Apple has introduced the IPad 2, which in some ways seems reactive, but has some features that has to have Microsoft sweating.
But this article really isn’t about the IPad, rather it’s about the affect of the IPad and other tablets on Microsoft. Of course to understand that affect, you have to understand the IPad and it’s competitors, and you have to understand Microsoft.
Microsoft has been the 800 pound gorilla of the industry for years. Many people believe that it is impossible for anything to happen to the company. A common argument that I’ve heard from Mac fans is that ‘Microsoft owns the enterprise’ and that will sustain them. A common argument from Windows fans is that nothing can replace Windows.
They are both right, and both wrong. Microsoft has an enviable profit margin at the present time. It also has huge costs, and an inability to crack new markets.
Take the Cell Phone market for example. Microsoft was an early Cell phone OS supplier, but they’ve never managed to supply more than a small fraction of market, and their current phone OS, WP7, appears to be selling slowly. Or consider the game console market. Last night I had to drive to our local big box pharmacy, and was surprised to see that they had the XBox-360 on the shelf. This particular chain is famous for selling overstocks at reduced prices, and guess where they had the XBox-360? Where they keep the overstocks.
The most profitable product that Microsoft has is Office. Office is under competitive threat from Word Perfect Office, Libre Office, Open Office, IWork, Google Docs, KOffice, etc.
Microsoft’s second most profitable product is Windows. Windows is under competitive threat from Apple’s Mac line, and from tablet computers, most of which use processors which are incapable of running Windows. Microsoft also makes a profit from their Server Division.
Microsoft’s problem is that all of these products tie together. Yes, Office is available on the Mac, however most Mac Owners that I know have switched to IWork, which is less expensive, and far nicer. Without the need to run Office, there’s no need for Windows, and without the need to run Windows, there’s no need to run Server.
Steve Jobs reported that Apple had taken 20% of the home market for personal computers. That 20% of the market is lost to Microsoft for additional sales (games, etc.). Mac owners are highly unlikely to buy Microsoft products like the XBox-360, Zune, or a phone running Windows Phone 7.
Apple founded the Tablet computer market with the Newton. While the Newton was a failure from a sales standpoint due to it’s price, several technologies developed for it later became very popular, including the ARM processor family.
The second tablet computer, and the first one to gain some popularity was the Palm Pilot. Palm got it right. Unlike Apple, Palm priced it’s handheld computer at a level that made it affordable. Later Palm ported it’s software to portable phones, creating the smart phone category.
Other companies also produced handheld computers (called personal organizers). Some used Palm OS, some used Windows CE, and some ran Linux.
Microsoft introduced the idea of a larger computer the size of a paper tablet. Microsoft’s concept was sold into specialty applications, and was too expensive to become popular in the consumer segment.
All of the tablet computers up until this time used stylus input. Apple shook up the world by introducing it’s IPhone and IPod Touch line of handheld computers which featured a touch interface.
The IPad was actually Apple’s fifth Generation tablet computer. It was effectively an enlarged IPod Touch without a camera. Most of the same software would run, however by making minor modifications and recompiling the software, the software vendor would get a far better looking IPad specific version.
Until the IPad was introduced Microsoft and it’s Tablet Computing partners had owned the large sized tablet market, with 100% market share. Within a month they were reduced to less than 1% market share.
Apple had hit a home run. The IPad was light, had excellent battery life thanks to it’s ARM based processor, had a good screen, had a huge software library at launch thanks to the ease of porting IPhone and IPod Touch software, was inexpensive, and was close to the perfect size. Microsoft tablets were larger and heavier. The IPad could fit into a purse, and only weighed 1.5 pounds.
- it was capable of most of what people needed to do
- it was inexpensive
- it was virus proof
- software was readily available and inexpensive
- it was familiar to anyone who owned an IPod Touch/IPhone
- no stylus to get lost
These are the signs of a classical Disruptive Technology.
Tablets As A Disruptive Technology
Tablets had existed long before the IPad, but they hadn’t been a disruptive technology because not all of the factors had been in place. Take the Palm Pilot for example – I’ve owned several of them, and while they were useful, they couldn’t take the place of a laptop. The Palm Pilot could however be replaced by a good Feature Phone like a Motorola Razr.
