Microsoft hits the Surface

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It’s a staggering figure: $900-million written down for Microsoft’s essentially failed foray into tablet computers. Announced last week, it was one of the many pieces of bad news that littered Microsoft’s most recent earnings. The other key item was the 20% drop in consumer sales of Windows, signalling the lean years ahead.

We are at a tipping point for Microsoft, until a few years ago the undisputed king of the PC industry. Along with Intel, the world’s largest software maker and processor manufacturer ruled the desktop age: where computer upgrades every two or three years guaranteed repeat customers.

But the era of the desktop is over. And rarely are the kings of one era the kings of the next. We live in a mobile world and nothing epitomises that more than the iPhone and iPad, the two blockbuster hardware hits that keep just giving (albeit less) to the Apple bottomline.

Every one of Microsoft’s attempts to match Apple’s hardware – in fact all hardware, if you include the perennially loss-making Xbox – have been a disaster.

First there was the iPod-mimicking Zune, which was released in an elegant mud-brown colour; and couldn’t work with Microsoft’s own answer to iTunes, Windows Media Player. Then there was the Kin smartphone with its BlackBerry-like Qwerty keyboard that lasted less than a month before being pulled for non-existent sales.

The Surface tablet – which bizarrely came in two different flavours of Windows, one of which couldn’t run previous Windows apps – is not Microsoft’s first attempt at a tablet. In January 2010 CEO Steve Ballmer showed off a HP-made tablet called Folio at the Consumer Electronics Show in Las Vegas. It never even made it to production.

In 2000 then CEO Bill Gates ushered in a new era for the “tablet PC,” a laptop with a touchscreen that could swivel around but had to be used with a stylus. It was expensive, clunky and never captured the consumer market. Sound familiar?

Microsoft’s strategic blunders into tablets almost pales into comparison with another fallen giant, BlackBerry, which was forced to write down $485-million in December and may have to write off as much as $1.5-billion according to some estimates.

This makes it incredulous, even moronic, for BlackBerry CEO Thorsten Heins to claim, in April, that: “In five years I don’t think there’ll be a reason to have a tablet anymore. Maybe a big screen in your workspace, but not a tablet as such. Tablets themselves are not a good business model.”

The last person who claimed a new computing revolution would happen within five years was Gates about the ill-fated Tablet PC.

Smartphones, which now outsell PCs, are also going to struggle in emerging markets where cost, battery life and poor wireless data are a major challenge. The rise of mobile devices has prompted premature obituaries calling it the “death of the PC”. In fact, all that has happened is the PC has evolved from a laptop into a smartphone, from a desktop into a tablet.

Sadly, Ballmer’s “one Microsoft” appears to be as confused as the “multiple Microsoft” he is trying to restructure the company away from.

Meanwhile, Microsoft appears to be making all the right moves (and noises) in Africa. The corner piece of this emerging markets initiative is called 4Afrika, which aims to create jobs by training people to use…. Microsoft software.

It’s still the dominant desktop software in the corporate space and big business will continue to buy Windows licences, but consumers might be tempted to opt for an iPad or Samsung tab instead of a new laptop.

So, what we can tell from Microsoft’s strategy to date is this: it doesn’t understand the consumer. Secondly, it keeps trying to communicate with the consumer based on previous successes with the desktop and corporate market. It appears that no-one inside Microsoft understands the consumer, nor knows how to communicate to them. Worrying signs given that consumers are the new growth engine.

This column first appeared on Financial Mail.

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