Carpadium Consulting

I was reading a piece linked from DaringFireball yesterday and something really leapt out at me. Check out these two quotes pulled from the linked article, one from Tim Cook, Apple’s COO, and the other from Steve Ballmer, Microsoft’s CEO.

Here’s Cook’s quote:

“Windows 7, from our point of view, is just another opportunity to remind everyone to switch to a Mac,” said Apple Chief Operating Officer Tim Cook. “People are sick of all the headaches that go along with Windows.”

And here’s Ballmer’s quote:

“Let’s face it, the Internet was designed for the PC. The Internet is not designed for the iPhone,” Ballmer said. “That’s why they’ve got 75,000 applications — they’re all trying to make the Internet look decent on the iPhone.”

I really don’t understand Ballmer’s point. Leaving aside for a moment that there are 2 errors of fact and an irrelevance in the space of 3 sentences – what is he trying to say? It just does not make any sense. It even has an air of the Chewbacca Defence about it. Just what is their message? I have noticed this coming up again and again in recent Microsoft comments and not just from Ballmer. I guess if the message is confused at the highest levels, it’s difficult to see how it can get any clearer down the chain.

On the other hand, the message from Cook could not be clearer. And not only is it clear, but it’s said in a completely positive way. It’s a brilliant piece of communications that uses Microsoft’s own weight against it. It’s 31 words without a skerrick of weasel. It’s a piece of PR jujitsu.

M@

I have made several comments about Windows Mobile over the last 12 months or so. As anyone who has read those would know, I really think its the laggard in terms of mobile operating systems (at least ones that are actively being developed).

Today there has been some interesting chatter about a bond issue by Microsoft to the tune of US$3.5b, which some have seen as a little odd given that they have about US$25b in cash.

I like the SmartMoney suggestion that it could be a way for Microsoft to test the mechanics of the bond market, to get familiar with it and allow the market to become familiar with Microsoft. This kind of makes sense if you have something planned that would require a big chunk of debt down the track, but equally, that amount of money might be all they need for something specific. Its this kind of speculation that has led people to wonder what Microsoft is really up to.

Perhaps we can tie some of these recent events together?

Over 12 moths ago, Microsoft purchased Danger. I’m surprised this didn’t get more attention at the time than it did, but it has always stuck in the back of my mind as an interesting move, particularly given public commitments to Windows Mobile. My suspicion is that Microsoft was far more interested in the hardware than the software, and I suspect we are about to see the next phase of a big, new platform play by the Redmond Giant, but more on that later.

More recently, Oracle purchased Sun. This surprised me enormously at the time, but listening to the subsequent commentary, it seems like there is a very clear plan for Oracle to try to build an end-to-end model, not dissimilar to Apple. With Sun, they get hardware and an operating system, plus a huge (and profitable) storage business. This play makes a lot of sense if you can pull it off, and one thing Oracle has been doing pretty well lately is acquisitions. All up, this sounds like Steve and Larry got together over a beer and had the “own the whole widget” conversation.

You could argue that Sunacle makes things interesting for IBM, but I think it definitely makes things interesting for Microsoft. Oracle can now go in and provide a whole-widget enterprise stack from the storage and hardware layer, right up through the middleware and into the application. It’s a good story for Oracle, but the consequence for Microsoft is that it ends up with a tough job trying to sell Windows Server into the mix. It’s just not necessary anymore.

So back to the platform. Like I’ve said in the past, dominance comes from building a platform, not just having a good product.

We’ve seen it with Windows, where Microsoft owned the content (Windows and Office), while at the same time commoditising the endpoint (the PC business) and stitching up distribution by tying the sale of Windows and Office to the sale of new machines. All up, it was brilliantly commercially successful.

More recently, we’ve seen Apple build an amazing platform around the iPod and iPhone (endpoints), iTunes Music Store and App Store (distribution), and via deals with record labels to sell digital music (content). It’s been an amazingly successful strategy, both commercially and technically, as many would argue. In fact, it’s been so successful that it seems to have changed the game not just for the mobile business, but for the PC business as well.

