Observing Microsoft, Part 2

Some of the most important assets a company has are its brands. A brand distinguishes a product from its competitors and can spread out like an umbrella to encompass several related products. But it must be coherent, meaningful, and inspire trust and signify value. You don't want a brand to become unclear. Brand management is a vital aspect of business.

Microsoft's main brand is Windows, an operating system. It is an umbrella brand, covering Windows 8 and Windows Server, though many people still are running Windows XP and Windows 7. The company also has the Office brand, which is an umbrella brand covering various pieces of software, like Word, Excel, PowerPoint, and Outlook. The brands specifically spell out what Microsoft is known for, and by inference what it is good at: operating systems and software.

It is abundantly clear that Microsoft is stepping out of its circle of expertise by creating hardware. It seeks to add another brand, Surface. But the Surface product is actually Microsoft Surface with Windows RT.

Let's look at the Windows brand. The billion or so Windows users are all familiar with Windows user interface. This includes such items as the taskbar, the start menu, and the desktop, with the plethora of blue-topped rectangular windows, from which the brand gets its moniker. Icons on the desktop, really just aliases to actual files, are called shortcuts.

But by creating a touch-based interface for Windows 8, really just a start-up screen veneer on desktop systems, those one billion users are led into into unfamiliar territory by the new user interface. There are reports of users being uncomfortable with the user interface and putting off the upgrade to Windows 8. Perhaps the main problem is that there are now two user interfaces, and they are quite different.

In some sense, this splits the brand, fracturing what Windows actually means. And that's not good. Furthermore, using the Windows brand on their hardware products actually stretches the Windows umbrella brand to include hardware, which has dire consequences for their OEMs like Sony, Toshiba, Acer, Asus, Dell, and HP. Reports are emerging that Dell urged Microsoft not to use the Windows brand for their Surface product. This causes confusion as to what Windows itself actually is: is it an operating system or a computer? Oh, man.

Some even claim that Microsoft is abusing the Windows brand.

All this, combined with the apparent lack of Surface sales, has investors in the same boat as the Windows user base: should they invest in Microsoft now?

Many users seem content to wait for Windows 9. There are some indications that Windows 8 could be like Windows Vista, which was met with whole-hearted scorn from users, who hung onto their prized Windows XP systems. Only with Windows 7, captained by recently-fired Steven Sinofsky, did the users finally resume their upgrades.

Arguments in favor of Microsoft's current Windows 8/Surface strategy center around three concepts. The first is, because they covet the Apple revenue model, that by integrating their software with their own hardware, they can do the same. The second is that they can't abandon the Windows brand and simultaneously they must make a move into the mobile space with it. And the third is that they are bridging the gap between tablets and laptops.

Perhaps, if they can do any one of these things right, they will survive. But right now, analysts have been noticing that PC sales have been dropping off. This is because the mobile market is disrupting it. Notice I didn't say that the tablet market is disrupting the PC market. More and more users are using mobile devices. By making their tablet more like a laptop, Microsoft doesn't really get what's happening.

The Holiday Season

The holiday season accounts for a large amount of retailers' sales annually. Indications are that online sales have surged 16% this season over last year. However, retail sales in brick-and-mortar have only risen by about 2.5%. But, to me, there is no doubt that the malls are crowded. Yesterday, it took me about 40 minutes to find a parking spot at the ValleyFair mall in Silicon Valley! This could mean that retailers are selling, but just not the big ticket items. This testifies to economic troubles or perhaps the widespread purchase of discounted items after hurricane Sandy.

The sales of Windows 8 depends partly upon the purchase of new computers. This is because those who purchase the new, exciting computers are essentially a captive audience. And if consumers (and possibly businesses) aren't buying the big-ticket items, then that could be a reason.

Let's analyze that for a moment. If computers are more expensive than tablets, then the consumers will buy tablets. Businesses will rush to construct low-cost business solutions using tablets as well because they can save on expenses - and the apps are there. And even if they aren't, the cost of developing corporation-local apps will make the conversion worth it. Nitro Mobile is one such company that specializes in creating corporation-local solutions on mobile platforms, like iOS.

Another sign that sales for Windows 8 aren't quite up to snuff is this article about Microsoft stores in the metropolitan New York Area, which states again that Microsoft stores were sparsely populated when the aisles at the mall were practically impossible to get through. In Silicon Valley, I noticed the same thing: Microsoft stores were just not filling up or selling their wares as fast as Apple stores. Perhaps Ballmer's idea of putting Microsoft stores right next to Apple stores wasn't so good after all: it invites unfavorable comparison. For PC sales to be lackluster in the holiday season is more than just a slow start. It's a definite problem. The market is changing fast.

Disorganization

Why is it that we need things to be a little disorganized to understand them properly? Because perfect order doesn't really exist and it is most certainly the flaws that draw our gaze and make us think.

