
Is Microsoft in trouble? - mjfern
http://www.fernstrategy.com/2010/10/18/is-microsoft-in-trouble/
======
potatolicious
> _"In video game consoles, the Xbox 360 is trailing far behind the Nintendo
> Wii in market share, despite the fact that the Wii is using older generation
> technology (VGChartz, 2010)."_

I was with them until here. The Xbox 360 has claimed a _gigantic_ share of the
market starting from _nothing_ just a few short years ago.

Compared to Nintendo, whose sales of the Wii have slowed to a relative crawl,
and whose mobile gaming market is being relentlessly gutted by smartphones.

The Xbox is also enjoying an attach rate that is the envy of the industry
(simplified: number of games bought per console), as well as being the only
one able to get away with _charging_ for online services. They're also about
to launch a device that (having tried it myself) makes the Wii's #1 selling
point an also-ran.

If anything, the Xbox is stronger than ever before, and one of the few
examples of markets where MS is doing just about everything right.

I'm convinced that J Allard's departure was a gigantic blow to Microsoft; in
fact, IMHO the secret to MS's success in the consumer products space lies in
the Xbox team.

~~~
mjfern
Good points, but let me offer a few counterpoints:

\- All three consoles started from nothing just a few short years ago, and in
fact the XBox 360 had a year head start on the PS3 and the Wii (launching at
the end of 2005 versus end of 2006 for the PS3 and Wii.)

\- According to VG Chartz, the Wii has sold 8.97 million consoles from Jan-Oct
2010, while the Xbox 360 has sold 6.8 million and the PS3 has sold 7.1
million. Yes, XBox 360 sales faired much better over the summer, but we will
have to wait and see if this indicates a sustainable trend or a blip.

\- Yes, Xbox 360 is doing well from the standpoint of attach rates, with an
8.9 versus around a 7ish for the Wii. It appears the PS3 has been gaining
significant ground lately with its attach rate.

\- In the fiscal year 2010, Microsoft's Entertainment and Devices Division
(which includes the Xbox 360) generated $8.5 billion in revenues and just $679
million in operating income. Considering Microsoft's consolidated operating
income in 2010 was $24 billion, this $679 million represents only about 3% of
Microsoft's profits.

\- Ultimately, the Xbox 360, the PS3, and the Wii may be irrelevant given the
emergence of connected televisions, thin devices, and cloud-based gaming.

~~~
Keyframe
_Ultimately, the Xbox 360, the PS3, and the Wii may be irrelevant given the
emergence of connected televisions, thin devices, and cloud-based gaming._

This doesn't make sense. Why would they become irrelevant? I presume we're
also talking about future generations of said consoles. Even if, by some
magical miracle, computational needs of those consoles push onto the cloud
(like Gaikai and OnLive), they'll still be a platform, and developers and
publishers will still make games for them - and player will buy games for them
because games are on those platforms.

------
sriramk
As someone who works on Windows Azure, this got under my skin a bit :). In
particular, I thought this was slightly lazy writing

(W.r.t Azure) "I suspect it’s not performing well" and "Put simply, it’s hard
to imagine that Microsoft is aggressively developing or marketing Azure, since
cloud computing offerings directly threaten Microsoft’s revenues and
profitability in the PC market, especially its Windows and Office products. "

From Ballmer mentioning "we're all in" in pretty much every speech he has done
recently all the way to Azure being all over the financial analyst meeting
[1][2], I sometimes think there's not a day that goes by when I don't hear
about Azure in some way from MSFT :)

[1] [http://kara.allthingsd.com/20100729/liveblogging-
microsofts-...](http://kara.allthingsd.com/20100729/liveblogging-microsofts-
financial-analyst-meeting-its-a-beautiful-day/) [2]
[http://www.eweek.com/c/a/Cloud-Computing/Microsoft-Pushes-
Cl...](http://www.eweek.com/c/a/Cloud-Computing/Microsoft-Pushes-Cloud-at-
Financial-Analyst-Meeting-675840/)

~~~
mjfern
Sorry, that wasn't my attention. I tried to research Azure online, looking for
hard numbers on its performance in the cloud computing market (e.g., # of
companies using Azure, adoption rates, etc.), but I was unable to find any
concrete data. In fact, I struggled to even find a thorough review of Azure.
Can you please point me to some data and/or reviews so I can incorporate this
information properly into any future posts? Thanks!

