it must be made to be relevant to the consumer other ways and that including rationalizing the Windows Media Player and Media Center.Their strategy with the Media Center and Windows Media Player is all over the place, unlike the Quicktime Engine which is in every product that Apple has, from the iPhone through iPod, Apple Tv, Macs and the professional editing tools, so now is a good time as any to bring the groups together.

Microsoft’s portable strategy, although they have possessed one for the last 10 years, is in tatters and they have a very limited window to fix the problem. When they originally created the Windows CE they were in market where they were able to tie it to the Microsoft Office and Exchange. But what is inexplicable is why they let the Blackberry eat their lunch with Exchange integration. The Blackberry Enterprise Server is a truly awful product. (If you have set it up you will know).  Microsoft needs to move fast to tie the Zune Software into the Windows Mobile 7 platform and create an experience close to what the Iphone has. A Windows Media Center/Zune/Mobile 7 integration effort will pay dividends in the future as people will be able to consume their video and music over multiple devices under a single account. Finally as I suggested the Windows Live/XBox Live presence to support all the portable devices as well as Media Center to tie the whole experience together.

Whether or not the Zune Player will survive as a Microsoft product is unclear. There is no reason why they cannot create a reference design and let others develop the hardware. After all the Zune Player is the Toshiba Gigabeat Player. Maybe they can give away the Zune player with the Xbox or tie the Zune together with an Xbox portable player.

Whatever they may do they are running out of time to make a difference in this market and they have many moving parts. No company has every tried to execute on so many levels. Apple has taken 8 years to get to where they are, Microsoft has about 18 months.

Over at Gigaom, they are predicting a wide spread slow down of Wireless Data Services WDS:

Last week, UBS Research in a research note pointed out that AT&T had 1.25 million 3G laptop subscribers as of the end of the fourth quarter of 2008. Net card additions had fallen 121,000 from the 186,000 additions in the third quarter and 166,000 in the second. This was “likely due to weakening spending at both businesses and consumers,” said UBS. Going forward, severe job losses and overall belt-tightening (including less travel) on the part of companies will reduce the number of 3G laptop subscribers as well.

While we agree that the reduced increase in the number of wireless data subscribers per month is due to the slowing of the economy in general, the carrier’s future is in wireless data services, as voice minutes as percentage of revenue continue to decrease.

The strongest element for success for WDS is not the carriers themselves, if it was up to them we would still be charged 10c per Kbyte and no one would be using the service. The future of WDS is because very powerful constituents are about to fight tooth and nail to control the key applications on tomorrows Smartphone. Google, Nokia, Apple and Microsoft are spending billions to make sure that will happen.

Google believes that mobile advertising will be larger than the existing browser bound search as they are able to reach further into the consumers life. Microsoft, smarting from the serious ass-kicking from Google are determined to make sure Google is not number one in the mobile space. Apple, whilst having a head start in the new mobile world (heck, they created the new mobile world) will not be satisfied until iTunes is the only place you can buy digital music and control the multi billion dollar market. And Nokia, while they have a strong head start, are very conscious that if they do not react, they will be as relevant in 2012 as Motorola is today.

If the carriers become information highway roadkill, then that is just fine with the big four, they need the carriers only insofar as they deliver customer data to them when and where they need them, and most importantly not to be an impediment to the delivery of these services.

Although carriers have direct retail relationships with their customers, Apple has shown that it is possible, with the right circumstances to have a stronger relationship with that mobile customer than the carriers. When was the last time you heard an iPhone user gloat over ATT?.

Uploaded on Flickr by gailjadehamilton

Microsoft entered 2009, midnight PST to be exact, with egg on their faces over failure of the Zune Media player to account for the Leap Second which ended 2008.

According to Zune owners from across the globe, thousands of Microsoft’s 30GB iPod imitators suddenly gave up the ghost at exactly midnight Pacific time last night.

“We’ve got two Zune 30GBs,” says one poster to the Zune.net forums. “One was docked in the Zune Docking Station, the other wasn’t. At exactly 2am CDT (12am PDT), the docked Zune made the ‘unplugged from USB port’ bong-noise and went to the boot-up screen with the 100% loading bar…and froze.

It certainly was not a great start to what is to be a difficult year for the software company. The biggest challenge will be to deliver a successful launch of Windows 7, especially since it was announced today that according to Gartner, Enterprise adoption, the bread and butter of the Windows Monopoly is firmly stuck in single digits:

Just over two years since Microsoft launched Windows Vista, fewer than 10 per cent of PCs in the enterprise are running the successor to the company’s eight-year-old Windows XP.

That compares to last July when Forrester reportedly said Windows Vista adoption was at 8.8 per cent and Windows XP was at 87.1 per cent. In that report, Forrester said Windows Vista was like “new Coke”, which was killed by its corporate parent because nobody like it.

Shareholders are quite rightly disappointed in not only how long it took to deliver Vista, but how badly the launch of the product into the market and finally the adoption rate as we discuss below. Couple that with the news that Firefox continues to make significant ground in the browser wars, a key component of Microsoft’s online strategy.

Internet Explorer now has 67.55 percent of global browser market share, a drop of over seven percentage points in a year, according to figures from Web metrics company Net Applications, released Monday. Mozilla’s Firefox browser, meanwhile, has gained market share in the same time frame, climbing over three percentage points to 21.53 percent.

This continues to make Microsoft very uncomfortable because the Internet Explorer is and will be designed to work well with Windows Live, the partner and successor to the Microsoft Office Strategy. This is important because while other browsers have insignificant marketshare, Microsoft can safely ignore support for those browsers. But now Firefox has moved past 20% in North American market share (it has always been larger in Europe), it will come under greater scrutiny should they attempt to tie IE to Office Live Online.

The Windows Desktop, Windows Live and Windows Mobile are three interdependent legs, which are designed to strengthen and extend Microsoft’s franchises. They rely on each other to block competitions ability to attack Windows Desktop with a single point product.

Which brings use to Windows Mobile, another device that was designed to tie the Microsoft Enterprise Strategy to portable devices. Without a significant market share in mobile devices, it cannot use their strength in Office to nail the Live strategy and strengthen the desktop defense. They all rely on each other to work.

To top off January, Motorola has made sharp cutbacks it’s Windows mobile investment:

Now there are signs Motorola is shifting away from Windows as well. Its recent job cuts included a team of more than 70 employees working on the Windows Mobile platform at its facility in Plantation, Fla. Telecom analyst Ittai Kidron of Oppenheimer & Co. said delays in releasing a new version of the Windows platform may have caused Motorola to alter its plans in the short term.