Mistakes are classic examples of disorder: an accidental paint spill, or a hand slips and draws an errant line. Perhaps they are intentional: on a whim, we decide to take a different path home, or we try a different turn of phrase or melody line so we can convey our thoughts in a novel way.

Even the need to convey disorder is useful to us. The Firm, in their song Radioactive, evoke a kind of complexity and disorder in the solo with what appear to be random notes.

In fact, I'm not sure that any perfectly ordered world would even be desirable. Consider Pleasantville: when everything is perfect, it becomes irrelevant, and the intrusion of the real world causes things to turn upside-down very quickly. To make the best music, perhaps we have to have trauma and discontent. One of my favorite of this genre is Everclear's Wonderful: childhood trauma makes for the best songs, right?

So music is clearly affected by this notion that increasing entropy is inspirational. But drawings and painting are not immune to this. Recently I wrote about the nail that sticks out, and this testifies to the effect of disorder on progress and disruption. Really, the world wouldn't be the way it is without the crazy ones.

In fact, Darwin would almost certainly agree that humans wouldn't even exist if it weren't for disorder. If DNA just replicated perfectly and everything was stable, we would never evolve. If that stray cosmic ray didn't wreak havoc in somebody's gene, we would still be amoebas. Or, more likely, amoebas wouldn't even have existed at all.

Some say that the stray rays also come from the earth itself. This is true. We have radioactive elements in the earth's crust and so they contribute as well. Trace impurities thus become central to essential change.

Order implies lack of change and therefore stagnancy. Perhaps this is why it is so seldom that I clean up my office! Yet I like to solve the Rubik's cube. This inherently is an act of finding patterns in randomness and restoring order, like solving a jigsaw puzzle.

We can see patterns and images in disorder. Little things become noticeable. Our imagination wanders. We are all looking to make sense of randomness, like when we see familiar shapes in the clouds. Perhaps it's a kind of wishful emotional need.

Let me tell you a short story. Kai Krause and I were visiting Steve Jobs to show him our recent advances in human interface in 1999. I showed the Idea Processor, which was almost all the joint work of myself and John Derry. It featured the concept of disorganization. There were stacks of unsorted pages that could overlap into little messy piles that, once they were in a pile, you could straighten them up. Or clip them together. One could be double-clicked to spread it out for perusal.

Of course, Steve instantly showed us that it wasn't scaleable. But he also made a comment about disorder. "People don't need computers to make messes. They need them to organize." That's one of the things I liked about Steve: he always got right to the point.

But, of course, it wasn't thirty days before Steve walked into our booth at a Seybold show in San Jose, located me in our press room, and set up a one-on-one meeting so he could recruit me.

When I make patterns and texture, I'm looking for another kind of disorder. Well, the patterns repeat and therefore they are by definition ordered. But they look disordered to the eye. What I want is an artful kind of disorganization that is pleasing to the eye. So once again creativity is involved in the crossroads between order and disorganization. Like in the annealing pattern above.

And once again I have applied some principles that don't seem to apply (the principle of disorganization to the process of creating order) and it leads to a creative result.

Observing Microsoft

Microsoft doesn't hang quite as straight as it used to. What has happened to Microsoft? If the question is even being asked, things can't be going well.

The media are definitely asking the question. For instance, an interesting article in businessinsider asks whether Steve Ballmer's nightmare is coming true.

I don't know if it's poor execution or just the fact that Microsoft has been classically a software company (its name literally means microcomputer software) but I wonder at the missteps in their Surface strategy. We'll get to that in a moment.

I pointed to Microsoft's corporate culture in my blog post The Nail That Sticks Out. I am positive that they are fabulous about research in the ranks but at the top levels I believe their management is grimly despotic and unimaginative. In that case, what they need is a great leader. A few days ago, Microsoft CEO Steve Ballmer said, "We see nothing but a sea of upside". But they need a leader that doesn't need to boil the ocean to come up with the gold. One that has a vision for what can work. And, more importantly, what people will buy.

They need two things: focus and simplicity.

It is sad that, today, there are more than a few trends that point to the beginnings of a death spiral for Microsoft. To name a few: tablets start to eat the PC market, mobile computing succeeds for others but not for them, gigantic software bloat like Excel and Word are being replaced in the industry by small, mobile apps that cost a only a few of bucks, and companies are starting to use a Bring Your Own Device (BYOD) policy for their IT connectivity.

Individually, any of these trends would be quite bad for Microsoft. Taken together, these things are terrible.

Getting Into the Hardware Game

Microsoft's CEO Steve Ballmer laughed at, then roundly criticized the iPhone in September 2007 after it was introduced by Steve Jobs. It is clear that he simply didn't understand what was going to happen to the mobile space in a short five years.

