Daniel Eran Dilger
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Why Microsoft Will Slaughter Its Windows Mobile and PC Partners, and What it Means for Apple and Google

Daniel Eran Dilger

If you’re thinking that Microsoft’s reported plan–to pit Windows Mobile 6.5 against Android and then wait for another year to issue Windows Mobile 7 as its “iPhone killer”–sounds inane, wait till you hear what the company intends to do to its current mobile partners. It’s a brutal strategy that promises to radically change both the smartphone and PC landscape.

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The Windows Mobile Roadmap.

Microsoft hasn’t yet formally announced the “dual-mobile OS” strategy that DigiTimes reported to be in the cards. Steve Ballmer just finished castigating Google for adopting a dual-OS strategy with Android and Chrome OS, but Ballmer also seemed to be ignorant that his own company already maintains a “dual-OS” strategy for PCs and mobiles, even if they’re both branded as Windows.

We don’t have to speculate about the certainty of the DigiTimes story however; the company has already released enough roadmaps to make the new report uncontroversial. This spring, at Mobile World Congress, Microsoft released Windows Mobile 6.1, an ineffectual update that fixes some bugs, and then officially announced the release of 6.5 for the end of this year.

That update promises to deliver the first functional version of Pocket Internet Explorer, the same browser Microsoft has been touting, but not demonstrating, to be part of the Zune HD release. Windows Mobile and the Zune HD are both based upon the same underlying operating system.

Sometime in 2010, Microsoft says it will release Windows Mobile 7 (originally promised in late 2009), with support for features comparable to the 2007 iPhone, including support for capacitance touch screens rather than the stylus tap screens used by Windows Mobile devices that have some kind of screen sensitivity (devices that were once called “Windows Smartphone,” like the Motorola Q, don’t have any sort of touch or tap screen input, just external buttons).

Windows Mobile 6.5 shows clever burst of originality. Haha no.
Microsoft’s Zune, Vista, and Windows Mobile 7 Strategy vs the iPhone
Did Microsoft kill Android at Mobile World Congress 2009?

Microsoft’s Basic Vaporware Strategy.

That Windows Mobile roadmap sounds more like a scenic route for Microsoft, which has rapidly lost mobile platform market share (just a few years ago, it could claim a 24% share of smartphones, now it’s down to around 9%) and has been embarrassed by the rapid rise of the last three generations of iPhone.

How can it possibly afford to piss away another full year with just incremental improvements to its crusty old Windows Mobile platform before delivering its promised vaporware panacea? Oh wait, that’s the company’s normal business plan: deliver crap into the market and then float a toxic cloud of promises that kills off superior products until there’s no options left but to buy Microsoft’s crap.

After several years of this, Microsoft’s crap hardens into something that can be used to make tools or start fires, allowing the company to continue selling its crap without competition. This worked well for Windows on the PC desktop and in the server market, but isn’t working well at all in consumer devices. Windows Mobile and the Zune and the Xbox are all failing to kill off their competitors, outsell them, or even make much of a profit after a decade of trying.

CES: Fear and Loathing in Las Vegas
1990-1995: Microsoft’s Yellow Road to Cairo

Microsoft Plans a Sneak Attack, Gets a Waterloo.

Microsoft has learned that the Windows vaporware strategy isn’t working at all in music players and cell phones (and in fact isn’t even working that well on the PC desktop anymore, either, as the Vista disaster indicates). This calls for change.

Three years ago, Microsoft decided to shake things up in the Windows Media Player / PlaysForSure business by introducing the Zune to compete directly with Apple’s iPod. It assured its partners that, somehow, the Zune would only compete with Apple’s products and would have no effect on existing sales of PlaysForSure players.

This wasn’t true of course, and nobody believed it at the time outside of a few gullible pundits who just repeat the company’s talking points. It was pretty clear that if Microsoft built its own music player, there would be no way other vendors could compete with their own Microsoft-platform devices. Sure enough, while the Zune had no impact on the iPod at all, it stomped PlaysForSure into the ground and made all of Microsoft’s hardware MP3 partners out to be rubes.

Had Microsoft been able to sacrifice its backstabbed partners and use their bodies to create a pile that it could climb atop and battle the iPod, the PlaysForSure killing spree might have made some sense. All that really happened is that Microsoft proved itself wildly incapable of delivering its own hardware, marketing it, merchandizing it, supporting it, advancing it, and building any sort of installed base.

Since Microsoft’s core competency and basic business model is billowing vaporware smoke, the Zune’s crushing collapse could only clear the air, making the path for rival competitors even easier. The incompetent Zune only made the iPod family look better than it already did.

The Spectacular Failure of WinCE and Windows Mobile

Microsoft Plans the Same Sneak Attack Again.

Back to Windows Mobile: Microsoft now finds itself in the same position in smartphones today as it was in MP3 players in 2004. Back then, its plan for dominating the music player market using a licensed operating system and DRM mechanism were slowly failing to congeal even as Apple was enjoying wild success with its iPod.

Microsoft planned to out-do the iPod by offering support for video and perhaps games and various other vaporware ideas. Apple incrementally delivered photos, then video, then gaming and podcasts, and eventually apps, an online software store, touch controls, and a web browser, all things Microsoft has struggled to copy while it perpetually remains a year or two behind, stymied by problems the company first blamed on its partners and eventually tacitly admitted were its own fault when the Zune failed to gain any traction under Microsoft’s full control.

Today, Microsoft sits in a very similar position in smartphones: unable to even define a vaporware vision of the future that hasn’t already been delivered by Apple. Does it retrench to rally the support of its partners, at least those that haven’t yet abandoned Windows Mobile as their flagship mobile platform (as Sony Ericsson and Samsung have)?

According to the DigiTimes report, Microsoft will take on the currently nonexistent threat posed by Google’s Android using the Windows Mobile 6.5 release, the only software it has any hope to actually ship this year. That software doesn’t offer anything comparable to iPhone experience however, so next year’s Windows Mobile 7 will need to hang out as a vaporware ghost, attempting to scare buyers from getting the iPhone.

