Microsoft “can’t win for losing”

When it comes to the consumer, Microsoft’s history can best be described as “I got it. I got it. I got it. <THUMP> I ain’t got it.”.  Today is the 4th anniversary of my Xbox: Fail blog post, and this week Microsoft put the final nail in the coffin of Kinect.  So it really is an appropriate point to talk about Microsoft and the consumer.  Microsoft is not a consumer-focused company, and never will be despite many attempts over the decades.  Recognition of this reality, and an end to tilting at windmills, is one of the things that Satya Nadella seems to have brought to the table.

First let’s get something out of the way, we need to refine what we mean by the label “consumer”.  It isn’t simply the opposite of business/organizational users.  Microsoft has always done just fine in providing individuals with personal productivity and content creation tools.  The Windows-based PC remains at the center of any complex activity.  Sure I book some flights on my iPhone or iPad.  But when I start putting together a complex multi-leg trip the PC becomes my main tool.  Office has done well with consumers, and continues to do so in spite of popular free tools from Google.  And over the last few years Microsoft has gained traction with the artistic/design crowd that had always gravitated towards the Mac.  So when we talk about the consumer we really are talking experiences  that are left of center on the content consumption to content creation spectrum.  Microsoft will always be a strong player on the right of center content creation scale, be it for individuals, families, or organizations.  But, other than console gaming, they aren’t going to be a significant player on the left of center experiences.  And Microsoft fans are going to go crazy over that.

The end of life for Kinect is the perfect illustration of Microsoft’s inability to be a consumer player.  The Xbox One with (then mandatory) Kinect was introduced a year before the Amazon Fire TV and a year and half before the Amazon Echo.  It was originally tasked with becoming the center of home entertainment, and offered a voice interface.  Go read my Xbox: Fail piece for how it wasn’t ready to live up to that design center.  It’s pretty typical Microsoft V1 stuff.  Unfortunately the Xbox One was also V1 from a console gaming perspective, so Microsoft focused on making it more competitive in that niche and abandoned pushing forward on the home entertainment side.  Imagine that, Microsoft had a beachhead of 10s of millions of voice-enabled devices in place before Amazon even hinted at the Echo, and failed to capitalize on it.  You can repeat that story many times over the last 25 years.

It isn’t that Xbox One was the perfect device for the coming voice assistant, or streaming TV, revolutions.  The need to be a great gaming console gave it much too high a price point for non-gamers.  But Microsoft could have continued to evolve both the experience and produced lower priced, non-gaming focused, hardware.  Contrast what Microsoft did with what Amazon did around the Echo.  When the Echo was introduced it was considered a curiosity, a niche voice-operated speaker for playing music.  When Amazon started to gain traction with the Echo and Alexa, they went all in, and as a result have a strong lead in today’s hottest segment of the consumer technology space.  It reminded me a lot of Microsoft’s pivot to the Internet back in 1995.  But in the Xbox One case, Microsoft had the vision (at least in general direction), but failed to capitalize on it.  Failed to even make a serious attempt.  Now, at best, it could fight it out for a distant 4th or 5th place in voice assistants and home entertainment.  This consumer stuff just isn’t in Microsoft’s DNA.

The death of the Groove Music Service is another example, and maybe more telling on why Microsoft hasn’t been able to crack the code on the consumer.  Groove is just the latest name for Zune’s music service.  When MP3 players became popular Microsoft jumped on the bandwagon based on its DNA, it relied on 3rd parties that it supplied with technology (e.g., DRM).  When that didn’t even turn out to be a speedbump on the iPod’s adoption, it finally introduced the Zune as a first party device.  To have as good an experience as an iPod, the Zune needed an iTunes equivalent and what we now know as the Groove Music Service was born.  Despite the jokes that failure often leads to, the Zune was a quite nice device. But since it couldn’t play the music you’d acquired with iTunes there really was no iPod to Zune migration path.  By the time Zune came on the market the game was already over.  As Zune died other consumer-focused device efforts came to the fore (Kin, Windows Phone 7, Xbox One) and the music service lived on.  But since the devices never gained traction neither did the music service.  And for Microsoft the music service was never a player on its own, it was just a necessary evil to support its consumer device experience.  And with that mindset, the failure to gain traction with consumer devices meant Groove was superfluous.  Sure Groove could have owned the segments that Spotify and Pandora now dominate, but that was never what Microsoft was going for.  And now, it is too late.