The new tablets can replace a Notebook computer. While there were complaints about the original IPad’s speed at displaying web pages, it’s inability to multitask, and other issues, with the software available from the ITunes store it was feasible to use it as a Notebook replacement. I know, because I have a first generation IPad, and it’s what I take with me when I leave the house now instead of the Notebook.
And it’s not just early adopters like myself who have concluded that tablets are a reasonable option. Apple has sold 15 million IPads in less than a year. How significant is this? Gartner forecasts that total PC sales in 2011 will be 387.8 million. In one year, during a recession, selling a premium brand, with a new form factor, Apple managed 3.9% of that? That’s impressive.
Take the NetBooks. When they were first offered the conventional wisdom was that they wouldn’t sell, that people didn’t want something that small. And then they sold, and Microsoft had to resurrect Windows XP (the original netbooks all ran Linux) to have an operating system to use on them.
The conventional wisdom was that tablets wouldn’t sell. Apple’s virtual keyboard wouldn’t be as comfortable as a real keyboard. It would be impossible to work because too much of the screen would be taken up by the virtual keyboard. It wouldn’t run Windows software…
It turned out that none of these things mattered. There are still people who don’t like the IPad. Jesse Brown says it sucks. From one point of view he’s right. But people are buying them. And Apple’s competitors are jumping on the bandwagon. By midsummer we should see a wide range of competing tablets on the market, and the usual Darwinian Evolution driving improvement at a breakneck pace, making Notebooks even less needed.
One of the ways it has been possible to track Microsoft sales over the years has been to track Hard Disk Drive sales. If the sales of hard drives went up, Microsoft sales usually went up. It wasn’t a direct measure, since a lot of people like myself keep more than one hard drive in their desktops, but there was a relation of sorts. There is a prediction that hard drive shipments will fall by 3.9% in the first quarter of 2011. Curious, isn’t it that the drop is so close to percentage of the market captured by Apple’s IPad?
Microsoft isn’t sitting still. There will be some tablets running Windows 7, however Windows 7 is a resource hog. One tablet which was reported in Techeye was listed at 1000.00 pounds sterling, or about $1600.00 US. The base level IPad sells for $500.00 US. Which one do you think most people are going to buy?
And of course there’s supposed to be an ARM port of Windows scheduled for the spring of 2013. The problem is that Apple will probably sell 25 million of the improved IPad 2 in the next year, and it’s competitors are likely to sell a huge number of tablets as well, almost all of them using ARM chips, and not running Windows. By the time Microsoft has an ARM port ready, there could be as many has 100 million tablets running operating systems other than Windows.
A Moving Target
Porting Windows to ARM is going to be a nightmare for Microsoft. They are already three to four years behind Apple and Google in operating system development, since it appears that the Windows Phone 7 code base is going become an orphan.
To make things worse, the hardware is becoming increasingly unstable as hardware manufacturers push for competitive advantage. Take the IPad. The original had no cameras. The second generation IPad has two. It’s possible that the fourth generation IPad will be introduced before Microsoft releases Windows for ARM, and it is impossible to guess what hardware it will include.
Apple’s competitors will be pushing product development to beat Apple, either through price, features, capabilities, or all three. Last year single core ARM processors were the norm, this year dual core ARM processors will be the norm, next year it’s quite possible that quad core ARM processors will be the norm. But maybe the market will move to MIPS processors. Or possibly AMD will develop a super low power GPU/CPU architecture which can compete with ARM, but uses a different instruction set.
Apple’s IOS and Google’s Android are fairly portable – if there’s a reason to switch processors they can do it. Microsoft however would have severe problems if there’s another processor switch, because the current versions of Windows are designed for use on Intel compatible processors. There used to be versions of Windows for other processors, but Microsoft stopped making them, because the market wasn’t profitable enough. This rational business decision is costing them now.
As the entrant into the market, Microsoft is going to find themselves in the same position that Linux has been in for drivers. Most hardware manufacturers just are not going to be interested in producing a set of drivers for an operating system being used on a small amount of hardware. Microsoft will have to produce their own drivers, which will add more development time.