Microsoft will then purportedly continue to sell Windows Mobile 6.5 alongside 7.0, but somehow they won’t compete with each other, just one taking on Android while the other aims at the iPhone. That’s a pathetic strategy, but pathetic circumstances call for pathetic measures.

What is less pathetic and more hysterical is the other, “less-openly reported” strategy Microsoft hopes to enact in between. I’d call it a “closely guarded secret” but this is Microsoft, and there really aren’t any secrets about what the company plans to do.

Will Windows Mobile Play DOS to Apple’s iPhone?

Zune II: the Same Strategy Again.

Are you ready? Microsoft plans to dust off the Zune strategy and use it again. Under a project known as Pink, Microsoft plans to release its own mobile phone based on elements of its Zune HD and Windows Mobile 7.

This too sounds about like the best of what one could expect Microsoft to do, if only the company hadn’t already tried this and ended up killing off its remaining partners without actually establishing its own sales. The only difference this time around is that Windows Mobile has fewer partners than PlaysForSure had, giving Pink fewer bodies to climb on top of to battle the iPhone 4.0 a year from now.

This does, however, explain why HTC, the Taiwanese company that has built 80% of all Windows Mobile phones, has publicly announced plans to ship half of its phones next year using Android. Motorola, once hailed by Steve Ballmer as producing a Windows Mobile phone that was cheaper than the iPhone (the Q, and it really wasn’t), is also done with Windows Mobile and has officially moved toward Android.

It also explains why Sony Ericsson and Samsung, both of whom tried to rival the iPhone over past years using fancy new hardware running Windows Mobile behind a custom UI burka, abandoned those efforts and have since retooled with new flagship phones running Symbian.

Microsoft is planning to annihilate the Windows Mobile market so that it can fire a single shot at the iPhone with all it has left. It’s no doubt prepared to do this because it recognizes that Windows Mobile has been a failure over the last decade. Despite the Zune being a major failure relative to the iPod, it is at least offering the potential of someday earning Microsoft some hardware profits, something Microsoft’s PlaysForSure partners were never going to do for it.

Microsoft: HTC has made 80% of all Windows Mobile phones

The Second Slaughter.

Slaughtering its Windows Mobile partners will be even easier than killing off PlaysForSure; there’s hardly any left. However, once Microsoft enters the ring with the only viable Windows Phone (as it will be calling it), it will be the only mobile running the antiquated Pocket IE, have no installed base to build anything upon (take a wild guess if WiMo 7 and its apps will work on today’s WiMo phones!), and will have no hardware vendors pushing it, a luxury Microsoft now enjoys with LG and HTC phones, which still sell in some quantity.

This almost requires Microsoft to build out its own copycat retail stores (were you wondering why?) so that it can attempt to sell the Windows Phone and the Zune to customers without any distracting Android, Symbian, and RIM alternatives, and particularly no iPods or iPhones around. However, building out a nationwide network of retail stores will literally cost Microsoft billions, and there is more than a significant risk of failure.

With Apple aggressively pushing down the cost of mobile devices and software, there won’t be fat margins for Microsoft to earn on its own hardware or its software. Microsoft will basically be left trying to create more loss leader Xbox-businesses without any potential for taking a cut of $60-$80 game titles.

Microsoft to open new retail stores like Apple
Video Game Consoles 2007: Wii, PS3 and the Death of Microsoft’s Xbox 360

The Third Slaughter.

This will subsequently make it tempting, if not simply necessary, for Microsoft to release its own PC in order to keep its retail stores afloat, just as every other retailer sells its own house brand. After killing off its PlaysForSure partners and Windows Mobile partners, how secure will HP, Dell and Acer be in thinking that Microsoft won’t take away their businesses as well? After all, it makes no sense for Microsoft to operate retail stores that do nothing but lose money while its PC makers profit.

This obvious eventuality for PC makers has them scrambling for alternatives already. Linux proved to be weakly popular for Acer when its netbooks first arrived, and both HP and Dell have toyed with building Linux-powered products. However, none of the big three PC makers have any special competency in software, let alone building a platform.

This presents another opportunity for Google, offering Chrome OS to serve the same need in PC devices that Android hopes to deliver in smartphones. If successful, Google could inherit the DOS throne, becoming the mass market operating system vendor without actually making any of the money Microsoft has extorted throughout its reign as the PC software platform monopoly.

But what if Google fails? What if Android can’t manage to deliver a phone that is broadly popular, and what if Chrome OS fails to capture the market for the low end of PCs? The desktop operating system as we know it is far too complex to develop from scratch in a half decade, as witnessed by the decade long efforts to build Windows, Linux, and Mac OS X. That leaves little hope of a magical deus ex machina alternative dropping from the sky.

Will Google’s Android Play DOS to Apple’s iPhone?
Myth 6: iPhone Developers will Flock to Android
Myth 7: iPhone Buyers will Flock to Android

What Might Happen?

This leaves Apple an enormous potential for expanding the Mac installed base, potentially leaving it and Microsoft locked in a fight over the huge, if plateauing, PC market. With Microsoft weakened, Apple could potentially begin licensing Mac OS X to other PC vendors, something that isn’t viable for the company today.

Alternatively, Apple could sell a Mac OS X application environment that ran on top of a basic GNU/Linux system installed by future PC vendors. This might play out somewhat like OpenStep attempted to do: create a rich operating environment that could run on top of any modern operating system.

More likely though, Apple will continue to transition the conventional PC market from cheap hardware running sloppy and ugly software to one more like the auto market, where vendors sell finished goods rather than fusing two separate products together, poorly, from awkwardly partnered companies.

Why OS X is on the iPhone, but not the PC

In fact, Apple is almost certain to continue developing integrated products where the hardware and software fit together seamlessly, from iPods to iPhone to tablets to notebooks to workstations. We’ll likely see Windows and its “my OS with your hardware” business model slowly fade away, leaving Microsoft to build its own competing Zune, Windows Phone, and Windows PCs against Apple’s.