~~~
sriramk
Some quick links

\- Back in June, we announced 10K paying customers (6 months post launch)[1].
If you're looking for some 'big names', eBay, Dell, Fujitsu and HP are going
to be using the Azure Appliance [2]. This is of course apart from internal
teams like the Bing Twitter stuff. There's a neat Pivot visualization of case
studies and partners here [3]

\- Review - I'm not sure what you're looking for. Searching for 'Windows Azure
review' brings up a lot of hits. I've written a book on it and so have others.
There are tons of blogs dedicated to it (azurejournal.com for example). What
exactly are you looking for?

My intent with this isn't to sound like some marketing droid.:)

[1] [http://www.zdnet.com/blog/microsoft/microsoft-passes-
the-100...](http://www.zdnet.com/blog/microsoft/microsoft-passes-
the-10000-customer-milestone-with-azure/6433) [2]
[http://www.techflash.com/seattle/2010/07/microsoft_cloud_com...](http://www.techflash.com/seattle/2010/07/microsoft_cloud_computing_appliance_to_be_tested_by_ebay.html)
[3] <http://www.microsoft.com/windowsazure/evidence/>

------
jp
So Microsoft is failing because Apple, Google and Nintendo is performing
better in seperate markets ? What about the Nintendo Office Suite, the Apple
SQL Server or the Google Zune ?

~~~
ratsbane
The Apple SQL Server is MySQL or Postgres. The Google Zune is Android. Lots of
people still pay the premium price for Microsoft Office but they don't need
to. I haven't used it in years. Instead I use Google Docs and OpenOffice.

~~~
aphexairlines
How is this an argument? You personally don't use a product, ergo it's dying?

~~~
ratsbane
That clearly wasn't my point.

[http://blog.rescuetime.com/2010/06/17/google-is-eating-
micro...](http://blog.rescuetime.com/2010/06/17/google-is-eating-microsofts-
lunch-one-tasty-bite-at-a-time/)

~~~
recoiledsnake
Those numbers look highly improbable, especially coming from such a small
subset.

This article shows the number of Office online users in just the first 100
days after launch as 20 million, compared to 25 million for Google Apps.

[http://seattletimes.nwsource.com/html/microsoftpri0/20130869...](http://seattletimes.nwsource.com/html/microsoftpri0/2013086938_microsoftofficewebappssays20millionhaveusedit.html)

~~~
Matt_Cutts
Besides those 20M, MSFT recently announced 30 million active Windows Live
Spaces users:

[http://www.betanews.com/joewilcox/article/Microsoft-
Windows-...](http://www.betanews.com/joewilcox/article/Microsoft-Windows-Live-
Spaces-already-dead-WordPresscom-will-only-get-1-of-30M-users/1285781027)

------
moqalib
The article completely drops the ball on the Xbox. The XBox is Microsoft at
it's best and it shows. I understand trying to prove a point, but lets not be
disingenuous.

It feels like Microsoft is 1 winning product away from turning the tide, or 1
loosing product from sealing it's irrelevance. I can't help but think how this
article would've been written if Windows Phone 7 turns out to be a huge
success 2 years from now. It's easy to paint a gloomy picture.

The only trouble I see for Microsoft, is one where they are not seen as a
leader. One where reactionary product after reactionary product renders them
as a technology company seen by the outside world as chasing technology and
not laying it's bricks.

------
aresant
What?

a) XBOX usage destroys Wii in usage, games purchased, and subscription fees
all of which are better indicators of the platform' success than hardware
units sold which are traditionally a loss leader. And oh yah, XBOX is wildy
profitable. Meanwhile Wii sales are down 45% since last September!

b) They are JUST launching their mobile platform which has gotten fair to
begrundgingly good reviews and is opening in 30 markets supported by HTC,
DELL, LG, AT&T, Verizon, etc. You can expect MSFT to be AT WORST the #3 player
in an insanely huge and growing market.

c) BING just signed an innovative deal with Facebook, Google's copying
features from them, and they're gaining traction while Google has been
stagnant and slightly down year to date.

And that's ignoring that Windows 7 is on a tear, and a great product to boot.

2010 has been a huge year for MSFT, if they manage to keep executing at this
level they are going to win a couple of these markets.

Microsoft plays loooonnnnng ball and they've got tens of billions in the bank,
I certainly wouldn't say they're in trouble.

DATA:

[http://www.crunchgear.com/2010/10/15/uh-oh-september-wii-
sal...](http://www.crunchgear.com/2010/10/15/uh-oh-september-wii-sales-
down-45-from-last-year/)

[http://www.gamespot.com/xbox360/action/halo3untitledodstgame...](http://www.gamespot.com/xbox360/action/halo3untitledodstgame/news.html?sid=6237794)

[http://www.engadget.com/2010/10/11/microsoft-announces-
ten-w...](http://www.engadget.com/2010/10/11/microsoft-announces-ten-windows-
phone-7-handsets-for-30-countrie/)

[http://www.businessinsider.com/chart-of-the-day-total-
cash-a...](http://www.businessinsider.com/chart-of-the-day-total-cash-and-st-
investments-of-tech-companies-2010-2)

<http://siteanalytics.compete.com/bing.com/>

[http://www.comscore.com/Press_Events/Press_Releases/2010/10/...](http://www.comscore.com/Press_Events/Press_Releases/2010/10/comScore_Releases_September_2010_U.S._Search_Engine_Rankings)

[http://www.comscore.com/Press_Events/Press_Releases/2010/6/c...](http://www.comscore.com/Press_Events/Press_Releases/2010/6/comScore_Releases_May_2010_U.S._Search_Engine_Rankings)

