Does Microsoft have a future? (Part 1: Adam Hartung’s post on Forbes)

By Kip Kniskern | Posted January 29, 2013 32 comments

windows-8-logoAbout a week ago, analyst Adam Hartung, writing in Forbes, wrote in “Microsoft Still Can’t Find Its Future. Is It Too Late for the Company?” (if you want a glimpse at Hartung’s answer to his own question,  the slug for the post is “sell-microsoft-now-game-over-ballmer-loses”), saying Microsoft is in serious trouble, and could be gone within 5 years.

While there have been and will continue to be many Microsoft detractors writing many “Microsoft is dead” posts over the years, this one takes a more studied approach to Microsoft’s problems.  The post, along with a very enlightening two part interview about it with the author conducted by Onoura Amobi at Windows8Update.com, for the most part rises above fanboy-ism and shortsightedness to paint a bleak, but fact based look into the future of Microsoft.  If you haven’t read the post or the interview, they’re well worth reading.

And before we go much further, yes Microsoft is a giant company with a huge install base, has just released a whole slew of new products, is sitting on some $66 Billion in cash, and like IBM before it, which Microsoft supposedly “killed” in the late ‘80s, could well be going strong (if not in quite the same leadership position, or as a darling of the media) for years and years to come.  Hartung answers some of those “Microsoft is too big to fail” questions, and we’ll get to them, too.

In the post, and later in the interview, Hartung goes beyond the usual Apple=Good, Microsoft=Bad comparisons to lay out where Microsoft is, and why it is headed for rough times, if not extinction.  At the same time, although he seems to be unaware of it, Hartung also points a way forward Microsoft, one we’ve already been following with interest.

First, let’s take a look at what Hartung says, culled from both his post and the interview that followed.  In the original post, Hartung points out that a shift has already occurred away from Microsoft products and towards Apple and Android.  He cites all the usual statistics, it’s a pretty clear picture.  He then goes on to note that “(m)issing the market shift to mobile ahs already forever tarnished the Microsoft brand”, and lays out his bleak scenario for what comes next:

    1. Ballmer appears to have committed to fight to the death in his effort to defend & extend Windows.  So expect death as resources are poured into the unwinnable battle to convert users from iOS and Android.
    2. As resources are poured out of the company in the Quixotic effort to prolong Windows/Office, dividends should steadily diminish.
    3. Expect substantial layoffs over the next 3 years. They could even reach 50-60%, or more, of employees.
    4. Expect closure of the long-suffering on-line division in order to conserve resources.
    5. The entertainment division could be spun off, sold to someone like Sony or possibly Barnes & Noble, or dramatically reduced in size. Unable to make a profit it will increasingly be seen as a distraction to the battle for saving Windows, and Microsoft leadership has long shown it doesn’t know how to profitably grow this business unit.
    6. As more and more of the market shifts to competitive cloud infrastructure Apple, Amazon, Samsung and others will grow significantly.  Microsoft, losing its user base, will demonstrate its inability to build a new business in the cloud, mimicking its historical failures with Zune (mobile music) and Microsoft mobile phones.  Microsoft server and tool sales will suffer, creating a much more difficult profit environment for the sole remaining profitable division.

As it stands, the original article is interesting, but Microsoft watcher Onoura Amobi took the time to seek Hartung out and speak with him for an hour about the post, Microsoft’s future, and why, according to him, the future looks so bleak.  After reviewing credentials and a bit of introduction, Amobi asks Hartung about Microsoft’s recently released 4th quarter earnings, who called it “a really bad quarter”, and goes on to explain two significant problems for Microsoft: that people are not, and haven’t been since XP, compelled to upgrade their operating systems, and that Microsoft missed on a fundamental shift to tablets and mobile:

Adam: … Now those people are saying ‘I’m happy with a PC at this level and don’t want a bigger faster PC. I don’t need a bigger faster operating system. I don’t need bigger faster Office tools, I don’t really need that. I’m really happy and content with what I have…”

Onuora: Sure.
Adam: So now comes something new like the tablets and smartphones and people say “Oh wow I like this, it gives me more mobility, it lets me do a lot of stuff in a way that’s different and I find it to be quite a bit handier than my PC.