With key partners HTC and Motorola dancing with Google’s Android platform, the iPhone and Blackberry blowing away records, makes the Microsoft tri-platform strategy look like it is taking on a lot of water. This is because each component is designed to support the others and without this approach, it makes it very difficult to build the network effect (read profits) that they have enjoyed with Windows and Office.

It is troubling to think that Microsoft, being a company with huge resources have executed poorly on the Windows Mobile strategy, are playing off the backfoot on the Online strategy and have failed to convince their customers to stay on the upgrade strategy that worked so well 8 or so years ago. If walking and chewing gum at the same time is so difficult thus far, can we expect them to be able to pick up the pieces in 2009?.

Uploaded on November 11, 2006 by penmachine

Victor Godinez of the Dallas Morning News comments today about the fate of the Zune and indeed why iPod users should care.

But anyone who plans to buy an iPod should hope that Microsoft is able to turn the Zune into at least a modest success.

His basic argument is that having healthy competition will force Apple to improve it’s product. He has cited the lack of an FM radio in the iPod as an advantage in a competitive landscape. However there are his arguments are based on Apple having competition, where as the speculation as to the demise of the Zune i totally based on the question as to why Microsoft should be in the portable music player business.

There are numerous competitiors to the Apple iPod including Sony, Philips, Archos, iRiver, SanDisk, Creative, Cowon, iBiza, Blue Raven, Coby, RCA, Toshiba, Music Gremlin, DigiArmor, Cowon, Yukyung among many others. If we narrow it to effective competition, ie those that have distribution ability, we still have Sony, Philips, Creative and Toshiba. (I would also argue SanDisk).

The problem with Microsoft being in the portable music business is that it is highly unlikely that Microsoft will ever be a significant player in the music market. Microsoft needs to have products with a $1Billion + runrate in order to satisfy it’s shareholders and customers. Couple that with the failure of Vista, customers and shareholders are unhappy that Microsoft are playing around the edges and not working on their core product offerings.

The failure of Microsoft Zune to even dent the iPod marketshare is exactly the same problem as Sony has delivering sales on it’s Walkman products: the portable music industry has a high network effect and that network effect is iTunes. ITunes through it’s critical mass now has tremendous market power in the delivery of digital content and all major content owners must deal with them. ITunes are the price maker in this market, everyone else is a price taker.

Just like Windows OS has a very strong network effect, so too does iTunes. And for this reason people have a valid reasoning to suggest that Microsoft should not be in the Zune business, especially since it’s revenues are going in the complete opposite direction from upward.

Buried in the Microsoft latest SEC filing is an interesting and noteworthly comment about the Zune player:

Zune platform revenue decreased $100 million or 54% reflecting a decrease in device sales….

This means the Zune went from $185M for the quarter ending Sept 2008 to $85M for quarter ending Dec 2008. The December should be it’s best quarter because of the Christmas sales. However what has happened is that the Zune was universally spurned as a holiday gift.

We expect a major shakeup soon inside the Microsoft Entertainment Division which also holds the XBox 360 and game products.

Henry Blodget , mostly is known mostly for being spectacularly wrong during the dot com bubble of the early 2000s, and Silicon Alley Insider have decided this week to put pen to tablet (so to speak) and wax on about how Microsoft is poised to take advantage of the current weakness in the stock market. This is probably due to the observation that Yahoo can now be had at a much cheaper price that the $30 odd per share they they were floating this past summer. That may indeed be true, but Microsoft has a history of completely screwing up any online initiative that they attempt. It has so far been a complete money pit for them with no end in sight.

In order to understand Microsoft and online, you need to understand that they got into online business because of AOL. MSN was originally designed to protect it’s Windows business from the threat of dial up services and a potential (which didn’t materialize) Netscape/AOL combination. MSN created online properties completely in the AOL walled garden model. They were maniac in making sure that Internet Explorer (nee Spryglass browser) was preloaded on all PCs. Anyone who disagreed was threatened to have their Windows license revoked (read Compaq).

AOL had a one time a vision to render the Windows Desktop a OS layer from which you run the AOL Client you got from those ubiquitous CDROMs at the supermarket.  However, perhaps thankfully, those ideas did not come to fruition as people began to choose naked Internet connectivity and the Google search page as the defacto standard for the Internet entre.

Fast forward to 2008, AOL is no longer relevant, relegated now to Seniors and the very rural. MSN is still fully embedded in past battles, unable to make itself relevant to todays facebook swinging youths. MSN is like a Soviet era airport terminal, still trying to sell 3 day old muffins and warmed over Fogers coffee. In between faux Dick Clarke hamburger joints are kiosks trying to sell you Burberry knock offs, Viagra and offers to transfer Nigerian oil millions (AOL at least has had a coat of paint). MSN is not so much a destination, as a necessary stop off for some on their travels to Google goodness.

Along comes Google Apps and Microsoft suddenly has the threat that they thought would materialize in 2000. Their response is Windows Live. Along comes Amazon Clouds and their response is Azure. Microsoft fundamental response to any online initiatives is to copy. In other words, Microsoft’s total online strategy is to respond to perceived and actual threats, not to build real innovative products and services that people want, but to build on top of this rickety MSN and catch people from the default IE home page, who are too inexperienced to find the exit.

And here in lies the problem that Microsoft has. As long as their complete motive is to protect the Windows/Office franchise, they will never succeed in building true innovation into their products and their competitions are free to out execute them.

Their true dilemma is that they view their customers as Windows/Office users that need extra stuff that they cannot get from Microsoft, rather than people that need a problem solved.

If they need some guidance, they need only look at Xerox, Digital Equipment, Shugart, Hayes Modems, 3Com, Palm……

Mobile OS Market Share

Analyst firm Canalys has released the results of it’s Consumer Mobility Analysis Report and it is very good news for Apple, good news for RIM and Microsoft and bad news for Nokia:

The success of Apple and RIM, as well as fifth-placed HTC with its Windows Mobile devices, has eaten into Nokia’s share of the smart phone market – a market it has led consistently for several years. Nokia’s broad portfolio of models, and the wider audience it attracts, does leave it more exposed to the trends affecting the overall handset market. Year-on-year its smart phone shipments fell in Q3 for the first time. “Nokia is also transitioning from some very successful volume drivers, like the N95 and E65, to a number of successors, such as the flagship N96, and shipments of these new models have not yet ramped up,” noted Canalys analyst Tim Shepherd. “And Nokia has taken time to bring a touch screen product to market in the wake of the iPhone’s success, despite having had the experience of producing the Series 90-based 7710 four years ago. Conversely, vendors such as HTC with its Touch Diamond have capitalised on customer demand for this type of product.”

