Friday, August 13, 2010

Comments on Microsoft

John Hempton, who fabulously broke the banking solvency talked about Microsoft recently. In the third post in the series titled Microsoft – an accounting geek’s summarizes his purpose and lessons. I wanted to add some comments to this since the first post. So here it is:
  1. Bundled software in India:
    • India still sells laptops without the operating system. The proportion has gone down but it still exists where dominant volumes are.
    • Ubuntu and Linux overall has not caught on because it is not user friendly. As it gets friendlier, expect Indians to move to Linux versions faster than Microsoft can cope with. All Microsoft needs to do is support XP. A lot of pirated Windows XP is still being used.
    • Such a response is currently underway in mobile phones. I believe it makes sense it happens in mobiles first because, device capability is limited, hardware is cheap (from china) and Indians have unique needs (apparently more Indians need dual SIMs than elsewhere - in pagers we preferred the alpha-numeric ones etc.) I can't see why it cannot happen in laptops. (More about it below)
  2. India Volume play suits Apple more: If you think about volumes as a driver, Apple makes much better sense. 
    • We are paying $1000 for iPhones and if you see the penetration you will be amazed. If iPhone were to be available at $500 equivalent Apple would not be able to handle the sales volume. The user interface is mind-blowingly simple even my mom and dad got it right away. (They don't speak computer English). It is very intuitive. Through iPhones and iPads Apple can make a huge in-road into Indian market. They have to price it right though.
    • Why I discussed about iPads is that most users do not need a laptop or a computer. They simply need a device that can connect them to the net. A phone is a little small for the purpose but a tablet is ideal. Indian government announced a tablet PC for $35 and it is pretty ok with camera and it works on Android. (It is for education institutes)
  3. User friendliness is still paramount: While I worked on and loved Unix (was a programmer) but I think for regular computer usage, MacOS, Windows make lot more sense. Android is emerging as a significant alternative in tablets but it is nearly as good as windows CE. 
  4. Distributed legal liabilities: Unix and its versions are popular for server side because of customizability. There is other side to the equation. Security is costly and Microsoft cannot release a lower end product without risking security issues. It is an easy legal target if it fails. So it has to put in lot of effort just to ensure base level security. Linux falls through the legal cracks as the legal liabilities are diffused. Just as small revenues amplify so do small legal claims.
  5. About security: Security issues are dominant concern for Microsoft. It does not have control over where its operating system is being deployed. It does not know if clients are updating the OS or not. With emergence of Software as a service model (SAAS), Microsoft will breathe easy. I expect as SAAS starts getting prominence, MS will start unleashing its programming prowess to more beneficial use.
  6. Still top institutional service provider: Microsoft juggernaut is large and has tremendous inertia backing it. The IT departments of top Microsoft clients are testing versions to be released in 2011 and 2012. Frankly, even Apple does not have that kind of sales and testing infrastructure on institution side.
  7. MS as fast follower: For the consumer side, Microsoft is better characterized as a fast follower than a tech leader. It has always copied Apple and will continue to do so. (Panasonic to a Sony). There are two scenarios from here:
    • Currently the environment is in flux so we cannot see Microsoft response but response will come and it will eat away a substantial share.
    • The model has changed to a long-tail model. Microsoft noticed this with Zune. It came in very late once the product stabilized but that was too late for the market. So it is match step-by-step in phones. Here too it is a bit late but faster than with Zune. Eventually it will figure out.
  8. It is the Microsoft game: The game Apple is playing was invented by Microsoft: 
    • Microsoft dis-assembled the IT hardware and software value chain. It broke the integrated approach of IBM. Apple followed IBM model in hardware and OS and used Microsoft approach with additional software. But overall Apple is still more in IBM mode.
    • Apple is breaking the mobile phone software value chain but it retain the hardware approach of IBM in phone space. In phone space it HAS to break the software value-chain. It is doing this through App architecture. That is straight into MS territory. Apple will face same issues as MS if it were as important to business community as MS. Thankfully Apple is sticking to consumer electronics side.
    • Blackberry is more like thin-client server model we know. A Google-wave like protocol will break this model. My guess is Microsoft will break blackberry.
    • The reason MS cannot fight easily because of legacy codes. Phones need light codes but MS codes is HUGE. But in phones and in computers MS has changed its stance to scrapping old format all together. MS will gain from it because there is so much knowledge that it has but cannot use - now all that will be possible.

Disclaimer: I am an Apple fan but I love Microsoft as well. MS Excel is probably the best product every produced. It also makes awesome mice. This is discussion about future of tech and not stock analysis of Microsoft.