I like the size, the format, the build, the look, the interface, I like not having data on the device in case I lose it” – those are some of the reasons they say they like it. Then they start buying them and they starting buying them in huge quantities.

This is the classic market shift, the textbook example of a market that is shifting. The user isn’t saying “Hey my PC is crap”. They don’t’ say that. What they say is “I got a PC and I’m using the PC but I’ve noticed that this month I don’t use my PC nearly as much as I used it 6 months ago and I didn’t know that 6 months ago or a year ago I would never have walked around the halls or gone to a meeting without my laptop but now I find I never carry my laptop.

You know I only boot my laptop up every 2-3 days and now I do most of my work on this other thing”.

Then, according to Hartung, instead of realizing that the PC market “doesn’t have a lot of growth left in it”, Microsoft continued to push forward with Windows and Office, allowing their competitors to “build its very own large installed base”, and then tried (are trying) to belatedly jump back in the market.  It’s not working so well:

So you now have an installed base of Android, Kindle, iOS, iPad users and that begets more buyers because people look around and most people don’t say “Oh I’m going to do a spec analysis to compare products” that’s not what they say. They say “Hey this is what most people are using” and they use it and they like it and once they use it and like it they don’t like to change.

To come along and say OK I’ve got a product that I think is better and we’ll say that product is Surface and you hand it to them and they say “Well you know it might be better but I’m very happy with what I have. I like it and how it works and I don’t like the idea of having to go use this other interface and another shape”. You say it’s better and they say “I don’t know why you say it’s better” and that’s actually how people do behave.

Instead of what Hartung calls “aggressively cannibalizing your installed base” to move into new markets, Microsoft instead concentrated on protecting its Windows and Office installed base, says Hartung:

“Oh I’ve owned the market, I have the install base. Now I have the new product and I will convert everyone to me” — universally fails. Universally fails.

That’s why Microsoft never got Zune off the ground, never got the Windows mobile phone off the ground. It was because if you look at it there’s nothing inherently bad or anything wrong with it, it’s just the company saying my energy, my time, my leadership is focused on defending my installed base.

I’ll put some energy into this I’ll put a product out there and they don’t stick with it. They don’t stay behind it. This is a very consistent management problem that we see across more companies that are caught in these market transitions. When I take a look at where Microsoft is I say “ OK what did you actually launch with Surface, what you’re trying to tell me is that you’ve got a hybrid, that you’ve solved the great conundrum of the world, that the great conundrum is ‘Do I want a tablet or do I want a PC’”?

Interestingly I haven’t heard anybody say that’s the great conundrum except Microsoft.

Hartung goes on to argue that instead of trying to shore up Windows and Office, Microsoft should have been the one moving in to new markets, instead of leaving them to others while it concentrated on a “defend our company” strategy.

In Part Two of this post, we’ll look at where Hartung thinks that Microsoft could have focused on, and why we think there might be a glimmer of hope in all of this doom and gloom.  For now, go ahead and read Hartung’s post, and especially Onoura Amobi’s interview with him.  We’ll be back with Part Two shortly.

Posted January 29th, 2013 at 11:18 am
  • http://twitter.com/td90uk Tom

    They just need to be more flexible. I say build more on the entertainment business and rebuild Windows so it performs better, so it’s lighter (like Windows 8 is) but has a better UI and stays fast. Maybe buy Valve and/or Ubuntu and improve it, all Ubuntu needs is a full GUI rather than having to type commands and you’ve basically got the perfect OS.

    • http://www.jeffkibuule.com Jeff Kibuule

      “Buy Valve or Ubuntu” – dude, you are on the really strong stuff.