~~~
mjfern
To your points above:

a) In Microsoft's 2010 fiscal year (which has ended), its Entertainment and
Devices Division (which includes the Xbox 360) generated $8.5 billion in
revenues and just $679 million in operating income. Considering Microsoft's
consolidated operating income in 2010 was $24 billion, this $679 million only
accounts for about 3% of Microsoft's profits. And in any event the Xbox 360,
the PS3, and the Wii may be irrelevant given the emergence of connected
televisions, thin devices, and cloud-based gaming.

b) I am moderately pessimistic about Microsoft's prospects with its Windows
Phone 7 OS. There are definitely some promising signs, such as WP7’s
distinctive and innovative user interface and Microsoft’s extensive
partnerships with smartphone OEMs, application developers, and carriers. But
there are also some definite warning signs: WP7 isn’t market ready, and it’s
already mid-October; Microsoft is making it difficult for developers to
convert existing iOS and Android applications over to WP7; Microsoft’s brand
is weak with consumers and the developer community, especially in the
smartphone market; and WP7 comes with a price tag, while the competition is
free, at least on a variable cost basis. There’s also the fundamental issue of
competition, which includes several ambitious and innovative companies,
especially Google and Apple, that have established platforms and abundant
application markets. Here are some more thoughts on WP7:
[http://www.fernstrategy.com/2010/10/13/the-windows-
phone-7-c...](http://www.fernstrategy.com/2010/10/13/the-windows-
phone-7-challenge/).

c) Bing has made some inroads in search, but laregely at the expense of Yahoo.
For the year, I don't believe Bing has gained at all on Google. There are
powerful network effects and learning curves in search, and tremendous scale
economies. It will be very difficult for Bing to grow its share in search,
much less overtake Google, unless Bing releases a game changing protectable
innovation, or Google makes some kind of fatal mistake.

~~~
recoiledsnake
Regarding point a, the Entertainment and Devices division included Live, which
they are heavily investing in, thus giving out a loss. The true profit of the
XBox is much higher than $679 million.

And what do you mean by 'Windows Phone 7 is not market ready, and it's already
mid-October' ? They're launching in 2 days in Europe and in 3 weeks in the US.

Also, from your linked article you write that Verizon won't be bringing out a
WP7 phone in 2010 or 2011. Source?

~~~
cryptoz
> And what do you mean by 'Windows Phone 7 is not market ready, and it's
> already mid-October' ?

I'm not sure what the OP meant by that, but here are some guesses:

1\. If your friend emails you his address and you want to see the Bing Map to
the location, you have to find a _pen and paper_ to write it down. Then you
have to open the Maps application and _manually type it in_.

This is because there's no copy+paste.

2\. The web browser is IE7 + bits of IE8. This means very slow JavaScript, no
HTML5, and a MS-locked-in web experience.

3\. App developers cannot use sockets to access the internet, so most cool
apps will be near-impossible to develop.

~~~
recoiledsnake
1 is patently false. See here [http://www.mykindofphone.com/bring-on-bing-for-
windows-phone...](http://www.mykindofphone.com/bring-on-bing-for-windows-
phone-7)

>For example, if someone sends you an address in an email, the phone will pick
that up and turn it into a link. Click on that and you are in Bing maps

Also, Copy paste in coming at the beginning of next year.

2\. JavaScript is fast enough. See
<http://www.youtube.com/watch?v=zgvphQx9MY8> There's no HTML5 though but I
fail to see how it creates a 'MS locked-in web experience'.