PC competitors, from HP to Dell to Acer, are most likely to begin copying RIM and Palm’s strategy in the smartphone space, building a customized shell on top of Java or Linux to differentiate them from both Microsoft’s Windows and Apple’s Mac OS X. The computing world will rewind back into the late 80s, when vendors like Acorn, Atari, and Commodore could compete with their own integrated systems in a pre-Windows world.

This is already happening in the smartphone space, where the winners are clearly RIM and Apple, the Palm Pre looks to have some potential, and Android, Symbian and Windows Mobile are all struggling to keep themselves afloat as “my OS, your hardware” platforms.

What about compatibility, the main reason everyone flocked to Microsoft’s PC platform in the first place? Well, today we have the web, where standards-based apps can run regardless of the OS platform. Tomorrows web will enable even more sophisticated web applications, and there will also be customized, native apps for each platform, just as today’s smartphones are all achieving basic competency on the web while attempting to each offer a native platform, too.

It’s also possible something dramatically unforeseen might happen and change the course of the tech industry in a way that is difficult to comprehend or fathom from our current perspective. Speaking as a tech futurist, I am of course compelled to ignore any such possibilities. What do you think the future holds?

How Apple Is Changing the PC Software World… Back

  • http://unscriptable.com/ unscriptable

    Wow. Spot on, Daniel, imho.

    There’s still one piece missing: the hardware. Back when MS bought Danger, I thought we were months away from the first Microsoft-branded Windows Phone — and the subsequent demise of the WiMo ecosystem. I hadn’t realized that Danger was only a software company and that Sharp and Motorola made the hardware.

    Thoughts on hardware?

  • jkundert

    Really interesting article, Daniel. I had never really thought of the vacuum that would/will be created when MS fails. If I were HP, Dell &c, I’d be really nervous these days. Hopefully they’ve got skunk works going on in house to develop their own OSes (or at least UI wrappers on Linux) or they could really be hurting in the near future.
    That’s a real problem with an abusive monopoly: if/when it eventually fails, it takes down a lot of folks who were riding that raft!

  • rizzior

    Hey Daniel, Great Job As Usual. “Ur So a Knowledgeable” Wow…
    (May Monkey Boy Lead Microsoft Forever)

  • bigsteve

    Brilliantly written article with a lot of food for thought! Dan strikes again!

  • worker201

    Are we really imagining that people just sit around Microsoft board meetings and listen to this crap while nodding and drooling? Isn’t there someone there who went to business school, someone pointing out that the only way to get ahead of the iPhone is to innovate stuff the iPhone won’t have, or someone saying the “our name guarantees us money” strategy is a candle that will eventually burn out? It honestly takes everyone working together to be this dense.

    You mentioned “web standards” in your closing paragraphs – that’s another can of worms.

  • jsmorris

    Daniel, as you like to mix in politics to your articles, I found this quote from the article amusing if I mixed in my political view.

    “Oh wait, that’s the company’s [Democrats] normal business plan: deliver crap into the market and then float a toxic cloud of promises that kills off superior products [healthcare] until there’s no options left but to buy Microsoft’s [ObamaCare] crap.”

    I enjoy your technical articles even though I don’t share your political views.

    [Well the difference is that I’ve outlined in detail what crap Microsoft has offered and why it was crap and what the alternatives were that Microsoft killed off. You seem to be suggesting something similar has happened with the Democrats, despite their failing to have monopoly control over the government at any point over the last several decades. Even today, the democrats are groveling to the Republican minority in order to appease them with “bipartisan consensus.”

    In fact, when I think of crap foisted on America, I think of problems created and caused by Republicans (primarily). America is in health care crisis unlike the rest of the wealthy world, where anyone can get reasonably priced care (I know I have in other countries); US education is becoming a joke, not only because of failed Republican policies (like setting up “No Child Left Behind” and then failing to actually fund it, or insisting upon catering to religious superstition rather than teaching science); transportation and infrastructure are failing and have been defunded for decades; neo-con wars and international meddling have trained and equipped today’s terrorists. Reagan explicitly and illegally sold Iran weapons to finance contra rebels and the CIA funded afghan taliban efforts against the USSR that are now pointed against us. Bush then made the US a war crimes state fostering torture and flouting the Geneva Convention. On the financial side, Reagan turned the country into a debtor nation and repealed progress in environmental standards, while reverting US energy policy back to dependance upon Middle Eastern oil. The party has since given the ultra rich trillion dollar tax cuts that have not materialized in the promised trickle down of wealth, but instead have created an greater divergence between the rich and poor, which results in new problems including the major rise in abortions under Bush.

    So I see a lot of things the Republicans have done to destroy America. When I listen to what the Republicans say the Democrats have done, I hear about rebuilding the nation after the Great Depression; enacting Medicare; pushing Civil Rights, education, and efforts to strip America of third world style poverty, and of course Clinton having some sexual contact with girls. The impact of that last great transgression has been minimized by the rampant hypocrisy of those moralizers since, who have been paying prostitutes, traveling to Argentina, and toe tapping for hand jobs in bathrooms.

    So beyond the talk, what exactly do you think is wrong with the Democrat’s health care reform, and why haven’t the Republicans addressed this issue at any time in the last decade that they were in control, as Americans were being forced into bankruptcy over egregious costs and dying from an unjust, broken, corrupt health care system? – Dan ]

  • JohnWatkins

    Microsoft is not and never has been a hardware company. The whole Xbox saga has simply confirmed this. If they go for a “Microsoft Computer” strategy they will trade one set of well known problems for a whole new set of unfamiliar ones. Should be fun to watch.

  • Urs W. Keller

    Very compelling reasoning, Dan! I just have to disagree with one point: Apple IMHO will not licence OS X for PCs or create a NEXTStep-like environment.

