One of the key factors in bringing the Personal Computer era of business to a close was the end of the upgrade cycle where users tended to buy new systems every three to five years.
For companies like Dell, Acer, IBM and Microsoft this cycle was an important and reliable income stream.
In the early 2000s though it stopped as customers decided that with most new innovations coming onto their computers through web browsers they didn’t need to buy new systems.
For the PC industry, particularly Microsoft, this presented a huge threat to their business models and all of them have been trying to find ways to refocus their businesses.
The ModernBiz Technology Make-Over
Late last year I was asked by Microsoft Australia to participate in their ModernBiz Technology Make-Over where a small business running Windows XP and Server 2003 was given a free tech upgrade to the latest equipment.
This was interesting as it was an opportunity to see how Microsoft and the market are adapting to a very changed industry.
As well I still carry the many scars – most psychological but some physical – from my years of running PC Rescue where upgrading companies’ old technology was a core part of the business.
Doing a tough job
The fallacy many managers and inexperienced companies fall for is that migration customers from old equipment to new systems is a simple matter of copying a few files. It is never that simple.
Upgrading company computers a tough field as every business is unique and in workplace where the technology has been in use for over a decade the learning curve onto new software is insanely steep for staff and management alike.
So watching the process from a relatively safe distance where I wasn’t worrying about losing customers’ data or trying to complete a complex task within a short deadline was quite attractive. Basically I wanted to see the other guys sweat.
Another attraction in participating was to see how Microsoft are managing the transition from supplying business servers to provisioning cloud services and how customers are managing that change in product offerings.
Dealing with a shifting market
For both Microsoft and their customers the shift from one off hardware and license purchases to cloud based monthly subscriptions is a major change in mindset, so seeing how small business users adapt to online services will be interesting.
Overall the technology makeover promises to be an interesting exercise on how the small business computer industry is changing.
For his participation in the Modern Biz Technology Makeover program, Microsoft gave Paul a Lenovo laptop which he hasn’t yet used.
Interestingly most of the case studies they cite involve customers moving from on premise servers onto cloud services.
While that’s very good advice as most customers, particularly small businesses, don’t have the capabilities it shows how the industry has shifted in the last twelve years.
For most of those companies a decade ago cloud service, or Software as a Service (SaaS) as it was known then, weren’t available for most business functions. Today they are the norm and usually the best option for smaller operations.
That shift to the cloud has meant an entire industry now faces extinction as the army of suburban IT service companies that once maintained those servers are now largely redundant.
As the clock ticks down on Windows 2003 server so too does it for all the businesses that once depended upon the PC industry.
In 1977 NASA’s Voyager mission launched from Cape Canaveral to explore the outer solar system, included on the vessel in case it encountered other civilisations were a plaque and a golden record describing life on Earth.
The record was, is, “a 12-inch gold-plated copper disk containing sounds and images selected to portray the diversity of life and culture on Earth.” It containing images, a variety of natural sounds, musical selections from different cultures and spoken greetings in fifty-five languages.
Most American households in 1977 could have listened to the sounds on Voyager’s golden disk but were the spaceship to return today it would be difficult to find the technology to read the record.
This is the concern of Google Fellow and internet pioneer Vint Cerf who told the American Association for the Advancement of Science’s annual meeting in San Jose this week we are “facing a forgotten century” as today’s technologies are superseded rendering documents unreadable.
A good example of ‘bit rot’ is the floppy disk – the icon used by most programs to illustrate saving files is long redundant and few organisations, let alone households, have the ability to read a floppy disk.
For corporations the problem of dealing with data stored on tape is an even greater problem as proprietary hardware and software from long vanished corporations becomes harder to find or engineer.
As the Internet of Things rolls out and data becomes more critical to business operations, the need for compatible and readable formats will become even more important for companies and historical information may well become a valuable asset.
With libraries, museums and government archives having digitised historic information, this issue of accessing data in superseded formats becomes even more pressing.
It may be that important documents need to be kept on paper – although there’s still the problem of paper deteriorating – to make sure the 21st Century doesn’t become the digital dark ages and our golden records remain unread.
For the computer industry that’s been both a blessing and curse; cheap systems have allowed computers to become pervasive but at the same time the collapsing prices have destroyed the business models of those who built their companies upon the industry economics on 1980 or 2000.
