Steve Ballmer’s Nightmare Scenario

ScreenHunter_10 Feb. 24 10.41BusinessInsider recently published “STEVE BALLMER’S NIGHTMARE: How Microsoft’s Business Actually Could Collapse”. And while you may think that this is an extreme scenario used as linkbait (and by all means read their entire post as well), here are some data points that show that some of the pieces of the puzzle have already been falling into place:

1) Windows Phone 7 isn’t really going anywhere, and Nokia’s new Lumia 800, etc. offerings don’t feel (price) competitive enough to make much of a dent in either that trend, or Nokia’s own downfall.

2) While Android tablets have failed to make any meaningful inroads against the iPad thus far, at least they have sold somewhere between 1-2 Million (U.S.), and shipped many more (sitting in inventories, waiting for drastic price cuts…).

But Microsoft won’t even be in the game until some time later this year (what will the actual date be? Q3? Q4?!), when tablets with Windows 8 are expected to ship in quantity. So Microsoft is starting from way behind in third place.

3) More importantly, there are no guarantees that the tablet/touch-centric bet of Windows 8 is going to pay off. In fact, it could well be that because the touch UI (User Interface) is bolted onto a relatively heavy-weight, resource-intensive Windows NT OS base, Win 8 will require too-expensive, high-end spec’d tablets, while as a standard desktop/laptop OS, few consumers and companies will see a true need to upgrade to Win 8 from 7.

It’s just a few years after 7 was introduced, and for all apparent purposes, it is running everything anyone would need on a Windows laptop/desktop just fine. So why spend money on 8 in a difficult/uncertain macro-economic environment?

4) Windows developers have been relatively unhappy about having to massively retool for writing apps for Windows 8, so there could be trouble brewing here as well.

5) While all of this still doesn’t spell immediate collapse for Microsoft’s business, legacy sales of Windows 7 upgrades, MS Office upgrades, and various enterprise software is not going to suffice in the long run.

6) It is also telling that Windows 8 was being completely overshadowed by… just about everything else thus far at CES, including Google’s Android 4.0 version “Ice Cream Sandwich”. Keep in mind that CES had until now been Microsoft’s showcase, even though it is now withdrawing from the event for the future.

(This apparently due to the timing creating a mismatch with Microsoft’s own internal launch calendar, which may explain the long history of relative vaporware coming out of Redmond at CES.)

But this has got to smart: Windows 8 is Microsoft’s major bet on a unified OS to run “on all three screens”, desktop/laptop, tablet, and smartphone. It is a bet so large, one might say Ballmer is betting the farm on Windows 8 being a hit, and that if it isn’t, Microsoft is in real trouble.

7) As Robert Scoble recently stated in the discussion on his Google+ thread here, Windows Phone might already be done:

…What matters is the PRODUCT THAT SHIPS TODAY. Microsoft is missing 450,000 apps TODAY and NOTHING you say can make that go away. Microsoft knows it’s in a deep hole. So do most consumers. …the problem is that THE MICROSOFT PRESS thinks it’s doomed. It’s not just one guy, either. It’s people who cover Microsoft for a living and live in Seattle and they think Microsoft Mobile sucks. So you’re on the wrong side of the line. It’s not getting better, it’s only getting worse. Android and iOS aren’t standing still, you know.”

So if Windows Phone (WP) isn’t catching, and Microsoft is actually indirectly telling developers with the Windows 8 unified strategy that WP (7 or higher) is going away sooner rather than later anyway, where are the Windows 8 prototype/show/reference phones at CES?

Even the CES-announced (promised for March) LG phone featuring the new Intel (!) “Medfield” CPU for smartphones will be running, wait for it… Android!?

8) The Q4 sales figures tell the tale that Microsoft is running behind on a PostPC Era that appears to be upon us (and them) a lot faster than just about anybody predicted:

From GigaOm’s Macs sales growing, but U.S. PC market stagnates:

Things were so bad, IDC has dubbed 2011 the “the second-worst year in history” for the U.S. PC market. The overall 5 percent contraction of the market since 2010 is second only to the 12 percent decline after the Y2K buildup and the dot-com bust of 2001.

