Critics of the Microsoft Surface just don’t get it

The commentaries about the recently unveiled Microsoft Surface Tablet/”Ultrabook”/PC thingies is revealing.  Particularly the few from OEM executives, and the larger number from supporters of the status quo.  My summary of them: They don’t get “it”.  No not the Surface itself, they don’t get why Apple has been winning with the consumer.  They remain in denial about the problems with the OEM business model.  True the overall market share of Mac vs PC hasn’t changed all that dramatically, but that is because enterprise purchases still remain almost exclusively focused on Windows PCs.  Retail sales, which largely reflect consumers rather than enterprises, have shown significant market share gains for the Mac.  And if you include the iPad in the mix then Consumers are indeed running away from the PC.  But how much of this is Microsoft Windows and how much is the OEM’s fault?

Let’s first focus on the classic PC vs Mac battle.  When I talk to people who have switched from the PC to the Mac and listen carefully to what they say I find that perhaps 60%  of their reasoning has nothing to do with Windows itself, another 30% is the result of compromises Microsoft makes as a result of its OEM business model, leaving only 10% as true differentiators between OS X and Windows.  I’m going to get to my own analysis, but if you want a great blog entry that explains why nothing beats the Macbook Air take a look at this.

A few weeks ago a friend called me up and told me he’d switched to a Mac.  As usual in these cases I asked him why.  The first thing out of his mouth was a long diatribe on the horrors of Symantec’s Norton Anti-Virus product and how it had messed with his system’s performance.  The frequency of software updates, and the need to reboot, was another issue.  Buried in the details were all the third-party products with their own update mechanisms on the PC; third-party products that are unnecessary on the Mac.  Boot time was another one, though he mostly was comparing Windows XP to a very recent version of OS X.  And so on.  He even compared the performance of his Mac to his wife’s recently obtain Windows 7 system.  But he had a high-end Mac while she had a low-end notebook.  Apples vs. Oranges.  When you analyzed his complete story you got to my typical 60/30/10 pattern.  All of his issues were very real, and his conclusions valid ones.  It doesn’t matter to him what factors are or are not under Microsoft’s control.  In earlier days of personal computing, where user’s valued having a wide variety of systems, a wide array of price points, and the ability to tune (both hardware and software) to their heart’s content, Microsoft’s third-party-centric business model worked well.  At least the positives outweighed the negatives.   Now the negatives far outweigh the positives for most consumers.  They just want to walk in and buy a system that works, performs, is safe, and appeals to their usability and design sensibilities.

Walk into Best Buy and shop for a PC.  You find some dizzying array of systems with little apparent differentiation.  Dig in and whose keyboard and mouse do they have?  The OEMs.  Microsoft makes great keyboards and mice that have fantastic ergonomics and are well tuned to Microsoft Windows.  Almost all are sold after-market because OEM’s want to cut costs and/or offer an OEM-unique experience.  The OEMs ship mediocre to poor keyboards and mice, which is why Microsoft can sell so many replacements.  But in the store or out of the box the first thing you are confronted by on a PC is mediocre or worse input devices.  On notebooks things are even worse.  As described in the posting I linked to in the second paragraph, out of the box the trackpads on Windows notebooks don’t work well.  And even after tweaking they still have issues.  Yup, that’s my personal experience too;  I have yet to find one that works well.  Now start-up the PC and what do you find?  Each PC is different.  Boot times vary significantly.  What security software are they running?  What photo editing software is installed?  What is the default browser?  What toolbars and other add-ons are installed in that browser?  Who is the default search provider?  What media-playback software is being used?  How is the quality of the drivers?  Or the driver update mechanism?  Are Java or Adobe AIR, neither of which are really needed these days pre-installed?  What desktop add-ons are pre-installed and running?  How much crapware is installed?  Every PC is different, and the experience is not dictated by Microsoft.  A Dell PC is a Dell PC, an HP PC is a HP PC, etc.  They just happen to use Windows as a common underpinning.