I think we’re already starting to see the platform play from Oracle. They certainly have the pieces now: servers and storage (endpoints), vertical and horizontal applications in a ever widening number of domains (content), and one of the best sales forces in the technology industry (distribution). It all fits.

When you add these together, you can pretty quickly start to see why Microsoft is worried. They already lost the race in mobile, were never in it in portable media, chase 3rd place in gaming, and although the jury is still out, there’s a huge opportunity for them to fall out of the race in the enterprise stack. This really only leaves them with the desktop, and unless Windows 7 rocks everyone’s world to the point of psychosis, Windows XP might end up being the last successful thing Redmond ever does.

Which leads me to ponder if Ballmer is about to try something radical.

Ballmer needs a win, because not a lot has gone right lately, either strategically or with mindshare. They failed to make the Yahoo takeover work, the Zune seems to keep sucking no matter what they do, and not much more can be said about how totally lacking in awesome is Vista.

About the only thing that they have been good at (and exceedingly so) is making bucket loads of cash. Which has to say something about the competitive position of the Windows franchise with respect to the rest of the market. Very few organisations get the opportunity to stuff up like this, and still have the trucks backing up to their offices dumping cash. But that’s another topic altogether.

So if Microsoft is getting ready for a big move, what could it be?

Here are some absolutely crazy, it’ll-never-happen prognostications that might explain why a company with US$25b in cash is out borrowing money at a 95 basis point premium to the Fed rate:

1. Microsoft to buy RIM?

Of the three ideas, this is the one that makes the most sense, and its the one touted around by the commetariat today. There is a very strong technical tie in between the Blackberry platform and the Microsoft messaging platforms, so it is a very good fit. The problem here is would RIM shareholders sell out? I’m not sure. I think it makes a lot of sense for Microsoft because they would have a strong mobile platform, with huge enterprise penetration that would be a very credible competitor to the iPhone. I don’t know if RIM would play, and I don’t know if a hostile takeover of this scale could really work.

2. Microsoft to buy Dell?

I know this sounds crazy, but consider this: Dell’s share price is depressed ($11.21 as I write this) a price not seen since the last century. It’s currently valued at about US$21b or so, which would be easily digestible by Microsoft, presumably with a combination of stock and cash, some of which it would source from debt if today’s bond activities are anything to go by.

But it’s not just the price. This is a classic Microsoft emulation move. There’s nothing original in the idea, but its so ingrained in Microsoft’s DNA to watch what is going on elsewhere and first try to suppress it, and if that doesn’t work, just copy it. They might be seduced into thinking that it too can own the whole widget and start making hardware in addition to software.

I am not really seriously suggesting that this is going to happen, but it just has that ring of craziness about it that so often surrounds massive corporate deals done by organisations prospecting for a clue. I can see Redmond understanding how to do this, and I can see some Dell shareholders liking the opportunity to exist at a premium to today’s price. I’m not sure that Michael Dell would agree, and regardless of what Microsoft might think, I’m not sure that the market would think that this is a good idea. So let’s see.

3. Microsoft to buy Palm?

This idea also sounds totally crazy, but let’s consider for a moment that Palm really has done something amazing with the Pre. Early reports are certainly promising, and let’s face it, they outdid Apple once before – the original Palm blew the Newton out of the water (commercially) back in the day. Of course, things are very different now, but there can be no denying that Palm has the kind of corporate DNA that allows it to successfully innovate.

The other point to conemplate with Palm is how or why they managed to get such a big chunk of cash recently from Elevation Partners. Could this be because there is a quick exit on the cards for Elevation in selling out to Microsoft?

This deal doesn’t have the enterprise elegance of the RIM alternative, but Palm has built  Windows Mobile devices before, and it also knows how to make a smartphone, thanks to its experience with the various Treo lines. It’s also a whole lot cheaper, with a valuation as I write this of about US$1.5b.

If Microsoft went in with a healthy premium, that $3.5b in debt they picked up over the last couple of days would fit nicely. On recent form, any one of these options is going to be far more intresting than the Zune Phone.

