A Blog by Jonathan Low


Jun 16, 2012

Apple's Revenue from iPad More Than Microsoft's Sales from Windows: Microsoft Tablet Expected

Steve Jobs and Bill Gates were more than mere rivals. They acknowledged 'borrowing' or stealing ideas from each other and were quick to let anyone know when they suspected the other of doing it to them.

That competitive relationship continues from beyond the grave. Financial results reported at the end of the most recent quarter have shed light on the fact that Apple's sales from the iPad tablet have surpassed those Microsoft gleaned from its vast Windows franchise.

Microsoft has been in eclipse for some time. Not that the company doesnt have an intelligent workforce and excellent products, but it is viewed not unlike an electric utility; a lumbering, unexciting behemoth reliably churning out sales and profits from its installed based of Windows users, but without much hope or expectation of exciting, dynamic innovation that could generate the sort of meteoric growth its many tech rivals now produce. Just like the organization that provides your electric power or water.

That Windows has been eclipsed by the iPad, a product originally thought to be a toy with limited application, suggests a lot about the changing ways in which people are using and adapting technology to their work and personal lives. It's not that Microsoft makes bad products, but customer interest has shifted. In their scramble to catch up, they have lurched about, signing alliances with Nokia and other firms with questionable futures, hoping to buy their way back in to the fight.

Microsoft has apparently known this moment was coming. They are reported to be announcing the launch of their own tablet on Monday. It has been 37 years since they introduced a product like this. It may be too late to make a difference. But the larger question is whether this is part of a coherent strategy or another desperate - and random - attempt to catch up. JL

Nick Wingfield reports in the New York Times:
For decades, Microsoft has made the software that runs a majority of the world’s personal computers, leaving a gang of outside hardware companies to design the machines. Apple, its rival, makes it all.

Microsoft is about to concede that Apple may be onto something
On Monday, Microsoft is expected to introduce a tablet computer of its own design that runs a new version of its Windows operating system, according to people with knowledge of Microsoft’s plans who declined to be identified discussing confidential matters. It is the first time in the company’s 37-year history that it will offer a computer of its own creation. The device is aimed squarely at Apple’s blockbuster iPad, which has begun to threaten Microsoft’s hegemony in the computer business.

Microsoft’s move is another example of how Apple has demonstrated that the most effective way to create easy-to-use consumer gadgets is by building the whole package — upending the longstanding practice in the technology industry of companies’ devoting their energies to either hardware or software. Google, too, has made a big concession to Apple’s approach, signaling with its acquisition of Motorola Mobility last year that it will also design its own devices.

Frank Shaw, a Microsoft spokesman, declined to comment.

For Microsoft, the decision to make its own tablet would once have been almost unthinkable. Microsoft swallowed the PC market in the 1980s and 1990s by letting any hardware maker pay licensing fees to put Windows on its machines. That business was so lucrative for Microsoft that there was no reason for the company to make its own PCs and compete for computer sales with its own partners.

The stunning success of Apple, now the most highly valued company in the world, has shown its rivals that they can no longer rely entirely on the business models that were so successful during an earlier era of the tech industry.

With the iPad, Apple coupled hardware and software together in an elegant package, producing longer battery life, a more responsive touch screen and other features competitors have not been able to match.

“If it’s true that Microsoft is going to produce its own tablet, it’s a major turning point for the company and shows just how breathtakingly the landscape has changed in a just a few years,” said Brad Silverberg, a venture capitalist in Seattle and former Microsoft executive, who said he had no knowledge of the company’s plans. “The stakes are enormous.”

In the smartphone business, Google initially followed Microsoft’s playbook by making its Android operating system available to any hardware maker who wanted it, a move that helped turn Android into the top operating system for smartphones. The search company’s hardware partners were far less successful, though, in selling Android tablets to the public, which were often criticized for being inferior to the iPad.

Last year though, Google announced plans to pay $12.5 billion to acquire Motorola Mobility, a maker of Android smartphones and tablets. That deal, which was completed last month, was seen as a big shift in strategy for Google that will help it create better Android smartphones and tablets.

Microsoft and Google are not entirely embracing Apple’s approach. Even as they design their own devices, they both will continue to make their software available to hardware companies that want to base their products on them. Microsoft has already publicly demonstrated devices from hardware makers like Samsung running Windows 8, the next version of its operating system.

Microsoft has invited the media to an event in Los Angeles Monday afternoon, where it is expected to show its tablet device. The entertainment industry Web site The Wrap earlier reported that Microsoft planned to announce a tablet at the event.

For Microsoft, making a tablet is a risky venture. Even with the emerging competition from the iPad, Windows remains one of the greatest franchises the technology industry has known, accounting for $4.6 billion in sales during the most recently reported quarter. Those sales are rooted in Microsoft’s alliance with its hardware partners. The plans could erode the commitment those partners have to Windows since Microsoft will effectively be competing with them for sales.

Also, Microsoft has a mixed track record in making hardware. It makes the popular Xbox 360, but that device sustained years of losses and manufacturing problems before it became a success. Microsoft failed with the Zune, a music player that was designed to compete with the iPod.

But there is also great risk for Microsoft in betting entirely on its old way of working with PC companies. The iPad has already begun to steal sales from low-end Windows laptops, though most people still aren’t using tablets for hard-core tasks like writing long documents and building big spreadsheets.

Timothy D. Cook, Apple’s chief executive, has repeatedly predicted that tablet computers will eventually outsell traditional computers in part because of their simplicity.

In its most recent quarter, Apple’s revenue from the iPad was $6.59 billion, more than Microsoft’s sales of Windows.

Microsoft’s move is a vindication of sorts for Steve Jobs, Apple’s late chief executive and long the technology industry’s most vocal advocate for making both hardware and software. Mr. Jobs often said that the only way to create superior technology products was to “make the whole widget.”

Many technology executives these days have come around to thinking like that, saying that conceiving hardware and software together is especially important with consumer devices like the iPad because of how things like poor battery life and unresponsive touch screens can ruin consumers’ enjoyment of the devices.

“In consumer technology, tight integration of hardware and software produces a demonstrably better platform,” said Roger McNamee, a veteran technology investor with Elevation Partners, a Silicon Valley private equity firm. “But that is only the first step in competing with Apple. Now Microsoft has to deliver functionality superior to iPad in a package consumers want to buy.”

A longtime Microsoft executive, Steven Sinofsky, is leading the company’s tablet effort. Mr. Sinofsky took over the company’s Windows division several years ago, helping to lead a turnaround in the business after the release of Windows Vista, which was widely criticized for early technical flaws.

Mr. Sinofsky’s first step in responding to the iPad was to oversee the most drastic change in the design of the operating system in years so that it could take better advantage of touch screens. That new version of the software, Windows 8, is expected to be released this October on an array of devices, including more traditional-looking computers.

The Microsoft tablet is expected to use a variation of Windows 8, known as Windows RT, that is designed specifically for tablet devices based on a class of microprocessors called ARM chips. That is the same class of chips inside the iPad and other mobile devices.


Post a Comment