As every one expected in the Apple earnings conference, the Apple iPhone 3G has leaped past RIM to take number two position for smartphone shipments. Blackberry still grew at a healthy clip but expect their margins to be squeezed as they sell more “down market” phones such as the curve.

Nokia has nowhere to go but down currently as the buzz is elsewhere with the Apple RIM battle and the coming rationalization of the Linux market with the Andriod Operating System.

The odd man out is Windows Mobile. After 8 years on the market, it has failed to grab more than 13% of the market (much like SQL Server) and is coming under heavy criticism for it’s interface and jumbled approach to the mobile market. HTC is the number one shipper of Windows Mobile, but they have put a tremendous amount of effort behind the new T Mobile G1 device. If Andriod does big things for HTC (and Samsung) then life gets very uncomfortable for Windows Mobile.

Windows Mobile currently costs vendors between $8  – $15 per handset which translates into $40 – $65 million in license fees per quarter. If Android can show an increased ARPU (average revenue per user) for the carriers in the same way as Apple iphone has done for ATT Wireless, then it is going to put Microsoft in a difficult spot. Smartphones for consumers are all about functionality, but smartphones for carriers are all about more data packages and more revenue.

However Microsoft understands that the future of mobile is tying data-sucking services to the device and not just mobile Outlook but a host of services including location, search and social stuff. Microsoft has a long way to go to convince carriers that they are in the game.

Uploaded flickr by gholzer

Windows Mobile was originally launched as Pocket PC in April 2000. It was born in an age when Microsoft was busy trying to tie everything to the Windows Desktop and cast a long shadow over every part of the IT industry. It was not long after that that the Windows wheels fell off when the US DOJ and the EU put paid to that. However Windows Mobile is a product of that past where the motive was to tie customers (mostly enterprise) to the Windows platform and windows groupware products. It is this motive that will be the destruction of Windows mobile.

Microsoft has up till recently insisted that the Windows folder experience is what is necessary and that Windows desktop users would be comfortable with using it on a mobile device. This was however a circular argument because the number one mandate was to proliferate the Windows brand, so that justification was made, however RIM had made that argument dead in the water. What RIM did find was that push email/calendar and contacts the number one issue.

Microsoft also made the mistake that they made in the portable music market, the Plays for Sure approach was an unmitigated disaster. They believe that OS distribution model (eg Windows) would win over an OS integrated approach (iPod). This idea was firmly beaten into the ground with the introduction of Zune player which is an integrated music player. What they forgot and continue to ignore is that with mobile devices, the number one issue is the experience on the devices, and the iPod ushered that era in bringing about a renassiance of the Mac Operating System.

It is ironic that RIM and Blackberry ended up doing a much better job of delivering functionality to the mobile enterprise and now dominates the push email market for corporate. It is the one device that held held back the Windows Mobile from dominating.

With the spectacular success of the iPhone, having in the last quarter moved past RIM in smartphone revenues, RIM is now having to respond, and have a raft of new devices coming out in the next few months. Google and their launch partner T-Mobile have released the new Andriod platform and App Store. They have effectively rationalized the linux mobile market and set Linux on the path to significant market share. Motorola is putting their “Good” people behind Andriod and you will see a raft of new capabilities including their messaging platform move to Andriod.

All this will mean Microsoft will have to respond with their own hybrid experience. They will need to develop an App Store to compete with the others. But this too has challenges because apps will need to be tested over a wide number of devices, whereas Apple only has to test on a single platform. Google intends to have one App Store that will allow distribution to all Andriod phones. The problem with all this activity is that for Microsoft, they have to follow what others are upto. And all this activity is without the benefit of the Windows monopoly. Microsoft has never succeeded where they have not been able to force users to adopt through the Windows operating system, and Windows Mobile is no different.

According to Bob Cringely, Windows Mobile is doomed because of simple market dynamics, that is there will be no room for a Windows mobile device. He states that it will be dominated by iPhone, Android, RIM and everyone else. He believes that handset manufacturers will abandon Windows mobile because they need to go where the action is (read critical mass). They can’t go to iPhone or RIM, which means they will migrate to Android with it’s open architecture, App store and enormous Google presence. What this means for Windows Mobile is over the next year it will continue to be marginized and more handset manufacturers will quietly drop the OS over the much cheaper (read free) Andriod OS and features.

Only time will tell, but it is hard to see how Microsoft can compete with the iPhone freight train and the Android sexyness. They could release a Zune phone but as everyone knows that ship has sailed….

Reuters reported today:

The London Stock Exchange suffered its worst systems failure in eight years on Monday, forcing the world’s third largest share market to suspend trading for about seven hours and infuriating its users.

“This halt today clearly has once again damaged (the LSE’s) reputation as a leading exchange, especially on a day like today, highlighting that it may have been unable to handle the volumes this morning,” added another trader.

According to the LSE Live Announcement site, “connectivity problems” started to occur from 9.07am and continued through to 4pm and then onto the close. At various times during the day, connectivity was returned to users, but then pulled from them. Users were at various times of the day able to add to their order book but no execution of trades occurred to make it fair to all traders.

However according to the IT World in London:

The LSE said the system had been hit by a “connectivity issue” and insisted that the problem did not lie with its flagship TradElect trading platform.

The schedule of events suggested database problems (from my experience), not network problems. Network problems are usually described as access issues.

What is of interest is that this system is not based on highly-available systems such as Concurrent, IBM or Tandem but based on Microsoft Windows technology. To my knowledge this is the only mission critical trading system in the  world that is based on low end technology.

Other speculation including Telegraph:

Traders said the exchange suffered an “overloading” caused partly because the FTSE 100 ended down sharply on Friday, so dealers who were betting on further falls in the index would have had to close their positions.

This may suggest there was problems on Friday. However it remains to be questioned, why there is no backup and redundant systems:

City veteran David Buik told AP: “For the life of me, I cannot understand why the LSE system is not run in duplicate. So much and so many clients rely on the LSE’s durability. They cannot afford to be let down.” He said European clients were furious at the lost day.

Continuing…..