    The reason: The habits how we access the Web and how we communicate are rapidly and massively changing. Why do I need a PC that sits at home when I can access mail, surf, twitter and so on from my phone (or maybe tablet …)? I think it’s clear enough by now that Apples strategy is to get hold of the consumer market where Apples strengths can be monetized and let the HPs and Acers of the world do the killing of Microsoft.

    Once upon a time, people used Microsoft products at work and consequently bought the same for home use. Now a generation rises that is familiar with Apple and other non-Microsoft products long before they enter business, and want the same products at work. How times have changed …

  • John E

    great discussion piece!

    for MS to fundamentally change its smartphone strategy from software sales to OEM’s to MS hardware sales makes sense, because the old strategy is clearly failing, MS is making no money at it, and with all the new OS competition coming in the future – especially Android and Symbian for free – probably doomed. how could MS compete with free and make money? Can’t. so selling hardware is the only possible way. so i bet Dan is right here. this will be fun to watch. and the Windows Phone? next year? the Son of Zune! bloodbath!

    but i can’t believe MS has yet decided to do the same thing with the Windows OS, though it is probably thinking about it a bit. it is still making tons of money with the current software sales to OEM’s setup. and more tons of money with software licensing to enterprise, which Dan doesn’t mention. it ain’t broke yet, don’t fix it.

    now, if HP and Dell and the Asian white box PC makers began to offer their own well-coordinated versions of Linux OS based desktops and laptops, that could change. but they also would need to develop the quality consumer desktop suites comparable to iLife and iWork to make it feasible. and on the enterprise side they would need to outflank Exchange somehow (i’m sure Oracle would love to help). it is true that the old cross-platform compatibility issues of the 1990’s are gone now and the web has provided a global set of standards independent of computer OS software. so the potential is there. but today i think there is just too much inertia and profit in the current setup and MS will stick to selling PC software. 5 to 10 years from now tho, things could change.

  • HCE

    While I agree with the overall thrust of your article regarding Microsoft, I’m not sure you are justified in the generalizations you make regarding the smartphone market. Windows Mobile is clearly in a lot of trouble but I wouldn’t lump Android and Symbian along with it.

    Nokia’s profits may have dropped and Symbian may be undergoing a major reorganization but the platform still controls better than 50 percent of the world smartphone market. They are going to be a major force for a long time – unlike Microsoft which has fallen to single-digit market share.

    And why are you so down on Android? Remember that the first Android handset was released less than a year ago and for most of that time it has been the *only* Android handset. With one not so exciting handset, the platform already has a little under 3 percent of the smartphone market. By contrast, after a year on the market, the iPhone’s worldwide market share was something like 2.1 percent. By the end of this year, another 20-30 Android handsets will be introduced. None of this is any guarantee of success but it is only now that the Android platform has all its pieces in place. A year from now we can pronounce our verdict about its success or failure – saying anything right now would be premature.

    Next objection I have is that you are being way too generous to Palm. I know it fits into your thesis of “vertical integration is the future” but there is scant evidence that they’re going to be anything more than an interesting footnote. You say they “show promise”. What promise? Their sales in the US have been underwhelming – and this is the only market in which Palm has any clout at all. Even though WebOS looks well-implemented, it offers pretty much nothing that Android doesn’t and Android is backed by a bunch of major handset vendors plus Google while Palm is running on fumes.

    Finally, while I can buy your idea that Microsoft will stab its Windows Mobile partners in the back and make its own incompatible handset, your notion that they will do the same with PC vendors and come out with their own PCs is far-fetched – to say the least.

    – HCE

  • nikster

    ^^^ HCE is right – MS will kill its smartphone partners without a second thought – I agree there – but it’s also virtually guaranteed that it will not, ever, change the PC sales model. The PC sales model is Microsoft, it’s all they have, it’s what makes them billions every year, and they are not going to change it no matter what. Certainly not to save their own retail stores. Vista and Windows 7 show very clearly that they intend to keep this sales model for as long as they can.

    PC makers explore alternatives because they want to save themselves the Microsoft tax, but that’s about it.

    I think you are onto something about the vertical integration model – the iPhone is going back to the “dark ages” where hardware and software was tied to each other and each manufacturer cooked their own. Works real well for consumer devices, and I love the iPhone for it. That said, nobody has figured out how to translate this experience to something as versatile and powerful as a generic information processor aka computer. Not even Apple. OS X is neat, and better than Windows, but it’s not simple, or easy, or particularly elegant. It’s still very hard to handle, and if I explain to somebody that they have to “repair permissions” they look at me with a bewildered expression.

    To me the iPhone also marks a departure from the “generic” web. Webstandards are great, but little apps like a lot of the iPhone apps just provide a better user experience. Tweetie on the iPhone is better than web twitter and also better than any twitter app on the desktop – it’s that good. Simple, elegant, functional, and in your pocket at all times.

  • John E

    As to Apple, also over the next 5 to 10 years i don’t see it switching from its integrated hardware/software sales to somehow extending the Mac OS to other OEM’s. it’s making tons of money doing that too. i think it’s energy instead will focus on integrated consumer products – the iTab and a reinvigorated AppleTV first, with maybe others to come. licensing the AppleTV OS to be built in to HDTV’s, for example, would make sense, since Apple will likely never manufacture its own brand of TV’s – that’s a cutthroat commodity market now too – but growing the installed base of the Apple ecosystem this way would reinforce sales of its other products. And what about enterprise? Snow Leopard will complete Apple’s strategy to “embrace” Exchange and grow gradually inside the MS enterprise system, rather than compete to replace it. wither XServe? Apple has never outlined a long term enterprise strategy, and no one has figured it out. maybe it doesn’t have one?

    so no, don’t vote with Dan on that one.

  • deemery

    HP used to have substantial expertise in Unix. HP/UX, its flavor of Unix, was a solid server system and HP made substantial contributions/investments in the POSIX standardization efforts. I don’t know if they retained any of that expertise, since the Unix server market got pretty well punctured by the combination of cheap Intel rack servers and Microsoft server side software.