  • td90uk

    They just need to be more flexible. I say build more on the entertainment business and rebuild Windows so it performs better, so it’s lighter (like Windows 8 is) but has a better UI and stays fast. Maybe buy Valve and/or Ubuntu and improve it, all Ubuntu needs is a full GUI rather than having to type commands and you’ve basically got the perfect OS.

    • http://www.jeffkibuule.com Jeff Kibuule

      “Buy Valve or Ubuntu” – dude, you are on the really strong stuff.

  • http://twitter.com/browsetech Site Central

    What Microsoft should do is step up it’s game and not do things half-hearted, understand that the world is big outside the US and release everything all over the world at the same time.

    What Microsoft should do (or at least some of it ) is:
    – Make sure affordable Windows 8 tablets and Windows Phone 8 devices is in place.
    – Hurry up making Surface Pro available all over the world.
    – Make all Bing features available world wide.
    – Make it possible to buy more than 100 GB on SkyDrive
    – Give the SkyDrive app more features, like having shared files on your computer and making it possible for Windows RT users to sync files to their devices.
    – One thing that would make SkyDrive much better is P2P syncing.
    – Upgrade and make every live.com page complete, like the calendar and account page.
    – Give their Windows 8 apps more features, especially the Store.
    – Make Skype as powerful as Messenger.
    – Upgrade Windows Essentials
    – Make the new Office cheaper (like only three licenses, and not 50% more expensive in some markets).

    • jkth

      So….”make stuff cheaper and better” then? I’ll bet that hadn’t occurred to them! You should be the next CEO.

      • http://twitter.com/browsetech Site Central

        I only said two things should be cheaper, one is Office, and by cheaper I said that they should give the option to buy a subscription with only three licenses, and also not make it 50 % more expensive in some markets.

        By better, there are several things that many users complain about but they do nothing about them, many of things LiveSide has pointed out. Also, many of these things has not occurred to them, at least not to everybody at Microsoft. They get better and better, they figured out that WP Solitare should be available worldwide after users complained, but still many things are US only. I did not just say make stuff better, I gave examples of what should be better, listing things many people have complained about to Microsoft including myself.

    • damaster

      “Make all Bing features available worldwide”
      This. The reason why Bing can’t compete in the search market. The social sidebar, announced 7 months ago, is still not available outside North America. What exactly does the social sidebar have that can’t be launched worldwide? Facebook is pretty much available everywhere in the world.

  • http://twitter.com/browsetech Site Central

    What Microsoft should do is step up it’s game and not do things half-hearted, understand that the world is big outside the US and release everything all over the world at the same time.

    What Microsoft should do (or at least some of it ) is:
    – Make sure affordable Windows 8 tablets and Windows Phone 8 devices is in place.
    – Hurry up making Surface Pro available all over the world.
    – Make all Bing features available world wide.
    – Make it possible to buy more than 100 GB on SkyDrive
    – Give the SkyDrive app more features, like having shared files on your computer and making it possible for Windows RT users to sync files to their devices.
    – One thing that would make SkyDrive much better is P2P syncing.
    – Upgrade and make every live.com page complete, like the calendar and account page.
    – Give their Windows 8 apps more features, especially the Store.
    – Make Skype as powerful as Messenger.
    – Upgrade Windows Essentials
    – Make the new Office cheaper (like only three licenses, and not 50% more expensive in some markets).

    • jkth

      So….”make stuff cheaper and better” then? I’ll bet that hadn’t occurred to them! You should be the next CEO.

      • http://twitter.com/browsetech Site Central

        I only said two things should be cheaper, one is Office, and by cheaper I said that they should give the option to buy a subscription with only three licenses, and also not make it 50 % more expensive in some markets.

        By better, there are several things that many users complain about but they do nothing about them, many of things LiveSide has pointed out. Also, many of these things has not occurred to them, at least not to everybody at Microsoft. They get better and better, they figured out that WP Solitare should be available worldwide after users complained, but still many things are US only. I did not just say make stuff better, I gave examples of what should be better, listing things many people have complained about to Microsoft including myself.