Update: LSE CEO is gone and Microsoft System is dumped for a Linux System.

[Uploaded via flickr by Thomas Hawk]

With Microsoft’s stumbling with the lauch of Vista has come a litany of stories about the demise of Windows as the IT industries richest franchise. However it’s death, if evident, will be slow and painful and will be a result of lots of small cuts, not a wholesale shift to an alternative.

Windows is indeed the choice of most businesses as a convenient and well known path for cubicle life, and if you accept conventional wisdom, Microsoft has 90% of that market. But like large SUVs is that really the best measuring stick for tomorrows success?.

Where it counts for future success lies in the marketshare for education (tomorrows business people), media and Web 2.0 world. In this market, Microsoft’s advantage is greatly diminished. All of the best software for this world either is better on Mac OSX (read Adobe) or runs inside the Firefox browser (read AJAX). Because Microsoft did not court key influencers on Vista and then fobbed the launch, they left themselves wide open to criticism and allowed the media to create the narrative that is Vista perception today.

As a result, they now have accept costs that they did not have to as a pure monopolist and that is wooing customers and partners on the value proposition of Windows Vista (like the rest of us have too).

In the New York Times today:

Corps of Microsoft engineers, for example, have been dispatched to tweak hardware and software to make Vista PCs faster and less crash-prone. Microsoft has stepped into the world of PC retailers in a way it never has before, offering training and advice — and even paying to put hundreds of “Windows gurus” in stores.

This is a good example of the sort of marketing costs that they now have to engage in, in order to move people to new versions of Windows. These are not cheap exercises.The marketing costs that will now be required to maintain Windows will significantly increase. This has the effect of reducing the net returns that Microsoft enjoys significantly and return it to back to more earthly margins that other software companies have to live with.

What this means for Microsoft is that the lofty returns that they have enjoyed for the last couple of decades are returning to more normal levels and they definitely have to work harder for customers, something that they are not used to. All aspects of their business are currently underfire from the poor performance of the online businesses to the ongoing browser wars to which Google has recently joined.

It is not clear whether Microsoft understands that they are in transition, a transition that has largely been thrust upon them by a more deft group of competitors that they have ever faced before. Novell and Netscape were nothing compared to today’s crop of youngsters.

[Uploaded on flickr on December 29, 2005 by niallkennedy]

With the departure of Bill Gates from the day to day running of Microsoft it marks an end of an era for Microsoft and one of the truly great business icons. However Gates is not remarkable for the technology he produced, but for his ability to transform an industry, understand how to control the means of distribution, and the maintenance of what is now a twenty five year old monopoly. He is remarkable in the same way that Rockefeller was remarkable with Standard Oil and their ability to control access and distribution of the Oil industry.

One cannot argue that Microsoft’s pivotal point was securing the initial operating system contract (DOS) for the IBM Personal Computer (PC1) but the real genius was the licensing agreement and the rights they withheld which ultimately grew the IBM compatible market. This was not the first time they (Paul Allen et al) understood distribution was more important than product. When they first visited MIPS in Albuquerque they understood that getting to market requires the support of a channel and they quickly struck a deal with MIPS to deliver a Basic Language for the Altair 8800.

It was in these early days that Gates had is first taste of piracy which eventually he when on to an obsession in later years. It happened when he was selling paper tape versions of their Basic at the Home Brew Computer Club in Silicon Valley. They had spent a lot of time and money developing the software, but it turned out that the vast majority of their software was not being paid for. He went on to write an open letter to the club:

Is this fair? One thing you don’t do by stealing software is get back at MITS for some problem you may have had. MITS doesn’t make money selling software. The royalty paid to us, the manual, the tape and the overhead make it a break-even operation. One thing you do do is prevent good software from being written. Who can afford to do professional work for nothing? What hobbyist can put 3-man years into programming, finding all bugs, documenting his product and distribute for free? The fact is, no one besides us has invested a lot of money in hobby software. We have written 6800 BASIC, and are writing 8080 APL and 6800 APL, but there is very little incentive to make this software available to hobbyists. Most directly, the thing you do is theft.

This early understanding resulted in the formation of the distribution strategy for later products where they tied personal computer distributors up with exclusive agreements. This became the true success of the business.

Controlling Distribution

Gates understood that if they did not tie the operating system to distribution of the personal computer, then there is no way to control piracy.  This was the initial rational behind the distribution deals they did for DOS and Windows, but these agreements also had another more compelling feature which sealed their dominance in the desktop operating system market. They were able to take control of the distribution channel and effectively hold personal computer manufacturers hostage.

This level of control eventually came to light in the US Department of Justice’s anti trust action against Microsoft. An example of the power they held against Hewlett Packard:

In March 1997, computer maker Hewlett-Packard Co. had what it considered to be a serious complaint against Microsoft Corp.: The software giant was refusing to let Hewlett-Packard change the series of screens that computer buyers see the first time they switch on machines that run Microsoft’s Windows operating system. So Hewlett-Packard fired off a strongly worded letter of protest.

“From a consumer perspective, [the restrictions] are hurting our industry and our customers,” Hewlett-Packard executive John Romano wrote to Microsoft management. “This situation must change.”

At the time an OEM (Original Equipment Manufacturer) Windows license to distribute Windows was essential for a manufacturer to stay in business and Microsoft used it effectively to control their “partners”. This  included the ability to fend off any relationship that the manufacturers wanted to pursue anything that in anyway was competitive (now or in the future) with Microsoft. This included Netscape and AOL (MSN was by this time launched as a dialup service).

These agreements became the basis of the USDOJ lawsuit which resulted in Microsoft agreeing to sanctions and the unraveling of some of the more egregious covenants. This settlement to this day is still being policed by the US DOJ.

The Select Agreement

However one of the most innovative (and restrictive) licensing strategies that Microsoft developed was the Select Agreement for Corporations. They are site license agreements but with some very interesting covenants which were designed to effectively lock in their software into the client. As with the OEM Windows agreements, there was a requirement that every Personal computer was licensed whether or not they actually ran Windows or Microsoft Office. Indeed the licensing arrangement was so complex it required training courses to understand how to sell and implement the agreement. The Select Agreement is a complex locking mechanism that guaranteed pricing and seats for Microsoft and is the true profit engine of Microsoft and Microsoft uses it for good effect:

Bona reports that many of her clients have seen “their software bills continue to climb, while retail pricing remains flat.” She cites an example where a 10,000- to 12,000-desktop corporation went through changes in licensing rules for Microsoft Office. The company witnessed an overall price increase of 220 percent, while the per-unit cost of the software remained stable.

