Microsoft CEO Satya Nadella seeks to find a future for the company as it enters middle age.
One of the great business stories of today is how Microsoft is reinventing itself in the face of a totally changed industry. With the company turning 40, The Economist has a look at the business in its middle age.
The Economist concludes CEO Satya Nadella is making the important changes to the business that founder Bill Gates couldn’t make because he was too protective of the company’s core products and that Steve Ballmer, Nadella’s predecessor, wasn’t interested in making as he sweated the existing assets.
As this blog has pointed out before, The Economist notes the profit margins of the cloud and mobile services Nadella is focusing on are far slimmer than those Microsoft are used to from their server and desktop products.
Those fat profit margins were the reason why Nadella’s predecessors had little reason to refocus the company but towards the end of Ballmer’s leadership it was clear Microsoft couldn’t resist the shift for much longer.
Microsoft’s dilemma was clear to the stock market as well with The Economist having a chart showing the relative performance of IBM, Microsoft and Apple over the last 35 years.
When Microsoft peaked in the late 1990s, the company was worth over twenty percent of the total tech sector’s valuation – today Apple has stolen most of that value.
A particularly jarring from The Economist’s graph is just how much IBM dominated the tech sector a generation ago and its steep decline following the introduction of desktop computers.
IBM’s decline in its dotage is exactly the fate Nadella is trying to avoid for Microsoft, with companies like Google, Apple and Amazon as competitors he has a tough task ahead of him.
In their campaign to amend the US Digital Millenium Copyright Act to give vehicle owners the right to access and modify their automobiles’ software the EFF raises an important point.
Should the software licensing model be applied to these devices then purchasers don’t really own them but rather have a license to use them until the vendor deems overwise.
Cars, of course, are not the only devices where this problem arises. The core of the entire Internet of Things lies in the software running intelligent equipment, not the hardware. If that software is proprietary and closed then no purchaser of a smart device truly owns it.
Locking down the smarthome
This raises problems in smarthomes, offices and businesses where the devices people come to depend upon are ‘black boxes’ that they aren’t allowed to peer into. It’s not hard to see how in industrial or agricultural applications that arrangement will often be at best unworkable.
Four years ago tech industry leader Marc Andreessen pointed out how software is eating the world; that most of the value in an information rich economy lies in the computer programs that processes the data, not the hardware which collects and distributes it.
That shift was flagged decades ago when the initial fights over software patents occurred in the 1980s and 90s and today we’re facing the consequences of poorly thought out laws, court decisions and patent approvals that now challenge the concepts of ownership as we know it.
Is ownership outdated?
However it may well be that ‘ownership’ itself is an outdated concept. We could be entering a period where most of our possessions are leased rather than owned.
If we are in a period where ownership is an antiquated concept then does it matter that our cars, fitness bands, kettles, smoke alarms and phones are in effect owned by a corporation incorporated in Delaware that pays most of its tax in the Dutch Antilles?
Who owns the smartcar’s data?
The next question of course is if the software in our smart devices is secret and untouchable then who owns the data they generate?
Ownership of a smartcar’s data could well be the biggest issue of all in the internet of things and the collection of Big Data. That promises to be a substantial battle.
In the meantime, it may not be a good idea to tinker too much with your car’s software or the data it generates.
W2O’s acquisition shows how data analytics and visualisation is increasingly an important tool for management in a world where businesses are drowning in information.
Last year Vintank co-founder Paul Mabray spoke to Decoding the New Economy about the company and how social media data is a valuable tool for the wine industry.
“The wine industry is last industry to have been changed by internet,” Mabray says. One reason for this in his view is how that the sector hasn’t had a disruptive startup like Yelp or Open Table to drive change and upset incumbents.
Despite the wine industry’s reluctance to adopt digital technologies, social media and the disruption of established media channels is having a profound effect on the sector’s marketing and sales.
“In the old days there was a playbook originating with Robert Mondavi in the 1970s which is create amazing wine, you get amazing reviews and you go find wholesalers who bring this wine to the market,” Mabray told Decoding the New Economy during a visit to Australia in 2014.
Dealing with global proliferation
Mabray also flags the massive growth in the wine industry as being one of Vintank’s driving forces, “the global proliferation of brands the increase of awareness and consumption patterns where people like wine more, those playbooks didn’t work in 2009 when the crisis started.”
A proliferation of new competitors coupled with disrupted communications channels isn’t unique to the wine industry, the attraction Vintank has to the w2O Group’s president Bob Pearson; “VinTank provides us with a way to create agile audience engines for a brand, where we can learn what an audience is doing online, understand what content they like.”
For many businesses social media is a both an opportunity and a mystery; while customers are telling the world what they’re buying through services like Facebook and Twitter capturing, managing and using that information remains a challenge.
Panning for digital gold
As Robyn Lewis of Visit Vineyards whose database holds details on over 30,000 Australian wineries and associated tourism business says, “the gold is in the data.”