    And there’s an interesting story: About 15 years ago I was reviewing cost figures for back office systems. The assertion was that supporting a Windows box cost 25% of the cost of supporting a Unix box (due in large part to the cost of the talent and the cost of the hardware.) The problem was that Windows NT (the ‘standard’ server environment) was basically incapable of doing more than one thing. So you ended up with separate machines for file servers, database servers, directory servers, terminal servers, etc. To get the same level of performance of one of those HP/UX ‘big iron’ Unix servers that ran all the stuff on a single machine, you ended up with 5 or 6 different Windows NT boxes, each dedicated to a back office function. Which is cheaper in the long run? Do the math :-)

  • Per

    Also, with more and more stuff moving into the browser, there will be less reason to care about what OS you are running unless you are producing media content, making software or doing scientific research. The rest of us won’t give a crap as long as your machine runs google docs (or some other future competitor).

    The boring boxes within public administration and in the enterprise will probably morph into (linux?) machines with no other task than running a browser that lets you access your files, e-mail, calendar and the rest. Some European countries have moved their bureaucracy to open source software and I know others are investigating to do the same. It seems MS is stuck between a rock and a hard place.

  • http://www.jeffself.net jeffself

    I agree with HCE. Android will be a major player and competitor to Apple. The thing holding Android back now is a good piece of hardware for it. And maybe that will always be its crutch. Can’t anybody build a good phone other than Apple? The Pre has a great OS but the phone is crap. Seems like all the phones for Android are crap as well.

  • http://spacecynics.wordpress.com Thomas

    If MSFT decides to make it’s own branded PC, they’re doomed. They’re essentially conceding the argument Apple has been making for 2 decades – solid integration of hardware and operating software to make a stable, seamless user experience. But they’ll never do it. It’s not in their DNA. They’ve spent 25 years building 2nd-rate generic crap that will “run on anything”, and letting the OEMs and 3rd-party peripheral people deal with integration issues and taking all the heat.

    Perhaps they’ll learn something about what it really takes (and costs) to make something that Just Works. But then I saw another article today about a gamer’s survey, that indicated 52% of XBoxes were faulty almost right out of the package. So they’d have a long way to go…

  • Pingback: Links 20/08/2009: KMyMoney 1.0 is Out, New i3 Window Manager | Boycott Novell()

  • ChuckO

    I bet your pretty close to how things will turn out. Microsoft’s main skill has been cock blocking potential rivals to the windows OS. They recognized early that browsers and games could morph into OS’s and spent all their time and energy thwarting those possibilities while trying to keep up with the massive growth they were going through. Now they don’t have any skills to do anything else.

  • ChuckO

    MS could definitely end up producing it’s own machines. They wouldn’t have to match Apples ability at producing a computer, they would have to match Dell’s. Apple takes the high end and MS the low. Dell is toast. MS could buy them for their “talent” and start producing PC’s.

  • HCE

    @jeffself

    > Can’t anybody build a good phone other than Apple?

    Have you seen reviews/videos of some of the new Android phones that are soon going to be available? Some of them look extremely impressive.

    – HCE

  • shiver me timbers

    Fantastic article.

    Daniel, I respectfully wish you would place your political articles on a separate site.

    No one has to remind me that this is Daniel’s site and he can do anything he wants with it. I know that. I simply think his technology articles/Microsoft arguments would be more effective if they weren’t interspersed with political articles. The topics are two different beasts.

    I strongly believe for readers who disagree with Daniel’s politics that Daniel’s political tirades risk muddling up his technological articles as to what is fact and what is slanted bias.

    My words are not intended to be a slight against Daniel’s politics. I am simply casting a vote for two separate sites. Separation of technology and politics, so to speak.

  • http://www.marketingtactics.com davebarnes

    Dan,
    Excellent.
    ,dave

  • http://twitter.com/NateTehGreat nat

    @shiver me timbers,

    Dan made no mention of ‘politics’ in this (great) article. If you want to complain about those articles, maybe you should do so in the comments sections of those articles.

  • stefn

    Logical and breath taking. Reads like great scifi. Or is it syfy?

    I wonder if Microsoft can summon the energy to produce its own PC. Alternatively it just fades, with a whimper not a bang.

  • MikieV

    The idea that MS would “go vertical” with their own brand of PC is interesting, in that I wonder what segment(s) of the market they would target?

    Would they produce a high-end “gamer” PC which would compete with Xbox?

    A home media/file server?

    A thin-client for the home, which would connect to MS’s version of “The Cloud”? No, wait… I can’t imagine MS selling a computer that would not be based on Windows 7. Can anything running Windows 7 be called a thin-client?

  • Michael

    I definitely agree with Daniel that Microsoft will push the Zune mobile platform into the smartphone space eventually. If they keep losing hardware partners as they are, they’re going to have to or just get out of the game altogether.

    I only see the same thing happening on the desktop if manufacturers begin to develop and sell systems with alternative operating systems, either home-grown or from another OS vendor.

    And I can only imagine Apple would ever release PC OS X if/when their Mac business becomes a much smaller percentage of the company’s revenue or Mac hardware becomes extremely specialized and customized by Apple and offers technical and performance advantages that other manufacturers could never match.

  • stormj

    There were few if any cross-platform file formats in the “dark ages.” There was nothing comparable to GTK or Cocoa in “the dark ages.” Other than some aspects of 6502 assembly code, there was no cross-platform development. Period.

    This is why integration of hardware, OS, and software will not create the kind of compatibility issues that existed back then when almost no computer could talk to another one, let alone run its software.

    It was a miracle when Macs finally started reading PC-formatted floppies!

    Almost all computing environments now all try to allow users to do the same set of core tasks: browse the web, send e-mail, create business documents, etc. All of those applications talk to each other using shared protocols or formats.

    This means that unless you’re in the business of revolutionary changes in the way we use technology, or at least in the way we do things we’re already doing, you are a commodity and you will lose.

    This is why Apple and Google are getting ahead and Microsoft is losing. Microsofts products are now commodities. They are just another .doc file editor or just another environment to run a web browser in.