Microsoft is not alone in using licensing terms to generate more revenue from software sales. According to Gartner, as software products mature and have less room for growth in sheer numbers of licenses, vendors must become more ingenious at producing revenue growth. Many companies have used the terms and conditions section of contracts to generate revenue. “The difference is that we see Microsoft activating this option more often than any other vendor in the product space,” says Bona.

Microsoft’s Middle Years

Microsoft’s real innovation is in these agreements they made that created such a profitable business. It was Gates vision firstly in the need for consistent operating system and secondly their ability to control the distribution and licensing of their products. However this unique alignment of the channel that created Microsoft’s dominance has not translated into their other businesses other than the Office Suite. Where Microsoft has not been able to use their dominance of the desktop to leverage their position, in other words use their dominance in the channel to create another dominance, then they have not been able to be successful. A good example of where this has been true is the MSN network. They made some attempts at this in the mid nineties but ultimately the USDOJ anti-trust suit got in the way and they were unable to capitalize effectively on their position.

Microsoft has not had the success in server operating system they had expected. Along with the anti-trust suit came the unification of Unix (read linux) and the open source business model. The internet is largely created using open source software. All of the key components, mail transport, name services, web servers etc are all open source and the numerous APIs are free for anyone to use. This lead to an explosion of innovation on alternative APIs to Microsofts. Now in web development, Microsoft is one of many vendors providing capability and more importantly these tools and services are near free.

Microsoft’s attempt to dominate the database market beginning in the mid nineties with Microsoft SQL Server also has largely fallen flat. Not that MS SQL is not popular and useful but in Microsoft’s eyes they had expected that they would be able to use their licensing tools to lock their corporate customers up. But as of 2005 they had only captured about 15-20% of the market for corporate databases (source DataMonitor) and the market is completely dominanted by Oracle and IBM.

The Future

With the departure of Gates from the day to day running of the business, it removes Microsoft from the ranks of the uber-corp and into the relm of a Fortune 500 company not unlike GE, USAA and First America. All which we don’t know who the CEO is, we just know they make money from the existence of their revenue generating capacity, what ever that may be.

With this change the baton of technology leadership has moved to a new group of leaders such as the Google founders. What this also means is that Microsoft is no longer the company we look to lead the industry and despite their attempts to be relevant in the Internet era their time has passed.

Microsoft will continue to dominant in the desktop operating system market and the office suite market for years to come which will ensure oversized profits but they will continue to struggle in all other markets they will or have pursued. This is because their true success came about through innovation in the distribution and licensing business not technology itself.

Microsoft management’s job is now to maintain it’s WIndows franchise and to find ways to improve there core competency (which was sorely tested with the Vista launch). Any business that cannot leverage their channel is a distraction. This is imporant because unless they are seen to effectively control their Windows franchise, shareholders will discount all the other initiatives.

Microsoft will face a crisis in the next few years which will ultimately result in other businesses such as the game business to be spun out independently. This will allow firstly for developers to get rid of the Microsoft corporate baggage and secondly allow shareholders to evaluate the investment independently of the Microsoft Corporation.

When that happens it will truely be the end of the Gates Era…..

In the midst of the Yahoo Microsoft battle, the acquisition of Danger by Microsoft has taken a back seat. However this particular purchase is the new face of Microsoft even more so than Yahoo that will maintain a degree of automony.

Danger is a manufacturer of handsets and the operating system within. It also provides the backend services to support the product including email and IM servers.

These devices feature an interface many find intuitive, as well as some innovative hardware designs. But Danger also maintains a relationship with its customers – all mail and messaging is routed through centralised servers. Even web browsing is done through Danger’s proxies which optimise the content to suit the device – not to mention having the potential to control which sites the user is allowed to visit.

The introduction of the iPhone has forced Microsoft (although they would not admit it) to rethink it’s Windows Mobile strategy. Just like the Playsforsure platform has failed in the portable music device market, Windows Mobile has failed in smartphone market.

The premise behind the Windows Mobile platform (and Playsforsure) was that if you create a common OS among many manufacturers then you can control the customers. But what worked for Windows PC has failed for portable devices. The customer value the experience far more than on the Windows PC. Itunes and iPhone have proved that ease of use, consistency and reliably are far more important on your phone/music player.

This means that Microsoft has to make an about face with it’s mobile platform and here is where Danger comes in. Danger does understand that the user experience is key to their (albeit small) success but in order to move to the next level they need a serious backer such as Microsoft. Microsoft understands that Windows Mobile is dead in the water unless they can get closer to the customer, something that is not possible selling OSes to manufacturers. The closed managed user experience (eg iTunes, Blackberry) is what rules today, broad OS platforms for OSes are dead in the water (and yes that means Android too).

What Danger means to Microsoft is that Microsoft now understands that the business of Windows (OS) does not immediately translate into success in other markets. This notion that was prevalent in the late 20th century is wrong and the market has moved on. What this means to Danger is that it the Sidekick will morph into  a Windows Mobile device and it’s backend business will be subsumed into Windows Live environment.

 According to Forrester Research [via CNET] the Zune Market Share (read awareness) is smaller than a rounding error for the poll:

When researchers asked MP3 player owners which one they bought most recently, the Zune was in second-to-last place, with only 2% of respondents naming it. Nearly everybody else–Toshiba (2%), iRiver (3%), Samsung (4%), Coby (4%), Creative (8%), Sandisk (11%), Sony (11%), and Apple (43%)–was ahead, with only Archos trailing.

Microsoft was even beaten by that Chinese power brand Coby, the maker of the $25 DVD player at Walmart.

Something just struck me reading Microsoft, The Jekyll And Hyde Of Companies from Techcrunch. Duncan Riley reports from the floor of the Mix conference in Las Vegas.

As part of the press package was an 8GB Zune which Duncan tried to use:

As part of my press accreditation I received a free 8gb Zune. They don’t sell Zunes where I come from so I had no negative expectations for it because I’d never seen one before. So I bring it back to my hotel room and on the screen it tells me I have to visit the Zune site to make it work. Great, get to the Zune site, tells me I have to download software to make it work….which is only available for Windows, not OS X (my laptop doesn’t have a copy of Windows on it)…..Zune=brick

What struck me is that Microsoft is up against a powerful group of people who are predisposed to Apple products. If we were to poll what machines journalists use on the road today I bet you will find that a significant number of them use Mac notebooks and an even greater number have experience with Apple products such as the iPhone or iPod.