Being a content creator or distributor is not in Microsoft’s DNA.  It has an immune system that rejects it time and time again.  Microsoft made a big play on consumer titles in the early to mid 90s, remember Microsoft Dogs and Encarta?  Offerings like these are very manpower intensive because they need a lot of content production, editing, frequent updating, sell for very little, are expensive to localize, and often don’t even make sense globally.  So Microsoft concluded they didn’t fit well with its business model and backed away from all but a few major titles such as Encarta.  While Encarta was great for its time, the Internet left it competing with Wikipedia.  That destroyed what little economic value Encarta had.  Other content-oriented efforts, such as Slate, were disposed of to save costs when the Internet Bubble burst.  The MSNBC joint venture was allowed to dissolve when its contract came up for renewal.  And so on.

I could even say that great end user experiences are not in Microsoft’s DNA, though that one is more debatable.  Usually it is thought of as being consistently second to Apple.  So rather than saying they aren’t in Microsoft’s DNA, I’d say that Microsoft user experiences are almost always compromised by more dominant aspects of its DNA.  And that keeps it from being a great consumer experience company.

What is Microsoft good at?  Creating platforms that others build on.  Doing work that is technically hard, and takes a lot of engineering effort, that it can sell over and over again.  High fixed cost, very low variable cost, very high volume, globally scalable has been its business model all along.  Consumer businesses usually have moderate to high variable costs, so there is problem number one.  Only the top two players in a segment usually can achieve very high volume, so unless Microsoft achieves leadership early in a segment it never can get high enough volume to have a successful business model.  A head-on charge against the established leaders rarely works, and when it does it is a financial bloodbath.  So you may not need to be the first in market, but you need to be in early enough for the main land grab (or wait for the next paradigm shift to try again).  And global scaling of consumer offerings is way more difficult than for platforms or business-focused offerings.

Microsoft seems to have resolved to focus on its DNA.  It will be supportive, even encouraging, of third parties who want to use its platforms to offer consumer services but avoid going after the consumer directly.  So you get a Cortana-enabled smart speaker from Harmon-Kardon, a high-end Cortana-enabled thermostat from Johnson Controls, a set of smart fixtures from Kohler that use Amazon’s Alexa for voice control but Microsoft Azure for the rest of their backend, and an agreement with Amazon for Cortana/Alexa integration.

Will Microsoft introduce consumer devices or services in the future?  Possibly, but they will suffer the same fate as its earlier attempts.  And I’m not throwing good money after bad (and I did throw a lot at every consumer thing Microsoft ever did).  I recognize that these attempts are at best trial balloons, and at worst ill-advised ventures by those intoxicated at the potential size of market.  Microsoft is an arms supplier.  It should supply arms to companies going after the consumer, but avoid future attempts to fight consumer product wars itself.




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11 Responses to Microsoft “can’t win for losing”

  1. Mario Santu says:

    Bravo (*also; sad face*), I’m with you on everything you just said and I’d also throw in that Microsoft is also risking major linchpin products like Cortana by not putting greater efforts into improving their basic capabilities.

    As a user who owns both an Echo, as well as several Cortana end points in my home, I’m floored by how utterly irrelevant Cortana’s accuracy is next to Amazon’s voice assistant and I’m only talking about the base featureset, not even including all the “skill” related features that expand functionality. Cortana hardly ever understands me on even the most basic of commands while Alexa understands me consistently upwards of 95% of the time. Alexa easily understands my natural language queries on a level that I could only hope for Cortana and their products haven’t even been around for as long. I don’t know if Cortana in the commercial space is a better product, but at the consumer level it just isn’t worth using anymore. The fact that Amazon has added Video smarts to its evolving product line means we could be seeing the next generation of Kinect; just as Microsoft completely concedes to that wide open market.

