The Surface - The Second Day

Yesterday I brought my new Windows RT Surface into the office and the whole world changed.  In 5 minutes, my IT guys had it set up to use Remote Desktop Connection and presto - every app that I can run at the office now runs on my Surface.  

Now those are apps that count!

The entire Adobe suite, Quickbooks, Visio, Access, SQL Server... this wipes out just about all of the list of not so good things I said after day 1 and puts this machine so far ahead of my iPad that there is no comparison.  

I would go on and on about this but I have work to get done and I am doing it on...my Windows RT Surface. 

Yow, I am sounding like I have lost my objectivity.

The Surface – One Day In

Yesterday I attended the Seattle Interactive conference which gave me a great real world testing scenario for the Surface.  Here is my current thinking about this device:

My Favorite Parts:

1. Instant On:  Just as good as the iPad and clearly the killer feature.  Nothing keeps me from my Windows 7 machine like slow boot up time and its inability to handle sleep mode.  This machine comes on with a swipe and when done you just put it down. 
2. Battery Life:  Also amazing.  I used it for ten hours yesterday and still had 26% left.
3. Windows RT:  Not so hard to get used to.  Access to the desktop is easy.  The fact that I could get to the control panel was a pleasant surprise.  Connecting to wifi networks and other machine administration tasks was easy and familiar. 
4. Office Aps:  I did not try PowerPoint, but Word, Excel, and OneNote all work great.  Integration with Skydrive was easy and I used it right from the start.
5. Mail:  The new mail app is clean and works pretty well. 

Not So Good Parts:

1. IE:  The browser was the hardest app to get used to.  I struggled with the tabs and the back button, it just seemed to be a bit off.  Some sites just don’t work well with the browser and I really wished I had another browser – even if just to see if the problem was with the site I was viewing or with my browser.  This needs work.
2. Apps:  The WSJ, NY Times, Netflix, and Evernote apps were fine right out of the box.  I was surprised that there was no Twitter app, I also wished for apps from The Economist and Bloomberg Businessweek.  IMDB would be good too and I am sure there are a handful more that I will miss today.  I know the apps are on the way and so I am really not hung up about this too much.
3. Mail:  I mentioned above that the mail app works fine, but I miss outlook.  Don’t get me wrong, there are parts about Outlook, and frankly email in general, that I would gladly do without.  But I depend on Outlook to get me through my emails and when it is time to sit down and really crank through my inbox the lack of Outlook is going to push me back to my full PC. 
4. Stability: My Surface has crashed a couple of times.  I am pretty sure the crashes were due to up and down connectivity at the conference and either the log in process with the browser, or the mail app’s connection to our exchange server.  Once the device froze up, I did not really know what to do.  So I held down that button on the top and just hoped for the best.  It seemed to work, but I am not so sure I actually re-booted.  So that is going to take some getting used to.

All around I am excited about the Surface.  It is a big step forward for Microsoft.  We are not going to know how big or how far forward for at least six months, maybe a year. The Apps will tell the story.

Partners Will Embrace the Surface

Well MS has launched the Surface running Windows RT and it is a pretty cool machine.  There has been a bunch of noise about how Microsoft is sticking it to its partners by jumping into the hardware business. I think this is another case of the media inventing a fight because it is good for the media.  

In two and a half years Apple has sold 100M iPads.  In the same amount of time Microsoft has grown the Windows 7 user base to more than 600M -- just about all of those were sales of new machines.  It is just about impossible for anyone to imagine the MS Surface outselling the iPad.  It is not hard to imagine the Windows 8 user base to grow at 300M units per year.  

In other words, there is plenty of room in the market for everybody.  Microsoft's partners are going to sell hundreds of millions of Windows tablets in the years ahead.

Microsoft and its partners, that number in the hundreds of thousands, solve business problems for their customers.  Armed with the Surface, Windows 8 RT, Windows 8, and every shape and size of hardware imagineable from a legion of capable hardware makers, these partners are going to have so much to offer their customers that it is going to take years for the market to absorb it all.

Next week we get the new Windows 8 Phone.  Partners are going to embrace that new device too.

Advertisers Trade Digital Dimes for Mobile Pennies

Tomorrow is the big Windows 8 / Surface Launch, so I will continue on with the Microsoft vs. Google vs. Apple thinking from yesterday.  

Henry Ford is credited with the famous line:  "I know that fifty percent of my advertising is wasted, I just don't know which half."  I wrote a post about this a few years back and also dug into the idea that Google is trading analog dollars for digital dimes.  Which turns out to be easier for Google, the company that gets the dimes, than for other advertising providers that are losing the dollars.  The advertising dime migration is fueling a whole bunch of creative destruction in the advertising business.

It is going to get much worse.  Every day advertising gets more measurable and it might just turn out that the non productive half of the advertising business is in fact bigger than half.  In an anemic growth environment, or worse yet another recession, companies might just find a better use for a big part of the $600B presently spent on advertising.

If so, what happens to all of the technology companies that have placed their bets on making advertisers their customers?  What if the digital dimes get traded for mobile advert pennies?  Google was perfectly happy getting new revenue away from the newspapers -- so they did not care that their prices were a tenth of the market.  But if Google has to trade its own dimes of revenue for pennies -- it is going to hurt.

All the while Microsoft soldiers on making businesses productive.

Business Runs on Microsoft Software. Period.

It is insteresting and instructive to take a step back from the big ecosystem builders and think about who their customers are and what they are selling.  Just so we all start from the same point on the map, I am going to clarify that customers are the people that pay and they pay for whatever a vendor is selling.