    • damaster

      “Make all Bing features available worldwide”
      This. The reason why Bing can’t compete in the search market. The social sidebar, announced 7 months ago, is still not available outside North America. What exactly does the social sidebar have that can’t be launched worldwide? Facebook is pretty much available everywhere in the world.

  • Boris Mihaylov

    This Adam Hartung guy sounds like a “doomsday is coming, repent!” guy.
    But unfortunately some of the thing he says are right – I’ve see managers in companies carrying iPads – they don’t use them of course, because they don’t know how or for what to use them – but they carry them just because it’s “cool” (meaning if I have a cool device, it means my company is cool). And that’s actually the problem of the average user – they like to look cool – and Google for some reason has managed to sustain they company image as the “cool young guy”. Apple has done the same with their sect of followers.
    I think the bad reputation of Microsoft is not because they have bad software – it’s because there are too many OEMs with washed-up-meeting-the-minimum-software-requirements hardware. Yes, these OEMs make high-end products as well, but the problem when you are buying a PC is not comparing the prices between a PC and a Mac for example, but comparing the prices between PC hardware – users are not smart enough to buy something more expensive and way more powerful, but prefer something cheap. And because you buy something cheap and slow with almost not processing power for anything more than a browser and an IM client, you get pissed off at Microsoft.
    The funny thing is that I do own an iPad and an iPhone and they are convenient in some cases a lot. But for example, like any other user, I’ve spent a lot cash on apps especially games and even the productivity iWorks suite – but they are just not comfortable – I can’t imagine myself writing my project reports or anything for that matter on a touch screen. Yeah, it seems awesome and cool and futuristic, but it is not comfortable. The same applies for games – it’s cool, but actually it is REALLY not comfortable. Sure, you can pair a keyboard with your iPad but it is still not the same as working and writing on a PC/Mac/whatever-desktop.
    The same applies for Android – you can connect a keyboard and even a mouse – mirror your display on a full HD TV with optimal resolution, but when your OS is intended for a phone, the UI as awesome and high quality as it may look, it’s just not intended for a big screen.
    All mobile platforms says they have multitasking, and they do, but in the background – but yet iPad does not allow you to watch a movie and chat for example, or really quickly check your Facebook/twitter feeds. The only thing that comes close is Windows 8 RT. Yet again – it’s not as comfortable as having a Windows 8 Pro (or any fully featured desktop OS). People will always keep saying smartphones/tablets are better than desktops, but they do it, because (1) they are stupid and (2) because they like looking cool.
    The main problem is that users hate changes which is really stupid because as soon as they change they start hating the previous platform and start hating future upgrades to their new one. The second main problem is that when you buy your shit on one platform, such as apps, you have to kiss them good-bye when you shift to the new one.
    I really hope Windows 8 starts being popular, because it really has some amazing features. Granted, these features need improvement, but still, it’s incredibly awesome and responsive and fast.
    Microsoft needs to provide more incentive for developers in my opinion. Maybe don’t charge them subscription fees until they make a certain amount of profit?