    • halberenson says:

      I can’t be sure about Cortana more broadly in the business space given articles this week about backing off on Cortana support in Dynamics. I can say I wouldn’t use it on my Amazon-work PC because (a) we didn’t use Office 365 (we had on-premises Exchange) and (b) I wasn’t going to use my personal Microsoft Account. Moreover, I couldn’t risk confidential information being sent to Microsoft (absent a corporate IT decision that it was ok to store such information on Microsoft servers). That links Cortana adoption in business to Office 365 adoption in business.

  2. I still can’t help but think that this left brained company could have hired some right brained (DNA) talent to fill this huge void of enthusiasts that don’t want Apple, have no love for Google, and tend to like Amazon.

    I had thought that the persistence lessons of Bing, and Xbox, would have extended to the Consumer tries. Ironic because most of the consumers are Windows users, the opportunity still sits right in front of them.

    It was really fun while it lasted. I will miss the Microsoft that taught me persistence in the face of failure. I tend to attach those principles to Gates and Ballmer. Latching onto what works and discarding what doesn’t, seems to be the big corporate mentality. What do I know, I’m just a fan. Oh well, onto the next big rivalry. I’m still rooting for them though. If you stop rooting for your favorite team, you were never a fan to begin with.

    • halberenson says:

      Microsoft did hire those people, but in the end you only flush so much money down the drain before you give up. And you do have shareholders to answer to, or ignore at your own peril (as Steve did).

  3. Bob - Former Decie says:

    Hal, as much as I hate to say it, I believe you are correct. I’m not a gamer, so I’ve never had an X-box anything or any other gaming console. I never understood streaming music when I can buy a CD and rip it to any media in almost any format I want. I have my entire music library on a tiny USB drive in my vehicle, on my iPhone via iTunes on my PC, and of course on my PC. There are 3 no longer used variants of Windows Phones scattered around the house in boxes or drawers, so there are zero Microsoft consumer devices in use in our household and I can’t imagine there ever being any more.

  4. I agree with so much in this article EXCEPT it leaves out the phenomenon of the Surface line. How does that play in the context of what you wrote? Couldn’t the Surface line now serve as the launch point for every new device they want to do? A Surface Phone? The Surface Music player? The Surface Watch, etc? Seriously, as a die hard Windows Phone fan and a lover of Cortana, I am sickened by how quickly Microsoft concedes defeat. I disagree with comments above, I think Cortana is amazing. And I think Windows Phone is the best mobile O/S. But Microsoft simply does not know how to market its wares. At the same time that I am using and marveling over my Windows Phone, people I know had no idea it was even still a thing.

    • halberenson says:

      The Surface line is solidly to the left on the scale, they are heavily targeted towards content creation. They are not consumer devices. A Surface Phone, if one were to be offered, would target professionals not consumers. What would a Surface Watch be? As for “how quickly” Microsoft concedes defeat, that certainly is true of the Band. But phones? They put at least 20 years and 10s of billions of dollars into it. Almost no other company on the planet would, or could, have done that and survived.

      • Then I think it comes down to marketing. Microsoft simply does not know how to do ads. I remember when Windows 10 first came out and they had that disgusting ad with the insects. I even wrote to Microsoft and said “first of all the ad is so disgusting that people don’t even know what it’s trying to sell anymore, but also, how do you not get the negative association of “bugs” and “Windows””. Whoever is responsible for advertising Microsoft is an abomination.

        Also, I noticed another phenomenon when it comes to Microsoft, and I don’t know how much can be blamed on the company. They never seem to get themselves into the cultural lexicon. I was watching Colbert the other night, as I always do, and he made a joke about talking to Alexa. And I’m thinking, isn’t that something? Cortana’s been around far longer, is more pervasive, but people seem to go to lengths to avoid talking about it. If a comedian talks about a music player, they say “iPod”, or Big Bang Theory jokes around with Siri on an iPhone. It just seems the culture in this country bends over backwards to pretend Microsoft doesn’t even exist. And I think that hurts Microsoft, because not only are they not marketing themselves, they can’t count on the culture marketing for them like Apple, Google and Amazon have. Honestly, it seems Microsoft is being chased into a hole of just being the invisible platform that all the visible stuff gets built upon.

        I hope I made sense.