~~~
btilly
The "no HTML5" is a biggie. A lot of websites have come to rely on having
WebKit based browsers on smart phones, and so their mobile content uses HTML5
features that Windows Phone 7 does not support. So you have to fall back to a
_really_ crappy experience.

------
protomyth
Microsoft makes a lot of money. Sure, its not "sexy", but it has a solid hold
on the enterprise. Nothing seems to be taking any significant market share
away from Office. People just seem to expect one company to own 90% of the
market and that really isn't going to happen with cellphones. Heck, the iPod,
probably one of the more dominant devices in a consumer market, didn't get
above 75%.

Microsoft, like DEC with the mini to micro transition, is having a tad bit of
trouble jumping from PCs driven by corporate sales to mobile devices driven by
consumer sales. This is being mitigated by their experience with the XBox line
in the consumer market. They make a lot of cash and probably will be one of
the big cellphone / portable device operating systems. They also have a very
large chest of patents to help with positioning.

------
theprodigy
Microsoft is not in trouble yet. They still make huge amounts of cash so they
can keep trying to gain share in these "disruptive" markets. Though they have
failed time and again they have the money to keep trying and they just need to
be successful once and that cash and brand can solidify their postion.

------
contextfree
I have no idea why you think that (paid, subscription-based) cloud computing
offerings threaten Microsoft's revenues. In fact they've been trying to get
people to move to a subscription model for like a decade now - which is
understandable, since competition with their own previous versions and keeping
people on the upgrade cycle has always been one of their biggest problems -
and they are definitely aggressively promoting it (considering that this
year's and the last two years' PDCs are largely focused around it).

They are threatened in the consumer space by the trend towards web
applications, they're not threatened in the enterprise space by the trend
towards subscription-based cloud services (which is overhyped - including by
Microsoft! anyway, but that's another story) - they welcome it. I guess people
are conflating the two.

(Since you posted a version of this article in another HN thread, I've
reposted my response from that thread here.)

------
garret
Three and a half years ago: <http://paulgraham.com/microsoft.html>

------
Tycho
I'm not sure I follow the logic of the article that Microsoft _has_ to develop
these other segments of its business to be a leader in the future. What's
going to touch Windows and Office?

------
moondowner
If you put it this way, yes they are in trouble. But the thing is.. they are
in trouble for some years, and they still make awesome revenue. Turns out it's
not only about the bleeding edge technology, it's about keeping the current
user group, about marketing, lobbying, etc...

------
jaspero
Microsoft in the recent decade, has tried to indulge itself on different
domains of IT. Obviously, it has failed on all of them, as stated by the
author of this article.

IMO, on contrary to the author, MS should stick to desktop/laptop Operating
Systems. Desktop usage might have decreased but laptop is not going anywhere.
There is so much market untapped in the world, I can't see the end of desktop
OS.

I don't see not using my laptop fo at least a decade. And yes, I don't want to
use iOS or Android on my laptop. I like the old school Linux, Windows or OSX.

Microsoft is not in trouble until they make products like Windows 7.

~~~
endtime
>Microsoft in the recent decade, has tried to indulge itself on different
domains of IT. Obviously, it has failed on all of them,

I thought Sharepoint and SQL Server were huge hits - no?

~~~
kenjackson
They are. Sharepoint in particular has been a surprise breakout hit. But even
SQL Server has done very well and their recent BI push has been a pretty
incredible success. Their online services, via BPOS, have also done very well.

The issue is that in more consumer targeted areas MS is in trouble. But in the
enterprise they're probably stronger now than in any time in recent memory.

~~~
rbanffy
> Sharepoint in particular has been a surprise breakout hit.

Indeed. Tech historians will scratch their heads about that for generations.
It's such a horrid product to use that one can only wonder how bad its
competition is.

~~~
kenjackson
We disagree about a lot, but this is one thing that I do agree with. On both
counts... Sharepoint doesn't seem to be very good software. But the
competition is even worse. If some bright YC company that gets enterprise
could come and do stellar document management, they'd easily have a $100M
company. With potential for a $1B+ company.

~~~
rbanffy
I think it's only the _perceived_ competition that's worse. I have deployed
and helped deploy a great deal of intranets and websites based on Plone (I
worked with "bare" Zope before) and it's delightful to use, manage, develop
for and operate. True it doesn't have a billion+ dollar company behind it like
Sharepoint, Documentum, Oracle's whatever-it's-called, but I think it's a
feature rather than a bug.

> If some bright YC company (...)

As soon as this founder visa thing gets sorted out, I'm in.

