Does Microsoft have a future? (Part 2: Can Xbox save the company?)

By Kip Kniskern | Posted January 29, 2013 16 comments

xbox-surface-7In Part 1 of this post, we examined a post by analyst Adam Hartung posted last week in Forbes, and a subsequent interview with Hartung by Onoura Amobi from Windows8Update.com.  Hartung believes that by coming late to the mobile and tablet markets, and then taking a short-sighted position to “defend the installed base”, Microsoft has left itself in danger and could well be gone within 5 years.  Now, in Part 2, we’ll take a look at where Hartung thinks Microsoft went wrong, and why we think it might not be too late to save the company, if indeed Hartung is right and Microsoft is, as he sees it, doomed.

Hartung makes a big point of the fallacy of “defending the installed base” instead of “cannibalizing your product” in a paradigm shift like we’ve seen in moving from PCs to mobile and tablet devices.  He cites Steve Jobs’ actions after receiving a $250 million loan to keep Apple afloat:

Adam: … So he takes the Microsoft money. Now everything that he’d ever been taught in business is now in play. Money should be poured into improving the Mac so they can remain competitive, right?

Onuora: Yup.
Adam: He did not do that. In fact he cut the number of Macintoshes by 2/3; he cut their R&D or product development expenditures on the Macintosh platform by 75%. He took that money and put all of it into an entirely new market saying we have got to go mobile.

(H)e directed his money elsewhere. That’s what I attack Microsoft for. Two or three years ago when they realized look this is where the tablets were going and this is where people are headed they could have aggressively launched some kind of a program around phones and tablets.

They didn’t.

This is where Hartung touches on an element of Microsoft’s strategy that he feels has been lost.  Hartung feels that the future of Microsoft should have been built around Xbox, and a “central device” he dubs “Connect”:

Think of all the money they have put into Windows 8; If they had taken half of that money and said we are going to create a vision in which in this future everybody is part of a network and then stuck that virtual existence inside of phones, in conference rooms, inside corporations and said this is gonna happen next to the Cloud so that the mobile device world will be able to connect up to television, radio as we know it, and it will connect up to applications and apps and whatever central device.

This central device will be amazingly smart and colorful and you’ll be able to talk to it and it will be able to do vision transformations and all kinds of things and we’re gonna call it Connect. They would own, or leap frog the tablet world and now you’d have a product in Xbox and you could leap frog ahead of this whole argument I’m having with you right now.

Where Hartung sees this connected world, held together by Xbox, as a lost cause, we’re not so sure.  We’re right there with him when he says that Microsoft went down a wrong path in defending the Windows and Office install base, and while we have no proof, we have to believe that’s one of the reasons Steven Sinofsky, a staunch supporter of both Windows and Office and that old-school “defend the installed base” thinking, is no longer with the company.

But the pieces of what Hartung wanted Microsoft to envision are almost in place, even if Microsoft, as usual, has botched the first attempt at getting the ship turned around.  The work Microsoft has done on Windows 8, or more importantly the common “MinWin” kernal that now drives Windows 8, Windows Phone 8, and will soon drive Xbox Durango, needed to happen to power a new level of computing device capable of “leap frogging” current mobile capabilities.

Rumors, and perhaps more than rumors, have been flying of an “Xbox Surface”, a 7” tablet that could fit neatly into Hartung’s definition of a “Connect” device.  And a new version of Xbox, which is much more than a rumor, could do even more to bridge the gap between mobile devices, the cloud, and connected entertainment in the living room.  Microsoft can’t seem to get out of its own way, and yet it is better positioned to make a leap to this Post-Tablet, truly connected world than anyone.

Microsoft has SkyDrive, Bing, Azure, and web services powering Office, and is gaining experience through Windows Phone in dealing with the kinds of problems this new connected world will face: battery life, hardware manufacturing, extended wifi, and ways to deal with mobile carriers and content creators (gaming studios, tv and movie production companies, music providers).  Microsoft also seems to be ready to let go of the notion that it needs to force consumers to give up their Apple or Android devices to get connected: we’re seeing it with Bing apps for iPhone, iPad, and Android, we may soon be seeing Office for iPad, and if Xbox services running on other devices are welcome in this new world, too, consumers may just go for it, after all.

Adam Hartung believes that Microsoft is doomed, because it didn’t go down a path that would have put Xbox in the center of a connected world of devices.  What Hartung gets right in his analysis is Microsoft’s propensity for bungling big new opportunities by holding on to the past instead of embracing the future and to perennially show up late to the party, but there is plenty of evidence that an Xbox centric world is precisely what at least some factions at Microsoft are planning, and this time it might not be too late.  With Sinofsky out of the way, and the cult-like power of the Windows Division and that old-school thinking hopefully diminished, if Steve Ballmer (and how much are we missing Ray Ozzie, here?) is able to champion the cannibalizing of Windows to take control of the living room, Microsoft just might have a shot.

Posted January 29th, 2013 at 4:47 pm
  • SimonTang

    I am appalled that the rumour about the 7-inch Xbox tablet is still alive here. Take a look.

    http://x-surface.tumblr.com/

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

      We wrote about the hoax last week: http://www.liveside.net/2013/01/23/new-durango-info-leaked-not-so-fast/ – but as we said, much of that hoax was derived from previous and more (although not completely) reliable reports (see The Verge post we linked above).
      Will there be a 7″ Xbox Surface device? We don’t know. Is it out of the question? Not at all.