You can go to a Microsoft Store and buy a PC from the major OEMs that are at least somewhat configured as Microsoft would prefer them (which it calls Microsoft Signature).  The  OEM still controls the hardware, drivers, etc. they just can’t install crapware or replace Microsoft’s own software with something a third-party has paid them to install.  The out-of-the-box experience is better than what you get at Best Buy or other retailers (or the OEM’s website), but it still is flawed compared to Apple.  It still has the OEM’s poor keyboard and mouse, or poorly cobbled together trackpad.  It still has their specific hardware configuration choices and drivers.  It still reflects their decisions, which tend to favor reducing costs over nailing the user experience.  The machine I’m writing this on reflects that.  The equivalent Apple product is the iMac, whose low-end processor is a quad-core Intel i5.  The PC I’m using only has a dual-core Intel i3.  Apple could offer a lower priced iMac by using the i3 but they choose to focus on user experience over price.  While this system suits my purpose, many users will purchase it and later discover that it was inadequate for their purpose.  That will not happen with the iMac.

The core problem for OEMs is this: they want to offer a unique OEM-specific experience as a way to differentiate from their competitors and allow them to squeeze a little extra margin out of otherwise undifferentiated systems, but they (a) can’t go outside the identical cost envelope as their competitors and (b) they can’t invest enough to produce an experience that customers will really be attracted to.  Most of the time what you see out of OEMs just seems like a hack.  This isn’t just about PCs.  Wonder why Android Tablets haven’t made a dent in the iPad?  It is the same factors that are causing PCs to lose ground to Apple products.

What Apple has shown is that consumers want systems in which every detail has been carefully thought through.  Where each component of the system, from all the hardware details to how the operating system works to the services behind them are designed to work together.  They want innovation where it really does something for them.  They want some “cool factor”.  They don’t expect perfection, and in fact consider well thought through imperfection an improvement over randomness.

Why has the Amazon Kindle Fire gained some traction?  Price?  No, there have been other $200ish Android tablets and they’ve gone nowhere.  The Fire follows the modern playbook.  Amazon designs the hardware, the software user experience, and the services.  They didn’t just put a thin shell on Android, they hid it below a very Amazon-specific experience.   Are they as good at all this as Apple?  No, just better than all the OEMs.

Which brings us back to Surface.  Microsoft likes its OEM business model, but I think recognizes that it isn’t working too well with consumers.  Surface follows the modern consumer computing device playbook, OEMs don’t.  Microsoft hopes that Surface spurs OEMs to up their game, and at the same time is a backstop against a complete collapse of the OEM business model.  Think that unlikely?  Recall that 9 months ago HP was on a path to dump its PC business, and Dell is running away from consumers and towards business customers.  Five years from now we may very well find that OEMs are focused on business customers and have ceded the consumer computing business to Microsoft, Apple, and a few niche players (like Amazon’s Fire).

And, since many will ask, of the smartphone business?  Well it is on a similar trajectory with perhaps a different timeline.  Apple is being Apple.  Google let Android spin so totally out of its control that it has now purchased Motorola and has positioned itself to be able to offer the end-to-end experiences.  Microsoft has partnered with Nokia in a way that gives it the ability to offer the modern end-to-end experiences without the downsides of acquiring Nokia’s corporate problems.  And nearly all of the profits in the vast Android smartphone market are currently accruing to one player, Samsung.  Which suggests that the Android smartphone market may split into two totally dominant businesses, Google/Motorola and Samsung, each offering their own version of the end-to-end experience that consumers desire.  The rest of the smartphone business is starting to look just like the PC OEM business of a decade ago.  It is becoming a race to the bottom.

With Surface Microsoft isn’t attempting, nor does it desire, to undermine its OEMs.  What it is acknowledging is that the OEMs have been in decline for a decade and that, at least with consumers, that decline might be unrecoverable.

 

 

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23 Responses to Critics of the Microsoft Surface just don’t get it

  1. Tom says:

    None of this is new. I remember reading the same thing about the OEM model back in 2005 — along with exhortations to Microsoft to produce its own PC.

    During Christmas 2007, I remember getting junk mail from Amazon (real junk mail — a dead-trees brochure) on the Microsoft Signature PCs that they were selling. That was 4.5 years ago! Signature is still practically unknown today, outside tech circles. If any consumer buys a Signature PC, it’s by accident. It’s simply unconscionable that every PC isn’t a Signature PC by now.

    The wonder is not that Microsoft is making its own PC — but that it took so long to reach this decision. Indeed, it took an existential crisis to finally force it to happen.

    One other point — if this works, then Sinofsky gets right of first refusal for the CEO job once Ballmer leaves.