  5. ThisIs TheList says:

    I don’t know. I’ve been reading treatises on Microsoft for decades, and so many have stated so many opinions on why Microsoft succeeds with one thing and fails with something else. I doubt there is really a way to tie a bow around it and project that into future decades with confidence. Windows Phone is a damn good operating system, and it would’ve allowed a seemless interface between a mobile phone experience and a home experience through Continuum. The idea of taking your phone home and plugging a keyboard and monitor into it is incredible and forward-thinking. However, Steve Jobs was incredibly insightful (along with being charismatic) and did the touchscreen cellphone thing first, which means you grab hearts and minds and you become the defacto standard, and, importantly, with incredible quality, and he guessed right with the phone that people would pay for that quality — pay big time. The point about XBox One though, the idea that making it a good gaming system meant it was at a price point where it was too costly to win as a home entertainment center — I just finished reading an article that made an exactly opposite point — that Microsoft’s ‘foolish’ attempt to make their gaming system also be a home entertainment center put it at a pricepoint that lost hearts and minds in the gaming world, hence it didn’t win in sales against the PS4. Maybe the whole thing is a bit simpler and it’s an amalgam of both arguments: Microsoft tried for something new and it didn’t catch on — other things did better comparatively. End of story. There were plenty of doubters about Surface, trying to create a new device space — but that one *did* succeed. There will be hundreds of such battles going forward. Microsoft will win some of those. They’ll lose others. The same can be said of Apple, Google, et al.

    • halberenson says:

      Anything can happen over decades. If Microsoft really wanted to get into the consumer space they’d buy a consumer electronics company and let it run as a truly separate division or subsidiary. At least for the first decade or so. Maybe along the lines of what they seem to be doing with LinkedIn. But it would have to be someone successful, not someone on death’s door (like they did with Nokia). And that is going to be terribly expensive given today’s valuations.

      Now Xbox is a good counter-example to my overall point, but it is the only one. Surface is not a consumer device by any definition other than that individuals sometimes buy them. It FAILED as a consumption-oriented tablet, but has succeeded as a family of content-creation oriented devices. You don’t buy one to watch movies or listen to music (though you may do those as secondary activities, as with any PC). You buy one to create Word documents and Excel spreadsheets, to draw things, to develop software, etc.

      I agree with the point that trying to make Xbox One both a gaming console and home entertainment device was a mistake and did point out that the result was a poor gaming experience as well. On the cost side though much of the cost issue was the mandatory Kinect, which was put there for gaming not for home entertainment. It turned out Kinect as an Xbox 360 add-on was a fad, not a fundamental shift in console game usage. That might be because Microsoft failed to significantly advance the Kinect experience. We saw great demos of the VR/AR possibilities out of MSR, but a $100 price difference when those experiences weren’t actually available was a huge disadvantage against PS4. So I view home entertainment having caused a lack of focus on gaming more than a cost impact. In Microsoft’s defense, when Xbox 360 usage was measured people spent more hours using it to stream media than to actually play games. So exploiting that in Xbox One seemed to make sense. But they really should have done two separate devices. That they didn’t is supportive of my point that they don’t have consumer DNA. And recall this wasn’t their first attempt. They were one of the early DVR vendors and dropped it. They did Windows Media Center, then dropped it to focus on Xbox as the center of home entertainment. I’m not sure I’d put WebTV in this category, but it could have subsumed this space as well. There were other attempts as well. So they keep trying, but they don’t succeed. And if you as a consumer invest in their solutions you need to do it knowing it is likely a dead end.

  6. Brian says:

    You forgot UltimateTV as an example. It was a DirecTV-only DVR that debuted at the tail end of standard definition TV. There were two in our house (I had a blue badge and an limitless supply of 4-color Kool-Aid). I played with a bunch of DVRs in those days, and the UTV was one of the most responsive, and it had the most intuitive UI of any of them.
    But, it was doomed for three reasons:
    1) Like most Microsoft niche products, it was barely a rounding error on the rounding errors of Microsoft’s financials
    2) It was tied at the hip to DirecTV who, it seems, was trying to get control of it’s DVR users
    3) It was SD-only as the world was about to move to HD. A next-gen version would have to have spent the money to support HD
    If I remember correctly, the team was merged into Media Center, never to be seen again.

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