M@

Update 2010-Feb-12: Kara Swisher has some more thoughts on the idea of a RIM purchase.

So, pretty much everyone got this one wrong!

There’s a lot being said about this Oracle/Sun merger right now, but there’s three interesting things that stand out for me in the deal.

Firstly, when was the last time a software company bought a hardware company? At least on this scale. I know Sun is not exclusively a hardware company, but it’s certainly their pedigree. And Oracle is definitely a software company. If you wanted an analogy (apart from the scale) it’s a bit like Microsoft buying IBM. I wonder how the culture of the two organisations will mesh? I can definitely see some friction between the sales-led Oracle and the engineering-led Sun over the next couple of years.

And the second thing is: what happens to Java? I really am surprised that IBM let this one go. Let’s face it, Java is the new COBOL (or will be) and that means that the future of IBM is so heavily intertwined with the future of Java, that I am amazed that IBM did not have another crack at this deal. I can anticipate some tension here if Oracle takes Java down a path that in any way closes off IBM’s options. Perhaps we’ll see a fork? What do you call coffee in Armonk?

Finally, I wonder if Sun considered a break-up of some sort where IBM got Java, Oracle got MySQL and someone else (Cisco perhaps?) ended up with the hardware business. In fact, there was even talk of an Apple angle for the storage business given the ZFS tie-in in Snow Leapord. I can see a good fit in each of those deals, and from a shareholder point of view, I wonder if you couldn’t come up with a set of numbers, say in the order of $3b in each case, such that Sun shareholders ended up better off than the $7b and change that they walk away with now.

Who knows.

M@

Update 2: This is some of the best commentary I have seen on this topic, from an insider.

Update 1: Apparently, Oracle sees Sun as a “software gem … ripe for cost cutting”. Ouch.

What a development! Who would have thought at the top of the Dot Com boom that Internet powerhouse Sun would be snapped up by technology patriarch IBM for the paltry sum of US$6.5 billion dollars. Up until recently, Sun was the very definition of what the Internet is about, captured so perfectly in their catch-phrase: the network is the computer.

Unfortunately (mostly for shareholders) Sun has not been able to maintain that cutting edge, leadership position as the Internet has moved from version 1.0 to version 2.0. I guess this makes a potential acquisition by the very mature IBM a sensible proposition.

The deal is also (reportedly) for cash, and at the moment, $6.5 billion in cash sounds like a pretty good deal.

It will be sad to see them go, but I imagine the Sun brand will stay around because of its power in the Telco and engineering domain. And arguably, the real asset in the Sun portfolio is Java, which I am sure IBM will take forward boldly, no doubt with a very enterprise-focussed pitch.

That IBM will end up with Java is a fascinating outcome. This (again) lines IBM up squarely against Microsoft – as if they were not already! But this battle is less about Java versus Dot Net than it is about the open-source+services versus proprietary+licensing business models.

On the other hand, not everyone agrees. Like Scott McNeally once said: this deal could be like two garbage trucks colliding in slow motion (what a great quote!).

Either way, its probably a good thing for Java to have someone behind it with the enterprise clout of IBM. The future of Java is definitely safe, at least for the next couple of years. Who knows, perhaps Java will end up being the COBOL of the 21st century (if it isn’t already).

And this also gives me some hope that the (more interesting?) emerging dynamic/agile languages like Java-based Groovy will continue to grow and prosper.

M@

Apparently, this is the name of a new product from Microsoft that will be making its way into Windows 7:

• Windows Live ID Sign-in Assistant 6.5 (Beta)

Is that some kind of joke? Can you imagine sitting around the table in the meeting where that name was unveiled? I’m lost for words.

M@

As a follow-up to this post, Bob Cringley gives a prescription for Microsoft today, which you can read here.

Bob thinks that Windows Mobile and XBox are too valuable to walk away from, and he thinks that they should hang onto the Zune and merge it with Windows Mobile in order to force Apple towards a subscription model for music.

Leaving aside the technical feasibility of such a merger for a moment, I just don’t buy this subscription argument (no matter how many times I hear it).  Just look at the recent death of Ruckus if you need any more evidence.