    • halberenson says:

      Yes, it has been about a ten year transition. After Y2K was out of the way the industry was faced with a number of problems. The core architecture of PCs became quite mature, Windows finished the transition to NT with the shipment of Windows XP, the PC business was so large that an innovation that only sold a few million units was immaterial and thus differentiation became harder, Intel got into the motherboard business and made the cost of differentiation even greater (because your competitor could now buy the guts of the PC much cheaper than you could create a differentiated one), and the OEMs got into a price war as their primary means of differentiation. Etc. By the time Vista shipped the OEM model had degraded considerably, but because of Microsoft’s own engagement mistakes it was even worse than the natural progression should have been. I asked an OEM’s CTO why their drivers weren’t ready when Vista shipped and he told me that Microsoft had given then so many false dates, and that they expected Microsoft to slip again, so they held off on final driver development until they had a really solid date. And by then it was too late. Another OEM let its entire software staff go and contracted out the work…they too weren’t ready when Vista shipped. And so it was obvious in the mid-00s that the OEM model was failing. Microsoft worked hard to improve things with Windows 7 and made great progress, but it just put the OEMs back on their natural glde path.

      The only thing new is that Microsoft appears to recognize that they can’t fix the model, at least not just by continuing to hand-hold the OEMs.

    • halberenson says:

      Forgot to mention that almost no one, other than the Microsoft Store, has a real reason to sell Signature. The OEM gets paid by Symantec, Google, etc. to put all this custom stuff there. No doubt the OEM shares that revenue with the retail channel. So Signature results in reduced margins for the OEMs and retailers. Not only that, Best Buy sells their own version of Signature in which the Geek Squad goes in and removes a lot of the crapware and gives you a Geek Squad experience. So what incentive do they have for offering Signature? And Microsoft historically didn’t want to piss off its OEMs enough to do something like a massive TV campaign for Signature. So Signature has really become a feature of the Microsoft Store offerings.

  2. Bob - former DECie says:

    Who was the gaming PC manufacturer that Dell bought? Have they completely disappeared?
    The OEM garbage is one of the reasons I buid my own desktops every 5 – 8 years. The only major changes are the CPU Socket and the size of the CPU heatsink. I don’t buy bleeding edge components because their price/performance ratio is out of whack, but I do buy components that will run Visual Studio well for the next several releases. I don’t do PC gaming, so I don’t need to go overboard on the video. I buy AMD CPUs simply because Intel needs the competition. I still find it hard to believe that I don’t need ECC RAM. But since all the non-server PCs come with non-ECC RAM, it must be reliable enough.

    A few years ago I bought my wife an HP laptop because it was reasonably priced at Costco. I spent hours decrapifying it. I’d hate to think what the average consumer goes through trying to make their new computing devices usable.

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  4. Robert says:

    Nice article. I agree with many of your points. Microsoft needed to do something to bring them back into the limelight. The surface products are a start. Microsoft also needed a tablet solution for the enterprise. The proliferation of iPads in the enterprise probably scared them. The iPad is like a Trojan horse for other platforms (i.e. Mac) to displace them in that environment. Also, the OEM manufactures (HP, Dell, etc) have failed to innovate and they seemed to have focused on making the cheapest product possible rather than a quality product. I am still weary of Microsoft’s ability to follow through with the delivery of the surface products. But, I hope they are successful. We should see some interesting changes in the industry over the next couple of years.

    • halberenson says:

      Follow-through will indeed be the big questionmark now as Microsoft’s track record on major new hardware is only fair. But unlike Kin, which was never mainstream and only shipped because they already had contractual commitments in place, or the Zune devices which only had corporate backing as a vehicle for creating the music/video infrastructure, Surface strikes right at the company’s core business. Having stuck their neck out they must now make Surface succeed or heads will roll.

      I’m not sure what their story will really be with Surface and Enterprises. I don’t believe that is a real target initially, though obviously the x86 version seems like a very attractive enterprise device. The problem here is the corporate buying behavior. They are used to having their channel, including direct purchase from OEMs, deliver products to a chosen specification. For example, with a software image that includes their IT-specified items. Will Microsoft get into the business of installing Symantec or McAfee Anti-Malware, Cisco VPN, the Notes client, etc. on devices? Doubtful. Are their channels (e.g., Zones) that will offer Surface to Enterprises? Almost certainly. Will IT bless Surface as a preference in the BYOD world? Definitely. But I don’t think Microsoft will focus on selling Surface directly to Enterprises unless the OEMs fail here too.