Microsoft is facing a major headwind even before the first byte is published……

Intuit was founded in 1983 by Scott Cook and Tom Proulx in Mountain View, California. It made it’s mark in the software industry with it’s friendly personal accounting tools such as Quicken and TurboTax and it’s small business software Quickbooks. With revenues of over $2 Billion, Intuit is the leader in the personal finance and small business space. According to a 2006 article from USA Today (and there is no reason to believe anything has changed) Quicken has a 70%, Turbotax 79% and Quickbooks 87% market share.

On the other hand, Microsoft has been at Intuit’s Quicken for now on 15 years with Microsoft Money, a similar personal finance tool. Despite those 10 years and tens of millions of dollars of marketing, Microsoft has failed to make even a dent in the Intuit monopoly.

Conventional wisdom would have you believe that anything Microsoft touches turns into gold but this is clearly not the case for Money. The question obviously is why?.

The first reason is that Quicken was able to build a large customer base before Microsoft realized the size of the market. This is important because once a customer is hooked onto a particular data format (needed to move between tax years) then it is very difficult to motivate customers to move to an alternative (a trick that Microsoft uses to this day with MS Office).

Secondly Microsoft had no distinct advantage with control over the channel even though they attempted to give the product away for free with Windows. Intuit had cleverly teamed with AOL to distribute both CD and links into the product through the (then) ubiquitous AOL client. AOL users were a perfect match for Quicken users because they were looking for simplicity.

Thirdly and I will let Steve Bennett state:

Happy users creates dominance and barriers to entry. We have 900,000 QuickBooks customers. For them to switch, it would take more than an equal product or a lower price; it would require a far superior product. Small business people don’t wake up each day and say, “Boy, I’d just love to change my accounting system.” They want time to serve customers.

Ultimately Intuit understood it’s users far better than Microsoft. Intuit was focused on making it’s customers an annuity and so spent far more time on supporting them than Microsoft ever could.  100% of what Intuit does is focus on supporting personal finance, something that Microsoft does less than 1% of their time.

Intuit understood that customers were not looking for software but a way to manage their finances, something that Microsoft to this day does not understand. Microsoft Money Plus 2008 carries the traditional on of software for software sake, rather than a solution for people to understand their finances.

We in the software business should be aware of Intuit’s success… and the irrelevance of Microsoft Money..

In our ongoing series on technology that has gone the way of the dinosaur, this week Polaroid announced the demise of the instant camera with the closure of the manufacturing:

Yesterday, the company behind the iconic instant camera announced it was to stop making the film used by Polaroid enthusiasts, because there is no longer a market for it.

Three factories will close in Massachusetts, Mexico and the Netherlands, resulting in 450 job losses. The company stopped making the cameras for commercial use in 2006 and halted production of the consumer models last year.

If you don’t remember the Polariod One Step Camera you can see it here:

Although they did not know it at the time, the release of the digital camera resulted in the the demise of consumer film camera and the instant camera in particular. The first digital camera was created in 1975 but it wasn’t until 1990 that consumers saw the first consumer digital camera, the Dycam Model 1 (which was also marketed as the Logitec Fotoman). By then the fate of the instant camera was sealed.

[Photo Courtesy of Digibarn under creative commons]

Each time the manufacturers of these products failed to see the shift in technology resulted in consumer tastes changing. The digital camera fulfilled the needs of the consumer even though quality from digital cameras was less than nitrate film. The gratification and ease of use was more important. The same too with the transition from vinyl to compact disc and from cable based diggers to hydraulic based diggers (See Christensen).

Gartner released it’s report “Key Predictions for IT Organizations and Users in 2008 and Beyond” this week. Aside from the greening of the enterprise, one particular prediction stood out:

By 2011, Apple will double its U.S. and Western Europe unit market share in Computers. Apple’s gains in computer market share reflect as much on the failures of the rest of the industry as on Apple’s success. Apple is challenging its competitors with software integration that provides ease of use and flexibility; continuous and more frequent innovation in hardware and software; and an ecosystem that focuses on interoperability across multiple devices (such as iPod and iMac cross-selling).

This prediction is less about Apple and more about Microsoft. Basically innovation in and on the Windows platform has stalled and it took Apple to show just how bereft of real progress is on the Windows platform. Vista’s luke warm reception can be directly traced not only to the lack of genuine lack of innovation but the complex pricing model with 5 basic variants of essentially the same piece of software. This is classic monopoly behavior where anemic organic growth in revenue must be goosed with un-consumer friendly pricing models.

Secondly Microsoft are worried that if Apple reaches the psychological 20% market share barrier, it will result in a defection of a large group of developers towards an alternative platform. The developer community is a key barrier to entry in this particular monopoly. Just like presidential candidates momentum is very important part of the game.

Which leads us to the reason for the Yahoo bid this week from Microsoft. Microsoft (Balmer et al) after 10 years have recognized that their web based initiatives (read MSN) have failed and there is no realistic future for MSN in it’s current state. Indeed the new initiatives under the headline “Windows Live” has resulted in lost search share. Microsoft feels that it has indeed lost the search (read embedded advertising game) but has a chance with Yahoo to make a difference.

However the Yahoo bid is more about the limited options that Microsoft actually has to grow it’s business. The share market has been unresponsive to Microsoft largely because it has been unable to move beyond the Windows franchise and it’s enormous war chest has been unable to position itself into the future. The merger of Yahoo will be in attempt to radically change a business that basically has not changed in 25 years.

My prediction that if the merger is approved then the Yahoo business will stay quasi independent and the MSN group will be fed to the crocodiles. This way they can claim success in the web business without overtly showing the world they wanted to get rid of it. If this is correct then the entertainment business led by the Xbox group and include the mediocre will be “spun out” into an independent group followed by business solutions. The trick is to split the company up without looking like it is splitting the company up and turn the company into a conglomerate with independent operating entities.

Which leads to another prediction from Gartner:

By 2012, 80 per cent of all commercial software will include elements of open-source technology. Many open-source technologies are mature, stable and well supported. They provide significant opportunities for vendors and users to lower their total cost of ownership and increase returns on investment. Ignoring this will put companies at a serious competitive disadvantage. Embedded open source strategies will become the minimal level of investment that most large software vendors will find necessary to maintain competitive advantages during the next five years.