    OS X on the other hand doesn’t need to directly generate revenue for Apple, and neither will Chrome for Google. It just needs to give developers a unified, non dark-age way to innovate on different hardware. Cocoa now does this, just for example.

    Based on the foregoing, I don’t see much hope for Microsoft unless they are able to reinvent themselves as an invention company. They will not do this by creating pastiche of the iPod, iPhone, or PCs.

  • TheMacAdvocate

    Microsoft’s “Black Knight” consumer product strategy will be its undoing. I wonder if Monkey Boy has actually used the term “‘Tis only a flesh wound!” in a board meeting to describe the financial performance of the Online Services Business.

    Keep chucking limbs‚ Redmond. You’ll bleed out in no time.

  • MipWrangler

    Nice bit of analysis Dan!

    No one has mentioned this, so I thought I’d throw it out there for discussion. Dan, I think you’ve made a pretty good case for why Microsoft would fail to build a quality product if it tries to build them on it’s own, but what if they were to do something else they are good at and simply acquire one of the big PC manufacturers? Putting the anti-trust issues aside for the moment, what if Microsoft were to simply buy Dell for example? This would avoid them having to figure out how to actually build PC’s and distribute them, and assuming they could execute (doubtful?), deliver a more integrated hardware-software solution. They could also kill off (again anti-trust questions aside) any burgeoning Linux offerings the company has. Perhaps it would be too overt an action though.

  • HCE

    Just another thought to add to the mix. I don’t think it is a given that Microsoft will come out with an incompatible WinMo 7-based phone. However, I’d agree with Daniel that it is entirely possible and will, in all likelihood depend on how successful the new Zune HD is. If the Zune HD manages to do well, it will probably encourage Microsoft to proceed with the vertically integrated phone strategy. If, however, the Zune HD flops, Microsoft might stay with their current business model and drop “Pink” altogether.

    – HCE

  • http://www.roughlydrafted.com danieleran

    @HCE:

    Nokia’s 50% share of the smartphone market would be more impressive if it hadn’t just fallen from around 80-85% just a few years ago. Context is important.

    I’m not so much “down on Android” as I am realistically appraising the potential of Linux on the desktop to repeat its wild success in smartphones when the vendor leading the effort continues to fail to lead.

    As far as marketshare, you mention the iPhone gaining 1% share in its first year… that was 1% of all mobile phones. Apple had a 27% share of smartphones sold, a number that cycles with the iPhone’s releases, and ranges from 10% in off cycle quarters to around 25-30% in new release quarters.

    Android has never approached 2% of the phone market, and may have only hit a few percentage points of the smartphone market. You are comparing %’s of very different markets. One is a billion units, the other is closer to 60 million.

    I said Palm’s webOS “shows promise” in that people are giving it some attention. Android isn’t even generating that level of excitement in the commercial world. As you say, “A year from now we can pronounce our verdict about its success or failure – saying anything right now would be premature.” That goes both ways. But until Android stands up, it’s fair to point out that it isn’t standing up yet.

    I didn’t claim Microsoft’s Pink would be DRM incompatible in the same way the Zune was with PFS, and there would not be a reason to do this in the PC market either. However, that DRM incompatibility was only a sideshow to the main event of Microsoft slaughtering its partners. In fact, the new DRM thing was done as an attempt to isolate PFS from the Zune, as if PFS stores and players would continue on it their own world while the Zune attacked the iPod.

    That bears SHOCKING similarity to this idea that Microsoft will start selling 6.5 against Android to low end phones, while delivering its own 7.0 phone against the iPhone while other makers also make 7.0 devices. Absolutely nuts.

    But there’s no barrier holding back Microsoft from selling its own PC, even if, like the Zune, it’s just an existing model branded and resold by Microsoft. The Xbox made it pretty clear that the company can’t sell reliable hardware.

    If it sold a Dell or HP model as the MS PC (which, incidentally, Microsoft did do at one time in South American markets back in the day), exclusively in its own stores, it could begin taking away sales from its PC partners and bring down the whole house of cards, just as it inadvertently trampled its PFS baby into the ground under its clumsy jackass hoofs while bucking for the Zune.

  • zdp

    @nikster:
    The reason that most of the hardware vendors are looking for alternatives to Windows is because Windows is not a system seller (unlike OS X). I think the vendors were hoping that Vista would cause people to buy a new PC because it had Vista… what they learned, of course, was that people buy Windows computers because they need a new computer.

    If a new version of Windows can’t entice the population to buy a new computer, then these companies have to find an OS that will. I don’t think Windows 7 will do anything other than stem the tide of negative press about Vista. I don’t think that there will be a line of people flocking to the store to buy a new computer that will run Windows 7.

  • tinytim09

    Daniel, usually I disagree with many of your articles but this is spot on.

    “That bears SHOCKING similarity to this idea that Microsoft will start selling 6.5 against Android to low end phones, while delivering its own 7.0 phone against the iPhone while other makers also make 7.0 devices. Absolutely nuts.”

    I guess 6.5 is supposed to be the new Windows Mobile Standard and 7.0 will be Professional? I don’t know what to think at this point. Microsoft just confused the hell outta me.

  • HCE

    Daniel,

    According to the recently released Canalys report on smartphone sales (see http://www.canalys.com/pr/2009/r2009081.htm), the worldwide market share of Android was 2.8 percent. This is less than one year after it was introduced. From the same report, the iPhone’s market share one year after it was introduced was 2.1 percent. Yes we’re only talking about Q2 sales in this report but it is a good indication that the 1st generation iPhone wasn’t much more successful than the 1st generation Android phone.

    I don’t know where you are getting the notion that Android isn’t generating as much excitement as Palm in the commercial world. There are something like 20-30 Android handsets on the way from a half-dozen different manufacturers and they will soon be on multiple carriers in pretty much every country in the world. If that isn’t excitement, then I don’t know what is. Once again, this is no guarantee of success but it shows that a lot of people recognize the potential.