Microsoft should have been working on Surface from that moment onwards. But clearly that didn't happen, since they only introduced Surface one month ago. To build mobile devices, Microsoft has to undergo a major transformation.

Microsoft claims that they are a hardware company. Mice and keyboards do not count. Comparing Microsoft to Apple, Dell, or HP in hardware prowess would be like comparing someone who dipped their toe into the pool with an olympic swimming champion. So that leaves the Xbox, which plugs into the wall. This doesn't exactly point to expertise miniaturizing hardware or really building any mobile computing technology. And their Xbox gaming platform is also under siege by mobile. They should never have let this happen. A whopping 61% of mobile phone owners use them for games. It is noted that iOS is the world's leading gaming platform.

So, why is Microsoft, a software company, also becoming a hardware company? Simple: both Apple and Google have the ability to craft their software and hardware together. In Apple's case, this core competence specifically led to the disruptive, record-breaking products such as the iPod, iPhone, and iPad that consumers just can't get enough of. In the process, these products and the ability to execute has led to a profit model that is unparalleled in the business and now the envy of Microsoft.

And this is exactly where Microsoft wants to be: back on top.

Which means they must build hardware so they can create the whole product. Microsoft knows from experience that their OEMs willfully do what they want. And lag behind Microsoft's wishes and suggestions. Furthermore, the developers will have a larger set of hardware configurations to support. This has always been a problem with Windows: its generality. And it is the current problem with Android. If Microsoft wants to take a page from Apple, it must control the hardware configuration as well.

Microsoft's act of angering the OEMs by creating its own home-grown hardware is dangerous and can backfire on its revenue stream. For one thing, this doesn't build on its core competence. In retrospect it might have been better to take the Google approach and simply buy one of the OEMs, perhaps Sony or HP. Still, Microsoft clearly knows that mergers are not an easy process so it foolishly started building hardware.

Windows 8

Microsoft says they sold some 40 million licenses (hologram stickers). So Windows 8 is going great, right? Well, no. Firstly, this only represents Windows 8 PCs that have been shipped to retailers or distribution points, not end-user licenses (I can't believe they don't report end-user licenses!). Secondly, StatCounter reports that the Windows 8 usage share is falling behind Windows 7 in a comparable period from the launch. At only about 33% of Windows 7 usage, Windows 8 usage is in a serious lag. The firm NetApplications is telling the same story. Perhaps this is the effect of hurricane Sandy, as they said. But it's already one full month since the October 26th launch (and the hurricane). Things should have equalized by now.

On Black Friday, the busiest shopping day of the year, I would have expected the new, exciting Microsoft Surface RT to be a top seller, fulfilling several weeks of pent-up demand. Indications are just the opposite. When I have thrice visited the Microsoft and Apple stores in the Santa Clara Valley Fair mall since, I have consistently seen that customers in the Apple store outnumber those in the Microsoft store at least two-to-one. Though I did see my first Microsoft bag yesterday, being carried by a woman in Nordstrom.

Another force limiting Microsoft sales of Windows 8 has been the OEMs such as Toshiba, Sony, and Dell. The situation is this: both Windows 8 and appropriate OEM hardware must be in sync to produce the large numbers Microsoft is really expecting. My suspicion is that the enthusiasm of the OEMs has been dampened by Microsoft's entry into the hardware market. It has essentially become their competitor. I doubt that is going to help the relationship between Microsoft and the OEM. And they need to co-operate closely to get the numbers going. The OEMs, because there are several and they work to outdo each other in price, already operate on small margins and so it has become a dog-eat-dog world.

So PC sales are sluggish, and reportedly sales of Windows laptop and desktop devices have dropped 21% year-over-year since the Windows 8 launch, led by a 24% drop-off in laptop sales.

Nonetheless, it's must be fortunate that Microsoft's strategy is moving towards the mobile space, right? I would say that it's an absolute necessity. Let's look at that.

Windows 8 features a new modern user interface (UI) that features live tiles and supports touch. At first glance this new UI looks like the first real competitor to the elegance and clarity of iOS. Yet, I have two questions:

How Well Does It Work?

A friend brought in his Microsoft Surface RT this last week and I spent some more time playing with it and comparing it to my gen 3 iPad. Microsoft claims the text is sharper and better. The displaymate.com shootout shows that it really isn't. To me, the Surface is certainly not clearer. It seems designed to look good to PC users who have been using Microsoft fonts for years. Come on! In a side-by-side comparison there was no comparison: the iPad looked way better. Hell, even an iPad Mini text looked better. I compared the nytimes.com site directly.

I played around with it some more and found that browsing was an almost completely keyboard-centric experience. I had to have the keyboard attached. And type in the URLs (there was auto-complete). Which meant that I had to use it in the landscape format pretty much all the time because that's the way the keyboard works.