      • SimonTang

        Oh, my apologies… jumped the gun a bit there. :)

  • SimonTang

    I am appalled that the rumour about the 7-inch Xbox tablet is still alive here. Take a look.

    http://x-surface.tumblr.com/

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

      We wrote about the hoax last week: http://www.liveside.net/2013/01/23/new-durango-info-leaked-not-so-fast/ – but as we said, much of that hoax was derived from previous and more (although not completely) reliable reports (see The Verge post we linked above).
      Will there be a 7″ Xbox Surface device? We don’t know. Is it out of the question? Not at all.

      • SimonTang

        Oh, my apologies… jumped the gun a bit there. :)

  • guest

    While I agree with his conclusion generally, many of his criticisms are false. Example: nobody has invested more in new ventures than MS. Between direct investment, R&D and acquisitions, well over $100 billion has been poured into everything from Xbox to interactive TV. So Hartung’s point that they put everything into Windows and Office is ridiculous. The issue for MS hasn’t been lack of spending on new ventures. It’s been lack of success. And Xbox was never going to be the savior of MS, in any form. Their last best chance for a recovery were mobile and search, both of which are markets large enough to move the dial for a company MS’s size. But they failed at both, badly. The consequences of that aren’t going to be pretty and they’ll attempt to fight/deny it til the bitter end, which will make it worse. Hartung got that part right.

    • Joscelin Trouwborst

      Sadly enough they have failed in the Social Platform arena too.

  • guest

    While I agree with his conclusion generally, many of his criticisms are false. Example: nobody has invested more in new ventures than MS. Between direct investment, R&D and acquisitions, well over $100 billion has been poured into everything from Xbox to interactive TV. So Hartung’s point that they put everything into Windows and Office is ridiculous. The issue for MS hasn’t been lack of spending on new ventures. It’s been lack of success. And Xbox was never going to be the savior of MS, in any form. Their last best chance for a recovery were mobile and search, both of which are markets large enough to move the dial for a company MS’s size. But they failed at both, badly. The consequences of that aren’t going to be pretty and they’ll attempt to fight/deny it til the bitter end, which will make it worse. Hartung got that part right.

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

      Sadly enough they have failed in the Social Platform arena too.

  • Andrew_ww

    I don’t see that they need saving.

  • Andrew_ww

    I don’t see that they need saving.

  • JSYOUNG571

    Microsoft has lost the patience, trust and loyalty of it’s customers. Some of the moves they have been making to gain them back has blown up in their face. For me, Windows Phone has been a major example of this. For years I have been complaining about Microsoft’s treatment toward Windows Phone owners, by just dropping and abandoning platforms with customers still on it and locked in two year agreements with their carriers. The patience on waiting for apps and a better improved Windows Phone experience has worn customers out along with Microsoft shutting down a platform. Not to mention the past issue with Microsoft relying on Google and getting upset about Google blocking services to the Windows Phone. It really showed how Microsoft didn’t have faith in their own search and map services called Bing. I thought that was a major embarrasment for Windows Phone owners as well as Microsoft. I knew this day was coming where customers would get tired of being treated like step children on the Windows Phone platform and they would eventually jump ship and go with Google or Apple.

    Microsoft needs a major shake up, even if it means removing Steve Ballmer.

  • JSYOUNG571

    Microsoft has lost the patience, trust and loyalty of it’s customers. Some of the moves they have been making to gain them back has blown up in their face. For me, Windows Phone has been a major example of this. For years I have been complaining about Microsoft’s treatment toward Windows Phone owners, by just dropping and abandoning platforms with customers still on it and locked in two year agreements with their carriers. The patience on waiting for apps and a better improved Windows Phone experience has worn customers out along with Microsoft shutting down a platform. Not to mention the past issue with Microsoft relying on Google and getting upset about Google blocking services to the Windows Phone. It really showed how Microsoft didn’t have faith in their own search and map services called Bing. I thought that was a major embarrasment for Windows Phone owners as well as Microsoft. I knew this day was coming where customers would get tired of being treated like step children on the Windows Phone platform and they would eventually jump ship and go with Google or Apple.

    Microsoft needs a major shake up, even if it means removing Steve Ballmer.

  • chinch987

    This ms is doomed theory has a tragic flaw of logic because while perhaps not perfectly executed (to put it nicely) MS has the $$$ to both improve windows and compete in mobile.

    The jobs-apple-bankrupt comparison to prove said flawed theory is really poor as apple was bankrupt with no viable market (or revenue) while MS made $23B profit last year. So of course cutting mac investment was needed since it was a dead end for a bankrupt company.
    not a rocket science.

  • chinch987

    This ms is doomed theory has a tragic flaw of logic because while perhaps not perfectly executed (to put it nicely) MS has the $$$ to both improve windows and compete in mobile.

    The jobs-apple-bankrupt comparison to prove said flawed theory is really poor as apple was bankrupt with no viable market (or revenue) while MS made $23B profit last year. So of course cutting mac investment was needed since it was a dead end for a bankrupt company.
    not a rocket science.