The realities of 2008 are not the realities of 2000. 2008 is characterized by the fact that open source is not going away and will form a significant part of the IT business going forward. What this means is that the environment that the business solutions group faces is not a homogenous Windows future but a hetreogenous future of Linux, Unix, Oracle, DB2 among others.

I would argue that the view from Year 2000 was predicated on Microsoft SQL Server being the defacto standard for business solutions, which has not come to fruition. The limited success of the business solutions group must frustrate Balmer et al no end and that it needs some room to succeed.

Microsoft is at a cross roads. Gates is leaving full time employ, and Balmer is tasked with preparing the future, a future where Windows is no longer the linchpin in the IT industry, but one of a number of solutions in the market place. The 2000 vision of a homogenous desktop and server market is dead and the ability of Microsoft to wield it’s Windows hammer has long gone.

These are most interesting of times……

The big numbers story this January is that General Motors has held on to it’s spot as number one car manufacturer in the US over Toyota who has beaten Ford for the first time:

Toyota sold 48,226 more cars and trucks than Ford, according to sales figures released today. Toyota’s sales were up 3 percent for the year, buoyed by new products like the Toyota Tundra pickup, which saw sales jump 57 percent.

On a global basis it is expected that Toyota will overtake General Motors as the world’s largest auto maker with approximately 9.51M vehicles sold. The bigger story is the continuing decline in relevance of the US auto market to the rest of the world. The biggest stories are in Asia especially China and India where the growth of new vehicles are stunning. Toyota and it’s Asian counterparts are investing heavily in production in new markets and the results are starting to show.

Toyota also has a major cost and profit advantage to the (formerly) big 3 and is able to invest more heavily in new initiatives while the older automakers struggle to reduce capacity in the North American markets.

Ultimately however these numbers are meaningless and only really of interest for interest sake, much like personal computer market share. I have always been critical of personal computer market share numbers because they really don’t mean anything other than for interest sake. Lumping contact center personal computer workstation with a home user with a notebook user doesn’t mean much to anyone. The monolithic market for personal computers does not mean anything. What is far more interest is between relative uses such as notebooks for professionals, education market, multimedia uses, and home use.

My criticism for this number is also in how this is used. For example, a common misapprehension goes like this: Window has 90% plus share of the market therefore Microsoft must win with mobile phones and it is only a matter of time”. We all know that the true is that the market is very fragmented with Nokia/Symbian having the largest share (although 90% of the users don’t use 90% of the function).

Experience like Toyota tells us that the future is based not on directly challenging the large lumbering monopolies or (oligopolies) but to look for growth in niches that can turn into large markets. Toyota dominates the small car and now hybrid markets. They made the decision in the mid 90s that oil prices long term trend is upwards (peak oil etc etc) and they had to dominate the market when that occurs.

Dell is looking decidedly like Ford with it’s over reliance on the corporate market. It’s poor R&D spend is coming back to hurt them. HP is not a personal computer company but a full service computing organization with a personal computer division. It’s R&D and services business make it attractive to corporations as an alternative to IBM. Acer is looking more like Toyota as a fast growing Asian.

The long-term trend is not generic corporate workstations who will always be heavily discounted, but trends in computing, largely mobile in nature. Take for example the iPOD, it is a mobile computing device for music delivery. It is a personal computer but designed to do one thing well.

Predictions

• Generic Windows Computing will continue its inevitable decline. Microsoft will be the only one making money in this sector and because Dell is heavily dependent on this market, it will continue to decline as HP, Acer and others continue to take market share.
• There will be a host of new sub notebook designs this year from Apple and others that will be flash memory based or based on the new super small hard disks.
• Look for the rise of the personal assistant devices (PDA) again lead by Apple. The Apple touch technology will be used in both PDA and subnotebook formats. Both will have the ability to use the Bluetooth keyboard and mighty mouse and sync with core Mac hardware wirelessly.
• Tablet computing has always suffered because it was designed as a general purpose computing device that is mobile. Tablet computing needs to be application centric with tools that allow it meet specific functions. Hats off to Panasonic with their toughbook range. They found a niche and build the product to meet it. Look for GPS enabled functionality built in this year and application centric tablet devices.

As you can see I am bullish on mobile computing as making the most head way this year. However I also see home computing, read multimedia capabilities moving forward quickly this year. The iLife suite from Apple has been a deciding factor for many people to move to the Apple Mac at home. Look for some major movement in wireless home entertainment including media extension devices such as the Apple TV.

As for my out their prediction, Apple will make a big acquisition this year on it’s quest to be the home computing king. Apple will purchase Bose or Harmon International, both high end entertainment hardware manufacturers. They will commit to integrate their products with both blue tooth and Wifi N networking to build a complete experience in the living room.

Other than that, have a great new year….

Kia have announced the 2008 Kia Spectra. It includes AM/FM CD player, 15″ steel wheels, 4 wheel disc brakes and auxiliary audio input jack for your zune…

If you like the Kia Spectra, you will love the new Zen-killer Zune 2.0 (catch a social). With exciting features like it plays music and photos and video (sometimes), it allows you to share songs with your friends (and pass on a DRM social disease), and allows you to basically standout at the next Society of Accountants meeting (with your fiscally responsible Kia)….

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Many true words said in jest…..

 Microsoft OPhone, the next wave in mobile phones..

Not being one to bash the steady stream of mediocre late-to-market poorly executed products but the really the Zune characterizes the poor state of Microsoft product management. It is a good example of how when you have some money you can screw it up and when you have a lot of money you can really screw it up. Apple’s new iPod range shows just how far behind Microsoft is competing in the portable music player market. Seth Jayson puts it this way:

Obviously, Microsoft’s Zune Czar, J Allard, is presiding over a miserable failure of a device. (I say that as the resident of a two-Zune household.) Not only is the Zune hardware completely outclassed by the new generation of iPods, but Apple has also leapfrogged Microsoft by including a Wi-Fi chip in the iPod touch, and — get this — actually making it useful.

Now Motley Fool is not exactly your open source liberal leaning pinko open-source using crowd, they have held MSFT in their portfolio for a long time, but they have essentially given seeing anything close to innovation from anywhere inside the Microsoft monolith.

They like others on Wall Street are calling for Microsoft to be broken up so that it at least has a chance of competing with smaller more focused competitors.

Other than their core business of monopoly pricing structures for Windows and Office, they have failed to break into any other market. All of the so called “new technologies” such as MSN Windows Live, and the myriad of home devices have failed to garnish any market share without placing the product on cash life support.