Ouch!

This while Apple managed to sell about 300,000 more Macs and grow 18% to a U.S. market share of nearly 11%. But I consider that more of a Halo-Effect from the mindshare captured by the iPhone and iPad. Yes, the 2011 Macbook Airs were really sexy which is why everybody copied them since late last year and at this CES as (Wintel) “Ultrabooks”.

But that doesn’t explain how U.S. PC shipments dropped by nearly 1.4 Million in the quarter Y/Y, or even more with the Mac growth factored back out. Despite some macro-economic headwinds, the only thing that explains this is the “iPad effect”:

Apple has likely sold around 40 Million iPads in 2011 globally (just under 15M in 2010). Let’s say half of those are U.S. sales, so 5M per quarter on average. And the actual numbers for the Q4 Holiday Shopping quarter should be a good bit higher than say Q1/2011 where additionally the iPad 2 wasn’t even shipping yet, so 5M for Q4 is actually pretty conservative. [UPDATE: Apple announced 15.4M iPads sold globally in Q4 at their earnings call. So my 5M number for the U.S. sales estimate still feels conservative.]

That would mean that Apple has taken 5M of 23.5M (18.5M PCs + 5M iPads) = 21.2% share with the iPad alone! Add to that the 11% (of the 18.5M) Mac share and Apple is at about 29%. It’s not that COMPUTER sales are really dropping, it’s that a lot of iPads and other tablets are replacing a lot of new PC purchases for the mainstream user.

And this phenomenon is only expected to grow, analysts think Apple might sell 55M total iPads in 2012. One must wonder if there so much pressure on Windows 8 on tablets to be a success that it is setting it up for failure?!

Gartner Research study predicts all-out Tablet Wars, but…

…could things go a lot more quietly, the way of the MP3 player market and total Apple / iPod dominance instead?

GigaOM was quick to point out 5 Problems With Gartner’s Tablet Forecast, among them:

Apple’s iPad is poised to continue its overwhelming lead in tablet sales until 2015, holding 47.1 percent of the market according to research firm Gartner. Google’s Android tablets will slowly catch up to nab 38.6 percent of sales by then, while media slates built upon platforms such as MeeGo, QNX and webOS will barely be a blip on the radar, accounting for just a combined 14 percent of tablet sales four years from now. On the surface, these predictions may sound logical, but upon closer inspection, there’s more wrong than right here.

1) 2015 is at least two (or more) product cycles away. […] While the iPad may not see monumental design changes each year, Apple is sure to evolve the device several times in the next four years. The same holds true for other tablet makers using different platforms. Simply put: It’s too early to predict what the tablet market will look like several device iterations from now due to powerful new processors on the way, faster mobile broadband in wider coverage areas and improvements in mobile software and apps.

While I agree that the Gartner study is making way too many assumptions overall, some of the rosier projections for Android (including Gartner’s own forecast of near 40% share by 2015) are probably having the same issue:

1) The only thing that we know with relative certainty is that Apple has put up a huge lead, and has become the uncontested category leader. If past experience is any guide (study your Ries & Trout on Positioning), that should put it on track to retain 50% share at a minimum, but quite possibly more (60-70%).

2) Especially since Apple went all out on pricing the entry-level $499 iPad so competitively, that the first few would-be competitors couldn’t even begin to catch up with Apple in that regard. Only now are e.g. Samsung rolling out an Android 2.2 tablet in a Wi-Fi model for $349 (April 10), which is priced below the $499 “price anchor” Wifi iPad/iPad 2.

But this is hardly a direct price beat, given that we are talking about a 7″ screen size tablet, not running the latest Android 3.0 “Honeycomb” OS optimized for tablet use (and it may not ever get the upgrade to it), and not fully up to snuff to the iPad’s build quality. So that consumers may well view this price in line with expectations for the different form factors.