Panning for that gold is Emma LoRusso of Sydney social analytics startup Digivizer who told Decoding The New Economy two years ago “the truth is in data”. Services like Vintank, Salesforce’s Radian6, Klout and startups like Digivizer attempt to add context to that data.
Another aspect of Vintank’s technology is the ‘geofencing’ of information, creating a virtual geographic perimeter so only data relevant in that region is flagged. As well as reducing noise, this increases the value to local wineries and tourist operations.
In some respects the geofencing is possibly the most powerful part of services like Vintank as it allows regional operators to focus on visitors and customers to their districts rather than worrying about national or global activity.
W2O’s acquisition gives Vintank access to a broader market outside the wine industry as well as deeper data analytics capabilities. For W20 the purchase adds to the social media tools the company can offer.
Data driven business
The Vintank deal with W2O shows how the marketing and advertising industries are increasingly becoming data driven. For other business functions this is true as well.
For businesses of all types, understanding the data pouring into their companies is going to be the difference between success and failure in an increasingly digital world. Providing those tools to do so is one of the great opportunities in today’s economy.
The problem with firmware is that it’s difficult to check it’s not been changed, awkward to upgrade and complex to find, the Wired piece mentions how even the batteries in Apple laptops have vulnerable software embedded into their chips.
As the smart devices become common in our homes, cars and workplaces suppliers will have to do more to secure their software.
Apple extends its lead over Android in smartphone activations, a teenager’s view on social media and Google’s declining market share.
Today’s links are somewhat more upbeat; starting with Apple extending its lead over Android in smartphone activations, a teenager’s view on social media and Google’s declining market share.
Apple takes the lead in smartphone activations
In their regular survey of mobile phone activations, research company Kantor found that Apple have taken the lead back from Android phones. The Kantar Worldpanel ComTech global consumer panel monitors the brands of phones being connected through selected apps to give them an idea of what’s going on in the smartphone marketplace.
While not an absolute numbers, and one that was inflated by the new range of Apple iPhones released late in the year, it’s clear Apple are by no means out for the count when it comes to the smartphone market.
I’m not sure how accurate or scientific this story is, but it illustrates how complex the social media industry is and how dangerous assumptions are with what age groups use new media channels for.
Document service Evernote cuts jobs proving that even a job in the hottest parts of the tech sector isn’t safe. Notable in this story is the concentration of employment in two locations which shows Silicon Valley isn’t keen on remote working at all.
Microsoft’s network of distributors is the company’s greatest defence believes Corporate Vice President John Case
“Productivity is our life blood,” says John Case, Microsoft’s Corporate VP for the company’s Office product line. “It’s part of the company that we say is our mission.”
Case was speaking at a media briefing ahead of Microsoft’s launch of their Australian Cloud Solution Provider program for resellers with the company making the case for integrators and IT support businesses to sell the Microsoft Cloud Services.
For Microsoft this is part of the evolution from the 1990s “PC on every desk” strategy to a mobile and cloud first service.
This shift doesn’t come without pain for Microsoft and it’s resellers, the cloud is a fiendishly competitive space with Amazon regularly dropping prices and Google steadily eating into the productivity suite market.
Case though is sanguine though about the threats from Google, particularly the increased commissions being paid to resellers which will only put more pressure on Microsoft as resellers consider the options.
For Microsoft the key to success in the cloud depends upon the confidence of customers; security and trust are going to make and break all cloud services, something that Case acknowledges.
Ultimately though Case sees Microsoft’s network of resellers and partners as being the company’s best defense against Google and the shift to the cloud. Whether that network is strong enough to overcome a structural shift in the market place remains to be seen.
Productivity may be the lifeblood of Microsoft’s business but as margins erode, it may be that that market is not longer lucrative enough to sustain a $400 billion dollar business. Microsoft’s fight for survival is on in the cloud.
Nadella’s vision isn’t really anything new; it differs from Ballmer’s ‘devices and services’ strategy but the thrust of the business was always going to be on cloud services and the company’s Azure services regardless of any conceits around tablets or professional offerings.
Of the three key areas Nadella identifies — Windows, Office 365, and Azure — two of them are problematic; the Office 365 for reasons already mentioned and the Windows product line.
The ‘Windows everywhere’ strategy, which also happens one of Ballmer’s earlier initiatives, is doomed as the operating system is not suitable for smartphones or lightweight internet of things devices.
Even if Windows was successful on smartphones or could be successfully ported to low powered smart devices, the margins are tiny compared to the traditional desktop market that was so profitable for Microsoft in the past.
Mantras about ‘productivity’ count for nothing as every software and cloud computing company cater for the B2B market is delivering a service that claims to improve customers’ productivity. That Office is declining as a profit centre only makes things harder for the company.
If anything, Nadella’s discussions illustrate the company is still casting around for the next big profit centre. As the Windows and Office franchises decline, time may start to run out for the current management just as it eventually did for Ballmer.
Giving away Office apps may lock some users into the 365 service and could prove moderately profitable, but last week’s moves indicates a much smaller future For Microsoft.