However, if there’s one really good thing about Cringley’s commentary, its how he goes back and checks out how his predictions turn out. There are some very specific predictions in this post, so it will be very interesting to see how the turn out over the next 12 months or so.

M@

Update 2: Oh dear. I guess my comments about Windows Mobile 6.5 not coming out until the end of the year were a little premature. Nice one, Sol.

Update 1: The guys over at Engadget reviewed Windows Mobile 6.5, and they haven’t got much good to say about it. In fact, they came up with 10 reasons why it misses the mark. This is the kind of thing that worries me about where Microsoft is going with Windows Mobile 6.5. Not only is it not due until the end of the year, early reports lead you to conclude that it is already way behind the state of the art. I think SkyMarket is going to have to be really, really good to save it.

In an earlier post, I was pondering where Microsoft was going with the Windows Mobile platform. As I mentioned in that article, it appears that they are now, at best, 3rd in the smartphone market which is somewhere they are not used to playing.

I find this fascinating, because it highlights a really interesting schism in Microsoft. On the one hand, you have the outrageously successful Windows and Office franchises, not to mention their development and tools platforms, where Microsoft’s ability to generate cash is well documented. Then on the other hand, you have the XBox, Zune and Windows Mobile.

You have to ask: what is the difference between Windows / Office / Tools, and these other products?

The answer is lock-in.

Regardless of the mechanism by which it was established, Windows has a huge lock-in factor with the vast number of hardware OEMs that build Windows compatible PCs and peripherals, and an equally huge (if not bigger) lock-in factor with all of the ISVs writing applications, using Microsoft’s portfolio of developer tools.

Office has lock-in too, but of a slightly different form. With Office, lock-in comes from the vast array of documents, spreadsheets and presentations that exist in businesses who use Word, Excel and PowerPoint for everyday business productivity. Even if someone could build a better word processor, spreadsheet or presentation application, users are still faced with the daunting task of porting existing documents to the new applications.

By way of example, I worked at a bank a couple of years ago that was contemplating an upgrade from  Office 97 to Office 2000. The total real cost for this project included an amount for document conversion that dwarfed the software licensing and upgrade costs by a factor of 5. That’s a big hurdle for any business, and this just was an upgrade to a new version. The costs for changing to a new application would almost certainly have been prohibitive.

Don’t get me wrong – I am not suggesting that lock-in is a bad thing. If a business manages to build a product platform that can generate even a modest degree of lock-in, then they are on the way making a successful product. Look at the iTunes Music store and the iPhone AppStore if you need any clearer example of a great piece of lock-in!

The point here is that Microsoft is not successful competing when it is not dominating. In fact, the evidence of the Zune and the XBox suggests that when they try it, they end up loosing a whole lot of coin. Arguably so much coin that you would need to be extracting supernormal profits from something else to afford to sustain them. But that’s a whole other story …

Apple is a little different. Although they are certainly dominant with music players, Mac market share only pushes around 10% for desktop PCs, and although they do very well in laptop sales, they are not dominant to the same extent that Microsoft is with desktop operating systems.

The only time I have ever seen Microsoft succeed is when they only have daylight behind them. But I’ve seen Apple (and others: Porsche?) do very well when they are far from the front, at least on the measure of marketshare.

Which leads me to wonder about the future of these products, so I’ll go ahead and make some predictions:

1. I think the Zune will be the first to go because it really hasn’t worked at all. I wouldn’t be surprised to see that happen in the first half of this year.

2. The XBox is a little trickier. I don’t think anyone would have predicted the success of the Nintendo Wii, which turned what looked like a 2-horse race between Sony and Microsoft into something altogether different. I would expect Microsoft to keep hard at the games market, even if it is losing a lot of money doing so. A wildcard alternative scenario here is for Microsoft to divest from the XBox altogether. I don’t know who would buy it (Sony?), but I could see it doing better out on its own.