Microsoft’s main problem is the affect on their sales of the various things that are happening. Let’s recap them:
- Apple claims to have 20% of the home PC market
- The IPad sold 15 million units in less than a year
- HP is planning on introducing a line of WebOS tablets
- Every other PC maker is introducing Android tablets
- Other Consumer Electronics makers are introducing Android tablets
- Tablets are eating into NoteBook sales
- It has been reported that Windows Phone 7 is a freebie (earlier article)
- XBox-360 is showing up in the overstock bin
- Increasing competition in the Office Suite market
While Microsoft has historically been one of the most profitable corporations on the planet, it depends upon a relatively few highly profitable products to subsidize a wide range of less profitable products. If the highly profitable products become less profitable, this puts stress on the corporation to keep profits high, and so they axe product lines.
One thing that Microsoft could do is to port their most profitable product, Microsoft Office, to run on other platforms, to widen it’s sales. However they probably cannot do this. The main version of Office is specifically designed to run on Windows. Both are after all Microsoft products.
Microsoft Office for Windows and Microsoft Office for Mac OS purportedly don’t share much if any source code. We do know that they are developed by different internal teams at Microsoft, so this would make sense. If true it would also add a level of inefficiency into Microsoft’s operations.
Porting either version of Office to another operating system, like Apple’s IOS (IPad, IPhone, and IPod Touch) or Android would he a huge task. The simplest way would be to wait until the ARM version of Windows is ready, and port Windows Office to it, since the API would probably be the same. But that leaves the competition two to three years to entrench themselves in the market.
Another issue is Application Stores. The first Application Stores were implemented on Linux. In effect they were making fun of the Windows Add/Remove Programs button, which could only be used to remove programs. With Linux you could also add them, assuming you had an internet connection.
Apple implemented a simplified version of this for 30GB hard drive IPod, which had a couple of simple game available through ITunes. When Apple introduced the IPhone 2, it also introduced an enhanced ITunes store for applications. The IPad had the same store, and Apple later introduced an applications store for the Macintosh line of computers as well.
The problem with application stores from Microsoft’s perspective is that customers expect lower prices when they buy electronically. There’s no shelf space, there’s no physical media… Of course prices should be lower.
And prices are lower in Apple’s ITunes store. A lot lower. The last thing that Microsoft wants is lower prices. But that’s what they are facing.
And if they are making lower profits, that means that they are going to have to cut expenses. Which means that they are going to have to cut product lines. Which means that some customers are going to go elsewhere… It’s a vicious circle.
Microsoft saw the tablet coming. The problem is that Microsoft saw the wrong tablet.
The other problem was that Microsoft didn’t kill Apple when it could have. Steve Jobs once said that ‘Apple doesn’t have to beat Microsoft to win.’ Steve was lying. Because Microsoft had to beat Apple to win, and you don’t turn your back on a company that’s prone to knifing it’s competitors.
When you look at all the moves that Apple has made since Steve Jobs came back, almost every single one has damaged Microsoft. The IPod killed Microsoft’s attempt to control the music business. The Intel Mac killed Microsoft’s grip on the PC. The IPhone wiped out Microsoft in the phone business. IWork has pretty well killed Office for Mac sales. Safari is eating into Internet Explorer market share. ITunes is eating into Windows Media Player market share.
But the biggie is going to be the IPad. Apple destroyed Microsoft’s hold on the tablet market, and redefined tablet computer in a way that Microsoft couldn’t immediately respond to. By the time Microsoft can actually deliver something into the market, the market will be mature, and most likely won’t be interested in what Microsoft can deliver, at least not at any price other than free.
And by redefining the tablet into a more powerful and useful tool, Apple has moved it upscale, so that it’s now cannibalizing the Notebook market, eating into Microsoft’s OS and Office sales.
I suspect that there’s a chair throwing marathon going on in Redmond. But is it Ballmer’s fault? That’s a yes and no answer. Yes, in that he’s the boss. No, in that he should never have been given the position. He’s the wrong man in the wrong place.
In sales, he’d probably be quite good. Where he is, well, he’d one of the major reasons that I think Microsoft is in deep trouble.
Friday March 4, 2011
PS: My apologies if the above rambles a bit – I’ve been in considerable pain, and I’ve been taking some really powerful painkillers.