Microsoft (MSFT) is one of the most iconic businesses in the tech industry. For years it was the only real kid on the block, so much so that the US government itself had to step in to break the Microsoft “monopoly” in the late 90′s just so that competitors could get a product or two in edge-wise. Now MSFT, while still a top contender in the tech industry, has fallen behind competitors both new and old in many of its once-strongest areas.
Part of this decline in can be attributed to the changing face of personal technologies like PCs and portable gadgets. User interfaces (UIs) in particular have changed dramatically in just the past five years, while Windows has seen little more than updates to a standard model from an increasingly distant past.
In many respects the issue seems to be that Microsoft products are neither ‘easy’ nor ‘fun’.
Microsoft has realised that times are changing and its old business model simply won’t cut it anymore. The general public’s view of personally-owned tech as something that is designed for work, can be intimidating or difficult and that is often left to the realm of geeks is changing to a simple, easy and even aesthetic part of our lives. Never before have personal gadgets been easier to learn, use and acquire. Even televisions have shifted from an isolated video-only unit to an internet-friendly part of a home WiFi network.
It’s not just the way gadgets operate, either. Customers have become used to free or cheap operating systems with equally free or cheap updates that work across multiple devices. MSFT continuing to rely on a purely PC operating system (OS) that’s price falls within the three-figure range just doesn’t make sense against that kind of competition.
Moreover, the increasing consumer demand for technology that not only compliments, but is designed to work fluidly with other products is an important factor. Both Apple and Amazon have had their own cloud systems operational for some time now, as has Google. All operate differently, but still aim to provide a more hassle-free experience when moving between devices. Customers do not only want, but are beginning to expect this kind of support with their personal gadgetry.
This kind of cross-device support not only creates an incentive to buy more products of the same brand, but also creates brand loyalty. When you’re not only providing a product, but an experience that changes how users move between products, or how they use them, you are essentially making a larger impact on their lives that you would with an isolated unit with just one specific purpose.
When a hardcore Apple fan stands up from their iMac they’re still part of the Apple ecosystem. Their iPad, iPhone and even TV (through Apple TV) all work together to provide a unified and easier technological bubble within which they can live. Microsoft’s products currently lack this kind of support.
The Trigger
In discussing how MSFT is changing its business model, and why, it will be necessary to draw comparisons with Apple – a lot.
Apple has been reinventing the concept of consumer technology for some time now. Beginning with the iPod, Apple took something that was generally not used by the average consumer – the MP3 file format – and made it not only appealing, but ‘hip’. Suddenly carrying around a small computer in your pocket full of downloaded or ripped files was cool and easy, rather than something a geek might do. In fact, much of how the face of consumer technology has changed in the past five years can be traced back to Apple.
This re-branding of technology as something that is ‘simple’, ‘easy’ and ‘cool’ has been the basis of Apple’s entire business model since that first game-changing product. The iPhone took smartphones and made them not just a piece of functional hardware, but something that was both pretty and intuitive. It did this not only with marketing, but by actually supplying a product that was straight-up superior to everything else on the consumer market.
One of the reasons this was possible is because Apple has control over every single piece of its products. Design, hardware, software, online stores, marketing and even now 3rd party apps all fall under the purview of Apple and how it wants its product to both function and be perceived. By designing every facet of a device to work specifically with every other facet, a manufacturer like Apple is able to really refine the end user experience, as no room for lee-way and unexpected usage is required. By designing or overseeing every part of a device itself, Apple is able to provide a smooth and, originally, unique product.
This is a major reason why other competitors have not been able to keep up with Apple. Either a competitor must work with a product developed by someone else (such as with Android) or it simply lacks the funds and/or expertise to do everything itself (such as with Palm/HP and BlackBerry).
Microsoft has the funds, it has some experience with hardware and it’s already one of the most recognised brands on Earth. If anyone has a chance of adapting to the changing technology market it’s them. Moreover, if anyone has the resources to single-handedly take on Apple, it might be Microsoft. But that’s a pretty big ‘if’ at this point in Apple’s history.
Microsoft’s Response
Microsoft is making huge changes to the way it does business. In the past Microsoft has relied on separate, isolated products and banked on its reputation and the quality of said products.
The focus was generally on software like the Windows platform, with only rare dalliances in to the manufacturing world with products like the Xbox, Zune mp3 player and KIN smartphone. You may notice that of these three examples only the Xbox has been successful. Moreover, Windows has always been a very straight-forward product with a clear focus on functionality over look or simplicity.
Apple flew in the face of that standard with the recasting of technology as an easy, aesthetic experience that doesn’t need to be deep or complicated. Another big shift in the tech world caused primarily by Apple is the idea that software should be cheap, or even free, and that it is the hardware which should cost money.
This is fine for Apple, as it is a hardware manufacturer with years of experience. Unfortunately for MSFT, this is not the case. Microsoft has always relied on third party OEMs to create the hardware on which its product runs.
This not only means that Apple can tailor each and every device more perfectly to its own software, but also allows for the cost of software updates to be kept to an absolute minimum, as the money can be made back up through hardware sales or online purchases.
Microsoft has realised that a huge shake-up is required. Not only will the iconic company need to change the way it makes products, how its products interact, and how much they cost, but it will also have to adopt new focus on hardware manufacturing if any profit is to be made.
Microsoft’s first large-scale acknowledgement of its need to adapt began on the software front with Windows Phone 7. WP7 was an impressive attempt at a graphic mobile OS, pushing itself to the number three spot for mobile OSes in many countries within just two years of its debut. It received a lot of flak at first for being a “half baked” OS, despite having arguably less flaws than both iOS and Android did when they first launched.