3) That’s how strong Apple’s lessons learned from their iPod mass-market device manufacturing have been. Which brings up the legitimate question of whether the tablet market will turn out more like the MP3 player market than the smartphone one:

It all hinges on the question of how much Apple bungled things by staying with AT&T exclusivity for too long. What if there had been a Verizon iPhone (and Sprint and T-mobile as well) by the X-mas shopping season 2008? Would Android have even stood a chance? Would it have surpassed iPhone share as it did by now?

Since the carrier lock-in factor is almost a non-issue for tablets (the trend has been toward the Wifi-only versions anyway), Android has no such help in tablets.

4) Another thing missing: The ingenious “Droid” counter-branding to the iPhone’s own deep Archetype Branding that lifted the sale of all Android smartphones, whether intended or not, doesn’t appear to be crossing over into the Android tablet market.

Motorola created a brand with the Droid that was smartly capturing the few remaining archetypes that Apple had not employed:  Mainly “The Outlaw” (unrepentant, dangerous, bad) and “The Titan” (greatest strength, number, expanse) archetypes inherent in the allusion to the Terminator robotic eye, and to robots in general.

Symbols of “bad boy, take-no-prisoners machine”, combining within itself “the greatest strength”. To quote the original ads: “In a world that doesn’t, Droid does…”.

It appears that Motorola, Samsung, Acer, et al. are starting nearly from scratch in this regard in terms of the tablet market (which may be their biggest mistake yet, because they could have easily pushed the Droid branding into the tablet realm as well, it’s not too far of a brand extension), and so far I have not seen a break-out branding concept from any of them.

5) Much has already been written about the retail display advantage that the iPad currently has vs. the Xoom and other would-be competitors, another area that is quite different from the mobile carrier retail situation with smartphones:

Of course they are the only tablets on display at the Apple Stores, but they also visually dominate at non-exclusive retail outlets such as Best Buy, where the iPads sit on display with the rest of Apple’s shiny “tech-marvel” products, while the Xoom sits somewhere off to the side crammed in with a variety of netbooks and other cheaper fare…

All in all, those are a lot of advantages for the iPad. And any would-be competitors clearly have their work cut out for them if they are hoping to get even close to the 40% share predicted by Gartner for Android. Not to speak of the smaller challengers like HP’s TouchPad with its own WebOS (from the acquisition of Palm), or Blackberry/RIM’s Playbook, who’s only hope appears to be to make a play through entrenched enterprise computing relationships.

For more on my early predictions on iPad’s category leadership due to competitors missing the boat on getting their offerings out quickly enough, see: Is the iPad a fine young cannibal?

Is The iPad A Fine Young Cannibal?!

SCap_ 2010-04-03_58In the larger “tech wars” of Apple vs. Microsoft vs. Google, the tablet form factor has all of a sudden gone from a relative novelty (even though Microsoft had tried to establish stylus-based tablets for years) to one of the key battle fronts.

Why? Because the iPad, barely 6 months old, has already sold around 7-8 Million units, and is on track to break through 10M units for the year. That makes it the fastest electronic gadget sales ramp-up in history!

Still think that Apple’s deep Archetype Branding to create aspirational products is meaningless? Keep in mind that this record is being set as the wider economy is still largely suffering the after-effects of The Great Recession, and is at best in a tepid recovery.

And as Business Insider reports,

Apple is gearing up to sell 45 million (!) of them next year, says Ticonderoga Securities analyst Brian White who just chatted with supply-chain vendors in China and Taiwan (via Elizabeth Woyke at Forbes).

Sales are rising so quickly that according to BestBuy and other retail outlets, the iPad is beginning to truly “cannibalize” netbook and even laptop sales (by as much as 50%!). I had predicted the former in my Deeper iPad Intel post, but the sheer speed of the impact is surprising even to me.