Microsoft

This is a big week for Microsoft with the long anticipated Windows 8 launch.  Even though I am very much looking forward to getting my MS Surface (hardware) this week, Microsoft is still the maker of software and its customers paid $16 B in the most recent quarter and generated $5.3B in profits including for operating system software ($3.2B revenue /$1.6B profit), servers and dev tools ($4.5B/$1.7B), and productivity and business software ($5.5B/$3.6B).  This is highly profitable business with one half of all revenue returned in profits.  You will notice that a bit over $2B is missing from this revenue analysis - because that is the amount MS generates from XBox -- without generating any profit.  Ouch!

Simply, customers pay Microsoft for the software they need to be productive.  Anyone who has tried to be productive on an iPad knows what I am talking about.  Producers need Microsoft's products to produce.

Apple

Apple quite famously makes more revenue and profit on the iPhone than all of Microsoft combined.  In its most recent quarter it generated $16.2 B of a total of $35B from the iPhone at 43% margins.  Any company that can grow from zero in 2007 when the iPhone was introduced to over $60B in annual revenue from a single new product line - deserves to be the worlds most valuable company.  Even more impressive is the $9.2B in iPad revenue last quarter from a product just 30 months in the market.  However, as Apple is demonstrating with the change of the standard cable plug on the latest version of the iPhone - it is selling devices that are driven by their popularity, not by business acceptance.

So, customers pay Apple for fashionable gadgets and Apple cranks out fashionable gadgets like no one else.

Google

Google has revenues about the same size as Microsoft's.  The most recent quarter concluded with $14.1B in revenue and $7.45B in profits. 75% of Google's revenue comes from advertising.  Advertising was 97% before the acquisition of Motorola -- and Motorola now makes up 19% of Google's revenue.  Google makes all kinds of software (gmail, Google docs...) but most users get those services for free -- and the customers are the companies that pay to place their advertisements where those users can see them.

So customers pay Google for advertising.  Google dominates the search market with 65% of all internet search traffic.

When analyzed from the perspective of the paying customer it is almost hard to believe that these three companies are fierce competitors.  No one buys Microsoft products to be seen with them in the first class lounge at the airport.  Almost no one pays Microsoft for advertising.  Just about everyone pays Microsoft to make their businesses run.

Microsoft's New Partners

Lost in the fracus about Microsoft and its relationship with its partners is the new partner relationships that invariably are going to emerge.  Microsoft has always been a partner focused company and will always be.  But the partners do change quite a bit.  Some people think that the partner ecosystem has a churn rate of as much as 30% per year.

Long time partners of Microsoft including HP and Acer have been quoted recently saying that were mystified about the move by Microsoft to develop the Surface and not consult them first.  Many have predicted, including me, that partners will ultimately produce most of the Surface devices.  The partners just may not be the ones that we think.

Apple did not start cold with the iPad.  First came the iPhone and more importantly, the iPod Touch.  In fact, according to the account in Isaacson's book, the iPad idea came before the iPod Touch and the work done on the iPod Touch was necessary to prove that the iPad idea was even viable, and of course to ensure that the product was insanely great.

Microsoft's OEMs might be frustrated with Microsoft's moves on the Surface, but they really should be looking at Samsung and HTC and maybe even Nokia.  They are the ones with the expertise to build a Windows 8 tablet that could compete with the iPad.

PC Mag reported this week that Samsung may be working on its own operating system just in case it needs it to compete with Microsoft and Google in the tablet market.  That is crazy talk.  

This Just In: Microsoft Screws Its Partners (or so the media says)

The media loves a fight and the media is quite good at making sure there are plenty of fights to report on.  It is true that Microsoft could have done a better job of getting its partners onto the Surface bus before it left the station, but it would certainly have sacrificed the secret, and the surprise.  And the media also loves a good surprise.

Ordinarily I would put links here to articles supporting my thesis that the media is itching for a MS vs Partners fight, but there are so many articles I could not pick.  Just search for "Microsoft Partners Surface" and you will see what I am talking about.

By the time Surface gets to market in the fall, this will all be forgotten.  Here are some more specific predictions:

Will Microsoft let partners sell the Surface?  Right now it is being reported that the device will only be available in Microsoft stores and on the Microsoft web site.  I find it hard to believe that Microsoft will prevent its partners from selling the device.  So I predict, that if MS can make enough of them, partners will be able to sell them too.  Who knows, maybe MS is in the middle of big deal negotiaitons with Best Buy, or even Verizon, and so they cannot announce the distribution deals yet.

Does Microsoft want other great Win 8 tablets on the market?  Microsoft did not refer to the Surface as a reference design, but I think it is a reference design.  If the product is a hit, Microsoft will not be able to make enough of them.  If it is a dud, no one will care.  So Microsoft must want other PC makers to enter the market.  In fact there is nothing Microsoft can do to prevent it.

Will this put Win 8 at the front of the line?  To date the predictions in the business market have been pointing to wide adoption of Windows 7, and not so much for Windows 8.  I do not think this will change that.  Windows 7 is a great product and businesses are not going to jump to Windows 8 for this.  It will be a great addition to the windows line, and now a business can give an exec a Surface running Windows 8 instead of an iPad.  The billion or so installed PCs currently running earlier versions of windows, including 200 million still running XP, will be upgraded to Windows 7 (if possible) or not upgraded at all.  

All around, great job Microsoft.  You have introduced a credible competitor to the iPad.  Microsoft Partners are better off today than they were a week ago -- and I am sure the partners know it.