3. Unless something remarkable happens with Windows Mobile, I think it will continue to languish. However, I don’t see Microsoft giving up this franchise lightly because thre is just too much at stake in the mobile platform market. The only outcome I see for Windows Mobile is that it is forced into price competion against Linux. Good luck competing with $0.

Microsoft has entered these other markets largely, I believe, because of its subconscious desire to dominate. It’s in the DNA of the organisation and it seems like they don’t know how to operate any other way.

It’s possible that the current economic climate could bring about a change at the top. Things haven’t exactly gone swimmingly well for Balmer recently. I’m sure that a different CEO would see things differently, particularly if they came from outside the organisation, and these divisions would end up being not long for this world.

M@

PS: A confession: the reference above to iWork is a little cheeky on my part, because I still use Word, Excel and Powerpoint for pretty much everything I do. I am a proud owner of iWork, and I have even recently upgraded to iWork’09. However, I am an example of precisely the lock-in that I’m talking about. I have so many documents and templates, that it would take me a couple of weeks to port everything over from Office to iWork. Even though iWork opens and reads Office format documents, it doesn’t get them quite right, and when it comes down to it, I’m a bit of a pedant with document presentation, so I’d be forced to rebuild my templates in an iWork-like fashion before I really made the switch. And who has time to do that? Now, if the file formats were open and public, then the balance would be entirely different …

I’ve seen this kind of thing many times before in blog posts across the Internet. However, today it happened to me.

Not what you want to see in an elevator

I’m not sure what concerns me more: the fact that the controller in the elevator has failed, or that it’s using Windows. To be fair, it’s probably just driving the display and not the elevator control because the elevator still worked. Mind you, I didn’t stay in it for too long.

M@

So we are finally (officially) getting the iPhone in Australia! In what would have to be one of the most un-secret secrets in recent technology history, Steve Jobs today announced the second generation iPhone, along with a host of new countries where the uber sexy little gadget will be available.

Amid all of the fanfare about the iPhone, something struck me about the new Mobile Me service Apple will release in July. There has been past criticism from some quarters that Apple’s .Mac service was poor value. I think you could probably make that argument pretty easily. However, this new service seems to be something else. For a start, it has some truly amazing web design (possibly, even as amazing as this, or this). [As an aside, the kinds of things that people are doing now in rich Internet applications and with the full toolbox of Web2.0 tricks is simply mind blowing. I don't think anyone considered 2 years ago that we would have applications of this quality.]

Mobile Me does two things. Firstly, it elevates all of a typical user’s electronic stuff into the cloud. This is great, but certainly not unique – Google has been doing precisely this for some time. I think we can be sure that Apple will bring all of their usual user experience aplomb to the task, so the service will certainly be pleasurable to use. However, I think the real trick comes in the second part. Mobile Me also (at least on paper) appears to seamlessly synchronise this stuff across all of a user’s devices.

As anyone with more than 1 device (desktop PC, laptop, phone) will know, synchronisation is a total nightmare. I currently use a BlackBerry [1], and even today I find myself fragging the BlackBerry calendar and overwriting it with the Outlook calendar on each sync because if I don’t, then the BlackBerry will constantly double-up entries (particularly recurring appointments).

Perhaps more annoying is the fact that I have to start this bizzare and idiosyncratic little synchronisation application to make it all happen. As a consequence of the generally poor quality of synchronisation applications, most people have data that is out of sync or inconsistent, or they just don’t bother with the process at all.

If Mobile Me delivers on the ability to push my stuff to the cloud, and then allows me to have a seamless, consistent, up-to-date view of that stuff from any device – from desktop, to laptop to mobile phone – then Apple will have pulled off a real coup. My guess is that they will deliver on this promise, underlying again their ability to “innovate through simplicity”.

Which brings me to an observation about the relative approaches of Apple, Microsoft and Google – both in terms of technology and business model.

As we all know, Microsoft concentrates on the endpoint (at least traditionally), both on the PC and on the mobile device. It’s all about Windows Vista and Windows Mobile. To play in the Microsoft ecosystem, you need to buy a license of some sort, and in the case of the vast majority of PCs, you don’t even have a choice about it because the license comes as part of the purchase of each new machine.