Software has fallen a similar amount with computer programs now costing 7/1000ths of what they did 35 years ago. Again this has dramatically changed the structure of the industry with Google and Amazon taking over from Microsoft and Adobe.
While the computer industry is the starkest example of the collapse in prices due to technological change, it’s not the only sector being affected – almost every industry is under similar pressures as margins get stripped away.
Anywhere where middlemen are exploiting market inefficiencies are opportunities for new technologies to destroy the existing business models, Uber are a good example of this with the taxi industry.
With technological change accelerating in all industries, no business or its managers can assume they are safe from shifting marketplaces or new, unexpected competitors.
The stunning quarterly results of Apple announced yesterday compared to Microsoft’s indifferent performance illustrate how the fortunes of two different business cultures have changed.
Apple yesterday announced a spectacular result for its quarter finishing at the end of last year with revenues up 30%, profits by 38% and Earnings Per Share just short of fifty percent.
The announcement was an emphatic vindication for Tim Cook and his management team who made some big bets on the larger form factor iPhone 6 which paid off spectacularly with shipments growing 46% to 74.5 million and revenue reaching $51.2 billion, over two thirds of the company’s total sales.
One notable aspect of Apple’s success is the difference with Microsoft’s and this shows how different business cultures come in and out of fashion.
The Triumph of the MBA
For two decades Microsoft’s licensing business model was dominant and this confirmed the MBA view that companies should do everything they can to move design, research, manufacturing and distribution out of their operations – the virtual corporation where there was no inventory, few costs and even fewer risks was the ultimate aim of the modern manager at the turn of the century.
Microsoft encapsulated this philosophy with its licensing model, while the company made massive sales with huge margins – as it still does – all the business risks in the computer market were carried by resellers and equipment manufacturers. For many years the markets loved this.
Apple tinkered with the licensing model under John Sculley in the mid 1990s during Steve Jobs’ exile but was never really serious about giving away its hardware capabilities and in 2001 moved into retail with the opening of the first Apple Store.
Coupled with the App Store, Apple have come to control the entire customer journey from marketing, design, purchase and ongoing revenue after the product is bought.
King of the new Millennium
While the 1980s and 90s were the time of triumph for the Microsoft model, the 2000s have been good to Apple as shown by the revenue and profit figures.
Apple and Microsoft Revenues 2000-2014Apple and Microsoft Profits 2000-2014
The key inflection point in these charts is, of course, the iPhone’s release in 2007. Apple caught the wave of change as computer use switched from personal computers to smartphones and is now the dominant vendor.
For Microsoft the success of Apple is bittersweet; the company had a smartphone operating system in Windows CE but it was too early to the market and the devices vendors went to market with were, at best, substandard.
Microsoft’s failure with the smartphone was also echoed with tablet computers and exposed the licensing model’s reliance on vendors to supply and support decent products, even today Microsoft’s hardware partners struggle to release decent tablet systems.
Cloudy on the web
Another problem that exposed Microsoft’s weaknesses was the rise of the web where hardware and operating systems really did matter so much any more. Along with pushing out personal computer lifecycles it also had the consequence of allowing other systems into the marketplace, notably Linux and Google Android.
With OS X, Android and Linux systems no longer hampered with the compatibility issues that irritated non-Windows users in the 1990s the market was open to adopting those systems. While the PC market has remained quite loyal to Windows, although the Apple Macs are showing serious growth as well, Microsoft’s system has barely any marketshare in other device segments except servers which are also declining as business increasingly move to cloud services.
Apple have shown in the computing and smartphone business that controlling the hardware products is as important as supplying the software, a lesson that Microsoft now acknowledges with its restructure into a ‘Devices and Services’ company under former CEO Steve Ballmer.
Under current CEO Satya Nadella Microsoft is focusing on cloud services which also aren’t as profitable as its legacy operations but see it competing with companies like Amazon and Google who don’t boast the profits from their online operations that Apple makes from its hardware.
Microsoft aside, the lesson Apple gives the technology is pertinent for its competitors in the smartphone space as well; companies like Samsung, LG and the army of Chinese handset vendors are going to find their markets tough unless they can take control of their software development and distribution channels – relying on Google for Android and telcos to get their phones to customers leaves them exposed in similar ways to Microsoft’s partners in the last decade.
In the battle between business models, Apple is the current winner and shows throwing all of your business operations over the fence to partners and licensees is a risky strategy. How those lessons are applied in other sectors will test the limits of both management philosophies.