The Zune is a symptom of the entrenched myopia that Microsoft has inside it’s walls. It is time for a change in the way Microsoft does business before the inevitable erosion in even it’s core base of products.

Microsoft’s XBox woes continue this week with further allegations that the failure rate for XBoxes are significantly higher than the competition. While Microsoft is claiming that the industry average is 3-5%, but:

The billion-dollar figure also indicates that Microsoft’s repeated insistence that the failure rate was about average for such hardware — that is, between 3 percent and 5 percent — cannot have been true. The real failure rate is probably about five times greater than the company has admitted, which would put repair costs at between US$330 and US$660 per console. At that upper limit, it would be cheaper for Microsoft simply to send a cheque for a brand new console.

Taipei Times

That is correct, if the failure rate is no more than usual then there was no need to take the $1B write off, or is there?

Another possible argument is that they did this to move costs for future repairs into the previous year so as to allow for the potential for profits in the future. By writing off $1B in the past year it means that they have cleaned ship over potential costs so they can claim huge progress in profitability in the current year forward making the XBox more profitable and successful than it really is.

Another reason could be that Microsoft is learning the lessons that Dell and Apple among others have learnt and that is hardware design and manufacturing is very difficult. Other than making mice and keyboards as well as the failed networkin g foray, Microsoft does not have great experience in hardware design and manufacturing which leads us to what I believe is the biggest Achilles heal that Microsoft has:

The world is moving towards integrated and consistent experiences where consumers crave simplicity and form just as much as function. Microsoft is really bad at making integrated experiences

Where Microsoft has made their money as the platform for delivery of Windows APIs. A Personal computer is a Windows delivery mechanism. The fact that it has a Dell or Lenovo label on it is arbitrary, they both do exactly the same thing pretty much exactly the same way.

What Microsoft does not control is how to complete the experience for the consumer. They rely on the Dells and Lenovos of the world to finish the experience, and so it is not integrated. This is really the inherent failure of the Zune, a poor facsimile of the iPod that offers significantly less than the alternatives.

When they do try to create the complete experience they lack the fundamental understanding of what that experience is and how it translates, a skill that Apple is strikingly good at.

Will Microsoft be able to change it’s stripes and really understand the nature of design?. That I am not sure mostly because they fervently believe that the experience is all about the software they have and pay less attention to the combined offering and how people experience products.

I am not holding my breath….

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With the failure of the Windows Media Center to make a dent in the next battle ground for home entertainment, the living room, Microsoft has released MS Coffee Table 1.0 or MS Surface.

Microsoft Surface, which has a 76cm (30-inch) display under a hard-plastic tabletop, allows people to touch and move objects on screen for everything from digital finger painting and jigsaw puzzles to ordering off a virtual menu in a restaurant.

It also recognises and interacts with devices placed on its surface, so cell phone users can easily buy ringtones or change payment plans by placing their handsets on in-store displays, or a group of people gathered round the table can check out the photos on a digital camera placed on top.

Microsoft is determined to corner the market for $10,000 coffee tables and expects this to be a huge market.

The question remains what combination of fingers are used to CTRL-ALT-DEL?…….

Microsoft was quick to announce that they had sold 20 Million units of Vista but according to Seattle PI:

Given that the personal-computer market has nearly doubled since Windows XP launched, Windows Vista sales “probably should be more,” said Michael Silver, vice president of research at Gartner, a technology research group. The analyst said 51 million PCs were sold to consumers worldwide in 2002. This year, the research group predicts 96 million consumers will buy a computer.

Over at eWeek, Joe Wilcox has a great dissection of the numbers:

The numbers reflect more than first month sales. Contrary to Microsoft’s boasting, the real sales period for Vista sales is actually longer than Windows XP.

A license sold isn’t a license a sold. Microsoft counts licenses sold to OEMs in the 20 million number, but the number of actual Vista PCs sold is likely much lower.

Analyst PC sales figures don’t jive with Microsoft license numbers. Microsoft’s 20 million figure only makes sense when factoring in the longer time period—from Oct. 26 rather than Jan. 30—and the sales-in/sales-out situation.

He also makes the valid argument that the market for PCs is much larger than when Windows XP was shipped and you need to argue it in relative terms, hence the comment that Vista should have done better.

There was plenty of discussion prior to Vista being launched that this was an evolutionary product not a revolutionary product as Microsoft claims; this is old news, the real interesting battle is happening in other areas……

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Those of us who love “On the Media” on NPR and the sarcastic Bob Garfield will appreciate that a one on one with Bill Gates is probably not going to turn out well. Unlike the fawning Businessweek type business rags that getting on their knees talking to business not-so-luminaries (anyone remember Business at the Speed of something..), Garfield has no such pretentions that marketing and media is all dollar driven.

Bob asked Billy G what he thought of the Apple Ads featuring John Hodgeson

GARFIELD: I want to ask you one more thing: Those Mac ads — how do you feel about the John Hodgman character?

GATES: I can’t comment on someone else’s ad.

GARFIELD: OK … but he’s you.

GATES: Yeah, I’m not gonna comment on someone else’s ad.

GARFIELD: OK, well, Bill Gates, thank you so much for joining us.

(Silence)

GARFIELD: Can I just have a clean goodbye?

(Silence)

GARFIELD: OK, can you just say goodbye? Thank you or goodbye or something like that?

GATES: Goodbye.

Anyone would think he was interviewing Dick Cheney……

Mega music oligopoly Universal Records pushed Microsoft into a corner today after they inked a download deal for the Zune Marketplace one week before it was due to go live.

Universal Music, a unit of Vivendi, will receive a royalty on the Zune player in exchange for licensing its recordings for Microsoft’s new digital music service, the companies said.

Microsoft Strikes Deal for Music – NY Times

It is obvious that Universal held out as long as Microsoft could to get the concession that they had always wanted.

In 1999, a federal appeals court ruled that one of the earliest digital music players, the Diamond Rio, was not covered by a federal law that required makers of certain audio recording devices to use anti-copying technology and pay a royalty to the record labels.

The operative word is recording devices. Because recording is not on the Rio, or the iPod, they are not recording devices under the Act and hence no royalties are payable. However this agreement creates a precedent they are looking for.

What remains to be seen is whether they can bring Apple in line with this and this largely depends on the success of the Zune and if they can make a dent in the iPod Market Share.

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