How did this happen so quickly? First off, it turns out that the majority of people really didn’t need/want major creation powers with their computing devices, making the issue of “no physical keyboard”, etc. a moot point.

Sure, Bloggers and other writers are still going to need more powerful text input, image/video artists/designers/editors more finely grained image manipulation via a mouse, asf. But this “creative class” is only a fraction of everybody, and even they might enjoy some simple social media, video, reading, etc. consumption every so often.

And keep in mind that people are now able to edit photos/videos on their i- or Android Phones. Not super sophisticated, but I’ve seen some pretty impressive photo alteration results in recent months.

And people love the direct touch interaction, very long battery life (when compared to most laptops), and quiet/cool running with “rapid-ON” startup of the device.

Also as I predicted in that same post, Amazon appears to have successfully positioned the Kindle as the cheaper, and more task specific eReader. There even is a TV commercial out with a lady tanning/reading poolside, that makes fun of iPad’s outdoor glare problem. Smart positioning move by Bezos & Co.

And of course there are signs that the iPad will be sold at Amazon, Target & Walmart just in time for the Holiday shopping season. Somewhat related, Amazon is also coming out with its own App Store for Android smart phone apps. What it means is this: All mobile/tablets, all the time, everywhere…

Which brings me to another prediction of mine and a very important point about category leadership. As I said in the Deeper iPad Intel post, the longer that potential iPad competitors wait to get their products (hopefully actually competitive ones) out the door, the more Apple gains a head start that makes it the de facto owner of the entire category.

By default! Because the competition was asleep at the switch…as Nokia, RIM (Blackberry maker), et al. already were with the iPhone.

We are reaching an important threshold in the next few weeks. Whatever tablet competitors come out in time for the holidays (like Samsung’s Galaxy Tab, which is launching at all four major wireless carriers according to their own launch schedules, but which may end up being priced too high, possibly $399 WITH contract), will have a chance at competing with iPad.

Especially on price, as is being proven by Kindle. But the window is clearly closing, so it must be disconcerting to Microsoft that there are still no particularly good/credible Windows 7 based tablets on the market. Part of the problem is that Windows 7 isn’t really optimized for touch-based computing, even though it sort of works right now.

But the much bigger issue will be the build quality and power/CPU needs of the devices that try to run with Windows 7. A current entrant into the field shows the main problem: The CPU needs a fan and creates heat/noise, same as in a laptop, while having less battery life for more weight.

So it may be well into 2011 until Microsoft is geared up to compete on par, by which time Apple could control HALF the tablet market for the long haul (as predicted by Category Leadership).

Writes PC Magazine(!) in “Windows Tablets Can’t Match the iPad’s Magic“:

“The iPad has No Competition…Sure the Samsung Galaxy Tab looks cool. Dell has Streak in the wings. God knows, at some point HP will release the Slate that it has been teasing for the last six months. And Microsoft will almost certainly…well, I am sure they will do something… Nonetheless, right now, there isn’t a single tablet that can go head-to-head with the iPad. The product has been on the market for six months and no rival… By the time The BlackBerry PlayBook comes out next year, Apple will be releasing the iPad 2.”

BTW, that 2nd generation of iPads could easily include the 7″ screen form factor I’ve been clamoring for.

Will Apple be running away with it? And if so, how much will it ultimately cannibalize Windows, and how fast? Certainly Wall Street has been in the mood to punish Microsoft’s stock of late.

Opines Goldman Sachs, heretofore forever bullish on the company who’s IPO it once underwrote:

…investor sentiment on Microsoft’s core Windows and Office franchises is unlikely to improve until the company gains a firmer foothold in the growing migration to mobile devices – both smartphones and tablets. We don’t see this happening this year as Apple’s iPad and iPhone plus Google’s Android operating system are well established; a Windows-based mobile device could certainly begin to garner momentum in 2011, but the stock remains in show-me mode until at least then…

The bet seems to be that iPad and possibly Android-based iPad clones will be “fine young cannibals”…