  • http://twitter.com/tuzem_2 Boris Mihaylov

    This Adam Hartung guy sounds like a “doomsday is coming, repent!” guy.
    But unfortunately some of the thing he says are right – in my company I see managers carrying iPads – they don-t use them of course, because they don’t know how or for what to use them – but they carry them just because it’s “cool” (meaning if I have a cool device, it means my company is cool). And that’s actually the problem of the average user – they like to look cool – and Google for some reason has managed to sustain they company image as the “cool young guy”. Apple has done the same with their sect of followers.
    I think the bad reputation of Microsoft is not because they have bad software – it’s because there are too many OEMs with washed-up-meeting-the-minimum-software-requirements hardware. Yes, these OEMs make high-end products as well, but the problem when you are buying a PC is not comparing the prices between a PC and a Mac for example, but comparing the prices between PC hardware – users are not smart enough to buy something more expensive and way more powerful, but prefer something cheap. And because you buy something cheap and slow with almost not processing power for anything more than a browser and an IM client, you get pissed off at Microsoft.
    The funny thing is that I do own an iPad and an iPhone and they are convenient in some cases a lot. But for example, like any other user, I’ve spent a lot cash on apps especially games and even the productivity iWorks suite – but they are just not comfortable – I can’t imagine myself writing my project reports or anything for that matter on a touch screen. Yeah, it seems awesome and cool and futuristic, but it is not comfortable. The same applies for games – it’s cool, but actually it is REALLY not comfortable. Sure, you can pair a keyboard with your iPad but it is still not the same as working and writing on a PC/Mac/whatever-desktop.
    The same applies for Android – you can connect a keyboard and even a mouse – mirror your display on a full HD TV with optimal resolution, but when your OS is intended for a phone, the UI as awesome and high quality as it may look, it’s just not intended for a big screen.
    All mobile platforms says they have multitasking, and they do, but in the background – but yet iPad does not allow you to watch a movie and chat for example, or really quickly check your Facebook/twitter feeds. The only thing that comes close is Windows 8 RT. Yet again – it’s not as comfortable as having a Windows 8 Pro (or any fully featured desktop OS). People will always keep saying smartphones/tablets are better than desktops, but they do it, because (1) they are stupid and (2) because they like looking cool.
    The main problem is that users hate changes which is really stupid because as soon as they change they start hating the previous platform and start hating future upgrades to their new one. The second main problem is that when you buy your shit on one platform, such as apps, you have to kiss them good-bye when you shift to the new one.
    I really hope Windows 8 starts being popular, because it really has some amazing features. Granted, these features need improvement, but still, it’s incredibly awesome and responsive and fast.
    Microsoft needs to provide more incentive for developers in my opinion. Maybe don’t charge them subscription fees until they make a certain amount of profit?

  • Joscelin Trouwborst

    If I am right then Hartung makes a comment about getting into the cloud for all players and suggests that Microsoft is lagging behind and won’t make it. For years I have the impression that, although there is a lot more work to do, Microsoft is best in delivering integrated cloud services. It is a pity that the general media focus is on the devices and their individual features.
    Yes, I do find the brand strategy of Microsoft worrying, it is a plethora. Microsoft has missed the opportunity to create a new integrated brand that would attract new and old generations alike. Live-everything, like the i-everything from Apple.
    Balmer states that Microsoft is moving from supplying software licences to supplying (cloud) services and devices. This cloud service strategy seems logical. I do not feel so sure about the devices strategy, unless they will buy a weathered hardware logistics partner like Dell.

  • http://www.facebook.com/joscelin.trouwborst Joscelin Trouwborst

    If I am right then Hartung makes a comment about getting into the cloud for all players and suggests that Microsoft is lagging behind and won’t make it. For years I have the impression that, although there is a lot more work to do, Microsoft is best in delivering integrated cloud services. It is a pity that the general media focus is on the devices and their individual features.
    Yes, I do find the brand strategy of Microsoft worrying, it is a plethora. Microsoft has missed the opportunity to create a new integrated brand that would attract new and old generations alike. Live-everything, like the i-everything from Apple.
    Balmer states that Microsoft is moving from supplying software licences to supplying (cloud) services and devices. This cloud service strategy seems logical. I do not feel so sure about the devices strategy, unless they will buy a weathered hardware logistics partner like Dell.

  • jkth

    I’ll be more interested in reading these words in three years to see if he’s correct or not. Kip, why not put a reminder in your calendar to come back in three years and review the situation to see if Hartung is correct?

