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.