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.