With that keyboard on it resembles a laptop in form factor. I found that, with its built-in kickstand, it really has to sit on a desk to be used. On your lap, it just doesn't work in this form factor. It's just not stable enough. So, it's a laptop that doesn't work on your lap. Hmm.

I am used to holding my iPad on my lap while I am at the couch, with the magnetic cover folded into its triangular shape and the screen therefore at an ergonomic angle to type on. Or using the iPad to read to my son at night with the lights off when he goes to bed. I use landscape for browsing, portrait for reading.

There were some interesting features that I was able to find and use, since I had read a few articles on Surface usability (that mostly came to the conclusion that it was very bad indeed). But it would have been difficult to figure them out if I had to discover them. I actually wondered is there was a user's manual available.

On Surface, swiping from the side and back brings up a task manager of sorts. Then you have to swipe down to change the app you are reading. On the iPad I can double-click the home button for that purpose or, even easier, use a four fingered swipe from side-to-side to get to the next app.

In fairness, on both devices, the gestures and actions need to be discovered. So it is really about how easy these actions are to accomplish.

Won't It Be Confusing For Desktop Users?

Windows 8 becomes the default mode for the desktop systems as well. But doesn't that mean there are two UIs being used and that the users have to switch their brains between them?

Yes, and yes.

In a recent article, venerable PCWorld talked to some usability experts on Windows 8 (before Surface had come out) and so it only deals with the bipolar design of the desktop version.

The overall tone is grim. Users are confused as to what to do. Commands aren't where they used to be. Mouse actions (replacing touch and swipe actions) are unobvious and hard to discover.

In InfoWorld, they call it bad. "Guaranteed to disappoint nearly everyone".

Jakob Nielsen reports that it the disparity between the two UIs is bad for many classes of users, both power and novice.

Live Tiles

This seems like a pretty good feature. And my experiences with Surface indicated that they are useful. Yet Microsoft doesn't really exercise enough control in their usability guidelines. Or they exercise the wrong control, which would be worse.

In an excellent summary article, Jakob Nielsen reports that unfortunately live tiles' implicit call to action creates "an incessantly blinking, unruly environment that feels like dozens of carnival barkers yelling at you simultaneously". That's not a good thing.

So let's just say that understated is not a term I would use with the Windows 8 user interface.

Perhaps this is one good reason why Apple curates the apps that can be run on their devices.

What's Going On With Surface Pro?

You can't use current Intel-based Windows apps on Surface RT because it uses an ARM processor, like the iPhone, iPad, and nearly all other mobile devices. This is generally because of the economical power consumption of the ARM. So you have to wait for the Surface Pro, which supports Intel-based applications, arriving in 2013.

The latest on the Surface Pro is, since Microsoft states it will use an Intel "Ivy Bridge" Core i5 processor, it will get about half the battery life of an iPad. Microsoft could have used an Atom "Clover Trail" processor or even one of the newer-generation Core "Haswell" processors. Either one would have required significantly less power.

It is becoming increasingly clear that power management becomes the main issue with designing a new gadget. After all, you can't just keep adding cores.

Hey, it hasn't shipped yet. They could still change it, right?

I think they really need their first full-featured Intel tablet to be a winner. But that battery life issue could be a real deal killer. Brian X. Chen from the New York Times, tweeted RIP in advance.

Surface Pro comes out at $899 for the 64GB model and $999 for the 128 MB model. And I believe you will need a keyboard for it. My experience trying out the two keyboards is that you will want to $120 Type Cover.

So, why not buy a MacBook Air, which actually costs less than the Surface Pro/Type Cover combination?

You can certainly use a MacBook Air in your lap.

Going Mobile

The claim is that by 2014, mobile internet usage will overtake desktop internet usage. So Microsoft needs a mobile solution as soon as possible. Like yesterday. Some argue that Microsoft may simply be too late.

Star power testimonials, like that of Oprah, were rendered famously laughable because they were tweeted on an iPad. Maybe they should have gotten Ashton Kutcher, or somebody like him with much more social media cred. And knowledge.

And BTW Oprah, you can tweet from the browser in Surface. Be careful how you (or your flotilla of social media minions) make testimonials. Sometimes it's the little things that matter!

What's Keeping It Propped Up?

Microsoft is being kept afloat because its revenue stream, with Windows, Office, Xbox, Server, and support, is not going to fall through the floor any time soon. There are plenty of loyal users. Who have iPhones and iPads and use them day in and day out. Even at work now that they started this BYOD stuff. Hmm.

Microsoft makes about 30% of their revenue from Office products and 55% of their revenue from Windows, Windows Server and Tools. The other odd 15% comes from their Entertainment division (Xbox) and their online services (support).

So if Windows begins to tail off, they can still exist merely by keeping Office relevant in the mobile environment. I hear an iOS version of Office is in the works.