  5. trooks says:

    The one thing that everyone seems to forget was the MacIntosh during the 80’s. Apple almost went out of business by selling a proprietary system that was not created by the OEM’s. I see a lot of OEM’s creating smart phones and tablets, including Microsoft. So in the end will Applie lose due to it’s better experience but higher price? I think so!

    • halberenson says:

      That might be getting cause and effect mixed up, or it might just be that we are talking about two completely different eras and customer base dynamics. Microsoft’s OEM approach let a new startup, Compaq, create portable computers. And it let another startup, Dell, create a build-to-order mailorder PC business and then create the modern concept of supply chain in order to drive costs down to the rock bottom. And it let all the Enterprise computing players like IBM, DEC, Fujitsu, etc. offer their own PCs to their customer bases. And it let all kinds of new channels and services develop around it. And that encouraged developers to target DOS and then Windows sytems. And retail stores to give most of their shelf space to DOS and Windows systems and apps. And Apple got none of these benefits, all it had was a great product. But where is equivalent innovation today? It’s not coming out of the OEM model.

      I think the cost equation it totally different today as well. Dell didn’t start out manufacturing anything, it assembled the computers from existing components. That was the cost advantage of the OEM ecosystem and particularly the hardware design that IBM originally came up with. Everyone shared in the efficiencies of scale. That advantage disspated with the move to notebooks and the corresponding reduction in ability share components above the chip level. It gets worse with Tablets. Dell, HP, Acer, etc. do not benefit from the volumes generated by their mutual efforts to any extent greater than Apple. And Apple now has more bargaining power with suppliers than any of them. If efficiencies of scale grow because every tablet maker uses Gorilla Glass then the company that will benefit most from those efficiencies is Apple! Bottom line: There are only two ways to beat Apple on cost: (a) target a niche that Apple doesn’t or (b) build schlock. All those inexpensive tablets running around fall into one, or both, of these categories. So far that hasn’t hurt Apple at all.

  6. I agree with your analysis, but I want to recenter the whole discussion around what “consumers” want. In your articles, a “consumer” is a fairly wealthy & trendy person. And surely, Apple must be appealing to a lot of them. Assuming that they represent the top 10%-20% of all computer users, that market is big enough (esp its margins) to make Apple who they are.

    However, the remaining 90%-80% consumers around the world either do not have the money or the interest to look at Apple-level devices. They will buy whatever is cheap enough, powerful enough, familiar enough to get the job done. And that’s the market the OEMs are after.

    Still, I cannot understand why, after all of Apple’s successes, there isn’t one OEM which has decided to imitate Apple and go exclusively after the same top 10%-20% market. I guess that’s where Microsoft Surface comes in (on top of all the other reasons).

    • halberenson says:

      Sony does try to emulate Apple’s model, on the hardware front, and they’ve had mixed results. The problem for all OEMs on the software front is threefold. One, they want to ride Windows’ coattails and so they can neither dump it nor modify it so much the consumer doesn’t see it as Windows. Two, their business models don’t support the large R&D spend necessary to do a good job at creating software. Three, creating those end-to-end experiences just isn’t in their DNA. Apple is Apple because of Steve Jobs. We’ll see if he spread his DNA sufficiently so that it lives on without him for many years, or if they eventually fall victim to the same dynamics as HP, Dell, etc.

      • pierrehenrik says:

        Sony comes close, but they produce too many computer designs, they do not focus on the best build quality possible, their marketing team fails to create hype and most importantly, they are in too many markets to send a clear message.

        What I would want is a company doing with Windows what Nokia is doing with Windows Phone.

  7. JBradley says:

    I think everyone is forgetting that Microsoft was taken to the woodshed by the justice department for forcing their browser, their settings, etc. The very thing the consumer wants now was considered monopolistic behavior 15 years ago.

  8. CUP says:

    “Microsoft makes great keyboards”

    You can’t possibly be a touch-typist if you said that. Their natural keyboard was designed by a designer: not a typist. A typist uses the right index finger to type B. Where is the B on the natural keyboard – on the left!!! It is only great for two finger typists.

    They make 5 button mice too – hardly anyone I know uses the 2 extra buttons. In fact, they’re a nuisance – whenever you accidentally knock the mouse against the side of the keyboard, it goes backwards by one screen.