    Compare this to the Palm Pre launch. Yes, the Palm Pre/WebOS had a flashier launch than the T-Mobile G1/Android but let us go past the hype and look at the facts that we know. In spite of all the hype, Palm sales were rather underwhelming. Most analysts now seem to think they will sell something like 500,000 phones in their first quarter of sales. Note that it took around 6 months for the supposedly disappointing T-Mobile G1 to reach a million US sales. In other words, the Palm Pre is selling at about the same rate as the G1.

    I don’t entirely disagree with you about Symbian. My only point was that with over 50 percent of the market and with vendors like Samsung and Sony-Ericsson re-committing themselves to the platform (probably out of fear of Microsoft), I think they are in a far stronger position than Microsoft is. They have the time to right the ship – which is something Mircosoft does not have.

    – HCE

  • http://www.adviespraktijk.info Berend Schotanus

    The idea that MS will bring a ZunePhone, with predictable consequences for Windows Mobile hardware partners, seems quite credible to me. Even while it is plain stupid it fits in the way they are thinking.

    The idea that MS wil bring their own PC hardware, somehow I’m not ready to digest that. Will Microsoft really have the courage to commit such a spectacular form of suicide?

    Anyway, my prediction would be that Android/Chrome will fill in the vacuum. There will remain a huge demand for cheap not-completely-first-quality hardware that Apple will never supply. There will remain a huge supply as well, especially from industrious Asian copycat manufacturers who assemble just whatever they find available.

  • patriot

    You pretty much summed up what I see happening. Will be interesting to see it play out. I agree. The question isn’t will there be a void left by the implosion of Microsoft but rather what will fill the void.

  • John E

    the smartphone stats that are being tossed around in the above discussion are badly formulated and so confuse the discussion. the iPhone and its recent competitors should be accurately described as “2nd generation” smartphones. i know people could quibble over the exact definition, but obviously there is a huge difference. WinMo 6.x and all the other brands that existed before 2008 are definitely “1st generation” smartphones – primitive by comparison to the iPhone. anything that needs a stylus or has no touch screen is automatically 1st gen for example. add other factors as you see fit …

    when you make that essential adjustment, the iPhone’s share of the 2nd gen market – the one that is really important for the future – is much much bigger. and Nokia’s is much much smaller. MS’ is zero.

    the other 2nd gen OS’s are of course Android and WebOS. RIM’s Storm and Nokia’s new N97 qualify too, at least as initial efforts with further development to come. WinMo 7 will be MS’ first entry.

    i’d argue we are already on the verge of the 3rd generation smartphone, whose key advancement will be easy direct interaction with all kinds of third party hardware devices and consumer services via blutooth/wifi (not just the web). the digital wallet, the universal remote for everything in your life, including your car, etc. the iPhone 3.0 OS already supports this functionality, but it’s not been deployed in the field – yet. just wait.

  • David Dennis

    I’m not sure how serious Microsoft is about launching an Apple-scale retail presence.

    If they were I would think they would sell a variety of computers created by their OEMs. That way they would not endanger their existing business models, and as you said, their manufacturing track record is not the greatest.

    I think if I were them, I would dump the phone business. They don’t seem to have any real talent or flair for it. Even Palm has shown itself capable of leapfrogging them.

    I’d be curious to hear what you think of the Pre. I have both Pre and iPhone. I am a developer for iPhone but it’s increasingly hard to get noticed in that super-crowded environment, so I lept on the Pre bandwagon and will have a few trivia games available on the Pre when the new app store launches.

    Have you played around with the Pre? It’s not as beautifully developed as iPhone, and the keyboard is just plain awful, but I really love having a true multitasking experience.

    D

  • tundraboy

    Excellent, excellent points Mr. Dilger!

    First off –and I know you just tossed it out then discounted it — I don’t think Apple would ever license OS-X (or its successors) as this would be totally against their philosophy of “if you want to build great hardware, you need to write the software.” (Or is it the other way around?)

    I think events are coming around to proving Mr. Jobs right on that one. For a while “one platform, many device makers” or “my OS your hardware” as you put it had its day in the sun. I think that sun is setting though. What’s killing it is complexity. A modern OS, be it for a computer or a smartphone, is already so complex that designing it to work properly on a hundred and one different devices just increases the complexity to unmanageable levels.

    Your analogy to the auto industry is spot on. In the beginning there were engine builders, chassis builders, and body builders or more accurately coach works. And as we all know, those specialized outfits went away as the engineering became more advanced and complex and the integrated manufacturers just flat out built a better product. What we are seeing in Microsoft’s and Symbian’s paroxysms is the dying of the computer industry’s own era of separate engine, chassis and coach builders.

    Furthermore, it’s bad enough that one-platform-many-devices leads to much greater complexity. This model has the added problem of a fundamental conflict between the platform provider and the device manufacturers. Platform providers in an effort to hold down complexity want the devices using the platform to be us undifferentiated as possible. Which of course is totally at cross purposes with device manufacturers who will always want their device to be as different as possible so that it stands out among its competitors.

    Which is why I think Android will eventually fail, unless one of the Android device manufacturers somehow garners a dominant share of the Android phone market so that Google is basically writing Android for just one smartphone manufacturer.

    As to Microsoft building and selling its own PC hardware, it’s very hard to envision them managing that transition. Are they going to ask Dell, HP and Acer to “please keep on building Windows machines until our manufacturing op is up and running at which time we would appreciate your bowing out of the industry”?

  • http://jonnytilney.com Jon T

    Wow! It’s easy to despise Microsoft and what a glorious thought – of it becoming more and more isolated and abandoned. So we’ll break out the Champagne when it happens, for sure.

    Oh, @Nikster, if you are telling people to “repair permissions” then I believe you are sorely out of date. You need to go back quite some way before that was thought useful or necessary…

  • JohnWatkins

    Jon T, sounds like you need to repair permissions.