~~~
kenjackson
Plone 3 was horrible, but I've heard better things about Plone 4. Post when
you get started on it. I have a list of features that you'll need to get in
the door of most enterprises, and a list of new features that will get you
$10M in licenses your first year, virtually guaranteed.

~~~
rbanffy
While I agree Plone 3 was not as simple and elegant as I would like it to be,
it's much better than most "corporate" CMSs. For the developer, the learning
curve is steep, specially for those unwilling to unlearn bad habits, but for
end users, it's easy to use and fairly complete.

What problems did you experience with it? I may be able to help.

------
kj12345
The biggest threat to Microsoft is their lack of a clear vision and message
about where Office is going. I guess there's some strange service at
officelive.com where I can maybe store, maybe edit documents online, but
possibly I need a license for Office to do so, and I still get the impression
that its meant to be supplementary to the desktop offering. The lack of an
actual full-on web-based product - whether Silverlight or HTML - seems like a
huge failure on their part. They need to create something real here and then
market it in a clear and direct way.

------
benzheren
I stayed in MS research for a little while. Their research department is
really really strong and they have a lot of cool stuff. If they can better
transfer them into products, things will be different.

------
InclinedPlane
Yes. They've been in trouble for years.

There are several key points in the growth (or lack thereof) of a company.
There is the initial inflection point where the rate of growth is positive
(the company begins growing at a faster than linear pace). There is the
inflection point where the rate of growth becomes negative (the company may
still be growing, but slower and slower). Then there is the point where the
effects of that 2nd inflection point become readily apparent, the peak, when
growth stops and then begins to reverse. Then there is the point where the
company has shrunk to a shell of what it once was.

MS has passed that 2nd inflection point, but the peak and the fall are still
ahead of them. With the amount of marketshare, locked in business, and cash-
on-hand they have they'll be a long time falling but the writing is on the
wall, unless something changes.

------
motters
Microsoft isn't dead yet, and its future depends upon how effectively it can
leave its traditional revenue stream behind (Windows and Office). So far it
has been lacklustre in the mobile and search markets, but done well in games.

Despite setbacks (Vista) Microsoft held its own in terms of operating systems
and office productivity software over the previous decade, but in the next
decade I think it's going to be more than overtaken in these areas.

------
naner
They're obviously way too robust and have too much momentum to be in trouble
any time soon.

That being said, visit any college campus and most people are using Apples.
The younger generations are growing up with the perception that Microsoft is
for old people in suits and Apple is creative and classy.

------
asciitaxi
I think the problem is that MS used to sell everyone Windows for $300 and
Office for $300. Then everyone had to buy them again at work. I'm not sure how
they can make this up licensing a phone OS. What can they charge? Ten dollars?

------
lionhearted
I'll never bet against a company with huge, established, consistent revenues
and a strong research culture. That combination gives a large chance of being
able to bring breakthrough technology to market.

~~~
code_duck
Why can they not finish projects like the Courier tablet they were showing
around? Or, even better, release something innovative _before_ someone else
has proven the market.

It's been years, and they are just barely getting around to addressing the
iPhone. They let Apple take off running with the iPad, and Microsoft still
offers no comparable hardware or software... and it's not clear at all when
they will.

~~~
Someone
1\. They weren't showing a tablet, they were showing an idea. Nobody can build
that thing at a reasonable price with technology that is available in the next
two years.

2\. IMO, they are making a long bet on C# and .Net that may pay of huge. C# in
particular is a bit to programming languages what Apple is to computing
devices: nothing really new, but really nicely packaged. Having said that,
their focus on backwards compatibility doesn't help in keeping things nice.
For example, .Net has how at least 3 XML serialization technologies, all with
their own set of problems.

~~~
code_duck
Well, while they were showing an idea, Apple was selling 5 million tablets. I
don't see why the idea is impractical, though - it was basically two iPads
stuck together with a hinge.

They have done well with their version of Java. It's generally well regarded.

~~~
Someone
I do not see how one would combine 'two iPads with a hinge' with 'for a
reasonable price', even if it were 7" iPads. That hinge complicates the
engineering a lot; the easy choice would be to have batteries in one half and
CPU in the other, but I fear that might lead to asymmetry in weight and/or
volume of the device.

~~~
code_duck
So, who is going to be the first to make a device like that? I have no doubt
we'll be seeing them within 5 years.