    • halberenson says:

      They make quite a few designs, not all of which appeal to all audiences. I know many touch typists who loved the natural keyboard, once they got used to it. And I don’t think it was designed by designers so much as by human factors experts. Who probably weren’t touch typists either :-)

    • TouchTypist says:

      *Where is the B on the natural keyboard – on the left!!! It is only great for two finger typists.”
      You’re doing it wrong.
      http://en.wikipedia.org/wiki/Touch_typing

      • Kevin Frei says:

        6 is the problem, not B (your touch typing teacher/program/whatever was very bad :-) ). I’ve complained since the first one came out about it, and they still haven’t addressed it (just put it on both sides – heck, do it with B, also!)

  9. Gavin says:

    Well said Hal. This is spot on

  10. mjw149 says:

    You have the same insider mentality that is killing Microsoft.

    The minor problems with Wintel are problems with hardware (there have been many fine PCs over the years, I’m using one it’s called a Thinkpad), the major ones are Windows itself:
    1. No simple management of applications.
    2. Windows brand is complete garbage after more than a decade of cheap PCs (which MS encouraged for more license revenue) and never modernizing the OS.

    Lest you label me a troll, let me point you to the WinRT/Metro/nooneknowswhattocallit GUI in Windows 8. It finally has a usable app management model, something OSX had more than 10 years ago. It is also completely different from the user pov, because Windows needed modernizing, and Windows 7 doesn’t count (notifications? widgets? cloud connectivity? task management?). MS is acting as if I’m right (though the dual mode strategy is probably doomed).

    Cheap hardware is MS’ fault. MS has something called system requirements for Windows. If they want OEMs to ship better hardware, they could have specified it. But that would involve expense, fewer PCs sold by OEMs and less licenses for Microsoft. Every OEM laptop has a windows key on it, you think MS couldn’t specify usable trackpad specs or list of vendors with acceptable usability? What were MS executives doing all these years? Using Macbooks?

    They’re the ones that killed Windows brand. And Office, but to be fair, you can’t ship hundreds of millions of something and still have excellent brand equity.

    You’re just spreading MS’s absurd victimhood story. They’re the ones with extra billions, but they didn’t raise a finger to improve laptops. It was Intel that funded ultrabooks, even though they make hardware for Apple, why is that I wonder?

    Now MS is just another OEM. Once you slap the Windows logo on something, you have to sell cheap stuff or you have no audience, look at ASP for Wintel vs. Macs. MS and their RRoD is hardly going to waltz in and beat Apple like a drum. Apple earned their way to the ipad with years of effort in design, manufacturing, materials and software integration. MS hasn’t shown any patience for that, and Surface is just another data point that proves it. A half-baked idea that shows they don’t understand their brand or their product deeply.

    • halberenson says:

      You may recall that Microsoft attempted to raise the hardware standards for Vista and that Intel and OEMs resisted so strongly that Microsoft was forced to allow them to sell approved PCs with specs (“Vista Capable”) lower than Vista was really designed for. This was a major contributor to the rejection of Vista, as well as leading to a lawsuit. Basically Microsoft’s influence over PC manufacturers is far more limited than most people believe, and previous Microsoft “arrogance” that it could dictate anything to those OEMs has come back to haunt them. Their hands were even further tied by the various anti-trust actions against them and a decade in which arm-twisting would simply have brought more anti-trust scruitiny.

      As for what Intel did around Ultrabooks I would look at two data points. First, the Mac marketshare is under 7% while Windows is 92%. Intel’s move could be contributed as totally neutral vis a vi that marketshare split. What they care about is giving existing (and committed to) Windows customers a reason to replace that old notebook. Moreover, they want to make sure that when they do so they don’t replace it with an ARM-based tablet. Second, the Ultrabook is intended to make the Intel silicon content of the device be much higher than in the typical notebook or in Apple’s notebooks. It isn’t just about which processor you use, there is silicon for graphics, silicon for communications, and silicon for other functions.

      Microsoft is indeed responsible for many of its own problems, but OEMs share the blame. Particularly in terms of how one competes with Apple.

  11. Eljay says:

    Regarding OEM keyboard and mice, to be fair… Apple has not made a good keyboard since the Mac II came out (the Macintosh Extended Keyboard, using Alps mechanism), and has never made a good mouse. Fortunately, there are some companies that make great mice that work well on the Mac — Logitech, and Microsoft for example. And good keyboards — Logitech, Microsoft, Matias, and Unicomp for example.

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