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.

The Microsoft Effect

The Hawthorne Effect famously demonstrated the changes to worker productivity resulting from changes in work environment.  Like many studies the key learning turned out to be somewhat different than anticipated.  Initially intended to figure out if lighting levels or other environmental factors impacted productivity the result turned out to be that workers did better when working together to improve the conditions.  The improvements were not dependent on the changes but on the process of working together to make the changes.

I have to wonder if the same thing is happening in the Microsoft/Google/Apple race for the hearts and minds of the workers.  Each is courting the users with new and improved ways to be productive.   Microsoft has of course dominated the worker productivity area with the Office suite and the addition over the years of Outlook, Access, Visio, and OneNote. Google helps workers find stuff and has innovated around the edges with priority inbox in gmail and better spam filtering and Google docs and drive. Apple has turned the world mobile, brought about the app revolution, and companies now shower iPhones and iPads on their employees like they used to do with sales trips to Hawaii.

I am 24 hours into using my new Windows RT Surface and all I can think about is how much work I could do on the thing.  It has been 90 years since Elton Mayo did his study in Hawthore, IL, maybe it is time for a new study.  We could call the key learnings the Microsoft Effect.

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.

Year 11 of the Tablet Wars

USA Today has this good piece on Microsoft's complicated history with tablet computing.  Just goes to show that having the idea is not enough -- even when you are Bill Gates!  

Microsoft has been doing the tablet thing since at least 2002 and with its announcement this week of the new Surface, has a credible competitor to the iPad.  Here is a pretty good treatment on Engadget covering the launch event.  It is hard to get too excited without a deliver date or price.  And when Steve Sinofski had to trade out his frozen Surface for a new one -- the pain was palpable.  

Despite the long drawn out history and the incredible lead Apple has already established, this is going to be a very intereting fight.  There are two contrasting views that I can think of:  Consolidate or Extend.

Apple Wins if it Continues to Extend

Apple has done an amazing job of getting customers to extend their personal computing infrastructure to yet another device.  We have all walked down the isle of the plan and seen an iPad at every other seat -- and practically every seat in first class.  We know however that while many of these people may no longer travel with their PCs, they still own them.  If Apple can continue to extend to the iPad -- Apple wins.

Microsoft Wins if Consolidation Happens

Microsoft's new Windows 8 operating system, that hits the market in the fall, will be optimized for tablet devices -- including the new Surface, to be built and sold by Microsoft itself.  Clearly Microsoft is positioning this device to be both the tablet and the PC.  To the extent that Microsoft can consolidate the market back from PC + iPad to a Win 8 PC only --  Microsoft wins. 

Either way, this will be very interesting to watch.