Every journey ends, but we go on. The world turns and we turn
-- Brad Pitt, for Chanel No. 5
The most interesting thing about the world of technology is that,
quite often, the most successful products are the ones we don't see
Even the blockbuster products we do know are on the way -- like the
(OTCMKTS:NTDOY) Wii in 2006 or the first
) iPhone in 2007 -- often succeed for reasons we couldn't have
Who would have known that a motion control system would get grandma
playing video games?
And who would have thought before seeing the first iPhone that
Apple was actually kicking off a touchscreen and mobile Internet
revolution that is still reverberating throughout the world?
)? Forget about its search technology. There was Web search before
Google, though it definitely could have been better. But I don't
recall many people screaming for functional minimalism,
revolutionized by Google's bare-bones user interface.
In summary, many companies observe how the world turns and they
turn with it -- but the special ones, like the three companies I
named above, actually do the turning.
I've extensively covered the
downward trend in PC sales courtesy of the
following the release of
) Windows 8, highlighting the fact that there was no post-release
increase in sales, as is customary and which happened after the
release of Windows 7.
I also pointed out in April that
if you didn't know PC sales were horrible, then
you just weren't paying attention
Since then, there's been nothing but bad data, and it continued
yesterday with Gartner's release of second-quarter industry sales
Gartner said that worldwide PC shipments fell 10.9%, marking a
record five straight quarters of losses.
The song remains the same as tablets continue to cannibalize PCs,
with Gartner noting the following:
"We are seeing the PC market reduction directly tied to the
shrinking installed base of PCs, as inexpensive tablets displace
the low-end machines used primarily for consumption in mature and
developed markets," said Mikako Kitagawa, principal analyst at
Gartner. "In emerging markets, inexpensive tablets have become the
first computing device for many people, who at best are deferring
the purchase of a PC. This is also accounting for the collapse of
the mini notebook market."
Shrinking installed base?
What are things going to look in 10 years given that babies are
raised by iPads?
So how does Brad Pitt's line about a quasi-metaphysical concept
from that famous Chanel No. 5 commercial tie in to the collapse of
PCs, and Microsoft specifically?
Well, the world has been turning and Microsoft has been attempting
to turn with it, primarily by trying to hitch a ride on the
Apple-driven mobile computing boom.
But after plowing forward with its Windows Phone and Surface tablet
initiatives, it hasn't exactly been killing it.
In the first quarter of 2013, Microsoft held 2.9% of the market
share in smartphone operating systems -- a big improvement from the
1.9% seen the year before, but not close enough to
move the needle
It's had a similar level of success with its Surface tablets, with
3% of the market (up from zero the year before), according to
And with PC sales collapsing while these mobile markets boom, we're
actually seeing Windows fall behind Google Android in the overall
device operating system market share.
In fact, for 2013, Garner predicts the following market share
Luckily for Microsoft, it is a more diverse company than many
people realize, as its Windows and Business (mostly Office)
divisions account for 58% of revenues. That's still a lot, and
Microsoft still makes most of its profits in these areas,
especially since Online Services bleeds money, but still, a
declining PC market does not equal immediate death for the company.
In fact, Microsoft has been shaking off the PC blues pretty well;
the stock is up 33% year-to-date, crushing the
But enough about the past.
On Thursday morning, the company published an expansive outline of
its widely-rumored reorganization plan under the title "One
We are rallying behind a single strategy as one company -- not a
collection of divisional strategies. Although we will deliver
multiple devices and services to execute and monetize the strategy,
the single core strategy will drive us to set shared goals for
everything we do. We will see our product line holistically, not as
a set of islands. We will allocate resources and build devices and
services that provide compelling, integrated experiences across the
many screens in our lives, with maximum return to shareholders. All
parts of the company will share and contribute to the success of
core offerings, like Windows, Windows Phone, Xbox, Surface, Office
365 and our EA offer, Bing, Skype, Dynamics, Azure and our servers.