    [Probably best to put the reminder in your Google calendar - apparently Outlook may not be around in 3 years time]

    • JSYOUNG571

      Especially since we have been waiting months for them to update the calendar in Outlook.com. smh

      • http://www.twitter.com/Jason89 Jason

        Exactly – was just lamenting how everything MS is such a mess anymore. Hotmail changed to Outlook.com, but calendar still is branded Windows Live and looks totally different. Still. Tasks or notes from desktop Outlook don’t sync to anything useful. WIndows Live calendar still has “events” and “to-dos” that don’t sync anywhere and aren’t connected to desktop Outlook. No Outlook client for Windows RT. Mail client in Windows RT is crap. And this is all just in the mail/calendar/tasks space – what a mess. Everyone at Microsoft will still collect fat paychecks, until it all finishes falling apart. I’m not sure anyone is home, and even if someone is, I’m not sure what they are doing.

      • Barry Cho

        You guys crack me up with this Calendar obsession — it’ll be the same gosh-darn thing, it’s just going to have new wallpaper on it. If you start a betting pool, though, put me down for September. Until then, keep singing that old Aerosmith song… you know the one….

  • jkth

    I’ll be more interested in reading what he’s got to say in three years to see if he’s correct or not. Kip, why not put a reminder in your calendar to come back in three years and review the situation to see if Hartung is correct?

    [Probably best to put the reminder in your Google calendar - apparently Outlook may not be around in 3 years time]

    • JSYOUNG571

      Especially since we have been waiting months for them to update the calendar in Outlook.com. smh

      • http://twitter.com/Jason89 Jason89

        Exactly – was just lamenting how everything MS is such a mess anymore. Hotmail changed to Outlook.com, but calendar still is branded Windows Live and looks totally different. Still. Tasks or notes from desktop Outlook don’t sync to anything useful. WIndows Live calendar still has “events” and “to-dos” that don’t sync anywhere and aren’t connected to desktop Outlook. No Outlook client for Windows RT. Mail client in Windows RT is crap. And this is all just in the mail/calendar/tasks space – what a mess. Everyone at Microsoft will still collect fat paychecks, until it all finishes falling apart. I’m not sure anyone is home, and even if someone is, I’m not sure what they are doing.

      • Barry Cho

        You guys crack me up with this Calendar obsession — it’ll be the same gosh-darn thing, it’s just going to have new wallpaper on it. If you start a betting pool, though, put me down for September. Until then, keep singing that old Aerosmith song… you know the one….

  • Stefanfo

    I don’t know about other people, but I really like the Nokia Lumia brand using Windows Phone 8, and I really do like Surface Pro running Windows 8.. and It would be awesome to put the new office 365 to some good use on them :)..
    The only MS thing which I’m not into is the Xbox, its good alright, but I just like my old Playstation :P

  • http://twitter.com/stefanfo Stefan Nordendal

    I don’t know about other people, but I really like the Nokia Lumia brand using Windows Phone 8, and I really do like Surface Pro running Windows 8.. and It would be awesome to put the new office 365 to some good use on them :)..
    The only MS thing which I’m not into is the Xbox, its good alright, but I just like my old Playstation :P

  • guest

    The conclusion is essentially correct, albeit that he’s wrong on a few details.

  • guest

    The conclusion is essentially correct, albeit that he’s wrong on a few details.

  • Momfer

    “OK what did you actually launch with Surface, what you’re trying to tell me is that you’ve got a hybrid, that you’ve solved the great conundrum of the world, that the great conundrum is ‘Do I want a tablet or do I want a PC””

    I just can’t read that stream-of-conciousness-style writing. If they can’t be bothered to editorialize I can’t be bothered to read what they have to say.

    • http://www.LiveSide.net Kip Kniskern – LiveSide.net

      The quote is from an interview conducted with Hartung, not anything he wrote.

  • Momfer

    “OK what did you actually launch with Surface, what you’re trying to tell me is that you’ve got a hybrid, that you’ve solved the great conundrum of the world, that the great conundrum is ‘Do I want a tablet or do I want a PC””

    I just can’t read that stream-of-conciousness-style writing. If they can’t be bothered to editorialize I can’t be bothered to read what they have to say.

    • http://www.LiveSide.net Kip Kniskern – LiveSide.net

      The quote is from an interview conducted with Hartung, not anything he wrote.