Why Windows 8 Will Put Microsoft Back on Top

What happened to the Death Star?  It seems like just yesterday that they were so unstoppable that they held a stranglehold on the global computer market and faced antitrust suits around the world.

What a difference a decade makes.  Their stock is at 30, right where it was 5 years ago.  Their price/earnings ratio is about 10, or roughly half the average of the S&P 500. Rumors are rampant that Steve Ballmer will be fired. Goliath has become David.

So what’s the future for Microsoft?  Possibly very bright due to their new Windows 8 platform and that’s not because I love it.  In fact, I wrote in an earlier post that it’s bound to piss PC users off.  However, Microsoft has proven before that strategy can trump product and, in this case, their strategy is dead on.  What’s more, it shoots straight at Apple’s Achilles heel.

A Dire Situation

No strategy can be understood without its context and, in the case of Microsoft, that context is one of extreme woe. Roger McNamee pointed out that their share of connected devices has dropped from 95% to under 50% in less than 3 years.  Last quarter, Apple’s iPhone garnered more revenues than all of Microsoft.

That’s not just because of snazy gadgets.  As this article explains, Microsoft has been losing share of the enterprise market as well.  A lot of those people toting around iPhones and iPads are using them for work and want the seamless ecosystem that Apple provides. Macbooks have been gaining on PC’s in the workplace.

Microsoft was blindsided by mobile.  Back in 2007, Steve Ballmer blustered that he didn’t think the iPhone was all that big of a deal.   Needless to say, he got it very, very wrong.

Yet Microsoft has been here before.  Back in 1995, the Internet took them by surprise and they responded quickly with Internet Explorer (which became the major issue in the antitrust suit).  They’ve been slower to react this time around, but Windows 8 might just put them back on top again.

The Windows 8 Strategy

Take one look at Windows 8 and it quickly becomes clear that it’s a “mobile first” platform.
 

 
When you boot it up, you don’t see folders on the desktop, but apps.  The experience is optimized for touch and, with the launch of Kinect for Windows this year, voice and gesture as well.  The toolbars are hidden on the sides of the screen, which makes it difficult for a mouse, but ideal for the newer modes of interface.

In short, Microsoft is betting against their consumers.  The PC market is shrinking, nobody else will fight for it and consumers have nowhere else to go.  So Microsoft is going to where the action is: tablets and smartphones.

Sure, people who have invested years learning how to use their products will be put out, but the truth is that Microsoft doesn’t really care.  That’s a horrible thing to say, but I suspect it’s true.  Even worse, it’s probably the right course for them to take.

The Apple Vulnerability

As strange as it may seem now, it wasn’t so long ago that Microsoft reigned supreme and Apple was on the ropes.  Every computer manufacture in the world courted them and even other software developers clamored to become Microsoft partners.

Apple, on the other hand, created both their own hardware and software.  They had no need for manufacturer relationships and, because of their low installed base, weren’t especially popular with developers (the recently Jobs/Adobe feud was fueled in part by the fact that Adobe was one of the first companies to drop Apple in darker times).

Lately, the lack of relationships has been a plus for Apple.  New technology favors a fully integrated product and Jobs built an ecosystem beyond compare.  However, as I explained in an earlier post about Steve Jobs and Bill Gates it also represents a weakness that Jobs himself noticed.  He said:
 

You know, because Woz and I started the company based on doing the whole banana, we weren’t so good at partnering with people. And, you know, actually, the funny thing is, Microsoft’s one of the few companies we were able to partner with that actually worked for both companies. And we weren’t so good at that, where Bill and Microsoft were really good at it because they didn’t make the whole thing in the early days and they learned how to partner with people really well.

And I think if Apple could have had a little more of that in its DNA, it would have served it extremely well. And I don’t think Apple learned that until, you know, a few decades later.

 
And that’s what lies at the heart of the Windows 8 strategy.  They intend to leverage their decades old expertise in building partnerships with manufactures to put a wide array of competitive smartphones and tablets on the market that will compete with Apple’s formidable ecosystem.

What about Android?

Of course, this isn’t a strictly two-way battle between Microsoft’s Windows and Apple’s iOS.   As this chart from the Silicon Alley Insider shows, the current reigning champion in the mobile operating system market is actually Google’s Android.
 

 
However, I don’t think Google can compete with Microsoft in this arena.  They have not had a great track record in partnering with manufacturers.  Google TV has been a bust and Android’s success is mainly due to the fact that they have been the only alternative to Apple.  If they are to continue to produce a mobile operating system, they will have to seriously pick up their game.

The thing is, I don’t think they really want to.  The core of their business is advertising, not managing partner relationships.  Do they really want to take their eye of the ball to compete with a company with vastly greater resources (Microsoft has nearly double their cash and a 30% higher market cap) in their primary competency?

Why Microsoft Will Win

Will Microsoft’s Windows 8 be a better product than Apple’s iOS.  I highly doubt it, but that’s not really the question at hand.  They will win, strangely enough, because they will play the role of the disruptive innovator in the market.

To see what I mean, take a look at this chart based on Clayton Christensen’s classic The Innovator’s Dilemma.
 

 
Apple, of course, is represented by the top line.  They are an integrated company that created an interdependent architecture that greatly improved performance.  Microsoft is seeking to create an alternative, modular architecture by partnering with every other manufacturer in the world.

Moreover, since they are basing their product on HTML5, developers won’t be beholden to a native environment.  Their platform will be the most open and thousands of innovative minds across the world will be able to add to it.  They won’t have to fight the “app wars.”

So the question isn’t whether Windows 8 be the best platform, but whether it will be “good enough” and there is every indication to suspect that it will be.  That might not be heroic, but it probably will be enough to put them back on top.

Greg