All parts of the company will contribute to activating high-value
experiences for our customers.
Now, this reorganization may be something intended to smooth out
internal company operations, and not something intended to please
investors and the media.
Instead of being structured around business lines, Microsoft will
be organized under functional areas:
1. Engineering (OS, Apps, Cloud, Devices)
2. Marketing, Business Development and Evangelism
3. Advanced Strategy and Research
4. Finance, HR, Legal, and COO
Microsoft has something of a reputation for breeding infighting and
In a 2010
New York Times
editorial entitled "Microsoft's Creative Destruction," former
company Vice President Dick Brass had this to say:
Internal competition is common at great companies. It can be
wisely encouraged to force ideas to compete. The problem comes when
the competition becomes uncontrolled and destructive. At Microsoft,
it has created a dysfunctional corporate culture in which the big
established groups are allowed to prey upon emerging teams,
belittle their efforts, compete unfairly against them for
resources, and over time hector them out of existence. It's not an
accident that almost all the executives in charge of Microsoft's
music, e-books, phone, online, search and tablet efforts over the
past decade have left.
As a result, while the company has had a truly amazing past and an
enviably prosperous present, unless it regains its creative spark,
it's an open question whether it has much of a future.
So hopefully, the new structure will have people more focused on
the big picture in battling rivals like and Apple and Google,
instead of on competing with other product groups within Microsoft.
But again, bigger picture questions remain -- namely, why does
Microsoft change with the world?
Wouldn't it be better if it was like the 1980s, when Microsoft was
itself driving the change?
I'm looking at an accompanying press memo, a letter from CEO Steve
Ballmer, who says the following:
With the more recent growth of broadband and the mobile Internet
as well as the development of newer devices such as tablets and
smartphones, consumers' experiences and use of technology have
fundamentally changed again. We have entered an always-on,
always-connected era that holds new promise for what technology can
bring to people's lives and to businesses everywhere on the planet.
And this gives us an opportunity to help people lean in and do more
in every part of their lives.
A few years ago in a speech I gave at CES, I observed that there
was a shift underway. We were headed from a phone, a PC, and a TV
to simply three screens and a cloud -- and over time, a common
software-based intelligence would drive all of these devices,
bringing them together into one experience for the consumer.
As well as this:
We will strive for a single experience for everything in a
person's life that matters. One experience, one company, one set of
learnings, one set of apps, and one personal library of
entertainment, photos and information everywhere. One store for
everything. Microsoft has the clear opportunity to offer consumers
a unified experience across all aspects of their life, whether the
screen is a small wearable, a phone, a tablet, an 85-inch display
or other screens and devices we have not yet even imagined.
The problem is that these statements are sideways-looking, not
forward-looking. Microsoft was very much late to the Internet and
mobile device booms spearheaded by companies like Google and Apple.
Unlike the 1990s, there is now competition for a "common
software-based intelligence." As shown in the chart above, Google
Android is outselling Windows, with Apple's iOS not far behind.
It all sounds like market research, as if the company's business
plan can be distilled down to smartphone + tablet + cloud =
success. It's not that these markets aren't important. But a true
resurgence for Microsoft requires a step beyond simply fighting for
the markets that are popular today. It means creating markets
important enough that Apple turns around and says, "We need to get
in on that!"
Now did Apple invent the smartphone market? Literally, no.
Has Microsoft come remotely close to doing that with any recent
No -- and I'm not sure how this reorganization changes that.
One interesting thing to watch out for is how Microsoft changes its
financial reporting methodology.
There is an awful lot of speculation that the company's going to
re-jigger things to hide its poor results in the online services
division, which includes the Bing search engine.
This article's grown a heck of a lot longer than I expected, so I'm
going to wrap it up here.
I'm not saying that Microsoft's not going to continue making a lot
of money, and I actually have no current opinion on the stock.
I'd just like to see Google and Apple put back on their heels for a
change, and as a shopper, I just want to be excited.