Since then WP7 has had modest success, but not on the scale which Microsoft hoped, or even needs. It’s actually a curious situation. Windows Phone really is a viable and elegant alternative to both iOS and Android, yet its popularity in no way reflects its quality. It’s certainly not for lack of marketing, either. Both Microsoft and Nokia have gone all-out trying to push the Nokia Lumia series as the new smartphone fashion king to little avail.
In response to this lack of consumer enthusiasm, or perhaps as part of the original plan, MSFT has scrapped Windows Phone 7 and completely rebuilt it from the ground up with Windows Phone 8. The user interface is still very similar to the old Metro UI from WP7 (although they were sued out of the “Metro” moniker), but WP8 is aimed at offering a greater cross-platform user experience, while also supporting fully-modern hardware; something its predecessor certainly didn’t do.
This cross-platform, cross-device integration in WP8 is very important. MSFT has completely shifted gear across all of its major products in order to provide a unified, casual experience for its users.
The Xbox brand name has been remade in to an overarching media service for providing music, games and movies on all devices running Windows 8, Windows RT or WP8. Xbox Music is already live for anyone with compatible devices.
Newer updates of Windows have been drastically reduced in price and the Windows OS itself has seen a total redesign. Windows 8 is, in fact, so different from any previous iteration that it has baffled more than one casual user in demonstrations. While it’s definitely a modern-looking UI with a focus on simplicity, retaining the moniker of “Windows” means that users go in with a number of expectations, only to find themselves using a completely new user interface.
The Windows 8 refit is a sound idea in theory, but as we learned from Windows Phone 7 a quality, beautiful UI isn’t all it takes to impress customers. MSFT is going to be relying heavily on public perception if it wants this new business model to take off.
OEM Blacklash
As mentioned earlier, Microsoft has always relied heavily on Original Equipment Manufacturers (OEMs) to make the products on which Windows and other software runs. With MSFT turning its sights on making its own hardware, many of these OEMs, who have been working with MSFT and Windows for years, are feeling slighted.
The negativity from OEMs is not without just cause. How is a third party manufacturer possibly going to compete with the company who makes the software on which they rely? Not only will MSFT not have to pay licencing fees for its own products, bringing the cost down, but it will have early access to R&D information as well as the ability to literally change the OS in order to fit its own hardware better. This is one of the reasons why Apple’s products have a reputation for smoothness, as everything is designed to work with everything else. If Samsung or HTC designed a phone to work with iOS you can bet good money that it wouldn’t offer as fluid an experience as an iPhone.
Right now all Microsoft has done is release the Microsoft Surface tablet, which will go on sale soon. The Surface is an intriguing-looking device that sits somewhere between a laptop and a tablet that, while many negative comments are circulating regarding its price tag of $499 (without the keyboard cover), sold out of pre-orders within the first 24 hours of going live.
There’s nothing to stop Microsoft from entering the smartphone manufacturing game as well. In fact, we’ve heard multiple rumours that it is doing just that. This is an interesting situation, as MSFT and Nokia have a firm partnership regarding Windows Phone 8. Should Nokia face the same problems as MSFT’s tablet OEMs, it could be disastrous. Right now WP8 is the only thing keeping Nokia’s head above the water. Although we find this unlikely, as MSFT recently made the decision to replace its own Bing Maps with Nokia Maps for Windows Phone 8, indicating future collaboration.
Eventually we may start seeing Microsoft releasing its own iMac-esque desktop line. Even televisions, with their new smart-TV focus, might fall within the purview of Microsoft’s manufacturing future. But that would certainly be far down on the list right now.
Difficulties Ahead
As with any well-established company that suddenly totally changes its business practices Microsoft is in for a difficult future. One of the greatest initial hurdles to overcome is educating customers on their new products before they buy or even try them. A customer who is told “this is Windows 8/RT” and then handed a tablet is going to be confused and even a little defensive that, where they had always been able to use Windows before, they now have no idea what they’re doing. Conversely, making sure that customers knows that this is a completely new product with a completely new interface will go in expecting a new experience that they will have to learn.
Customers will also need to know that future Microsoft products will be designed to work together as an ecosystem, rather than as isolated units. While a single tablet might be enough for a customer, they’re going to get far more use and enjoyment out of that tablet if they realise that it can communicate with their PC, their Xbox or their WP8 smartphone.
Microsoft will have to do all of this without triggering a negative public backlash for changing what was for so long the golden standard of technology interfaces. This is probably impossible, as there will always be those who react negatively to change, but some damage control could keep things manageable.
Another issue is Microsoft’s relationship with OEMs. If HP, Lenovo, Dell and all the other PC vendors who have been in the public spotlight for years suddenly disappear, will people simply switch over to Microsoft-branded products without a thought, or will this provide added incentive to try out a different brand, say, Apple?
The biggest potential killer of all, however, is making sure that everything actually works. The Surface, as Microsoft’s first self-made portable device (not counting the KIN, because who counts the KIN?) needs to be good, even great. If it’s a flop then it’s going take a while for MSFT to come back and change public perception.
Xbox Music is going to have to be a smooth, easy alternative to Spotify and iTunes. It’s going to have to work well on all Microsoft devices and make it super easy for users to access their accounts from anywhere.
As we’ve already said WP7 was great, yet it lacked public appeal. If WP8 is going to pick up where WP7 failed it’s not just going to need to be good, it has to rock. It’s going to need fantastic integration with Windows 8, huge app-support and great devices. Those last two things are pretty much out of Microsoft’s hands for the moment, at least until they start making their own smartphones.
All in all Microsoft has a hard road ahead of it, but we still think the change-up is a good move. While MSFT is still turning decent profits right now, in the long term its business model was simply not going to be sustainable. A new approach was needed and, by the looks of it, MSFT certainly has the right idea. It’s now just up to how well the new focus is executed, as well as how positively consumers end up tweeting/facebooking about it.