Google is at the other end of the scale. Their entire service offering is in the cloud, and they give everything away for free, making (lots of) money on targeted advertising. Microsoft is certainly trying to respond to Google, but if you need any proof that they don’t have a plan or a clue about how to compete online, then just check out their recent attempt to buy Yahoo.

So where does Apple fit in? Clearly, they have a strong story at the endpoint. The entire Mac hardware range, from laptops to desktops, is well regarded, and if recent sales figures are to be believed, are selling amazingly well. The Mac operating system is also a stand-out, and in stark contrast to Vista, seems to get almost nothing but high praise.

In my view, Apple’s new Mobile Me offering places them equidistant from Microsoft and Google, with a service that makes the best use of their endpoint and operating system expertise, adds a cloud-based service layer that (on the surface) solves many of the traditional problems with synchronising multiple devices, mixed in with a subscription based charging model.

Such an economic proposition almost certainly means that Apple won’t achieve the user scale of Google Apps (Mail, Calendar, Docs, etc) for Mobile Me, but it does allow them to target the premium end of the market – precisely the same market that they target with hardware sales, and one that is exceptionally profitable for the company.

In many ways, you could probably think of Mobile Me as a premium version of Google Apps in the same way that you can consider the Mac and Mac OS X as a premium version of a Windows PC. Of course, some would argue that these things are not even playing the same game, but allow me to stretch the metaphor for the sake of the discussion.

The real question is this: Where does it leave Microsoft? As an organisation, Microsoft lacks Google’s capability in search or scale in advertising; Vista appears to be losing the operating system battle (at least in mind share, if not in volume) to OS X; and they do not appear to have anything nearly as compelling as Mobile Me as an online application. They will almost certainly attempt to turn the ship to deliver a suite of competitive services over the next 12 months or so, but where will Apple be in that time?

One final point that I think ties into this thread is the constant call for Apple to license OS X to third parties. Leaving aside all of the Hackintosh projects that are popping up, I do not think there is a snowball’s chance that Apple will ever license their OS to anyone (again). And in any case, why would they bother? A compelling Mobile Me service that generates US$99/year per subscriber will generate a tidy revenue stream that will not in any way jeopardise Apple’s healthy margins on the sales of Mac hardware. At the same time, Windows-based Mobile Me and iPhone users might be seduced to switch in the same way as the droves of iPod users who liked the seamless integration between the iPod and iTunes have done so up to now.

I expect that Apple has done its numbers properly to the point that any revenue lost through foregoing sharing argeements with carriers is more than compensated by a US$99/year subscription to Mobile Me. That is, of course, assuming that they can get enough subscribers. So I also expect that they will be trying to convert a big percentage of all new iPhone owners into Mobile Me subscribers as well.

The extent to which this is possible, I think, comes down to the success of Mobile Me. We have all been looking around for the next real killer application in the mobile space for some time [If you are wondering, the first two were obviously voice calls and SMS texting. UPDATE: Of course! Photos is number 3. Thanks Jen.]

Interestingly, the next killer mobile application may not be a mobile application at all, but rather, an application that makes it completely irrelevant and transparent that I am mobile. Regardless of whether I sit down at my desktop at home, my laptop in the airport lounge, or my phone on the go, I get the same, live, consistent view of all of my electronic stuff.

Apple really looks like they have cracked it with this one.

M@

[1] I was waiting for today’s announcements from Apple before I replaced my entire technology kit. It’s been over three years since I last splurged on decent technology infrastructure. So, come 9am this morning, I’m off to buy a new laptop and a new desktop. And I’ve already put my order in with Optus for a couple of 3G iPhones.

In the news today [1] is the story that Microsoft has acquired Danger, Inc [2], maker of the Sidekick [3] portable connected device. Microsoft sure is spending some money at the moment [4].

What does that mean for Windows Mobile?

M@

References
[1] Microsoft to Acquire Danger, Maker of Sidekick Technology
[2] Danger, Inc
[3] T-Mobile Sidekick
[4] Microsoft, Yahoo!, Google … and News Corp?