  • http://jonnytilney.com Jon T

    No voodoo for me thank you John. You’re welcome to it if you want to.

    http://daringfireball.net/2006/04/repair_permissions_voodoo

  • AvantKore

    @HCE

    Why choose Q2? how covininent! 08Q2 is the quarter Apple depleted its first gen iPhone channel stock, I remember since about mid-march, you literally have to hunt one down if you were really really rich (it still cost $399) and didn’t care what Apple would reveal at WWDC08.

    Android on the other hand released HTC magic in several countries 09Q2 and HTC managed to sell (and proudly annouced) 1M in the launch quarter, yeah, very impressive…. not.

    I dare you to compare Q1 or Q3 result, that should be fun.

    And no, as for the amount of hypes a smartphone can receive, iPhone is still the king and Palm Pre is the definite second. HTC Hero managed to get a little attention but the hype faded rather quickly. As the Android platform getting crowder towards the end of this year, and they all look more or less the same ,the chance for an Android device to truly stand out is getting dimer and dimer.

    On the other hand, if Palm don’t get its shit together and launch the App Catalog officially with paid apps ASAP, Pre’s sales number will be even worse than the T-Mobile G1. At least G1’s demand retained pretty steady, which can not be said about the Palm Pre.

  • http://www.cyclelogicpress.com Neil Anderson

    Microsoft said it’s not going to do a phone. I’d say that confirms they will. Based on Zune, it’ll be called a Zone — the Zone phone. MS is pretty much in the Twilight Zone.

  • ChuckO

    HCE,
    What are you talking about? Android is at 2.8% in Q2 of 2009 compared to Apples 13.7% from the report you linked to.

  • HCE

    @ChuckO

    Please read what I wrote. I said one year after launch. For the iPhone one year after launch was Q2 2008 – at which time its market share was 2.1 percent. One year after the Android launch would be Q2 2009 – when it had a market share of 2.8 percent.

    @AvantKore

    I picked Q2 because those figures were recently published and were handily available. Had I picked an earlier quarter the iPhone would have looked better but then so would Android. We can make similar excuses for the G1 to the ones you made for the iPhone. Regardless, even if the iPhone came out ahead in Q1, the difference would not have been dramatic.

    – HCE

  • HCE

    @AvantKore

    I did a quick search and found the figures for Q3 2008 – which was the quarter in which the iPhone 3G was launched. Apple’s market share was 3.6 percent. Not that much better than Android’s 2.8 percent.

    – HCE

  • Central Harlem Anonymous

    Interesting speculations. I am going to comment in detail on only one portion, your suggestion that Palm might be a good model. While it is always possible that the company gets bought out, it is at this point nearly impossible to imagine any other happy outcome for them.

    The pace of phone sales in the U.S. has been anaemic, perhaps 25,000/week, nationally. I’ve gone into Sprint stores and asked salespeople “I’m looking for a smartphone, what would you recommend?” and the response is “buy a Blackberry.” As they underperform here, projections for foreign sales drop too, and their ability to negotiate attractive financial terms with foreign carriers weakens, so expected revenues drop with disproportionate speed.

    Meanwhile, they have locked themselves into a business model that requires significant R&D expenditures, maintaining cutting edge hardware and software and applications. Apple has been able to get away with that because they can charge a premium for the resulting product, but without that premium, the result would be lower-than-average operating margins, or even losses, and higher levels of risk than it borne by companies that license their operating systems from others.

    As a general rule, companies that have tried to deliver the triad of operating system/hardware/applications have eventually given up on two of the three and/or gone bankrupt. Sun, IBM, Go Corp., countless home computer companies in the 1980s. If it is done very well, the resulting product can be great for consumers, and they may pay up for it, but the expense and risk are enormous.

    Palm’s investors presumably have been counting on a buyout, and rumors of buyouts circulate frequently in the financial markets, but it’s hard to give them much credibility. Microsoft doesn’t seem culturally capable of putting a bullet into WinMo and replacing it with a third party OS. Nokia is considering alternatives to Symbian, but in the form of Maemo, which costs them nothing I believe. Android is similarly free. It’s hard for a company like Dell or Motorola (both rumored potential acquirers of Palm) to justify paying money for something in the face of a free alternative, and nearly impossible to justify when consumers have already greeted the ‘pay for’ product with indifference.

    Is there any part of the Palm model that ought to be emulated? Kudos to them for trying to make a phone *better* than the iPhone (you can argue about whether or not they succeeded, but they certainly tried).

    Frankly, I think the company is doomed.

  • http://home.comcast.net/~daguy daGUY

    @tundraboy: “Platform providers in an effort to hold down complexity want the devices using the platform to be us undifferentiated as possible. Which of course is totally at cross purposes with device manufacturers who will always want their device to be as different as possible so that it stands out among its competitors.”

    This same dilemma occurs in the PC market as well. Note how Microsoft is promoting the fact that you can run Windows 7 on a netbook – they want consumers to see how you can get the same Windows experience on a tiny, inexpensive machine as you can on a larger laptop or desktop.

    PC manufacturers, though, want to differentiate their own products, but it’s difficult because everyone uses Windows. I think this is why PC advertising is always so focused on prices and specs; when you and all your competitors are all using the same software, those are really the only ways you can set yourself apart.

    Apple, of course, is immune to this problem since they have their own OS, so that in itself is a differentiating factor. And that frees them from having to compete on price and specs alone, which is how I think they’re able continue turning a profit even as the rest of the industry is stagnating or declining.

  • ChuckO

    HCE,
    I see what your saying but I don’t think that’s a particularly relevant comparison for a couple of reasons: 1. Apple created this category and the baseline Android has to hit. Android growth is to a great degree a result of being dragged along in the iPhones wake. 2. It’s a similar point but both Android and Palms are able to do as well as they have due to the screwed up nature of the cell phone business and the fact that customers are to a great degree captives of their cell phone contracts. There isn’t a level playing field due to lock-in contracts and the differing technologies employed by cell phone companies. I suspect Apple sees that as a positive at this point as it helps them keep iPhone growth to a more manageable level. It also forms an umbrella that protects Android and Palm.